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
Exchange Act of 1934
For the fiscal year ended: December 31, 2000
-----------------
or
____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____to _____
Commission file number: 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its Charter)
Delaware 13-3487784
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, New York 10004
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 742-2277
--------------
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 March 29, 2001, 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 $3.5 million.
As of March 29 , 2001, 8,972,886 shares of the Common Stock of the
Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders 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, 2000, are incorporated by reference
into Part III hereof.
Important Notice Concerning "Forward-looking Statements" in this Report
Please read the notice set forth in Item 7 of Part II of this Report,
which notice is incorporated in this Item by reference.
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 serve people interested in investing and serve the advertisers
and business partners who want to reach that audience. The Company's properties
include: Individual Investor magazine, individualinvestor.com, SHORTInterest.com
(launched February 2001) and Individual Investor's Special Situations Report
newsletter. For a portion of fiscal year 2000, the Company also published Ticker
magazine and InsiderTrader.com, both of which were sold in September 2000. The
Company believes that the two forms of distribution of financial information -
electronic and print - are complementary and provide a competitive advantage.
In addition to its media properties, the Company has developed three
proprietary stock indexes: (1) the America's Fastest Growing Companies(TM) Index
(formerly known as the INDI SmallCap 500(TM) index), a 500-stock index designed
to identify companies emerging from the small-cap sector in a cycle of growth in
earnings per share, (2) the America's Fastest Growing Companies(TM) MidCap 300
Index, a 300-stock index designed to identify mid-cap companies in a cycle of
growth of earnings per share and (3) the America's Fastest Growing Companies(TM)
LargeCap 50 Index, a 50-stock index designed to identify large-cap companies in
a cycle of growth of earnings per share. The original America's Fastest Growing
Companies(TM) Index was launched in February 1998 and the America's Fastest
Growing Companies(TM) MidCap 300 Index and America's Fastest Growing
Companies(TM) LargeCap 50 Index each were launched in March 2001. In October
2000, the Company signed licensing agreements with Nuveen Investments and the
American Stock Exchange for the creation of an exchange-traded fund based upon
the original America's Fastest Growing Companies(TM) Index that, upon receipt of
necessary regulatory approval, would trade on the American Stock Exchange
(similar to the SPDR exchange-traded fund based upon the Standard & Poor's 500
index and the QQQ exchange-traded fund based upon the Nasdaq 100 index). There
can be no assurance, however, that Nuveen will obtain the necessary regulatory
approval or that the exchange-traded fund based upon the America's Fastest
Growing Companies(TM) Index will commence trading. There also can be no
assurance that, if it does commence trading, the exchange-traded fund based upon
the America's Fastest Growing Companies(TM) Index will prove to be popular or
that the Company will receive any material amount of revenues with respect to
the licenses described in this paragraph. The Company intends to seek to execute
license agreements for the creation of financial products based upon the
America's Fastest Growing Companies(TM) MidCap 300 Index and the America's
Fastest Growing Companies(TM) LargeCap 50 Index, but there can be no assurance
that the Company will be successful in its endeavors to do so. The Company also
will explore development of additional stock indexes, such as sector indexes,
under the America's Fastest Growing Companies(TM) brand. The Company expects
that any such new indexes also would have a primary focus on growth in earnings
per share. There can be no assurance, however, that the Company in fact will
develop any stock indexes beyond the existing three indexes of the America's
Fastest Growing Companies(TM) family described above.
The Company provides research and analysis of investment information
through two business segments: Print Publications and Online Services. The
relative contribution of the two business segments to the Company's operating
revenues and operating profit for the three years ended December 31, 2000, and
the identifiable assets of each segment at the end of each year, are included in
Note 13 to the Company's consolidated financial statements, which Note is hereby
incorporated by reference.
PRINT PUBLICATIONS
Print Publications revenues from advertising, list rental, circulation
and other sources for the year ended December 31, 2000, totaled approximately
$16.6 million, or approximately 84% of the Company's total revenues from
continuing operations, an increase of approximately 8% from approximately $15.4
million, or approximately 87% of the Company's total revenues from continuing
operations, in 1999.
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 education
(including the magazine's Investor University(R) section) to help with
investment decisions.
Individual Investor is printed on a matte, finished paper stock and has
a basic annual subscription rate of approximately $22.95 ($3.50 newsstand price
in 2001 vs. a $2.99 newsstand price in 2000). Individual Investor had a total
paid subscriber and newsstand circulation of approximately 500,000 in March
2001, unchanged from March 2000. The Company has intentionally stabilized its
circulation and rate base in order to focus on increasing the profitability of
each subscriber (and has increased earned subscription revenues per copy for the
past two years).
Ticker Magazine
The Company also published Ticker magazine (prior to its sale in
September 2000), 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. In September 2000, the Company sold
the assets related to Ticker magazine for cash consideration of $6 million, less
an adjustment for certain current assets and liabilities, and the assumption of
certain liabilities.
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 2001,
SSR had approximately 2,000 paid subscribers, as compared to approximately 2,000
in March 2000. The number of subscribers is expected to increase slightly during
2001 due to anticipated increased internet subscription efforts.
Advertising
Print Publications advertising revenues for 2000 were approximately
$11.6 million, up approximately 10% from approximately $10.5 million in 1999.
Print Publications advertising revenues derived from Individual Investor
magazine of approximately $8.3 million accounted for approximately 42% of the
Company's total revenues from continuing operations for the year ended December
31, 2000, as compared to approximately $7.5 million, or 43% of the Company's
total revenues from continuing operations for the year ended December 31, 1999.
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 typically are financially
sophisticated individuals with substantial net worth, several years of investing
experience, and significant investment portfolios. Moreover, Individual Investor
has a higher concentration than other personal finance magazines of subscribers
describing themselves as CEO/COO/President or as Self-employed - categories
attractive to advertisers because of the ability to influence corporate
purchasing decisions. The Company believes that those demographics are a
valuable tool in marketing advertising space in Individual Investor.
The Company's goal is to increase advertising revenues by continuing to
target national consumer and financial advertisers in such industries as
automobiles, technology products, insurance, mutual funds, brokerage companies
and luxury goods. Since the beginning of 2000, Individual Investor magazine has
been included, for the first time, in a number of important standardized media
research studies that are used by major advertisers. During 2000, Individual
Investor magazine was reported for the first time in two major national
syndicated studies: the JD Power Car Media Report and the Mendelsohn Affluent
Survey. In 2001, Individual Investor magazine was reported for the first time in
another major national syndicated study, the JD Power Truck Media Report (which
includes data relevant to marketers of sports utility vehicles). The Company
anticipates being reported for the first time in another major national
syndicated study, the Mediamark Research Inc. Research Study, in the Spring 2001
edition. Additionally, in the fourth quarter of 2000, the Company hired a
Consumer Advertising Director for the first time and launched, in the April 2001
issue of Individual Investor, a new lifestyle section entitled "ROI - Rewards of
Investing," to target consumer advertisers. These events are expected to have a
positive effect on the Company's efforts to sell additional advertising pages,
although there can be no assurance that such efforts will be successful.
Circulation and Marketing
Print Publications circulation revenues in the year ended December 31,
2000 were approximately $3.6 million, an increase of approximately 5% from
approximately $3.4 million in 1999. Print Publications circulation revenues,
which are derived from Individual Investor magazine and SSR, accounted for
approximately 18% of the Company's total revenues from continuing operations for
the year ended December 31, 2000, as compared to approximately 19% of the
Company's total revenues from continuing operations for the year ended December
31, 1999. The Company obtains new subscriptions for Individual Investor through
leading subscription agencies, direct-mail marketing promotions, insert cards in
the magazine and over the Internet.
Single copy, or newsstand, revenues for 2000 were approximately $0.8
million, a decrease of approximately 9% from approximately $0.9 million in 1999.
Individual Investor is distributed for sale on newsstands throughout the United
States by independent parties, the largest of which is Comag Marketing Group, a
venture between The Hearst Corporation and Conde Nast.
Ticker was a controlled-circulation magazine distributed to investment
advisors, brokers and planners. Names of recipients of Ticker were obtained from
lists acquired by the Company; the recipients were required to respond that they
wished 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
and Internet 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 were approximately $1.2 million
in 2000 and 1999. List rental revenues accounted for approximately 6% of the
Company's total revenues from continuing operations for the year ended December
31, 2000, as compared to approximately 8% of the Company's total revenues from
continuing operations for the year ended December 31, 1999. 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
Larger companies that publish multiple titles, such as AOL Time Warner,
publish many of the print publications with which the Company competes. 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, SmartMoney, Kiplingers Personal Finance and
Worth. In addition, the print publications compete against publications with a
broader editorial focus, including The Wall Street Journal, Barron's, Investors
Business Daily, Business Week, Forbes and Fortune.
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 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.
ONLINE SERVICES
Online Services revenues from advertising, subscriptions and other
sources for the year ended December 31, 2000 totaled approximately $3.2 million,
or 16% of the Company's total revenues from continuing operations, an increase
of 38% from approximately $ 2.3 million, or approximately 13% of the Company's
total revenues from continuing operations in 1999.
individualinvestor.com (www.individualinvestor.com)
The Company launched its flagship Website, individualinvestor.com, in
1997. 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, individualinvestor.com uses its own research analysts to make stock
recommendations. The site allows for interaction between users and the Company's
approximately 24 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, 2001, individualinvestor.com had approximately 230,000 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),
approximately 91,000 of whom receive the Company's daily emails (more than 7
million of which are delivered per quarter).
Through content sharing and syndication, the Company seeks to increase
its brand awareness, create links to its web sites, and in some instances,
obtain licensing fees or benefit from revenue sharing agreements. These
content-sharing arrangements are accomplished at little or no cost to the
Company by using existing content (e.g., "Stock of the Day," and "Magic 25
Update") from individualinvestor.com.
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 provided proprietary research based
on the data. In addition to free content, the site charged an annual
subscription fee of $50 to access value-added insider data and the site's
proprietary research. Additionally, the Company offered a premium service at an
additional fee of $18 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) for an annual fee of $2,000 or
a monthly fee of $249.
On September 15, 2000, the Company sold certain assets related to the
business of InsiderTrader.com for cash consideration of approximately $500,000
and the assumption of certain liabilities.
New Internet Web Sites
The Company in February 2001, launched a new website,
SHORTInterest.com, which distributes 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 also presents value-added screens, tables
and proprietary analysis to assist investors in determining which stocks to
avoid or sell short. The Company intends in 2001 to launch an additional web
site, AFGC.com, which will be devoted to the America's Fastest Growing
Companies(TM) family of indexes.
Advertising
The Company sells advertising on its online properties (its web sites
and daily emails) through a combination of its in-house sales personnel and
third-party agents. 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 have experienced industry-wide declines during the calendar year 2000. The
industry may continue to experience such declines going forward. Additionally,
the amount of internet advertising in general has decreased substantially during
the last quarter of 2000 and the first quarter of 2001 and it is possible that
such declines may continue in the future. The Company believes that its web
sites attract people with desirable demographics and that the ability to sell a
cross-media packages (print and online) may give the Company a competitive
advantage with respect to obtaining online advertising as compared to companies
that only have online impressions to sell.
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, and Yahoo! Finance, MSN
Money Central, Motley Fool, and CBS MarketWatch.com, as well as those sponsored
by publishers of certain print magazines, including Money.com and
SmartMoney.com. 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 research and analysis and other editorial content,
together with the other site features (e.g., news, quotes, message boards and
portfolio tools) in an appealing and easy-to-use format.
EDUCATIONAL SERVICES
The Company conducted its first paid seminar focused on investment
education in January 2000 and its second seminar in March 2001. In addition to
seminar fees collected from attendees, the Company received additional revenues
from sponsors.
AMERICA'S FASTEST GROWING COMPANIES(TM) FAMILY OF INDEXES
In addition to its media properties, the Company has developed three
proprietary stock indexes: (1) the America's Fastest Growing Companies(TM) Index
(formerly known as the INDI SmallCap 500(TM) index), a 500-stock designed to
identify companies emerging from the small-cap sector in a cycle of growth in
earnings per share, (2) the America's Fastest Growing Companies(TM) MidCap 300
Index, a 300-stock index designed to identify mid-cap companies in a cycle of
growth in earnings per share and (3) the America's Fastest Growing Companies(TM)
LargeCap 50 Index, a 50-stock index designed to identify large-cap companies in
a cycle of growth in earnings per share. The original America's Fastest Growing
Companies(TM) Index was launched in February 1998 and the America's Fastest
Growing Companies(TM) MidCap 300 Index and America's Fastest Growing
Companies(TM) LargeCap 50 Index each were launched in March 2001.
In October 2000, the Company signed licensing agreements with Nuveen
Investments and the American Stock Exchange for the creation of an
exchange-traded fund based upon the original America's Fastest Growing
Companies(TM) Index that, upon receipt of necessary regulatory approval, would
trade on the American Stock Exchange (similar to the SPDR exchange-traded fund
based upon the Standard & Poor's 500 index and the QQQ exchange-traded fund
based upon the Nasdaq 100 index). With its structural focus on identifying small
companies experiencing rapid growth in earnings per share, and a "keep the
winners" approach that allows successful companies to remain in the index as
their market capitalizations grow beyond $2 billion, the America's Fastest
Growing Companies(TM) Index is designed to select and retain tomorrow's titans
and other successful enterprises. With a low median market capitalization, the
America's Fastest Growing Companies(TM) Index thus may prove attractive to
investors seeking exposure to the small-cap sector (which historically has
outperformed the broader market) as well as investors seeking high growth in
earnings per share regardless of market capitalizaton tier.
Upon receipt of necessary regulatory approval and commencement of
trading of the Nuveen-sponsored exchange-traded fund based on the America's
Fastest Growing Companies(TM) Index, the Company would receive quarterly royalty
payments from Nuveen and from the American Stock Exchange (and potentially from
other licensors, for example, related to futures or options products on the
index or the fund based upon the index). These revenue streams would be almost
100% gross margin, as the Company will incur essentially no costs associated
with maintaining the index (the immaterial costs associated with maintaining the
index are costs that the Company would in any event incur in connection with
publishing the index in its media properties). There can be no assurance,
however, that Nuveen will obtain the necessary regulatory approval or that the
exchange-traded fund based upon the America's Fastest Growing Companies(TM)
Index will commence trading. There also can be no assurance that, if it does
commence trading, the exchange-traded fund based upon the America's Fastest
Growing Companies(TM) Index will prove to be popular or that the Company will
receive any material amount of revenues with respect to the licenses described
in this paragraph.
The Company intends to seek to execute license agreements for the
creation of financial products based upon the America's Fastest Growing
Companies(TM) MidCap 300 Index and the America's Fastest Growing Companies(TM)
LargeCap 50 Index, but there can be no assurance that the Company will be
successful in its endeavors to do so. The Company also will explore development
of additional stock indexes, such as sector indexes, under the America's Fastest
Growing Companies(TM) brand. The Company expects that any such new indexes also
would have a primary focus on growth in earnings per share. There can be no
assurance, however, that the Company in fact will develop any stock indexes
beyond the existing three indexes of the America's Fastest Growing Companies(TM)
family described above.
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 2001, the Company employed 60 persons on a full-time basis:
40 employees in the Print Publications segment (including the research analysts,
sales and marketing staff, who also support the Online Services segment), 6
employees in the Online Services segment, and 14 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 media properties: Individual Investor magazine and
individualinvestor.com, 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.
The Company also has registered the trademarks AMERICA'S FASTEST
GROWING COMPANIES(R), MAGIC 25(R), INVESTOR UNIVERSITY(R) and INVESTMENT
UNIVERSITY(R). The Company uses these marks regularly in its publications and
previously had licensed the latter in connection with certain other business
activities.
During 1998, 1999 and 2000, 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 August 2000, the Company agreed to sell two Internet domain names
for cash consideration of approximately $1 million. In connection with the sale,
the Company also issued a warrant to purchase 250,000 shares of the Company's
Common Stock at an exercise price of $2.00 per share and relinquished the right
to have its Common Stock trade under the ticker symbol "INDI." The fair market
value of the issued warrant was approximately $257,000.
In addition to trademarks and service marks, the Company also has
registered approximately 110 Internet domain names, including brokerdealer.com,
capitalgains.com, junkbonds.com, microcaps.com and pennystocks.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 and Chicago.
The Company in March 2001 was in discussions concerning an agreement to sublet
approximately 17,000 square feet of its New York City corporate office space,
for the period May 1, 2001 through March 31, 2004, at a rental amount in excess
of its current cost. In the event a sublease is executed on the terms being
discussed in March 2001, the Company believes that the anticipated sublease
payments would reduce the Company's effective rent to approximately $400,000 per
year. There can be no assurance, however, that a definitive sublease agreement
upon such terms will be executed or that the Company otherwise will be able to
sublet a portion of its New York City corporate office space. 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 approximately
$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
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Effective October 4, 2000, the Company's Nasdaq National Market ticker
symbol was changed to "IIGP." In March 2001, the Company announced that it had
received notice stating that the Company's Common Stock had failed to maintain a
minimum closing bid price of $1.00 as required by Nasdaq Marketplace Rule
4450(a)(5) and that a staff determination therefore had been made to delist the
Company's Common Stock. The Company appealed the staff determination and
requested an oral hearing that has been scheduled in April 2001. There can be no
assurance that the Company's appeal of the staff determination will be
successful. In the event that the Company's appeal is not successful and the
Company's Common Stock is delisted from the Nasdaq National Market, the Company
would intend to have its Common Stock trade on the OTC Bulletin Board.
On December 9, 1996 the Company's Common Stock commenced trading on The
Nasdaq National Market, which is the principal trading market for the Company's
Common Stock, under the symbol "INDI." Previously, the Company's Common Stock
had been quoted on the Nasdaq SmallCap Market and the Boston Stock Exchange
since the Company's initial public offering on December 4, 1991.
The table below sets forth for the periods indicated the high and low
closing sales prices on the Nasdaq National Market for the Company's Common
Stock.
2000: Low ($) High ($)
----- ------- --------
First Quarter 3-11/32 6-3/16
Second Quarter 1-15/16 4-7/16
Third Quarter 1 2-1/16
Fourth Quarter 11/32 1-5/32
1999:
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
These amounts represent sales between dealers in securities and do not
include retail markups, markdowns or commissions. On March 29, 2001, the last
sale price for the Company's Common Stock, as reported by Nasdaq, was $0.625.
Holders
On March 29, 2001, there were 71 holders of record of the Company's
Common Stock. The Company believes that there are approximately * 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, subject to the preferential right of the Company's Series A
Preferred Stock, 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 potential
dividends on the Company's Common Stock.
Sales of Unregistered Securities
-------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
10/00 -12/00 Options to purchase 96,000 Employment services; in Section 4(2 ) Vesting over a period of up to
common stock addition, exercise price four years from date of grant,
granted would be received upon subject to certain conditions
exercise of continued service;
exercisable for a period
lasting up to ten years from
date of grant at exercise
prices of $0.4375 to $0.96875
per share
------------------------------------------------------------------------------------------------------------------------------------
ITEM 6. SELECTED CONSOLIDATED 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.
At, and for the years ended, December 31,
2000 1999 1998 1997 1996
---- ---- ----- ---- ----
Revenues from continuing operations (b) $19,778,804 $17,670,801 $15,470,106 $14,899,741 $12,537,042
Operating expenses (b) 27,419,064 26,173,154 23,504,819 20,206,774 16,073,791
Gain on sale of assets 6,702,219 - - - -
Impairment of investment (2,638,356) - - - -
----------- ------------ ------------ ------------ ------------
Operating loss from continuing operations (3,576,397) (8,502,353) (8,034,713) (5,307,033) (3,536,749)
Investment and other income 170,608 4,309,650 224,213 69,296 177,238
----------- ------------ ------------ ------------ ------------
Net loss from continuing operations (3,405,789) (4,192,703) (7,810,500) (5,237,737) (3,359,511)
----------- ------------ ------------ ------------ ------------
(Loss) income from discontinued operations (a) - - (781,370) 277,402 170,059
----------- ------------ ------------ ------------ ------------
Net loss ($3,405,789) ($4,192,703) ($8,591,870) ($4,960,335) ($3,189,452)
=========== ============ ============ ============ ============
Basic and dilutive (loss) income per common share:
Continuing operations ($0.34) ($0.47) ($0.99) ($0.81) ($0.54)
Discontinued operations (a) - - (0.10) 0.04 0.03
----------- ------------ ------------ ------------ ------------
($0.34) ($0.47) ($1.09) ($0.77) ($0.51)
=========== ============ ============ ============ ============
Average number of common shares used in
computing basic and dilutive (loss)
income per common share 10,439,887 9,336,679 7,876,509 6,466,168 6,198,260
Cash and cash equivalents $4,694,476 $6,437,542 $4,752,587 $3,533,622 $1,544,451
Investment in discontinued operations 49,302 49,302 282,383 4,037,432 4,947,500
Total assets 12,706,260 16,257,967 10,544,928 12,156,967 11,303,735
Working capital 2,551,080 5,163,130 5,805,339 7,798,415 6,715,311
Stockholders' equity $4,582,306 $7,662,937 $5,448,757 $6,255,099 $5,237,107
Current ratio 1.5 2.0 3.0 3.4 3.5
(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.
(b) Prior year revenues and operating expense data has been conformed to
calendar year 2000 presentation. There was no impact on the reported
operating loss from continuing operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Important Notice Concerning "Forward-looking Statements" in this Report
(Including Without Limitation in Items 1 and 7)
1. "Forward-looking Statements." Certain parts of this Report describe
historical information (such as operating results for the year ended December
31, 2000), 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, 2000.
These sentences typically use words or phrases like "believes," "expects,"
"anticipates," "estimates," "projects," "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, 2000,
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. Except to the extent that a statement in this
Report is describing a historical fact, each statement in this Report 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.
Year Ended December 31, 2000 as Compared to the Year Ended December 31, 1999
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the year ended
December 31, 2000 was approximately $3.4 million, an improvement of
approximately $0.8 million as compared to a net loss from continuing operations
of approximately $4.2 million in 1999. The decrease in the operating loss from
the prior year is primarily due to the gain of sale of assets of approximately
$6.7 million and increased advertising revenues, partially offset by an
approximately $4.1 million decrease in investment and other income, an
approximately $2.6 million write-down in the carrying value of the Company's
investment in VentureHighway.com Inc. and increased promotion and selling and
editorial, production and distribution expenses. No income taxes were provided
in 2000 or 1999 due to the net loss. The basic and dilutive net loss per
weighted average common share for the year ended December 31, 2000 was
approximately $0.34, as compared to approximately $0.47 in 1999.
Print Publications operations provided a positive operating
contribution (before deducting general and administrative ("G&A"), corporate
advertising and depreciation and amortization expenses) of approximately $0.1
million for the year ended December 31, 2000, as compared to a negative
operating contribution of approximately $0.2 million in 1999. The improvement in
operating contribution is primarily due to increased advertising revenues,
partially offset by increased promotion and selling, and production and
distribution expenses. In the first quarter of 2001, the Company implemented a
plan of cost reductions, including personnel reduction and a change in paper, to
lower expenses associated with the Print Publications operations.
Online Services operations provided a negative operating contribution
(before deducting G&A, corporate advertising and depreciation and amortization
expenses) of approximately $1.7 million for the year ended December 31, 2000,
which is comparable to a negative operating contribution of approximately $1.7
million in 1999. Although revenues increased approximately $0.9 million for the
year, higher levels of expenses were incurred for the redesign and marketing of
the Company's primary web site, individualinvestor.com
(www.individualinvestor.com). In the third quarter of 2000 and the first quarter
of 2001, the Company reorganized its Online Services operations, significantly
reducing ongoing personnel and technology development expenses.
Operating Revenues
Total revenues from continuing operations for the year ended December
31, 2000 increased approximately 12%, to approximately $19.8 million, as
compared to approximately $17.7 million in 1999. Revenues for the Online
Services revenues increased approximately 38%, to approximately $3.2 million, as
compared to approximately $ 2.3 million in 1999. Print Publications revenues
increased approximately 8%, to approximately $16.6 million, as compared to
approximately $15.4 million in 1999.
Print Publications advertising revenues for the year ended December 31,
2000 increased approximately 10%, to approximately $11.6 million, as compared to
approximately $10.5 million in 1999. Individual Investor magazine's advertising
revenues for the year ended December 31, 2000 increased approximately 10%, to
approximately $8.3 million, as compared to approximately $7.5 million, in 1999.
This change relates primarily to an approximately 13% increase in the net
advertising rate per page, partially offset by an approximately 8% decrease in
advertising pages sold, as compared to 1999. The decrease in advertising pages
sold occurred primarily during the quarter ended December 31, 2000 in tandem
with the decline in the various stock market averages, which impacted financial
advertising. For the nine months ended September 30, 2000, compared to the nine
months ended September 30, 1999, Individual Investor magazine's advertising
revenues increased approximately 26%, as a result of an approximately 11%
increase in advertising pages sold, combined with an approximately 13% increase
in the net advertising rate per page. Ticker magazine's advertising revenues for
the year ended December 31, 2000 increased approximately 12%, to approximately
$3.3 million, as compared to approximately $2.9 million for the year 1999. The
assets of Ticker magazine were sold to an unrelated third party during September
2000 for cash consideration of $6 million, less an adjustment for certain
current assets and liabilities, and the assumption of certain liabilities, and
consequently the 2000 figures for Ticker are derived from nine months of
operations whereas the 1999 figures for Ticker are derived from twelve months of
operations.
Online Services advertising revenues for the year ended December 31,
2000 increased by approximately 39%, to approximately $2.8 million, as compared
to approximately $2.0 million in 1999. Advertising revenues increased
substantially as a result of a growth in page views and advertising impressions
on the Company's web sites, together with an increase in the amount of
advertising related to the Company's advertising-for-equity transactions, during
which the Company granted an advertising credit in exchange for an equity
position in the advertiser.
Print Publications circulation revenues for year ended December 31,
2000 increased approximately 5%, to approximately $3.6 million, as compared to
approximately $3.4 million in 1999. Subscription revenues for the year ended
December 31, 2000 increased approximately 10%, to approximately $2.8 million, as
compared to approximately $2.5 million in 1999. The increase in subscription
revenues from the prior year is primarily attributable to a change in the
subscriber mix for Individual Investor magazine, with more of the subscriber
base being obtained from more profitable direct-to-publisher sources. This
increase was partially offset by a reduction in the number of subscribers to
Individual Investor's Special Situations Report. Newsstand revenues for the year
ended December 31, 2000 decreased approximately 9%, to approximately $0.8
million, as compared to approximately $0.9 million in 1999.
Print Publications list rental and other revenues for the years ended
December 31, 2000 and 1999 were approximately $1.5 million. The year 2000
revenues represent an increase of approximately 9% in list rental revenues
attributable to the Individual Investor magazine subscriber lists, offset by a
decrease in list rental and other income attributable to Ticker magazine (with
respect to which the Company only recorded revenues for nine months in 2000, as
opposed to twelve months in 1999, due to the sale of Ticker magazine in
September 2000 described above).
Operating Expenses
Total operating expenses from continuing operations for the year ended
December 31, 2000 increased approximately 5%, to approximately $27.4 million, as
compared to approximately $26.2 million in 1999. The rate of increase in
operating expenses was significantly lower than the rate of increase of revenues
- which increased approximately 10% for the year ended December 31, 2000, as
compared to the year ended December 31, 1999.
Editorial, production and distribution expenses for the year ended
December 31, 2000 increased approximately 8%, to approximately $12.7 million, as
compared to approximately $11.8 million in 1999. Online Services production and
editorial expenses increased approximately 23%, to approximately $3.5 million,
as compared to approximately $2.8 million in 1999. The increase in these Online
Services expenses from the prior year is primarily related to higher editorial
salaries and consulting fees, increased research costs, and costs associated
with enhanced analytical and research tools now available on
www.individualinvestor.com. As noted above, the Company has recently reorganized
its Online Services operations, significantly reducing ongoing personnel and
technology development expenses. Editorial and production expenses associated
with its Online Services in the fourth quarter of 2000 were approximately $0.3
million less than the comparable quarter in 1999 and approximately $0.4 million
lower than the level of such expenses in the third quarter of 2000. The Company
projects that editorial, production and distribution expenses for its Online
Services operations will be less than $2.0 million in 2001. Print Publications
editorial, production and distribution expenses increased by approximately 3%,
to approximately $9.2 million, as compared to approximately $9.0 million in
1999. The increase from the prior year relates primarily to an increase in the
average number of pages per issue, as well as higher editorial salaries and
related costs.
Promotion and selling expenses for the year ended December 31, 2000
increased by approximately 11%, to approximately $8.7 million, as compared to
approximately $7.8 million in 1999. Online Services promotion and selling
expenses for the year ended December 31, 2000 increased approximately 15%, to
approximately $1.4 million, as compared to approximately $1.2 million in 1999.
The increase from the prior year is primarily attributable to higher marketing
and promotion expenses associated with the Individual Investor of the Year(TM)
and Magic 25(TM) online trading contests offered by the Company. Print
Publications promotion and selling expenses for the year ended December 31, 2000
increased by approximately 10%, to approximately $7.3 million, as compared to
approximately $6.7 million in 1999. The increase from the prior year is
primarily due to increased marketing and promotion expenses associated with the
Individual Investor of the Year(TM) and Magic 25(TM) online trading contests
offered by the Company, direct mail campaign and customer activation expenses,
increased sales commissions relating to higher sales, and higher recruiting fees
as a result of hiring additional in-house sales personnel.
General and administrative expenses for the year ended December 31,
2000 increased by approximately 4%, to approximately $5.5 million, as compared
to approximately $5.3 million in 1999. The increase as compared to 1999 was
primarily due to increased salaries and rent expense, partially offset by lower
professional and recruiting fees. The Company during the third quarter of 2000
implemented a significant reduction in its general and administrative expenses
through reduction in general and administrative personnel. Moreover, the Company
in March 2001 was in discussions to sublet a portion of its headquarters office
space. In the event that a definitive sublease agreement is executed containing
the terms under discussion in March 2001, the Company anticipates that its rent,
net of receipts from the anticipated subtenant, would decrease by approximately
$600,000 per annum commencing approximately May 1, 2001. There can be no
assurance, however, that a definitive sublease agreement upon such terms will be
executed or that the Company otherwise will be able to sublet a portion of its
New York City corporate office space. The Company did not incur any corporate
advertising expenses in the year ended December 31, 2000, as compared to
corporate advertising expenses of $0.7 million in 1999. The Company does not
anticipate incurring such expenses in 2001.
Depreciation and amortization expense for the year ended December 31,
2000 increased approximately 7%, to approximately $0.6 million, as compared to
approximately $0.5 million in 1999. 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 in March
1999.
Gain on Sale of Assets
Gain on sale of assets for the year ended December 31, 2000 of
approximately $6.7 million represents the gain on the sale of two Internet
domain names and certain assets related to Ticker magazine and InsiderTrader.com
during the third quarter of 2000. No similar transactions were realized in 1999.
Impairment of Investment
The Company recorded an impairment of approximately $2.6 million with
respect to its investment in VentureHighway.com Inc., acquired in June 1999.
Investment and Other Income
Investment and other income for the year ended December 31, 2000 was
approximately $0.2 million as compared to approximately $4.3 million in 1999.
The decrease is attributable to realized gains from the sale of investments of
approximately $4.1 million during the year ended December 31, 1999, offset by
interest expense incurred from factoring receivables and the decreased amount of
interest income earned in 2000 compared to 1999 due to lower cash balances
available for investment.
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 approximately 46%, to approximately $4.2 million, as
compared to approximately $7.8 million 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 G&A, corporate advertising and depreciation and amortization
expenses) of approximately $1.7 million for the year ended December 31, 1999, as
compared to a negative operating contribution of approximately $2.1 million in
1998. This improvement is due to an approximately 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 approximately $0.2 million for the year ended December
31, 1999, as compared to a negative operating contribution of approximately $0.7
million in 1998. This improvement primarily relates to an approximately 10%
increase in advertising revenues together with reduced production and
distribution costs, offset in part by increased marketing and promotion
expenses.
Operating Revenues
Total revenues from continuing operations for the year ended December
31, 1999 increased approximately 14%, to approximately $17.7 million, as
compared to approximately $15.5 million in 1998. Revenues for the Online
Services operations increased approximately 103%, to approximately $2.3 million,
as compared to approximately $1.1 million in 1998. Revenues for the Print
Publications operations increased approximately 7%, to approximately $15.4
million, as compared to approximately $14.2 million in 1998.
Print Publications advertising revenues for the year ended December 31,
1999 increased approximately 10%, to approximately $10.5 million, as compared to
approximately $9.5 million in 1998. This increase relates primarily to Ticker
magazine, which achieved an approximately 24% increase in advertising pages per
issue, combined with an approximately 12% increase in the net rate per page
sold. Individual Investor magazine's advertising revenues for the year ended
December 31, 1999 also increased, due to an approximately 17% increase in the
net rate per page, partially offset by an approximately 12% decrease in pages
sold.
Online Services advertising revenues for the year ended December 31,
1999 increased by approximately 83%, to approximately $2.0 million, as compared
to approximately $1.1 million in 1998. This increase relates primarily to higher
individualinvestor.com (www.individualinvestor.com) advertising revenues
resulting primarily from a growth in page views and advertising impressions in
1999 over 1998. The Company does not currently impose a charge for use of
individualinvestor.com.
Print Publications circulation revenues for the year ended December 31,
1999 decreased approximately 2%, to approximately $3.4 million, as compared to
approximately $3.5 million in 1998. The decrease relates primarily to a
reduction in subscription revenues 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 have
declined primarily as a result of a low response to direct mail promotions.
Print Publications list rental and other revenues for the year ended
December 31, 1999 increased approximately 10%, to approximately $1.5 million, as
compared to approximately $1.4 million 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 approximately 11%, to approximately $26.2 million as
compared to approximately $23.5 million 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.
Editorial, production and distribution expenses for the year ended
December 31, 1999 increased approximately 3%, to approximately $11.8 million, as
compared to approximately $11.4 million in 1998. Online Services production and
editorial expenses increased approximately 30%, to approximately $2.8 million,
as compared to approximately $2.2 million 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 approximately 3%, to approximately $9.0
million, as compared to approximately $9.3 million 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 approximately 15%, to approximately $7.8 million, as compared to
approximately $6.8 million in 1998. Online Services promotion and selling
expenses for the year ended December 31, 1999 increased by approximately 16%, to
approximately $1.2 million, as compared to approximately $1.0 million 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, 1999 increased by approximately 15%, to
approximately $6.7 million, as compared to approximately $5.8 million 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 approximately 7%, to approximately $5.3 million, as compared
to approximately $5.0 million 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 $0.7 million 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 approximately 63%, to approximately $0.5 million as compared
to approximately $0.3 million 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 approximately $4.3 million, as compared to approximately $0.2
million in 1998. This is primarily due to realized gains on sales of investments
in 1999 of approximately $4.1 million, as compared to approximately $0.1 million
in 1998. The gains primarily related to Wit Capital Group, Inc. (approximately
$2.8 million), which was obtained as part of an equity-for-advertising
arrangement in June 1997 and Kirlin Holding Corp. (approximately $0.9 million)
which was obtained in conjunction with an equity-for-advertising transaction
involving a Kirlin subsidiary, VentureHighway.com Inc.
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 approximately $0.8
million 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
approximately 51%, to approximately $4.2 million, as compared to a net loss of
approximately $8.6 million 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
approximately $1.09 in 1998.
Liquidity and Capital Resources
As of December 31, 2000, the Company had cash and cash equivalents
totaling approximately $4.7 million and working capital of approximately $2.6
million. During 2000, the Company received cash proceeds, net of cash expenses,
of approximately $6.6 million from the sale of certain assets and approximately
$0.1 million in cash from the exercises of stock options. Net cash used in
operating activities during 2000 was approximately $7.7 million. The Company's
cash and cash equivalents balance of approximately $4.7 million at December 31,
2000 represented a decrease of approximately $1.7 million from the December 31,
1999 balance.
In August 2000, the Company arranged a line of credit whereby the
Company may borrow principal amounts up to $2.0 million secured by certain of
its assets. Availability under the facility is based on a formula of a
percentage of eligible accounts receivable and provides for interest on direct
borrowings at an annual rate equal to prime plus 1.5% plus fees based on the
amount of the invoices financed. The term of the line of credit is for a period
of two years, subject to certain termination provisions. Total funding pursuant
to this line of credit at December 31, 2000 was approximately $0.6 million.
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 and, as noted above, the
Company recently has implemented changes intended to substantially reduce
certain operating and general and administrative expenses. The Company
anticipates quarterly losses to continue into 2001. Profitability may be
achieved in future periods only if the Company can substantially increase its
revenues and/or realize capital gains on investments or the sale of certain
assets while controlling increases in expenses. There can be no assurance that
revenues will be substantially increased, that additional capital gains will be
realized on investments (instead capital losses in fact may be realized) or that
certain assets will be sold, or that expenses can be adequately decreased to
enable the Company to attain profitability.
The Company's visibility with respect to advertising revenues in 2001
is poor at the time this report is filed. After three quarters of growth (as
compared to the applicable prior year period) in advertising, a sudden and sharp
decline (as compared to the applicable prior year period) in advertising began
in the fourth quarter of 2000 and has continued into the first quarter of 2001.
This slowdown could be followed by an equally sudden and sharp rebound or by
continued weakness. The Company also is not able to predict the magnitude of the
licensing revenues, if any, that it might obtain in connection with the
Company's license of the America's Fastest Growing Companies(TM) Index to Nuveen
Investments and the American Stock Exchange for the creation of an
exchange-traded fund to be sponsored by Nuveen and based upon the America's
Fastest Growing Companies(TM) Index. The licensing revenue, which the Company
would be owed quarterly once the exchange-traded fund based upon the America's
Fastest Growing Companies(TM) Index began trading, would be almost 100% gross
margin as the Company would have essentially no marginal expenses associated
with such revenues. As noted above, Nuveen is working to obtain the necessary
regulatory approval to commence trading of such an exchange-traded fund but
there can be no assurance that Nuveen will obtain the necessary regulatory
approval or that the exchange-traded fund based upon the America's Fastest
Growing Companies(TM) Index will commence trading. There also can no assurance
that, if it does commence trading, the exchange-traded fund based upon the
America's Fastest Growing Companies(TM) Index will prove to be popular or that
the Company will receive any material amount of revenues with respect to the
licenses described in this paragraph. In the event that advertising revenues do
not rebound and the Company generates little or no revenues with respect to the
license of the America's Fastest Growing Companies(TM) index, the Company would
need to raise additional capital through the sale of assets and/or securities.
During the second quarter of 2000, the Company retained The Jordan,
Edmiston Group, Inc., the media investment bank, to explore a range of strategic
alternatives to enhance shareholder value, including the possible sale of the
Company. The Company during the quarter ended September 30, 2000 entered into
three separate agreements with unrelated third parties which resulted in net
gains on the sale of assets of approximately $6.7 million and which generated
net cash proceeds of approximately $6.6 million. In connection with one of these
agreements, the Company also issued a warrant to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $2.00 per share.
The Company believes that its working capital and, if additional
resources were necessary, the value it believes it could realize from the sale
of assets and/or securities of the Company, should be sufficient to fund its
operations and capital requirements through 2001. The Company is continuing its
exploration of strategic alternatives, including exploring sources of additional
financing and/or sale of assets. There can be no assurance, however, that this
process will result in the Company entering into any additional transactions or
enhancing shareholder value. In the event that the Company is unable to attain
profitability prior to exhausting its existing resources, the Company would need
to obtain additional financing or sell certain of its assets in order to sustain
operations. Although the Company believes it could obtain additional financing
or sell assets if necessary to sustain operation, no assurance can be given that
the Company in fact would be able to obtain additional financing or sell
additional assets, or as to the terms upon which the Company could do so. Any
additional financing could result in substantial dilution of an investor's
equity investment in the Company.
Recent Accounting Pronouncement
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," is effective for
fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Under SFAS 133, certain contracts that were not formally considered derivatives
may now meet the definition of a derivative. The Company will adopt SFAS 133
effective January 1, 2001. Management does not expect the adoption of SFAS 133
to have a significant impact on the financial position, results of operations,
or cash flows of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended December 31, 2000,
1999, and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999, and 1998
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Individual Investor Group, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Individual
Investor Group, Inc. and its subsidiaries (the "Company") as of December 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years ended December
31, 2000. 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 conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
New York, New York
March 27, 2001
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
ASSETS 2000 1999
----------- ------------
Current assets:
Cash and cash equivalents $ 4,694,476 $ 6,437,542
Accounts receivable (net of allowances of
$552,609 in 2000 and $419,048 in 1999) 1,754,200 3,019,710
Investment in discontinued operations (Note 4) 49,302 49,302
Prepaid expenses and other current assets 1,036,996 864,851
----------- ------------
Total current assets 7,534,974 10,371,405
----------- ------------
Investments(Notes 1 and 2) 2,678,546 2,638,356
Deferred subscription expense 337,245 383,624
Property and equipment - net (Note 5) 1,479,105 1,653,659
Security deposits 375,580 374,527
Other assets 300,810 836,396
----------- ------------
Total assets $12,706,260 $16,257,967
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,534,027 $ 3,024,395
Accrued expenses (Note 6) 462,800 716,670
Deferred advertising revenue 1,987,067 1,467,210
----------- ------------
Total current liabilities 4,983,894 5,208,275
----------- ------------
Deferred advertising revenue 532,653 938,164
Deferred subscription revenue 2,607,407 2,448,591
----------- ------------
Total liabilities 8,123,954 8,595,030
----------- ------------
Commitments and contingencies (Note 7)
Stockholders' Equity: (Note 10)
Preferred stock, $.01 par value, authorized
2,000,000 shares, 7,880 issued and outstanding
in 2000 and 10,000 issued and outstanding in 1999 79 100
Common stock, $.01 par value; authorized 40,000,000
shares, 8,972,886, issued and outstanding in 2000;
10,353,901 issued and outstanding in 1999 89,729 103,539
Additional paid-in capital 33,576,719 33,421,542
Warrants 872,052 742,079
Deferred compensation (29,490) (272,038)
Accumulated deficit (29,926,783) (26,332,285)
----------- ------------
Total stockholders' equity 4,582,306 7,662,937
----------- ------------
Total liabilities and stockholders' equity $12,706,260 $16,257,967
=========== ============
See Notes to Consolidated Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2000 1999 1998
------------- ------------ -------------
Revenues:
Online Services $ 3,188,022 $ 2,308,186 $ 1,136,032
Print Publications 6,590,782 15,362,615 14,334,074
------------- ------------ -------------
Total revenues 19,778,804 17,670,801 15,470,106
------------- ------------ -------------
Operating expenses:
Editorial, production
and distribution 12,683,600 11,797,411 11,429,496
Promotion and selling 8,683,141 7,834,513 6,789,974
General and administrative 5,494,521 5,291,648 4,964,069
Corporate advertising - 725,867 -
Depreciation and amortization 557,802 523,715 321,280
------------- ------------ -------------
Total operating expenses 27,419,064 26,173,154 23,504,819
------------- ------------ -------------
Gain on sale of assets 6,702,219 - -
------------- ------------ -------------
Impairment of investment (2,638,356) - -
------------- ------------ -------------
Operating loss from continuing
operations (3,576,397) (8,502,353) (8,034,713)
Investment and other income
(Note 2) 170,608 4,309,650 224,213
------------- ------------ -------------
Net loss from continuing operations (3,405,789) (4,192,703) (7,810,500)
------------- ------------ -------------
Discontinued operations (Note 3)
(Loss) income from discontinued
operations - - (189,629)
(Loss) on disposal of discontinued
operations - - (591,741)
------------- ------------ -------------
(Loss) income from discontinued
operation - - - (781,370)
------------- ------------ -------------
Net loss $(3,405,789) $(4,192,703) $ (8,591,870)
============= ============ =============
Basic and dilutive (loss) income per
common share:
Continuing operations ($0.34) ($0.47) ($0.99)
Discontinued operations - - (0.10)
------------- ------------ -------------
($0.34) ($0.47) ($1.09)
Net loss per share ============= ============ =============
Average number of common shares used
in computing basic and dilutive
(loss) income per common share 10,439,887 9,336,679 7,876,509
See Notes to Consolidated Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Additional
Shares Par Shares Par Paid-in Deferred
Issued Value Issued Value Capital Warrants Compensation
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 ($274,206)
Issuances of common stock for services rendered - - 39,372 394 115,920 - -
Amortization of deferred compensation - - - - - - 2,168
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 (272,038)
Exercise of options - net - - 87,118 871 110,745 - -
Stock option and warrant transactions - - - - - 129,973 127,068
Conversion of preferred to common stock (2,120) 21 200,000 2,000 (1,979) - -
Amortization of deferred compensation - - - - - - 263,137
Issuance of common stock - - 113,000 1,130 188,902 - (147,657)
Net loss - -
- - - - - -
Preferred stock dividends - -
Repurchase common stock - - (1,781,133) (17,811) (142,491)
Comprehensive loss - - - - - - - -
__________________________________________________________________________________________________________________________________
Balance, December 31, 2000 7,880 $79 8,972,886 $ 89,729 $ 33,576,719 $872,0520 $(29,490)
==================================================================================================================================
Accumulated
Other
Accumulated Comprehensive Comprehensive
Deficit Income (Loss) Loss Total
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 - - - 14,005
Issuances of common stock for services rendered - - - 116,314
Amortization of deferred compensation - - - 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 - 66,493 66,493 (a) 66,493
income-(loss)
Comprehensive loss - $(4,126,210) -
____________________________________________________________________________________________________________
Balance, December 31, 1999 (26,332,285) - - 7,662,937
Exercise of options - net - - - 111,616
Stock option and warrant transactions - - - 257,041
Conversion of preferred to common stock - - - -
Amortization of deferred compensation - 263,137
Issuance of common stock - 42,375
Net loss (3,405,789) - $(3,405,789) (3,405,789)
Preferred stock dividends (188,709) - - (188,709)
Repurchase common stock -
(160,302)
Comprehensive loss -------------
- - $(3,405,789) -
=============
____________________________________________________________________________________________________________
Balance, December 31, 2000 $(29,926,783) - - $ 4,582,306
============================================================================================================
(a) Disclosure of change in accumulated other comprehensive income (loss):
1998 1999
---- ----
Unrealized holding (loss) gain arising during period $959 $4,210,889
Less: Reclassification adjustment for gain
recognized in net loss (67,459) 4,144,396
-------- ----------
($66,493) $66,493
========= ==========
See Notes to Consolidated Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------- -------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss $ (3,405,789) $ (4,192,703) $ (8,591,870)
Less:
(Loss) income from discontinued operations - - (781,370)
------------- -------------- --------------
Loss from continuing operations (3,405,789) (4,192,703) (7,810,500)
Reconciliation of net loss to net cash used in
operating activities:
Gain on sale of assets (6,702,219) - -
Impairment of investment 2,638,356 - -
Depreciation and amortization 557,802 523,715 321,280
Stock option and warrant transactions 295,888 350,877 159,909
Loss on sale of equipment - - 2,671
Gain on sale of investments - (4,144,396) (67,452)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 626,858 (663,584) 637,173
Prepaid expenses and other current assets (275,302) (214,150) (14,980)
Security deposits (1,053) 95,100 (334,710)
Other assets 343,078 50,779 (39,817)
Deferred subscription expense 46,379 192,613 (149,411)
Increase (decrease) in:
Accounts payable and accrued expenses (543,703) 1,029,413 (185,837)
Deferred advertising revenue (2,075,403) (371,079) (205,153)
Deferred subscription revenue 158,816 202,169 (414,707)
------------- -------------- --------------
Net cash used in operating activities (8,336,292) (7,141,246) (8,101,534)
------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (393,850) (1,568,403) (353,713)
Proceeds from sale of equipment - - 3,652
Net proceeds from sale of assets 6,585,819 - -
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
------------- -------------- --------------
Net cash provided by investing activities 6,191,969 3,752,798 1,922,346
------------- -------------- --------------
Cash flows from financing activities:
Proceeds from exercise of stock options 111,616 2,290,390 398,153
Receivables financing 638,652 - -
Purchase of Common stock (160,302) - -
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
Preferred stock dividends (188,709) (216,987) -
------------- -------------- --------------
Net cash provided by financing activities 401,257 5,073,403 7,398,153
------------- -------------- --------------
Net increase in cash and cash equivalents (1,743,066) 1,684,955 1,218,965
Cash and cash equivalents, beginning of period 6,437,542 4,752,587 3,533,622
------------- -------------- --------------
Cash and cash equivalents, end of period $ 4,694,476 $ 6,437,542 $ 4,752,587
============= ============== ==============
See Notes to Consolidated Financial Statements
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: Print Publications and Online Services. The
Company's Print Publications segment publishes and markets Individual Investor,
a personal finance and investment magazine and Individual Investor's Special
Situations Report, a financial investment newsletter. Between approximately
October 1996 and September 2000, the Company's Print Publications segment also
included Ticker, a magazine for investment professionals. The Company's Online
Services segment includes individualinvestor.com (www.individualinvestor.com).
Between approximately November 1998 and September 2000, the Company's Online
Services segment also included InsiderTrader.com (www.InsiderTrader.com). In
September 2000, the Company sold InsiderTrader.com and Ticker magazine to two
different parties in two unrelated transactions (see Note 3). The Company
contracts with unaffiliated suppliers for paper, printing, binding, subscription
fulfillment, newsstand distribution and list management. See Note 13 for
additional information regarding the Company's business segments and operations.
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 and, as noted above, the
Company recently has implemented changes intended to substantially reduce
certain operating and general and administrative expenses. The Company
anticipates quarterly losses to continue into 2001. Profitability may be
achieved in future periods only if the Company can substantially increase its
revenues and/or realize capital gains on investments or the sale of certain
assets while controlling increases in expenses. There can be no assurance that
revenues will be substantially increased, that additional capital gains will be
realized on investments (instead, capital losses in fact may be realized) or
that certain assets will be sold, or that expenses can be adequately decreased
to enable the Company to attain profitability.
The Company believes that its working capital and, if additional
resources were necessary, the value it believes it could realize from the sale
of assets and/or securities of the Company, should be sufficient to fund its
operations and capital requirements through 2001. The Company is continuing its
exploration of strategic alternatives, including exploring sources of additional
financing and/or sale of assets. There can be no assurance, however, that this
process will result in the Company entering into any additional transactions or
enhancing shareholder value. In the event that the Company is unable to attain
profitability prior to exhausting its existing resources, the Company would need
to obtain additional financing or sell certain of its assets in order to sustain
operations. Although the Company believes it could obtain additional financing
or sell assets if necessary to sustain operations, no assurance can be given
that the Company in fact would be able to obtain additional financing or sell
additional assets, or as to the terms upon which the Company could do so. Any
additional financing could result in substantial dilution of an investor's
equity investment in the Company.
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. I.I. Strategic Consultants, Inc. and Advanced Marketing
Ventures, Inc.
Revenue Recognition - Print Publications advertising and circulation
revenues are recognized, net of agency commissions and estimated returns and
allowances, when publications are issued. 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. Deferred subscription revenue, net of agency commissions, is recorded
when subscription orders are received. List rental income is recognized, net of
agency commissions, when a list is provided. Revenues from
equity-for-advertising transactions are recognized during the period in which
the advertisements are run.
The Company, during the third quarter ended September 30, 2000, adopted
the accounting treatment of EITF 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent with respect to revenues recognized from list rentals.
This change required an increase to Online Services revenues for year ended
December 31, 1999 and 1998 of approximately $4,000 and $0, respectively, with an
equal increase to promotion and selling expenses and an increase to Print
Publications revenues for the year ended December 31, 1999 and 1998 of
approximately $162,000 and $122,000, respectively, with an equal increase to
promotion and selling expenses. This change had no impact on reported net loss
for the years ended December 31, 1999 and 1998.
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 - Investment represents equity positions in
VentureHighway.com Inc., Pricing Dynamics, Inc. (previously ReverseAuction.com,
Inc.) and Tradeworx, Inc. There is currently no public market for these
securities, and each investment is recorded at its historical cost unless there
is an other than temporary decline in its value. In the event that the Company
concludes that there is an other than a temporary decline in the recorded value
of an investment, the investment will be written down to estimated fair market
value.
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, pro forma disclosures regarding the fair value of stock
options granted in 2000, 1999, and 1998 and estimated fair market value of
investment securities for which no public market exists. Actual results could
differ materially from those estimates.
Recent Accounting Pronouncement -Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities," is effective for fiscal years beginning after June 15,
2000. SFAS 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS 133, certain contracts
that were not formally considered derivatives may now meet the definition of a
derivative. The Company will adopt SFAS 133 effective January 1, 2001.
Management does not expect the adoption of SFAS 133 to have a significant impact
on the financial position, results of operations, or cash flows of the Company.
2. INVESTMENTS
Gains on Sale of Investments
Net realized gains on the sales of investments totaled approximately
$4.1 million for the year ended December 31, 1999. There were no comparable
gains in the years ended December 31, 2000 and 1998, 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
approximately $1.7 million, producing a net realized gain of approximately $0.9
million.
In 1997, the Company acquired 250,000 shares of Wit Capital Group, Inc.
Series A Preferred Stock in an equity-for-advertising 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 initial public offering on June 4, 1999. The shares were sold
during December 1999 for net cash proceeds of approximately $3.1 million,
producing a net realized gain of approximately $2.8 million.
Other Investments
On May 4, 2000, the Company and Tradeworx, Inc. ("Tradeworx") entered
into an agreement pursuant to which the Company acquired 1,045,000 newly issued
shares of common stock of Tradeworx, representing at the time a 7% stake (with
warrants to acquire up to 10.5%), on a fully diluted basis, of Tradeworx. The
purchase price was paid for in the form of a credit for Tradeworx to use to
purchase advertising in the Company's magazines and websites during the 24
months ending August 1, 2002. The investment and the deferred advertising
revenues were recorded at the fair market value at the date of the transaction
of approximately $1.1 million. The Company was informed that in January 2001,
Tradeworx completed a capital raise pursuant to which Tradeworx raised $3.0
million cash, selling 1,181,102 shares at a price of $2.54 per share (a 134%
premium to the value at which the shares are recorded on the Company's books).
Tradeworx is in the business of developing proprietary software and
other financial analytical tools that provide online investment analysis and
investment decision support platforms for retail and institutional investors and
brokerage firms. There currently is no public market for Tradeworx securities
and there is no assurance that the Company will realize any value (and the
Company in fact may realize a loss) with respect to its investment in Tradeworx.
On February 23, 2000, the Company and Pricing Dynamics entered into an
agreement pursuant to which the Company acquired 1,166,667 newly-issued shares
of common stock of Pricing Dynamics, representing at the time a 3.3% stake (on a
fully-diluted basis) of Pricing Dynamics (constituting 7.4% of the
then-outstanding shares). The purchase price was paid in the form of a credit
for Pricing Dynamics to use to purchase advertising in the Company's magazines
and web sites during the 21 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 approximately $1.5 million.
Pricing Dynamics provides e-commerce tools and dynamic pricing software
for the business-to- business, business-to-consumer and consumer-to-consumer
markets. There currently is no public market for Pricing Dynamics securities and
there is no assurance that the Company will realize any value (and the Company
may in fact realize a loss) with respect to its investment in Pricing Dynamics.
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 3,308,688 newly issued shares (adjusted to reflect
subsequent stock splits) 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 approximately $2.6
million. In December 1999, VentureHighway raised $7.65 million cash, selling
4,284,000 shares at a price of approximately $1.79 per share (adjusted to
reflect a subsequent stock split).
VentureHighway owns and operated 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. In April 2000, VentureHighway acquired Princeton Securities, Inc., a
retail-oriented broker-dealer based in Princeton, New Jersey. In December 2000,
VentureHighway suspended the operations of its web site while it is exploring
strategic alternatives. During the fourth quarter 2000, the Company became aware
of an other than temporary decline in the value of its Venture Highway
investment and adjusted the carrying value to estimated fair market value.
Accordingly, the Company has taken a charge to operating earnings of
approximately $2.6 million.
3. SALE OF ASSETS
In August 2000, the Company agreed to sell two Internet domain names
for cash consideration of $1.0 million. In connection with the sale, the Company
also issued a warrant to purchase 250,000 shares of the Company's Common Stock
at an exercise price of $2.00 per share and relinquished the right to have its
Common Stock trade under the ticker symbol "INDI" on the Nasdaq National Market
(the Company began trading under the ticker symbol "IIGP" in October 2000). The
fair market value of the issued warrant was approximately $257,000 (see Note
10).
In September 2000, the Company sold certain assets related to the
business of InsiderTrader.com for cash consideration of approximately $500,000
and the assumption of certain liabilities.
In September 2000, the Company sold certain assets related to Ticker
magazine for cash consideration of approximately $6.0 million, less an
adjustment for certain current assets and liabilities and the assumption of
certain liabilities.
Realized gain on the sale of assets for the year ended December 31,
2000, represented by these three separate transactions was approximately $6.7
million.
4. 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 in 1998 through April 30, 1998 were approximately
($140,000). The result for such operations in 1998 through April 30, 1998 was a
net loss of approximately $190,000.
On April 30, 1998, the Company recorded a provision of approximately
$446,000 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 approximately $145,000.
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, 2000, the domestic investment fund had net assets of
approximately $534,000. The Company's net investment in discontinued operations
of $49,302 at December 31, 2000 and 1999, represents its share of the net assets
of the domestic investment fund, less any costs associated with discontinuing
the investment management services.
5. PROPERTY AND EQUIPMENT
December 31,
2000 1999
---- ----
Equipment $1,769,307 $1,432,511
Furniture and fixtures 621,195 612,857
Leasehold improvements 917,050 897,999
----------- -----------
3,307,552 2,943,367
Less: accumulated depreciation
and amortization (1,828,447) (1,289,708)
----------- -----------
$1,479,105 $1,653,659
=========== ===========
6. ACCRUED EXPENSES
December 31,
2000 1999
---- ----
Accrued commissions and
employee compensation $175,697 $340,129
Deferred rent credits 28,288 46,923
Accrued newsstand promotion expenses 97,481 147,842
Accrued professional fees 111,001 127,271
Other 50,333 54,505
----------- -----------
$462,800 $716,670
=========== ===========
7. COMMITMENTS AND CONTINGENCIES
Litigation -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.
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 2000, 1999, and 1998.
Employment Agreements - The Company has an employment agreement with an
officer that contains a provision regarding a potential severance payment in an
amount that would not currently be material to the Company.
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 and Chicago for use by advertising sale representatives located
therein. Rent expense for the years ended December 31, 2000, 1999 and 1998 was
approximately $1.2 million $1.0 million and $0.6 million. The New York City
leases and sublease provide for escalation of lease payments as well as real
estate tax increases. Future minimum lease payments and related sublease rentals
receivable with respect to non-cancelable operating leases are as follows:
Future Minimum Rents Receivable
Year Rental Payments Under Sublease
---- ------------------------------------
2001 $1,201,000 $190,000
2002 1,203,000 195,000
2003 1,209,000 200,000
2004 465,000 205,000
2005 36,000 22,000
Thereafter 0 0
---------- --------
Total $4,115,000 $812,000
========== ========
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. In March 2001, the Company was in discussions concerning an agreement to
sublet approximately 17,000 square feet of its New York City corporate office
space, for the period May 1, 2001 through March 31, 2004, at a rental amount in
excess of its current cost. There can be no assurance, however, that a
definitive sublease agreement upon such terms will be executed or that the
Company otherwise will be able to sublet a portion of its New York City
corporate office space.
8. INCOME TAXES
The Company has available net operating loss carryforwards ("NOL")
totaling approximately $23.2 million. Based upon a change of ownership, which
transpired in December 1991, the utilization of approximately $2.1 million of
pre-change NOL are limited in accordance with Section 382 of the Internal
Revenue Code, which affects the amount and timing of when the NOL can be offset
against taxable income. The Company also has an unrealized tax loss of
approximately $2.6 million related to the impairment of its investment in
VentureHighway.com (see Note 2). 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, 2000, 1999 and 1998,
respectively, are presented below:
2000 1999 1998
---- ---- ----
Deferred tax assets:
Net operating loss carryforwards $10,426,000 $10,360,000 $8,078,000
Unrealized tax loss 1,187,000 - -
Tax in excess of book basis
of investment in fund 71,000 77,000 996,000
Other 498,000 260,000 296,000
----------- ----------- ----------
Total 12,182,000 10,697,000 9,370,000
Deferred tax liabilities: - - -
----------- ----------- ----------
12,182,000 10,697,000 9,370,000
Less: valuation allowance 12,182,000 10,697,000 9,370,000
----------- ------------ ----------
Net deferred tax asset $ - $ - $ -
============ ============ ==========
The provision for income taxes from continuing operations for the years
ended December 31, 2000, 1999 and 1998, respectively, is different than the
amount computed using the applicable statutory Federal income tax rate with the
difference summarized below:
2000 1999 1998
---- ---- ----
Hypothetical income tax benefit
at the US Federal statutory rate $(1,192,000) $(1,467,400) $2,733,700)
State and local income taxes benefit,
less US Federal income tax benefit (341,000) (434,800) (809,900)
Permanent differences 48,000 - -
Unrealized tax loss 1,187,000 - -
Net operating loss benefit not
recognized 298,000 1,902,200 3,543,600
------------ ----------- -----------
$ - $ - $ -
============= ============ ===========
9. STOCK OPTIONS
The Company has five stock option plans: the 1991 Stock Option Plan,
the 1993 Stock Option Plan, the 1996 Performance Equity Plan, the 1996
Management Incentive Plan and the 2000 Performance Equity Plan (collectively,
the "Plans"). Under the Plans, the Company can issue a maximum of 3,200,000
shares of Common Stock pursuant to stock options and other stock-based awards.
Options issued pursuant to the Plans may be 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. The 2000 Performance Equity Plan, which provides for the
issuance of up to 1,000,000 shares of Common Stock pursuant to stock options and
other stock-based awards, was adopted by the Company's board of directors in
February 2000 subject to stockholder approval and was approved by the Company's
stockholders in June 2000.
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, other than 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.
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------------------------------------------------------------
Options outstanding,
January 1 1,359,601 $2.57 1,663,585 $2.44 1,473,051 $6.29
Granted 905,909 $2.93 305,405 $3.79 1,646,301 $2.06
Exercised (112,618) $0.99 (489,856) $3.00 (33,438) $4.72
Canceled (861,849) $2.67 (119,533) $2.07 (1,422,329) $5.93
---------- -------- ----------- -------- ----------- --------
Balance, December 31 1,291,043 $2.90 1,359,601 $2.57 1,663,585 $2.44
========== ======== =========== ======== =========== ========
Options exercisable under the Plans at December 31, 2000, 1999 and
1998, respectively, were 568,527, 578,637, and 396,285, respectively, at
weighted average exercise prices of $3.32, $2.83, and $4.99, respectively. At
December 31, 2000, 1999 and 1998, respectively, options available for grant
under the Plans were 1,138,502, 182,562, and 368,434, respectively, while total
shares of Common Stock reserved for future issuances under the Plans were
2,429,545, 1,542,163, and 2,032,019, respectively.
Options granted outside of the Plans are as follows:
2000 1999 1998
--------------------------------------------------------------------------
Options outstanding,
January 1 2,495,900 $2.63 1,961,913 $2.59 1,560,496 $5.27
Granted - - 803,750 $3.17 1,422,500 $1.46
Exercised - - (225,763) $4.15 (51,500) $4.74
Canceled (837,750) $2.42 (44,000) $2.89 (969,583) $5.12
---------- -------- ----------- -------- ----------- --------
Balance, December 31 1,658,150 $2.73 2,495,900 $2.63 1,961,913 $2.59
========== ======== =========== ======== =========== ========
Options granted outside the Plans that were exercisable at December 31,
2000, 1999 and 1998, respectively, were 1,465,566, 1,291,775, and 639,413,
respectively, at weighted average exercise prices of $2.72, $2.71, and $4.94,
respectively.
The following table summarizes information about total stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------------------------------- ------------------------------------
Number Weighted-Average Number
Range of Exercise Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Prices 12/31/2000 Contractual Life Exercise Price 12/31/2000 Exercise Price
------ ---------- ---------------- -------------- ---------- --------------
$0.4375- $1.250 1,211,600 5.69 $1.12 903,350 $1.24
$1.375 - $3.375 762,500 5.91 $2.45 494,750 $2.25
$3.4375- $8.125 975,093 4.71 $5.19 635,993 $5.71
---------- ---------
2,949,193 5.42 $2.81 2,034,093 $2.88
========== ==========
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 2000, 1999, and 1998, respectively: risk-free
interest rates of 6.5%, 5.8%, and 4.7%, respectively; volatility factors of the
expected market price of the Company's Common Stock of 87%, 132%, and 99%,
respectively; weighted-average fair value of options granted of $2.41, $2.97,
and $1.10, 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:
2000 1999 1998
---- ---- ----
Net loss from continuing operations:
As reported ($3,405,789) ($4,192,703) ($7,810,500)
Pro forma ($3,870,259) ($5,675,620) ($8,937,005)
Loss from continuing operations per
weighted average common share:
As reported ($0.34) ($0.47) ($0.99)
Pro forma ($0.39) ($0.63) ($1.13)
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.
On July 19, 2000, the Stock Option Committee, pursuant to the Company's
2000 Performance Equity Plan, awarded 150,000 shares of authorized but unissued
Common Stock in the aggregate to certain employees subject to the terms of a
restricted stock agreement. 25,500 of such shares have been issued and earned by
various employees and earnings for the year ended December 31, 2000 have been
charged approximately $42,000 with respect to these shares. An additional 87,500
of such shares have been granted and issued to employees at a compensation value
of approximately $148,000, which amount is being amortized ratably over the
employment period required to earn such shares. The remaining 37,000 of such
shares were forfeited and are available for reissuance.
10. STOCKHOLDERS' EQUITY
Repurchase of Common Stock - The Company on December 15, 2000 acquired
1,781,133 shares of its Common Stock from Wise Partners, L.P. ("Wise") and
retired the shares. As a result, the Company's outstanding shares of common
stock have been reduced approximately 13%, to approximately 9.0 million shares
at December 31, 2000 from approximately 10.4 million shares at December 31,
1999. The Company acquired the shares for a purchase price of $0.09 per share,
which was significantly below the closing price of the Common Stock on December
15, 2000 of $0.40625 per share. Wise informed the Company that although Wise
believed the sales price to be far below the appropriate value for the stake, it
was selling the position in order to incur a tax loss during the year to offset
taxable gains recorded by the partnership and its partners. Jonathan Steinberg,
the Company's Chief Executive Officer, is the general partner of Wise and his
father is the limited partner.
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 $2.0 million. The Series A Preferred Stock
has a par value of $.01 per share and a stated value 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. The Series A Preferred Stock shall have a liquidation
preference of $200 per share plus any accrued and unpaid dividends. Shares of
Common Stock into which the Series A Preferred Stock may be converted were
registered for resale in October 1999. On September 21, 2000, 2,120 shares
Series A Preferred Stock were converted at the conversion price of $2.12 per
share into 200,000 shares of Common Stock. At December 31, 2000, 7,880 shares of
Series A Preferred Stock remained outstanding.
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 $3.0 million, 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 providing for the sale of 1,259,842 shares of Common Stock for an
aggregate purchase price of $5.0 million, which was based on the closing "ask"
price of the Common Stock on June 25, 1998. The Company repurchased these shares
as part of the total 1,781,133 shares repurchased on December 15, 2000 described
above.
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 pursuant to the Plans and recorded expenses totaling $109,251 in
connection therewith. No such awards were made in 2000 or 1998.
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.
Of the warrants issued in 1998, 300,000 may be exercised at any time until
December 15, 2003 and 62,500 were cancelled during 2000.
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. During 2000,
43,750 of the warrants issued in 1999 expired unexercised and 50,000 of the
warrants issued in 1999 were cancelled. The remaining warrants issued in 1999
may be exercised at any time until November 28, 2004 with respect to 15,000
shares, and at any time until September 12, 2009 with respect to vested shares
under a 30,000-share warrant, 10,000 of which shares vested on September 13,
2000 and 10,000 of which shares vest on each of September 13, 2001 and September
13, 2002 provided that the holder is continuing to render service to the Company
on the respective vesting date and other terms and conditions.
In 2000, in connection with the sale by the Company of two Internet
domains for cash consideration of $1.0 million, the Company issued a warrant to
purchase 250,000 shares of the Company's Common Stock at an exercise price of
$2.00 per share (see Note 3). This warrant may be exercised at any time until
August 10, 2003.
11. ACCOUNTS RECEIVABLE FINANCING
In August 2000, the Company entered into a securitization facility with
an unrelated financial services company. Under the terms of the facility, the
Company may transfer an undivided ownership interest in certain trade accounts
receivable to the financial services company. The Company receives cash from the
third party based on a formula of a percentage of the face value of the eligible
transferred receivables, less certain fees. The maximum amount of transferred
receivables that may be outstanding under this facility is $2.0 million. The
Company pays a variable interest rate (prime plus 1.5%) during the period from
when a receivable is transferred until the time the third party collects and
remits the balance of the receivable. During 2000, this interest rate averaged
approximately 11%. The Company retains the credit risk for any receivable that
is transferred and with respect to which the customer subsequently defaults on
payment. The Company had no credit losses under this facility during 2000. The
Company recorded interest expense of approximately $0.1 million related to this
facility during 2000. The amount of transferred receivables at December 31, 2000
was approximately $0.6 million. The securitization facility ends June 30, 2002,
subject to earlier termination in accordance with the contract.
12. LOSS PER COMMON SHARE
Basic net loss per common 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 2000,
1999, and 1998 is computed based on the weighted average number of shares of
Common Stock outstanding during the respective 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:
2000 1999 1998
---- ---- ----
Net loss from continuing operations ($3,405,789) ($4,192,703) ($7,810,500)
Preferred stock dividends (188,709) (216,987) -
------------ ------------ ------------
Net loss from continuing operations applicable
to common shareholders (3,594,498) (4,409,690) (7,810,500)
Loss from discontinued operations - - (781,370)
------------ ------------ -----------
Net loss applicable to common shareholders ($3,594,498) ($4,409,690) ($8,591,870)
============ ============ ============
13. SEGMENT INFORMATION
The Company's business segments are focused on providing research and
analysis of investment information to individuals and investment professionals
through two operating segments: Print Publications and Online Services. The
Company's Print Publications segment publishes and markets Individual Investor,
a personal finance and investment magazine and Individual Investor's Special
Situations Report, a financial investment newsletter. Between approximately
October 1996 and September 2000, the Company's Print Publications segment also
included Ticker, a magazine for investment professionals. The Company's Online
Services segment includes individualinvestor.com (www.individualinvestor.com).
Between approximately November 1998 and September 2000, the Company's Online
Services segment also included InsiderTrader.com (www.InsiderTrader.com). In
September 2000, the Company sold InsiderTrader.com and Ticker magazine to two
different parties in two unrelated transactions (see Note 3). 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.
2000 1999 1998
---- ---- ----
Revenues:
Online Services $3,188,022 $ 2,308,186 $ 1,136,032
Print Publications 16,590,782 15,362,615 14,334,074
------------ ------------- -------------
$19,778,804 $ 17,670,801 $15,470,106
============ ============= =============
Operating contribution (before G&A, corporate
advertising and depreciation and amortization):
Online Services ($1,678,479) ($1,714,259) $(2,056,633)
Print Publications 90,541 (246,864) (692,731)
------------ ------------- -------------
(1,587,937) (1,961,123) (2,749,364)
Gain from sale of assets 6,702,219 - -
Impairment of investment (2,638,356) - -
G&A, corporate advertising and depreciation and
amortization expense (6,052,323) (6,541,230) (5,285,349)
Investment and other income 170,608 4,309,650 224,213
------------ ------------- -------------
Net loss from continuing operations ($ 3,405,789) $(4,192,703) $(7,810,500)
============ ============= =============
Identifiable assets (a):
Online Services $ 1,219,312 $ 1,949,481 $ 401,887
Print Publications 2,980,509 4,237,452 3,189,296
Corporate assets 8,506,439 10,071,034 6,953,745
------------ ------------- -------------
$12,706,260 $16,257,967 $10,544,928
============ ============= =============
(a) Total expenditures for long-lived assets for the years ended December 31,
2000, 1999 and 1998, respectively, were as follows: Online Services,
$64,870, $434,805 and $51,092, respectively; Print Publications, $259,479,
$823,023 and $235,809, respectively; and Corporate, $69,503, $310,575 and
$401,522, respectively.
14. SUPPLEMENTARY INFORMATION - SELECTED QUARTERLY DATA (Unaudited)
2000 Quarters
1st 2nd 3rd 4th
--- --- --- ---
Revenues $6,212,650 $5,232,291 $5,223,413 $3,110,450
Operating expenses 7,877,532 7,160,754 6,994,034 5,386,744
Gain on sale of assets - - 6,702,219 -
Impairment of investment - - - (2,638,356)
------------ ------------ ----------- ------------
Operating (loss) income (1,664,882) (1,928,463) 4,931,598 (4,914,650)
Investment and other income 68,299 58,518 24,640 19,151
------------ ------------ ----------- ------------
Net (loss) income ($1,596,583) ($1,869,945) $4,956,238 ($4,895,499)
------------ ------------ ----------- ------------
Basic(loss)income per common share: ($0.16) ($0.19) $0.47 ($0.47)
------------ ------------ ----------- ------------
Average number of common shares used in
computing basic (loss) income per
common share 10,363,991 10,392,173 10,413,519 10,485,781
Dilutive (loss) income per common share ($0.16) ($0.19) $0.44 ($0.47)
------------ ------------ ----------- ------------
Average number of common shares used in
computing dilutive (loss) income per
common share 10,363,991 10,392,173 11,182,167 10,485,781
1999 Quarters
1st 2nd 3rd 4th
--- --- --- ---
Revenues $4,038,776 $ 3,740,343 $ 4,495,331 $ 5,396,351
Operating expenses 5,913,475 6,056,896 6,670,502 7,532,281
------------ ------------- ------------- ------------
Operating loss (1,874,699) (2,316,553) (2,175,171) (2,135,930)
Investment and other income 556,567 39,827 798,352 2,914,904
------------ ------------- ------------- ------------
Net (loss) income ($1,318,132) ($2,276,726) ($1,376,819) $778,974
------------ ------------- ------------- ------------
Basic (loss) income per common share: ($0.15) ($0.25) ($0.15) $0.05
------------ ------------- ------------- ------------
Average number of common shares used in
computing basic (loss)
income per common share 8,786,599 9,016,759 9,188,724 10,339,200
Dilutive (loss) income per common share ($0.15) ($0.25) ($0.15) $0.05
------------ ------------- ------------- ------------
Average number of common shares used in
computing dilutive (loss) income per
common share 8,786,599 9,016,759 9,188,724 11,282,596
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 2001
Annual Meeting of Stockholders (the "Proxy Statement").
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 Proxy Statement.
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 Proxy
Statement.
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 Proxy Statement.
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' Report;
Consolidated Balance Sheets as of December 31, 2000 and 1999;
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999, and 1998;
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999, and 1998;
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998; and
Notes to Consolidated Financial Statements
(a) (3) Exhibits
Exhibit No. Description Method of Filing
3.1 Amended and Restated Certificate of Incorporation of Incorporated by reference to Exhibit 3.2 to the
Registrant, as amended through June 22, 1999 Form 10-Q for the quarter ended June 30, 1999
(the "6/99 Form 10-Q")
3.2 Bylaws of Registrant amended through April 27, 1999 Incorporated by reference to Exhibit 3.3 to the
6/99 Form 10-Q
4.1 Specimen Certificate for Common Stock of Registrant Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-18
(File No. 33-43551-NY) (the "Form S-18")
4.2 Certificate of Designations, Preferences and Other Rights and Incorporated by reference to Exhibit 10.1 to the
Qualifications of Series A Preferred Stock Form 8-K filed December 14, 1998 (the "12/14/98
Form 8-K")
4.3 Stock Purchase Agreement dated as of November 30, 1998 Incorporated by reference to Exhibit 10.1 to the
between Registrant and Great American Insurance Company 12/14/98 Form 8-K
4.4 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 as of 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 as of 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 as of June 19, 1996, Incorporated by reference to Exhibit 10.4 to the
between Registrant and Peter M. Ziemba Form 10-K for the year ended December 31, 1998
(the "1998 Form 10-K")
10.4+ Indemnification Agreement dated as of June 17, 1998, Incorporated by reference to Exhibit 10.1 to the
between Registrant and S. Christopher Meigher III Form 10-Q for the quarter ended March 31, 1999
10.5+ Indemnification Agreement dated as of September 14, Incorporated by reference to Exhibit 10.6 to the
1998, between Registrant and Gregory E. Barton Form 10-Q for the quarter ended September 30,
1998 (the "9/98 Form 10-Q")
10.6+ Indemnification Agreement dated as of December 15, 1999, Incorporated by reference to Exhibit 10.2 to the
between Registrant and E. Drake Mosier Form 10-Q for the quarter ended March 31, 2000
10.7+ 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
("6/98 Form 10-Q")
10.8+ Agreement with Scot Rosenblum dated June 20, 1998 Incorporated by reference to Exhibit 10.2 to the
6/98 Form 10-Q
10.9+ 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
10.10+ Indemnification Agreement dated as of September 14, 1998 Incorporated by reference to Exhibit 10.5 to the
between Registrant and Brette Popper 9/98 Form 10-Q
10.11+ Indemnification Agreement dated as of October 8, 1998 Incorporated by reference to Exhibit 10.3 to the
between Registrant and Henry G. Clark 9/98 Form 10-Q
10.12+ Indemnification Agreement dated as of August 16, 1999 Incorporated by reference to Exhibit 10.5 to the
between Registrant and David H. Allen Form 10-Q for the quarter ended September 30,
1999
10.13+ Form of 1991 Stock Option Plan of Registrant Incorporated by reference to Exhibit 10.13 to
the Form S-18
10.14+ 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)
10.15+ 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")
10.16+ Form of 1996 Management Incentive Plan of Registrant Incorporated by reference to Exhibit 4.10 to
the Registrant's Registration Statement on Form
S-8 (File No. 333-17697)
10.17+ Form of 2000 Performance Equity Plan of Registrant Incorporated by reference to Appendix A to
definitive Proxy Statement dated May 17, 2000
10.18+ Form of Stock Option Agreement dated as of May 9, 1997 Incorporated by reference to Exhibit 10.4
between Registrant and each of Jonathan Steinberg, between to the Form 10-QSB for the quarter ended June
Robert Schmidt, Scot Rosenblum, and Michael Kaplan 30, 1997
10.19+ Agreement dated as of November 19, 1998 between Jonathan Incorporated by reference to Exhibit 10.21 to
Steinberg and the Registrant the 1998 Form 10-K
10.20+ Stock Option Agreement dated as of September 14, 1998 Incorporated by reference to Exhibit 10.4 to the
between Registrant and Gregory E. Barton 9/98 Form 10-Q
10.21+ Employment Agreement dated as of July 21, 1998 between Incorporated by reference to Exhibit 10.3 to the
Registrant and Gregory E. Barton 9/98 Form 10-Q
10.22+ Employment Agreement dated as of December 7, 2000 Filed herewith
between Registrant and Howard B. Lorch
10.23 Trademark License Agreement dated as of June 19, 1992 Incorporated by reference to Exhibit 10.25
between Registrant and the American Association of Individual to the Form 10-KSB for the year ended December
Investors, Inc. 31, 1992
10.24 Form of Partnership Agreement for WisdomTree Associates, Incorporated by reference to Exhibit 10.37 to
L.P. the Form 10-KSB for the year ended December 31,
1994 ("1994 Form 10-KSB")
10.25 WisdomTree Capital Advisors, LLC Agreement dated as of Incorporated by reference to Exhibit 10.38 to
November 1, 1995 the 1994 Form 10-KSB
10.26 Agreement dated as of December 1, 1995 between WisdomTree Incorporated by reference to Exhibit 10.39 to
Offshore L.T.D., WisdomTree Capital Management, Inc. and the 1994 Form 10-KSB
WisdomTree Capital Advisors, LLC
10.27 Office sublease dated as of December 8, 1995 between Incorporated by reference to Exhibit 10.41 to
Registrant and Porter Novelli, Inc. the 1995 Form 10-KSB
10.28 Office sublease dated as of January 1996 Incorporated by reference to Exhibit 10.42 to
between Registrant and VCH Publishers, Inc. the 1995 Form 10-KSB
10.29 Lease dated as of November 30, 1998 between Registrant Incorporated by reference to Exhibit 10.31 to
and 125 Broad Unit C LLC the 1998 Form 10-K
10.30 Office Lease dated as of January 10, 1994 between Incorporated by reference to Exhibit 10.22 to
Registrant and 333 7th Ave. Realty Co. the Form 10-KSB for the year ended December 31,
1993
10.31 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 (the "6/16/99 Form
8-K")
10.32 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.
10.33 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
10.34 Form of Warrant dated as of December 16, 1998 Incorporated by reference to Exhibit 10.1 to the
6/99 Form 10-Q
10.35 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 6/99 Form 10-Q
Insurance Company
10.36 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
"10/29/99 Form S-3")
10.37 Letter Agreement dated as of September 29, 1999 between Incorporated by reference to Exhibit 10.9 to the
Registrant and Telescan, Inc. 10/29/99 Form S-3
10.38 Factoring Agreement dated as of August 1, 2000 between Incorporated by reference to Exhibit 10.1
SYSTRAN Financial Services Corporation and Registrant, to the for the quarter ended September 30,
Form 10-Q as amended ( 2000 the "9/00 Form 10-Q")
10.39 Asset Purchase Agreement dated as of September 28, 2000 Incorporated by reference to Exhibit 10.2 to the
between Registrant and 123Jump.com, Inc. 9/00 Form 10-Q
10.40 Stock Purchase Agreement dated as of December 15, 2000 Filed herewith
between Registrant and Wise Partners, L.P.
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
99 Risk Factors Filed herewith
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 2, 2001
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 and
Jonathan L. Steinberg Director April 2, 2001
/s/ Gregory E. Barton Vice President, Chief Financial
Gregory E. Barton Officer (Principal Financial April 2, 2001
Officer)
/s/ Howard B. Lorch Vice President, Controller
Howard B. Lorch (Principal Accounting Officer) April 2, 2001
/s/ S. Christopher Meigher III Director April 2, 2001
S. Christopher Meigher III
E. Drake Mosier Director April 2, 2001
/s/ Bruce L. Sokoloff Director April 2, 2001
Bruce L. Sokoloff
/s/ Peter M. Ziemba Director April 2, 2001
Peter M. Ziemba
December 7, 2000
Mr. Howard Lorch
Dear Howard:
Congratulations! On behalf of Individual Investor Group, Inc., I'm
pleased to extend to you a formal offer of employment to join the Company as
Vice President, Controller. We are excited to have you on our team in this
important position and confident that you will make a meaningful contribution to
our future success.
Upon commencement of employment, your annualized salary will be
$140,000. In addition to your salary, you will be granted options ("Options") to
purchase 30,000 shares of the Company's common stock, one-quarter of which
Options shall vest on each of the first four anniversaries of the Start Date
(defined below). The per-share exercise price of the Options will be the market
value of the stock the day prior to the Start Date. Your employment shall
commence as of January 1, 2001 (the "Start Date").
You shall be eligible for coverage under the Company's comprehensive
benefits plan, which includes medical, dental, life insurance and long-term
disability, commencing on the Start Date. In addition, after you have remained
employed for sixty days, you will have the option to invest up to 20% of your
annual salary (subject to an annual limit of $10,500) in a 401(k) retirement
plan upon the next available enrollment date (currently the enrollment dates are
January 1, April 1, July 1 and October 1). (Note that the Company does not make
contributions to the plan.) On January 1, 2001, the Company shall pay you a
starting bonus of $893.84. You shall be entitled to three (3) weeks of paid
vacation per year, in accordance with and subject to the Company's vacation
policy.
Your employment with the Company is "at will" which means that your
employment can be terminated with or without cause, and with or without notice,
at any time, at the option of either the Company or yourself. If, however, the
Company terminates your employment without cause between the Start Date and the
first anniversary of the Start Date, the Company shall pay you a severance
payment equal to $70,000, provided that you execute a full release of the
Company in a form provided by the Company. The severance payment shall be within
thirty days of your termination without cause, or if later, seven days after
your execution of the full release. In addition, if the Company terminates your
employment without cause within six (6) months of a change in control, any
shares of the Options granted in connection herewith that would have vested due
to the passage of time had you remained employed for an additional twelve (12)
months from your termination shall become immediately vested. As used in this
paragraph, (a) "cause" shall mean your commission of a felony, fraud or any
other act of willful misconduct that is materially injurious to the Company and
(b) "change in control" shall mean (i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such transaction (but excluding any transfers between any persons who are under
common control), or (ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or dissolution
of the Company.
This letter sets forth all of the terms relating to your potential
employment by the Company, and supersedes all other discussions, whether written
or oral. The terms relating to your actual or potential employment by the
Company may not be modified or amended except in writing signed by both parties.
A signature received via facsimile shall be deemed an original for all purposes.
Please indicate by your signature below, on or before December 8, 2000,
your agreement with the terms set forth above (and please mail your signature to
me). Again, we are happy to have you join the Company at this exciting time and
look forward to your important contributions to our success.
Sincerely,
INDIVIDUAL INVESTOR GROUP, INC.
By: /s/ Gregory Barton
Gregory E. Barton
Vice President, Business Development,
Finance and Legal Affairs,
Chief Financial Officer and
General Counsel
AGREED AND ACCEPTED:
/s/ Howard Lorch Date: December 7, 2000
---------------- ----------
Howard Lorch
This STOCK PURCHASE AGREEMENT, dated as of December 15, 2000
("Agreement"), is between Wise Partners, L.P., a Delaware limited partnership
with an address at c/o Jonathan Steinberg, 125 Broad Street, 14th Floor, New
York, New York 10004 ("Seller"), and Individual Investor Group, Inc., a Delaware
corporation with its principal offices at 125 Broad Street, 14th Floor, New
York, New York 10004 ("Buyer").
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, an aggregate of 1,781,133 shares of common stock, $.01 par
value per share ("Common Stock"), of Buyer, on the terms and conditions set
forth in this Agreement.
IT IS AGREED:
1. Purchase and Sale of Shares. Subject to the terms and conditions
herein set forth, Seller hereby agrees to sell 1,781,133 shares of Common Stock
("Purchased Shares"), and Buyer hereby agree to purchase from Seller the
Purchased Shares for an aggregate purchase price of $160,301.97 [$.09 per
Purchased Share] ("Purchase Price").
2. Closing Procedure. Seller hereby delivers to Buyer the stock
certificates representing the Purchased Shares and stock powers duly endorsed
for transfer of the Purchased Shares, with signature Medallion Guaranteed. Buyer
hereby delivers the Purchase Price to Seller by wire transfer to an account
designated by Seller.
3. Representations of Seller. Seller hereby represents and warrants to
Buyer the following representations and warranties.
(a) Seller is the holder of record and beneficial owner of the
Purchased Shares free and clear of any security interests, liens or
encumbrances, and Seller has not granted to any person or persons any options or
other rights to buy, or proxies or other rights to vote, the Purchased Shares.
(b) Seller has full legal power to execute and deliver this
Agreement and to perform its obligations hereunder. All acts required to be
taken by Seller to enter into this Agreement and to carry out the transactions
contemplated hereby have been, or prior to the Closing Date shall have been,
properly taken; and this Agreement constitutes a legal, valid and binding
obligation of Seller, enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement by Seller in accordance with its
terms will not, with or without the giving of notice or the passage of time, or
both, conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any encumbrance pursuant to, or require the
consent of any third party or governmental authority pursuant to, (i) the
partnership agreement pursuant to which Seller was created and any operating
agreement pursuant to which Seller is governed or (ii) any franchise, mortgage,
indenture or deed of trust or any material lease, license or other agreement or
any law, regulation, order, judgment or decree to which Seller is a party or by
which Seller (or any of his assets, properties, operations or businesses) may be
bound, subject to or affected.
(c) In the sale of the Purchased Shares hereunder, Seller is not
relying on any state of facts about Buyer set forth in the public disclosure
documents of Buyer which have been filed with or disclosed to the Securities and
Exchange Commission or with any other public body or any news wire service. The
sale of the Purchased Shares is being motivated by certain tax requirements of
Seller and Seller has obtained several proposals from independent third parties
for the purchase of the Purchased Shares immediately prior to its entry into
this Agreement, each of which has been evaluated by Seller in conjunction with
its decision to sell the Purchased Shares to Buyer.
4. Representations and Warranties of Buyer. Buyer hereby represents
and warrants to Seller that:
(a) Buyer has full legal power to execute and deliver this
Agreement and to perform its obligations hereunder. All acts required to be
taken by Buyer to enter into this Agreement and to carry out the transactions
contemplated hereby have been, or prior to the closing described in Section 2
hereof shall have been, properly taken; and this Agreement constitutes a legal,
valid and binding obligation of Buyer enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement by Buyer in accordance
with its terms will not, with or without the giving of notice or the passage of
time, or both, conflict with, result in a default, right to accelerate or loss
of rights under, or result in the creation of any encumbrance pursuant to, or
require the consent of any third party or governmental authority pursuant to (i)
any provision of the certificate of incorporation or by-laws, if any, of Buyer,
or (ii) any franchise, mortgage, indenture or deed of trust or any material
lease, license or other agreement or any law, regulation, order, judgment or
decree to which Buyer is a party or by which Buyer (or any of its assets,
properties, operations or businesses) may be bound, subject to or affected.
5. Indemnification. Seller shall indemnify and hold harmless Buyer and
its successors and assigns from and against any losses, damages, expenses or
liabilities, including, without limitation, reasonable attorneys' fees, which
may be sustained, suffered or incurred by Buyer and its successors and assigns,
arising from or in connection with the breach of any of Seller's covenants,
representations, warranties, agreements, obligations or undertakings hereunder.
Buyer shall indemnify and hold harmless Seller and its successors, and assigns,
from and against any losses, damages, expenses or liabilities, including,
without limitation, reasonable attorneys' fees, which may be sustained, suffered
or incurred by Seller arising from or in connection with the breach of any of
Buyer's representations or warranties hereunder.
6. Miscellaneous.
(a) The warranties, representations, covenants and indemnities of
Seller and Buyer contained in or made pursuant to this Agreement shall survive
the closing of the transaction contemplated by this Agreement and shall in no
way be affected by any investigation of the subject matter thereof made by or on
behalf of Buyer or Seller.
(b) This Agreement shall be binding upon and inure to the benefit
of each party hereto, and its respective successors and assigns. This Agreement
constitutes the entire understanding and agreement between the parties with
regard to the subject matter hereof and may not be amended or modified except by
a written agreement specifically referring to this Agreement signed by all the
parties. No waiver of any breach or default hereunder shall be considered valid
unless in writing and signed by the party giving such waiver, and no such waiver
shall be deemed a waiver of any subsequent breach or default of the same or
similar nature.
(c) This Agreement shall be governed by and construed under the
internal laws of the State of New York, disregarding any principles of conflicts
of laws.
(d) Each party represents that it neither is nor will be obligated
for any finder's fee or commission in connection with this transaction.
(e) In the event that any provision of this Agreement would be held
to be invalid, prohibited or unenforceable in any jurisdiction for any reason,
unless such provision is narrowed by judicial construction, this Agreement
shall, as to such jurisdiction, be construed as if such invalid, prohibited or
unenforceable provision had been more narrowly drawn so as not to be invalid,
prohibited or unenforceable. If, notwithstanding the foregoing, any provision of
this Agreement would be held to be invalid, prohibited or unenforceable in any
jurisdiction for any reason, such provision, as to such jurisdiction, shall be
ineffective to the extent of such invalidity, prohibition or unenforceability,
without invalidating the remaining portion of such provision or the other
provisions of this Agreement of affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
SELLER:
WISE PARTNERS, L.P.
/s/ Jonathan L. Steinberg
---------------------------------------
Jonathan L. Steinberg, General Partner
BUYER:
INDIVIDUAL INVESTOR GROUP, INC
---------------------------------------
/s/ Gregory E. Barton
-------------------------------------------
Gregory E. Barton, Vice President, Business
Development, Finance and Legal Affairs and
Chief Financial Officer
EXHIBIT 11
COMPUTATION OF LOSS PER SHARE
2000 1999 1998
Net loss from continuing operations (a) ($3,405,789) ($4,192,703) ($7,810,500)
Preferred stock dividends (188,709) (216,987) -
------------ ------------ ------------
Net loss from continuing operations
applicable to common shareholders (3,594,498) (4,409,690) (7,810,500)
(Loss) income from discontinued operations - - (781,370)
------------- ------------ ------------
Net loss applicable to common shareholders ($3,594,498) ($4,409,690) ($8,591,870)
============ ============ ============
Basic and dilutive (loss) income per
common share:
Continuing operations ($0.34) ($0.47) ($0.99)
Discontinued operations - - (0.10)
------------ ------------ ------------
Total ($0.34) ($0.47) ($1.09)
============ ============ ============
Weighted average number of common shares
used in computing basic and dilutive (loss)
income per common share 10,439,887 9,336,679 7,876,509
=========== ============ ============
(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 March 27, 2001, appearing in this Annual
Report on Form 10-K of Individual Investor Group, Inc. and subsidiaries for the
year ended December 31, 2000.
DELOITTE & TOUCHE LLP
New York, New York
April 2, 2001
EXHIBIT 99
CERTAIN RISK FACTORS
Dated: April 2, 2001
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, operating results 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 will need to raise additional capital in the future. Our current levels of
revenues are not sufficient to cover our expenses. We intend to control our
operating expenses while continuing to invest in its existing products - and, as
noted in the Form 10-K, we recently implemented changes intended to
substantially reduce certain operating and general and administrative expenses.
Because we expect continuing net losses, we likely will need to raise additional
capital in the future. We believe that our working capital the value we believe
we could realize from the sale of assets and/or securities should be sufficient
to fund our its operations and capital requirements through 2001. During the
second quarter of 2000, we retained The Jordan, Edmiston Group, Inc., the media
investment bank, to explore a range of strategic alternatives to enhance
shareholder value, including the possible sale of the Company. In September
2000, we sold certain assets, including Ticker magazine and InsiderTrader.com
that generated net cash proceeds of approximately $6.6 million. We are
continuing to explore strategic alternatives, including exploring sources of
additional financing and/or sale of assets. We cannot assure you, however, that
we will be able to obtain additional financing or sell any assets. We also
cannot assure you as to the terms upon which such additional financing or sale
of assets could be consummated if we are able to obtain additional financing or
sell assets. It is possible that any additional financing or sale of assets
could result in a substantial dilution of an investor's equity interest in us.
If we are unable to obtain additional financing or sell assets prior to
exhausting our existing resources, or if we only could consummate such financing
or sale of assets on unfavorable terms, our ability to continue operations and
the value of our common stock would be materially adversely affected.
We have a history of losses and we anticipate that our losses will continue in
the future. As of December 31, 2000, we had an accumulated deficit of
approximately $30 million. Since inception, the only calendar year during which
we were profitable was 1995. We expect to continue to incur operating losses
into 2001. Even if we do achieve profitability, we may be unable to sustain or
increase profitability on a quarterly or annual basis in the future.
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 face intense competition in both our print publications business and our
online services business. A large number of financial news and information
sources compete for consumers' and advertisers' attention and spending. We
expect this competition to continue and the number of competitors might
increase. These competitors include:
o 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; MSN Money Central;
o SmartMoney.com; Money.com; and Multex.com;
o 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; and Worth;
o publishers and distributors of radio and television programs focused on
business, finance and investing, such as Bloomberg Business Radio and
CNBC;
o web "portal" companies, such as Yahoo!; Excite; Lycos; 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 or wireless 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 and
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 our 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 our market share. Any of
these could materially adversely affect our business.
We have not yet generated revenues from licensing the stock indexes we have
developed. We have not yet generated revenues from licensing the stock indexes
we have developed and we might never generate any such revenues. We have
licensed the America's Fastest Growing Companies Index to Nuveen Investments and
the American Stock Exchange for the creation of an exchange-traded fund to be
based upon the America's Fastest Growing Companies Index. Nuveen Investments has
filed to obtain the regulatory approvals necessary to permit the launch of an
exchange-traded fund based upon the America's Fastest Growing Companies Index.
The necessary regulatory approvals have not yet been obtained and we cannot
assure you that such approvals will in fact be obtained. Moreover, we cannot
assure you that an exchange-traded fund based upon the America's Fastest Growing
Companies Index would commence trading if the necessary regulatory approvals
were obtained. We also cannot assure you that an exchange-traded fund based upon
the America's Fastest Growing Companies Index would prove to be popular or that
the Company would receive any material amount of revenues related to the
licenses described in this paragraph. We intends to seek to execute license
agreements for the creation of financial products based upon the America's
Fastest Growing Companies MidCap 300 Index and the America's Fastest Growing
Companies LargeCap 50 Index, but we cannot assure you that we will be successful
in our endeavors to do so.
We may not be able to attract and retain qualified employees for our online
service business. Current and potential employees for our online services
business might prefer to work at a company that has operations exclusively
related to online services.. 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 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. In print, we
publish only one magazine 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 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. 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, operating results and financial condition could be materially
adversely affected.
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, Magic 25, America's Fastest Growing
Companies, Investor University and Investment University) is an important aspect
of our efforts to continue to attract print subscribers, magazine readers and
Internet users. 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, operating results and financial condition.
We depend on certain advertisers to generate revenues. In 2000, 1999 and 1998,
the majority of our print publications advertising revenues came from financial
services companies, followed by consumer advertisers and others. We were not
dependent upon any particular advertiser for our print publications revenues. In
2000, approximately 38 % of the online services advertising revenues came from a
combination of VentureHighway.com (a company in which we have acquired an
approximately 15.8% equity interest through an equity-for-advertising barter
transaction) and one brokerage firm offering online trading and the large
majority of such revenues from those two advertisers were derived in the first
half of 2000 (VentureHighway.com did not advertise on the Company's online
properties during the second half of 2000). We expect that the majority of
advertising revenues derived from our online services operations will come from
financial services companies (including online brokerage firms and mutual fund
companies) and from companies in which we have obtained equity stakes in
exchange for advertising. In the event that financial services companies choose
to scale back on their online advertising (on the Internet in general or on our
web sites in particular) or we do not enter into additional
equity-for-advertising transactions, our online services business could be
materially adversely affected.
We need to manage our operations effectively. The Company has in the past few
years experienced periods of rapid growth in revenues and headcount and periods
of declining revenues and headcount. Both types of change place a strain on our
managerial, operational and financial resources. To manage our business, 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
in part on our ability to expand, train and manage our workforce, in particular
our editorial, advertising sales and business development staff, and to
effectively manage any workforce reductions that we have made or may in the
future make. We cannot assure you that we have made adequate allowances for the
costs and risks associated with any such expansion or reduction, that our
systems, procedures or controls will be adequate to support our operations, or
that our management will be able to successfully offer our services. If we are
unable to manage our operations effectively, our business, operating results 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 revenues 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, operating results 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:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o 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 or other online
content providers 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,
operating results and financial condition.
We may not realize any value (and in fact may realize additional losses) related
to our investments in VentureHighway.com, Inc., Pricing Dynamics, Inc. and
Tradeworx, Inc. We record on our balance sheet investments in non-readily
marketable securities at their fair market value at the date of acquisition,
unless and until we become aware of an other than temporary impairment in such
securities or unless and until such securities become readily marketable. We
originally recorded the value of VentureHighway.com, Inc. at approximately $2.6
million, Pricing Dynamics, Inc. at approximately $1.5 million and Tradeworx,
Inc. at approximately $1.1 million. As of December 31, 2000, we determined that
the value of our VentureHighway.com securities had become impaired and we
adjusted the carrying value to the estimated fair market value. Accordingly, we
took a charge to operating earnings in 2000 of approximately $2.6 million. There
currently is no public market for VentureHighway.com, Inc., Pricing Dynamics,
Inc. or Tradeworx, Inc. securities, and there is no assurance that we will
realize any value with respect to these investments. If we need to take any
additional downward adjustments to the carrying value of our investments, our
financial condition could be materially adversely affected.
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. After three quarters of growth (as compared to the applicable
prior year period), a sudden and sharp decline (as compared to the applicable
prior year period) in the advertising for print publications in general
(including personal finance magazines) began in the fourth quarter of 2000 and
has continued into the first quarter of 2001. This slowdown could be followed by
an equally sudden and sharp rebound or by continued weakness. At the time this
report is filed, we are not able to predict when, if at all, the overall
advertising climate for print publications (and more specifically, for personal
finance magazines) might improve and therefore we cannot predict the level of
advertising revenues that may be achieved by Individual Investor magazine.
Continued weakness in the advertising climate for print publications (and more
specifically, for personal finance magazines) would hamper our ability to
achieve greater revenues for Individual Investor magazine and could have a
material adverse effect on our business, operating results and financial
condition.
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 the level of trading volume at
online brokerages, for instance, has declined in recent months as the market has
moved generally lower - 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
- and as noted above, the advertising climate for print publications in general
and personal finance magazines in particular has suffered a sharp decline
beginning in the fourth quarter of 2000. A continuation of a general market
downturn would have a material adverse effect on our business, operating results
and financial condition.
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 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, operating results 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. We currently are relying upon the
services of Jonathan Steinberg, our Chief Executive Officer and President, and
Gregory Barton, our Vice President of Business Development, Finance and Legal
Affairs, Chief Financial Officer and General Counsel, neither of whom is under
any employment contract with us. The loss of either of our key management
personnel could materially adversely affect our business. Moreover, the costs
that may arise in connection with executive departures and replacements can be
significant, as they were during 2000, 1999 and 1998.
We rely on several third party sole providers to conduct many of our operations.
Our strategy is to enter into relationships with various third parties to be the
exclusive provider of their respective service 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 print Individual Investor magazine. We depend upon
an independent party, Quebecor, to print Individual Investor magazine. 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 Individual Investor magazine in a timely
manner and may lose subscribers and newsstand sales. This could cause our
operating results to suffer materially.
2. We depend on independent parties to distribute Individual Investor magazine
to newsstands. We depend upon independent parties (the largest of which is
Comag Marketing Group, a venture between The Hearst Corporation and Conde
Nast) to direct the distribution of 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. This could cause our operating results to
suffer materially.
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 Individual Investor magazine
and Special Situations Report newsletter, 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 Synapse, Special Data Processing and EBSCO. 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 revenues and
reduce our advertising rate base, which would lead to lower advertising
revenues. 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.
5. We depend on WinStar Interactive Media Sales, Inc. to sell advertising,
sponsorships and e-commerce partnerships on our web sites. We depend on an
independent party, WinStar Interactive Media Sales, Inc. ("WinStar"), to
sell advertising, sponsorships and e-commerce partnerships on our web
sites, to complement our internal efforts. If WinStar's business is
disrupted or its sales force is ineffective, the revenues generated from
our web sites could be materially adversely affected.
Control of the Company by Principal Stockholders. At the present time, Jonathan
Steinberg, and Saul Steinberg (who is Jonathan Steinberg's father), beneficially
own approximately 29% of the common stock of the Company. Additionally,
Telescan, Inc. currently owns approximately 13% of the outstanding common stock.
As a result of their ownership of common stock, these parties 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, copyright and patent law, trade
secret protection, confidentiality agreements, laws governing tortuous conduct
(including, for example, unfair competition) 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, trade secret
and patent 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, Magic25,
America's Fastest Growing Companies, Investor University and Investment
University. 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 of 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, as could the award
of damages against us. Our insurance may not adequately protect us against such
claims
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, invasion of privacy 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. Defending
against any such claim could be costly and divert the attention of management
from the operation of our business, and the award of damages against us could
adversely affect our financial condition. Our insurance may not adequately
protect us against such claims.
+ 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, 2000.