U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
___ 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
INDEX DEVELOPMENT PARTNERS, INC.
---------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3487784
--------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, New York 10004
----------------------------------------------------------------
(Address of principal executive offices)
(212) 742-2277
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: as of November 5, 2003, issuer had
outstanding 7,894,552 shares of Common Stock, $.01 par value per share.
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
INDEX
Part I Financial Information
Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
as of June 30, 2003(Unaudited)
Consolidated Condensed Statements of Operations (Unaudited) 4
for the Six Months Ended June 30, 2003 and 2002
Consolidated Condensed Statements of Cash Flows (Unaudited) 5
for the Six Months Ended June 30, 2003 and 2002
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition 12-18
and Results of Operations
Item 3. Controls and Procedures 18
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
PART 1: Financial Information
ITEM 1: Financial Statements
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
ASSETS 2003
-----------
Current assets:
Cash and cash equivalents $ 396,653
Prepaid expenses and other current assets 76,477
-----------
Total current assets 473,130
-----------
Property and equipment - net 58,963
Security deposits 49,084
Other assets 189,011
-----------
Total assets $ 770,188
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 428,537
Accrued expenses 254,020
Deferred non compete 25,000
Accrued preferred stock dividend 236,400
-----------
Total current liabilities 943,957
Deferred subscription revenue 446,227
Deferred non compete 50,000
-----------
Total liabilities 1,440,184
-----------
Stockholders' Deficit:
Preferred stock, $.01 par value, authorized 2,000,000 shares,
7,880 issued and outstanding 79
Common stock, $.01 par value; authorized 40,000,000
shares, 7,894,552, issued and outstanding 78,946
Additional paid-in capital 33,410,579
Warrants 770,842
Accumulated deficit (34,930,441)
-----------
Total stockholders' deficit (669,996)
-----------
Total liabilities and stockholders' deficit $ 770,188
===========
3
See Notes to Consolidated Condensed Financial Statements
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
3 Months Ended June 30, 6 Months Ended June 30,
-------------------------------- ------------------------------
2003 2002 2003 2002
---------- --------- ------- --------
Revenues:
---------- --------- --------
Total revenues - - -
---------- --------- --------
Operating expenses:
General and administrative 319,345 84,113 549,405 459,261
Depreciation and amortization 11,485 32,767 25,099 52,864
---------- --------- --------- --------
Total operating expenses 330,830 116,880 574,504 512,125
---------- --------- --------- --------
Gain on sale of furniture and fixtures - - 69,486 70,871
Gain on investments and other assets - - 29,515 84,926
---------- --------- --------- --------
Operating loss from continuing operations (330,830) (116,880) (475,503) (356,328)
Investment and other income 360 3,366 1,725 8,894
---------- --------- --------- --------
Net loss from continuing operations (330,470) (113,514) (473,778) (347,434)
---------- --------- --------- --------
Discontinued operations
Gain from print operations 52,007 497,045 116,872 967,347
Gain from online operations - - - 13,188
---------- --------- --------- --------
Gain from discontinued operations 52,007 497,045 116,872 980,535
---------- --------- -------- --------
Net income (loss) $ (278,463) $ 383,531 $ (356,906) $ 633,101
=========== ========- ======== =========
Basic and dilutive income (loss) per common share:
Continuing operations ($0.05) ($0.02) $ (0.07) $ (0.05)
Discontinued operations $0.01 $0.06 $ 0.01 $ 0.12
---------- --------- -------- --------
Net basic income (loss) per share ($0.04) $0.04 $ (0.06) $ 0.07
========== ========= ======== ========
Average number of common shares used in computing
basic and dilutive loss per common share 7,894,552 7,894,552 7,894,552 7,901,480
Average number of common shares used in computing
basic and dilutive loss per common share 8,637,948 8,637,948 8,637,948 8,644,876
4
See Notes to Consolidated Condensed Financial Statements
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
6 Months Ended June 30,
2003 2002
---------- ----------
Cash flows from operating activities:
Net (loss) income $ (356,906) $ 633,101
Reconciliation of net income (loss) to net cash used in
operating activities:
(Gain) from discontinued operations (116,872) (980,535)
Gain on sale of furniture and fixtures and investments (99,001) (155,797)
Depreciation and amortization 25,099 57,435
Amortization of non compete 12,500 12,500
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other current assets 48,949 (60,871)
Security deposits 236,858 88,749
Increase (decrease) in:
Accounts payable and accrued expenses 68,874 (196,188)
---------- ----------
Net cash used in operating activities (180,498) (601,606)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (40,543)
Proceeds from sale of investments 29,515 84,926
Net proceeds from sale of assets 86,838 70,871
---------- ----------
Net cash provided (used) by investing activities 116,353 115,254
---------- ----------
Cash flows from financing activities:
Preferred stock dividends - (78,800)
---------- ----------
Net cash used by financing activities - (78,800)
---------- ----------
Net cash provided by discontinued operations - 17,759
---------- ----------
Net decrease in cash and cash equivalents (64,145) (547,393)
Cash and cash equivalents, beginning of period 460,798 1,291,444
---------- ----------
Cash and cash equivalents, end of period $ 396,653 $ 744,051
========== ==========
5
See Notes to Consolidated Condensed Financial Statements
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts
of Index Development Partners, Inc. and its subsidiaries (collectively, the
"Company"). Such financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial reporting and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes as
required by accounting principles generally accepted in the United States
of America for annual financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary in order to make the financial statements not misleading have
been included. Operating results for the three and six months ended June
30, 2003 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2003. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report for the year ended December 31, 2002 on Form
10-KSB.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," which is effective in 2003.
It requires the recording of an asset and a liability equal to the present
value of the estimated costs associated with the retirement of long-lived
assets where a legal or contractual obligation exists. The asset is
required to be depreciated over the life of the related equipment or
facility, and the liability accreted each year based on a present value
interest rate. This standard, which the Company adopted in 2003, will not
have a material effect on the Company's consolidated financial position or
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets", which is effective for
financial statements issued for fiscal years beginning after December 15,
2001. The objectives of SFAS No. 144 are to address significant issues
relating to the implementation of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", and to develop a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired. The Company
adopted SFAS No. 144 during the first quarter of 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44,and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This statement eliminates the automatic
classification of gain or loss on extinguishment of debt as an
extraordinary item of income and requires that such gain or loss be
evaluated for extraordinary classification under the criteria of Accounting
Principles Board No. 30, "Reporting Results of Operations." This statement
also requires sales-leaseback accounting for certain lease modifications
that have economic effects that are similar to sales-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. This statement is effective for the Company for the year
ending December 31, 2003, with the effective date for certain provisions of
SFAS No. 145 being May 15, 2002. The adoption of this statement did not
have a material effect on our results of operations or financial position
or cash flows of the Company.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The statement is effective for such activities implemented
after December 31, 2002.
6
In November 2002, the FASB issued Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
Interpretation apply to guarantees issued or modified after December 31,
2002. The Company has evaluated the impact of the adoption of FIN 45, and
does not believe it will have a material impact on the Company's
consolidated financial position or results of operations because the
Company is not currently the guarantor of any third party obligations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. We have adopted the disclosure requirements of SFAS No.
148 as of December 31, 2002. We account for stock-based employee
compensation arrangements in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and comply with the disclosure provisions of SFAS No. 123, as
amended. Under APB Opinion No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the quoted market price
of our stock and the exercise price.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities." FIN No. 46 addresses consolidation of entities
that are not controllable through voting interests or in which the equity
investors do not bear the residual economic risks and rewards. These
entities have been commonly referred to as special purpose entities. The
Interpretation provides guidance related to identifying variable interest
entities and determining whether such entities should be consolidated. It
also provides guidance related to the initial and subsequent measurement of
assets, liabilities and noncontrolling interests in newly consolidated
variable interest entities and requires disclosures for both the primary
beneficiary of a variable interest entity and other beneficiaries of the
entity. The Company adopted the provision of FIN No. 46 effective January
1, 2003 and it had no material impact on the Company's financial position
or results of operations as the Company does not have any involvement with
variable interest entities.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company does not believe
the adoption of this standard will have a material impact on the Company's
financial position or results of operations.
7
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. This standard,
which the Company will adopt in 2003, will not have a material effect on
the Company's consolidated financial position or results of operations.
2. NAME CHANGE
In April 2002, the Board of Directors authorized an amendment to the
Company's certificate of incorporation to change the Company's name to
"Index Development Partners, Inc.," subject to stockholder approval at the
Company's annual meeting held on June 18, 2002. At the annual meeting, the
Company's stockholders approved the name change, which became effective
that day.
The Company's sole focus is on the development and commercial
exploitation of proprietary stock indexes, including the America's Fastest
Growing Companies(SM) family of stock indexes. The Company therefore
believed it was appropriate to change its name to Index Development
Partners, Inc., to align its corporate name with its current mission.
3. INVESTMENTS
On June 2, 1999, the Company, Kirlin Holding Corp ("Kirlin") and
Venture Highway, Inc. (at the time a wholly-owned subsidiary of Kirlin),
entered into an agreement pursuant to which the Company acquired 19.9% of
the then-outstanding shares of common stock. 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 fourth quarter of 2000,
the Company became aware of an other than temporary decline in the value of
its Venture Highway investment and reduced the carrying value by
approximately $2.6 million to zero.
During the quarters ended March 31, 2003 and 2002 the Company received
partial distributions from Venture Highway of approximately $18,000 and
$85,000, respectively. These amounts have been recorded as a gain on
disposition of investments. The Company has not accrued for any additional
recoveries and will record such amounts, if any, when received. During the
quarter ended March 31, 2003, the Company also received approximately
$11,000 from the domestic investment fund it formerly managed and recorded
a gain of an equal amount.
8
4. DISCONTINUED OPERATIONS
On May 17, 2002, the Company sold Horizon Publishing Company
("Horizon"), an unrelated third party, assets related to the Company's
Individual Investor's Special Situations Report newsletter ("SSR") and
Horizon agreed to provide SSR subscribers with one or more Horizon
investment related newsletters, at no additional cost to SSR subscribers,
for the number of issues of SSR that such subscribers have paid for but
have not been served, representing approximately $0.1 million of deferred
subscription liability of the Company at the date of the sale. In
connection with this transaction, the Company discontinued publication of
SSR. As a result of the transaction, the Company discontinued its Print
Publications operations. The operating results relating to Print
Publications operations have been segregated from continuing operations and
reported within a separate line item on the consolidated condensed
statements of operations as discontinued operations.
In November 2001, the Company assigned to Telescan, Inc., certain of
the Company's internet assets, including the domain name
www.individualinvestor.com, in exchange for the 1,063,531 shares of the
Company's Common Stock owned by Telescan and the Company subsequently
discontinued its Online Services operations. The operating results relating
to Online Services operations have been segregated from continuing
operations and reported as a separate line item on the consolidated
condensed statements of operations as discontinued operations.
On July 9, 2001, the Company completed the transactions (the "Magazine
Sale") contemplated by an agreement ("Agreement") with The Kiplinger
Washington Editors, Inc. ("Kiplinger"), the publisher of Kiplinger's
Personal Finance Magazine ("KPFM"). Pursuant to the Agreement, the Company,
among other things, sold to Kiplinger the subscriber list to the Company's
Individual Investor magazine ("II"); agreed, until July 9, 2006, not to use
the name "Individual Investor" for print periodical publishing or list
rental purposes, except in connection with the Company's Individual
Investor's Special Situations Report newsletter; and agreed to provide
certain consulting services to Kiplinger until July 9, 2002. In return,
Kiplinger agreed to provide II subscribers with KPFM, at no additional cost
to II subscribers, for the number of issues of II that such subscribers
have paid for but have not been served, representing approximately $2.6
million of deferred subscription liability of the Company at the date of
the sale; and paid the Company $3.5 million in cash, a portion of which was
placed in escrow to secure certain obligations.
9
The gain from discontinued operations consisted of the following
components:
PRINT PUBLICATIONS
Three Months Ended Six Months
June 30, Ended June 30,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ----
Revenues and other income $52,007 $459,069 $116,872 $947,424
----------- ------------ ------------ -------------
Gain (loss) from operations $52,007 $427,546 $116,872 $897,848
ONLINE SERVICES
Three Months Ended Six Months
June 30, Ended June 30,
------------------ ------------------
2003 2002 2003 2002
------------------ ------------------
Revenues and other income -- -- -- --
---------- ----------- ----------- -------------
Gain (loss) from operations -- -- -- $13,188
Net current liabilities at June 30, 2003 related to the Print Publications
discontinued operations are approximately $295,000. Net current liabilities
at June 30, 2003 related to the Online Services discontinued operations are
approximately $36,000.
5. STOCK OPTIONS
During the three and six months ended June 30, 2003, the Company did
not grant any options to purchase the Company's Common Stock pursuant to
the Company's stock option plans; no options were exercised; no options
were canceled; and 82,673 options expired.
6. INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share for the three and six months
ended June 30, 2003 and 2002, respectively, is computed by dividing the net
income (loss), after deducting accrued dividends on cumulative convertible
preferred stock, by the weighted average number of shares of Common Stock
outstanding during the applicable period. Diluted net income (loss) per
common share for the six months ended June 30, 2003 and 2002, respectively,
is computed by dividing net income (loss) by the weighted average number of
shares of Common Stock and common equivalent shares during the applicable
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 exercise of
stock options, warrants and other securities convertible into shares of
Common Stock were not assumed in the computation of diluted (loss) income
per common share, as the effect would have been antidilutive.
10
The computation of net income (loss) applicable to common stockholders
is as follows:
Three Months Six Months
------------------ ------------------
Ended June 30, Ended June 30,
2003 2002 2003 2002
------- ------- -------- -------
Net income (loss) $(278,463) $811,077 $(356,906) $633,101
Preferred stock dividends (39,400) (39,400) 78,400 78,400
-------------- ------------ -------------- -------------
Net income (loss) applicable
to common shareholders $(317,863) $771,677 $(435,306) $554,701
Fully diluted net income (loss) applicable to common stockholders is
($0.04) and $0.04, and ($0.06) and $0.07 for the three and six months ended
June 30, 2003 and 2002 and six months ended June 30, 2003 and 2002,
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space in New York City under an operating
lease that expires on March 31, 2004. In May 2001, the Company commenced a
sublease of a portion of its headquarters office space to an unrelated
third party and in January 2002 the Company commenced a sublease of another
portion of it headquarters office space to a different unrelated third
party. The Company incurred additional leasehold expenses of approximately
$41,000 in connection with the January 2002 sublease. Effective April 30,
2003, the Company and its landlord entered into a Partial Assignment of
Lease and Assignment of Subleases, the effect of which is that the Company
(i) continues to lease approximately 5% of its former space, with a
corresponding reduction in base rental expense, and (ii) should be paid by
the landlord on a monthly basis approximately $9,000, an amount that is
equal to the difference between the higher monthly payments the Company's
two former sub-lessors were obligated to pay the Company and the lower
amount that the Company was obligated to pay the landlord with respect to
the formerly sublet space, plus the cost of electricity for the entire
space (which averaged approximately $3,000 per month in 2002). The Company
also subleases its former office space in New York City under an operating
lease that expires March 1, 2005. All of the above leases and subleases
provide for escalation of lease payments as well as real estate tax
increases.
The Company had an outstanding letter of credit totaling $250,000
related to the security deposit for the Company's New York City corporate
office space. The Company had received letters of credit from its sublease
tenants in the aggregate amount of approximately $145,000. Effective April
30, 2003, the Company's security deposit was reduced to $11,770 and the
Company transferred the letters of credit from its subtenants to its
landlord.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Important Notice Concerning "Forward-looking Statements" in this Report
1. "Forward-looking Statements." Certain parts of this Report describe
historical information (such as operating results for the three and six months
ended June 30, 2003 and June 30, 2002, respectively), 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 June 30, 2003. 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 June 30, 2003, 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, gross margins, royalties, , 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 2 (entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations") of
Part I hereof, in Exhibit 99 hereof and elsewhere in this Report, and in Item 1
(entitled "Business") of Part I and in Item 7 (entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations") of Part II of
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002, filed with the Securities and Exchange Commission.
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.
Three and Six Months Ended June 30, 2003 as Compared to the Three and Six Months
Ended June 30, 2002
In May 2002, the Company transferred the assets of its remaining print
publication, Individual Investor's Special Situations Report newsletter, to an
unrelated third party, who assumed the deferred subscription liability of the
newsletter. As a result of the transaction, the Company discontinued its Print
Publications operations. The operating results relating to Print Publications
operations have been segregated from continuing operations and reported within a
separate line item on the consolidated statements of operations as discontinued
operations. The results of operations as reported for the period ended June 30,
2002 have been restated to conform to the June 30, 2003 financial presentation
in which the Print Publications operations have been treated as a discontinued
operation.
12
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the three and six
months ended June 30, 2003 was approximately $330,000 and $474,000,
respectively, an increase of approximately $217,000 and $126,000, respectively
from the net loss from continuing operations of approximately $114,000 and
356,000 for the three and six months ended June 30, 2002. The increase in the
loss from the prior year is primarily due to a $150,000 amount received by the
Company during the quarter ended June 30, 2002 from a business assistance
program related to the September 11, 2001 disaster and an increase in
professional and legal fees in 2003 due to a reduced staff. The basic and
diluted net income (loss) from continuing operations per weighted average common
share for the three and six months ended June 30, 2003 and 2002 was
approximately $0.05 and $0.07, respectively and $0.02 and $0.05, respectively.
Operating Revenues
No revenues were recorded for the three and six months ended June 30, 2003
or 2002 from the Company's index operations.
Operating Expenses
Total operating expenses for the three and six months ended June 30, 2003
increased approximately 183% and 12%, respectively, to approximately $331,000
and $575,000 as compared to approximately $117,000 and $512,000 for the three
and six months ended June 30, 2002. The increase is due primarily to a $150,000
amount received by the Company during the quarter ended June 30, 2002 from a
business assistance program related to the September 11, 2001 disaster .
General and administrative expenses for the three and six months ended June
30, 2003 increased approximately 280% and 20%, respectively, to approximately
$319,000 and 549,000 as compared to approximately $84,113 and 459,000, for the
three and six months ended June 30, 2002. The increase is due primarily to a
$150,000 amount received by the Company during the quarter ended June 30, 2002
from a business assistance program related to the September 11, 2001 disaster,
which has been netted against general and administrative expenses during the
three and six months ended June 30, 2002, and increased professional and legal
fees in 2003 due to a reduced staff.
Depreciation and amortization expense for the three and six months ended
June 30, 2003 decreased approximately 65% and 53%, respectively, to
approximately $11,000 and 25,000 as compared to approximately $33,000 and 53,000
for the three and six months ended June 30, 2002. The decrease is primarily due
to the disposal of computer equipment in January 2003.
13
Gain on Sale of Furniture and Fixtures
Gain on sale of furniture and fixtures for the six months ended June 30,
2003 of approximately $69,000 represents net proceeds received from the sale of
furniture and fixtures and computer during the quarter. The Company recorded a
gain of approximately $71,000 during the six months ended June 30, 2002.
Gain on Investments and Other Assets
Gain on investments and other assets for the six months ended June 30, 2003
of approximately $30,000 represents proceeds from investments that had
previously been written off during prior periods. The gain for the three months
ended June 30, 2002 was approximately $85,000.
Investment and Other Income
Investment and other income for the three and six months ended June 30,
2003 was approximately $0 and $1,800 as compared to approximately $3,400 and
$8,900 for the three and six months ended June 30, 2002. The decreased amount of
investment income earned for the three and six months ended June 30, 2003 as
compared to the three and six months ended June 30, 2002 is primarily due to
lower cash balances available for investment and a decrease in interest rates.
Gain from Discontinued Operations
The Company's gain from discontinued operations for the three and six
months ended June 30, 2003 was approximately $52,000 and $117,000, a decrease of
approximately $445,000 and $864,000, respectively as compared to a gain from
discontinued operations of approximately $497,000 and $981,000, respectively,
for the three and six months ended June 30, 2002. The gain from the discontinued
print segment for the three and six months ended June 30, 2003 was approximately
$52,000 and $117,000, respectively, a decrease of approximately $445,000 and
$850,000, respectively compared to a gain from discontinued operations of
approximately $497,000 and $967,000, respectively, for the three and six months
ended June 30, 2002. The 2002 amount recognizes income in this discontinued
operation as a result of Individual Investor's Special Situations Report
newsletter that was operational in the first quarter of 2002 and greater amounts
of earned deferred consulting revenue and deferred subscription revenue in
connection with the July 2001 Magazine Sale.
The gain from the Online Services discontinued segment for the six months
ended June 30, 2002 was approximately $13,000. There were no comparable amounts
in the six months ended June 30, 2003.
The basic and dilutive net income from discontinued operations per weighted
average common share for the three and six months ended June 30, 2003 was
approximately $0.01 and $0.01, respectively, as compared to approximately $0.06
and $0.12 for the three and six months ended June 30, 2002.
At June 30, 2003, the remaining balance of deferred revenue related to
discontinued operations is: deferred non-compete revenue, approximately $75,000,
recognizable ratably through the second quarter of 2006; and net deferred
subscription revenue, approximately $257,000, recognizable in decreasing monthly
amounts through the second quarter of 2011.
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Net (Loss) Income
The Company recorded net loss for the three and six months ended June 30,
2003 of approximately $278,000 and $357,000 as compared to net income of
approximately $384,000 and 633,000 for the three and six months ended June 30,
2002. No income taxes were provided in 2002 due to the net operating loss
carryovers. The basic and diluted net (loss) income per weighted average common
share for the three and six months ended June 30, 2003 was approximately ($0.04)
and ($0.06), respectively as compared to basic net income per weighted average
common share of $0.04 and $0.07 for the three and six months ended June 30,
2002.
Liquidity and Capital Resources
As of June 30, 2003, the Company had cash and cash equivalents totaling
approximately $397,000 and negative working capital of approximately $471,000.
Net cash used in operating activities during the six months ended June 30, 2003
was approximately $180,000. Net cash provided by investing activities for the
six months ended June 30, 2003, was approximately $116,000. No cash was used in
financing activities or by discontinued operations for the six months ended June
30, 2003. The Company's cash and cash equivalents balance of approximately
$397,000 at June 30, 2003 represented a decrease of approximately $64,000 from
the December 31, 2002 balance.
The Company's continuing operations are not generating any revenues.
Over the past two years the Company has had discussions with a variety of
parties concerning the potential license of the Company's indexes for the
creation of financial products. With one exception, these discussions have not
resulted in the Company licensing any of its indexes. As previously reported,
the Company had licensed the America's Fastest Growing Companies(SM) Index to
Nuveen Investments for the creation of an exchange-traded fund to be sponsored
by Nuveen and based upon that index. After receiving an exemptive order it
sought from the Securities and Exchange Commission to be allowed to sponsor this
fund and filing with the SEC a registration statement, Nuveen did not take
further action to have the registration statement declared effective nor did it
launch such a fund. As a result, on November 1, 2002, the Company gave notice to
Nuveen that the license was terminated effective January 30, 2003. There can be
no assurance that the Company will execute licensing agreements with respect to
its indexes, that financial products based upon such indexes would enter the
market or that the Company would derive any material revenues with respect to
any such licenses.
15
The Company also has had discussions with a variety of parties concerning
the potential assignment of the Company's indexes to a third party, in
connection with which the Company receiving back a license to sponsor financial
products based upon the indexes and is currently negotiating such a transaction
with one party. There can be no assurance the Company will complete any such
transaction or that the Company would be able to successfully sponsor financial
products based upon the indexes. If the Company were successful in reaching such
an agreement with a third party, the Company would still need to raise external
financing of approximately $8 million to $10 million in order to be able to
implement its business plan to sponsor and market these financial products, of
which approximately $3 million will be required in an initial financing to
accomplish the steps necessary to launch the Company's first ETF. There can be
no assurance that the Company would be successful in raising such financing.
A cash dividend of $236,400 payable on the Company's outstanding Series A
Preferred Stock is included in the consolidated balance sheet as of June 30,
2003. The Company contacted the holder prior to the payment date to explain that
the Company would not be making the December 31, 2002 dividend payment
($157,600) while it sought the financing it required to implement its business
plan.
If the Company continues to defer payment of the dividends accrued and
accruing on the Series A Preferred Stock and the Company eliminates certain
expenses within its control by the fourth quarter of 2003, the Company believes
that its working capital and the amount it is entitled to receive from its
landlord on a monthly basis will be sufficient to fund its presently limited
operations and enable it to continue to seek through December 31, 2003 the
external financing described above that it needs to implement its business plan
to become a fund sponsor. Beyond that time, in all likelihood, the Company would
need to cease operations if it does not obtain external financing. There can be
no assurance that the Company would be able to obtain additional capital, nor
can there be assurance as to the terms upon which the Company might be able to
obtain additional capital. Obtaining any additional capital could result in a
substantial dilution of an investor's equity investment in the Company.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," which is effective in 2003. It requires the
recording of an asset and a liability equal to the present value of the
estimated costs associated with the retirement of long-lived assets where a
legal or contractual obligation exists. The asset is required to be depreciated
over the life of the related equipment or facility, and the liability accreted
each year based on a present value interest rate. This standard, which the
Company adopted in 2003, will not have a material effect on the Company's
consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44,and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30, "Reporting Results of
Operations." This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement will be effective for the Company for
the year ending December 31, 2003, with the effective date for certain
provisions of SFAS No. 145 being May 15, 2002. The adoption of this statement
will not have a material effect on our results of operations or financial
position or cash flows of the Company.
16
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The Statement is
effective for such activities implemented after January 1, 2003.
In November 2002, the FASB issued Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation apply to guarantees issued or
modified after December 31, 2002. The Company has evaluated the impact of the
adoption of FIN 45, and does not believe it will have a material impact on the
Company's consolidated financial position or results of operations because the
Company is not currently the guarantor of any third party obligations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123," to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We have adopted the disclosure
requirements of SFAS No. 148 as of December 31, 2002. We account for stock-based
employee compensation arrangements in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and comply with the disclosure provisions of SFAS No. 123, as
amended. Under APB Opinion No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the quoted market price of our
stock and the exercise price.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 addresses consolidation of entities that are not
controllable through voting interests or in which the equity investors do not
bear the residual economic risks and rewards. These entities have been commonly
referred to as special purpose entities. The Interpretation provides guidance
related to identifying variable interest entities and determining whether such
entities should be consolidated. It also provides guidance related to the
initial and subsequent measurement of assets, liabilities and noncontrolling
interests in newly consolidated variable interest entities and requires
disclosures for both the primary beneficiary of a variable interest entity and
other beneficiaries of the entity. The Company will adopt the provision of FIN
No. 46 effective January 1, 2003 but does not believe it will have a material
impact on the Company's financial position or results of operations as the
Company does not have any involvement with variable interest entities.
17
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The Company does not believe the adoption of this standard will
have a material impact on the Company's financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. This standard, which the Company will adopt in
2003, will not have a material effect on the Company's consolidated financial
position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of June 30, 2003 was made by the Company's Chief Executive Officer
(who is also the Company's principal financial officer). Based on that
evaluation, he concluded that, except as discussed below, the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. During the fiscal quarter ended June 30, 2003, there was no
significant change in the Company's internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting. The Company currently
employs three persons and its accounting functions are performed by a former
employee on a part-time, consulting basis. Accordingly, the Company does not
have sufficient personnel to maintain accounting systems and controls that
typically would be desired and maintained by larger business organizations to
ensure that all accounting entries are appropriately recorded and that reports
are timely filed. As a result, the Company relies upon the personal integrity
and availability of the former employee that is performing accounting services
for the Company. The Company's Chief Executive Officer has no reason to doubt
the personal integrity of this person. Additionally, the Company was unable to
obtain prior to the filing of this reoprt a timely review of the Company's
unaudited financial statements for the three- and six-month periods ended June
30, 2003 that are included in this report as required by Item 310(b) of
Regulation S-B.
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PART II - OTHER INFORMATION
ITEM 1. 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 2. Changes in Securities
Sales of Unregistered Securities None
ITEM 3. Defaults Upon Senior Securities
A cash dividend of $236,400 payable on the Company's outstanding Series A
Preferred Stock is included in the consolidated balance sheet as of June 30,
2003. The Company contacted the holder prior to the payment date to explain that
the Company would not be making the December 31, 2002 dividend payment
($157,600) while it sought the financing it required to implement its business
plan.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No Description Method of Filing
--------- -------------------- ------------------
31 Section 302 Certification of the Chief Executive Filed herewith
Officer (and principal financial officer)
32 Section 906 Certification of the Chief Executive Filed Herewith
Officer (and principal financial officer)
99 Certain Risk Factors Filed herewith
(b) Reports on Form 8-K None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Issuer caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: November 11, 2003
INDEX DEVELOPMENT PARTNERS, INC. (Issuer)
By: /s/ Jonathan L. Steinberg
--------------------------
Jonathan L. Steinberg, Chief Executive Officer
(and principal financial officer)
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