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, 2002
___ 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)
Individual Investor Group, Inc.
----------------------------------------
Former Name if Changed Since Last Report
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 August 12, 2002, 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
as of June 30, 2002 (Unaudited) 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three and Six Months Ended June 30, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Three and Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
Part II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Certification Pursuant to 18 U.S.C. Section 1350 21
2
INDEX DEVELOPMENT PARTNERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
ASSETS 2002
(Unaudited)
----------------
Current assets:
Cash and cash equivalents $ 744,051
Accounts receivable (net of allowances of $9,386) 51,688
Prepaid expenses and other current assets 215,105
----------------
Total current assets 1,010,844
----------------
Property and equipment - net 137,076
Security deposits 283,797
Other assets 460,729
----------------
Total assets $ 1,892,446
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 901,803
Accrued expenses 112,140
Deferred non-compete revenue 25,000
Deferred advertising revenue 423,350
----------------
Total current liabilities 1,462,293
----------------
Deferred subscription revenue 958,145
Deferred non-compete revenue 75,000
----------------
Total liabilities 2,495,438
----------------
Stockholders' Equity:
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 78,945
Additional paid-in capital 33,410,579
Warrants 770,842
Accumulated deficit (34,863,437)
----------------
Total stockholders' deficit (602,992)
----------------
Total liabilities and stockholders'
deficit $ 1,892,446
================
See Notes to Consolidated Condensed Financial Statements
3
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
3 Months Ended June 30, 6 Months Ended June 30,
2002 2001 2002 2001
---------------- ---------------- ----------------- -----------------
Operating expenses:
General and administrative $ 84,113 $ 652,851 $ 459,261 $ 1,646,785
Depreciation and amortization 32,767 146,100 57,435 259,473
---------------- ---------------- ----------------- -----------------
Total operating expenses 116,880 798,951 516,696 1,906,258
---------------- ---------------- ----------------- -----------------
Gain on sale of furniture and fixtures - - 70,871 -
Gain on disposition of investments - - 84,926 -
---------------- ---------------- ----------------- -----------------
Operating loss from continuing operations (116,880) (798,951) (360,899) (1,906,258)
Investment and other income (Note 2) 3,366 15,855 8,894 68,274
---------------- ---------------- ----------------- -----------------
Net loss from continuing operations (113,514) (783,096) (352,005) (1,837,984)
---------------- ---------------- ----------------- -----------------
Discontinued operations (Note 3)
---------------- ---------------- ----------------- -----------------
Gain (loss) from discontinued operations 497,045 (1,554,512) 985,106 (2,154,794)
---------------- ---------------- ----------------- -----------------
Net income (loss) $ 383,531 $ (2,337,608) $ 633,101 $ (3,992,778)
================ ================ ================= =================
Basic income (loss) per common share:
Continuing operations ($0.02) ($0.09) ($0.05) ($0.21)
Discontinued operations $0.06 ($0.17) $0.12 ($0.24)
---------------- ---------------- ----------------- -----------------
Net basic income (loss) per share $0.04 ($0.26) $0.07 ($0.45)
================ ================ ================= =================
Average number of common shares used in computing
basic and dilutive loss per common share 7,894,552 9,093,775 7,901,480 9,032,697
Dilutive income (loss) per common share:
Continuing operations ($0.02) ($0.09) ($0.05) ($0.21)
Discontinued operations $0.06 ($0.17) $0.12 ($0.24)
---------------- ---------------- ----------------- -----------------
Net dilutive income (loss) per share $0.04 ($0.26) $0.07 ($0.45)
================ ================ ================= =================
Average number of common shares used in computing
basic and dilutive loss per common share 8,637,948 9,093,775 8,644,876 9,032,697
See Notes to Consolidated Condensed Financial Statements
4
INDEX DEVELOPMENT PARTNERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
6 Months Ended June 30,
2002 2001
-------------------- --------------------
Cash flows from operating activities:
Net income (loss) $ 633,101 $ (3,992,778)
Reconciliation of net income (loss) to net cash used in
operating activities:
(Gain) loss from discontinued operations (985,106) 2,154,794
Gain on sale of assets (70,871) -
Gain on diposition of investments (84,926) -
-------------------- --------------------
Loss from continuing operations (507,802) (1,837,984)
Depreciation and amortization 57,435 259,473
Stock option and warrant transactions (7,574) (47,213)
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other current assets (60,871) 86,206
Security deposits 88,749 1,114
Increase (decrease) in:
Accounts payable and accrued expenses (157,074) 71,467
-------------------- --------------------
Net cash used in operating activities (587,137) (1,466,937)
-------------------- --------------------
Cash flows from investing activities:
Purchase of property and equipment (40,543) (549,943)
Proceeds from sale of investments 84,926 -
Net proceeds from sale of assets 70,871 -
-------------------- --------------------
Net cash provided by (used in) investing activities 115,254 (549,943)
-------------------- --------------------
Cash flows from financing activities:
Receivables financing - (292,729)
Preferred stock dividends (78,800) (78,800)
-------------------- --------------------
Net cash used in financing activities (78,800) (371,529)
-------------------- --------------------
Net cash provided by (used in) discontinued operations 3,290 (1,820,821)
-------------------- --------------------
Net decrease in cash and cash equivalents (547,393) (4,209,230)
Cash and cash equivalents, beginning of period 1,291,444 4,694,476
-------------------- --------------------
Cash and cash equivalents, end of period $ 744,051 $ 485,246
==================== ====================
See Notes to Consolidated Condensed Financial Statements
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the
accounts of Index Development Partners, Inc. and its subsidiaries
(collectively, the "Company") (see Note 2). 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, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. 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, 2001 on Form 10-KSB.
In June 2001, the Financial Accounting Standards Board
("FASB") approved the final standards resulting from its business
combinations project. The FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," in July 2001. SFAS No. 141 is
effective for any business combination accounted for by the purchase
method that is completed after June 30, 2001. SFAS No. 142, which
includes the requirements to test goodwill and intangible assets with
indefinite lives for impairment, rather than amortize them, will be
effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS No. 141 and No. 142 did not have a material impact on
the financial position, results of operations, or cash flows of the
Company.
In August 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial
accounting and reporting for obligations and costs associated with the
retirement of tangible long-lived assets. The Company is required to
implement SFAS No.143 on January 1, 2003, and has not yet determined
the impact that this statement will have on its results of operations
or financial position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and establishes accounting
and reporting standards for impairment of long-lived assets and
long-lived assets to be disposed of by sale. This standard applies to
all long-lived assets, including discontinued operations. SFAS No. 144
requires that assets to be disposed of by sale be measured at the lower
of carrying amount or fair value less cost to sell. SFAS No. 144 also
broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from
the rest of the entity that will be eliminated from the ongoing
operations of the entity in a disposal transaction. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. SFAS No.
144 was used to account for the discontinuance of our Print
Publications operations. (See Note 4.)
6
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. The
adoption of this statement will not have a material effect on our
results of operations or financial position or cashflows of the
Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities", which changes the
rules for how companies must account for costs associated with exit or
disposal activities. The provisions of the new standard are effective
for exit or disposal activities initiated after December 31, 2002, with
early application encouraged. The Company believes that the adoption of
SFAS 146 will not have a material impact on the financial position,
results of operations, or cash flows of the Company.
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. Effective June 26, 2002, the Company's
common stock began trading on the OTC Bulletin Board under the symbol
"IXDP."
In May 1993, the Company had changed its name to "Individual
Investor Group, Inc.," to align its corporate name with the name of its
flagship business, publication of the monthly magazine Individual
Investor. Beginning in the third quarter of 2000, the Company sold its
major media properties, including Individual Investor magazine and
individualinvestor.com, and currently the Company's sole focus is on
the development and licensing 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 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 ended December 31, 2001. The investment was valued at the
fair market value at the date of the transaction of approximately $2.6
million.
7
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 reduced the carrying value of its
investments by approximately $2.6 million during the fourth quarter of
the year-ended December 31, 2000.
During the quarter ended March 31, 2002 the Company received a
partial distribution from Venture Highway of approximately $85,000.
This amount has 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.
4. DISCONTINUED OPERATIONS
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 (see Note 10). 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 within a separate line item on the
consolidated condensed statements of operations as discontinued
operations.
The loss from discontinued operations consisted of the
following components:
PRINT PUBLICATIONS Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues and other income $528,568 $1,562,638 $1,016,923 $4,185,298
Gain (loss) discontinued operations $497,045 ($1,243,965) $ 967,347 ($1,784,841)
ONLINE SERVICES Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues and other income - $240,510 - $850,233
Gain (loss) discontinued operations - ($310,547) $17,759 ($369,953)
Net current assets at June 30, 2002 related to the Print
Publications discontinued operations are approximately $35,000. Other
assets at June 30, 2002 related to the Print Publications discontinued
operations are approximately $430,000. There are no assets at June 30,
20002 related to the Online Services discontinued operations. Net
current liabilities at June 30, 2002 related to the Print Publications
and Online Services discontinued operations are approximately $775,000
and $331,000, respectively. All long-term liabilities are related to
the discontinued Print Publications segment.
8
5. STOCK OPTIONS
In April 2002, the Company's board of directors and its chief
executive officer, Jonathan Steinberg, agreed that between April 16,
2002 and December 31, 2002, Mr. Steinberg would receive no cash salary
and instead would be granted a ten-year option to purchase the
Company's Common Stock at an exercise price of $0.05 per share (the
fair market value of the Common Stock on the date of the grant),
vesting in bimonthly installments, each installment of which would have
a Black-Scholes value (calculated on the April 2002 grant date) equal
to the amount of cash salary that Mr. Steinberg otherwise would have
received. Pursuant to that agreement, in April 2002, Mr. Steinberg was
granted such an option for an aggregate of approximately 3.6 million
shares, vesting bimonthly between April 30, 2002 and December 31, 2002,
in installments of between approximately 208,000-216,000 shares. If all
options granted April 2002 were to vest, the average consideration per
share the Company would have received (i.e., the amount of salary the
Company would have saved) by granting the option would be slightly
above $0.045 per share. In the event that any such option is exercised,
the average consideration per share the Company would have received
thus would be slightly above $0.095 (the sum of the approximately
$0.045 in saved salary, plus the $0.05 exercise price the Company would
receive) - an amount that is more than 90% greater than the fair market
value of the Common Stock on the date of the grant. Together with a
similar grant to another employee in lieu of foregoing a portion of his
salary, the total number of options granted to employees during the
three and six months ended June 30, 2002 is 3,713,985 options.
During the three and six months ended June 30, 2002, no
options were exercised; 14,417 and 54,667 options, respectively, were
canceled; and 4,250 and 25,000 options, respectively, expired.
In May 2001, the Stock Option Committee, pursuant to the
Company's 2000 Performance Equity Plan, awarded 223,000 shares
("Restricted Shares") of authorized but unissued Common Stock in the
aggregate to certain employees subject to the terms of a restricted
stock agreement. 194,000 of these shares were cancelled during 2001 and
an additional 19,000 were cancelled in March 2002 upon the termination
of employment of the respective employees. The restriction period on
the remaining 10,000 shares expired in May 2002.
6. INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share for the three and six
months ended June 30, 2002 and 2001, 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 three and six months
ended June 30, 2002 and 2001, 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 per
common share, as the effect would have been antidilutive. The exercise
of stock options and warrants were not assumed in the computation of
diluted income per common share because the respective exercise prices
of such securities were in excess of the value of the Common Stock
during the applicable period.
9
The computation of net income (loss) applicable to common
shareholders is as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $383,531 ($2,337,608) $ 633,101 ($3,992,778)
Preferred stock dividends (39,400) (39,400) (78,800) (78,800)
Net income (loss) applicable to ---------- ------------ ---------- -----------
common shareholders $344,131 ($2,377,008) $ 554,301 ($4,071,578)
========== ============ ========== ===========
Fully diluted net income (loss) applicable to common
shareholders is $383,531 and ($2,337,608) for the three month periods
ended June 30, 2002 and 2001, respectively, and $633,101 and
($3,992,778) for the six month periods ended June 30, 2002 and 2001,
respectively.
7. SEGMENT INFORMATION
The Company's business segments previously were 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 was discontinued in connection with the May 2002
sale of assets of Individual Investor's Special Situations Report, a
financial investment newsletter (see Note 4). Previously, the Company's
Print Publications segment also reflected the publication of Individual
Investor, a personal finance and investment magazine (between
approximately October 1988 and July 2001) and Ticker, a magazine for
investment professionals (between approximately October 1996 and
September 2000). The Company's Online Services segment was discontinued
subsequent to the sale in November 2001 of certain assets related to
individualinvestor.com and previously also reflected operation of
InsiderTrader.com (between approximately November 1998 and September
2000).
The financial statements for the three and six months ended
June 30, 2001 have been restated to show the results of Print
Publications and Online Services as a discontinued operation (See Note
4). The restated financials have been prepared consistent with the way
such data is utilized by Company management in evaluating operating
results. As a result of the discontinuance of the Company's Print
Publications and Online Services segment, the Company now operates with
one segment, Index Development and Licensing. No revenues have been
generated to date from this segment.
8. COMMITMENTS AND CONTINGENCIES
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. 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 retains approximately 11% of its
headquarters office space. The Company subleases its former office
space to an unrelated third party. All of the above leases and
subleases provide for yearly escalation of lease payments as well as
real estate tax increases. The Company incurred additional leasehold
expenses of approximately $41,000 in connection with the January 2002
sublease.
The Company has an outstanding letter of credit totaling
approximately $249,000 related to the security deposit for the
Company's New York City corporate office space. The Company has
received letters of credit from its sublease tenants in the aggregate
amount of approximately $145,000.
10
9. MAGAZINE SALE
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 ("SSR"); 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; and
-- paid the Company $3.5 million in cash, a portion of which was
placed in escrow to secure certain obligations. All escrow
balances less approximately $30,000 were returned to the
Company by the end of January 2002.
In connection with this transaction, the Company reduced its
employee headcount by approximately 90% in order to focus on its stock
index licensing operations.
10. NEWSLETTER SALE
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. In
connection with this transaction, the Company discontinued publication
of SSR.
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, 2002 and June 30, 2001, 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, 2002. 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, 2002, 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, 2001, 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.
12
Three and Six Months Ended June 30, 2002 as Compared to the Three and Six Months
Ended June 30, 2001
In May 2002, the Company discontinued its Print Publications operations
after selling the assets of its remaining print publication, Individual
Investor's Special Situations Report newsletter, to an unrelated third party.
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 certain of the Company's
internet assets, including the domain name www.individualinvestor.com, to an
unrelated third party 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.
Consequently, the financial statements for the three and six months
ended June 30, 2001 have been restated to conform to the June 30, 2002 financial
presentation whereby there is only one segment in continuing operations, the
Index Licensing and Development segment.
Net Loss from Continuing Operations
During the three and six month periods ended June 30, 2001, the
Company's Print Publications operations published and marketed Individual
Investor magazine, a personal finance and investment magazine, and Individual
Investor's Special Situations Report, a financial investment newsletter. On July
9, 2001, the Company completed the transactions (the "Magazine Sale")
contemplated by an agreement with The Kiplinger Washington Editors, Inc., the
publisher of Kiplinger's Personal Finance Magazine and discontinued publishing
Individual Investor magazine (see Note 9) and in May 2002 the Company sold the
assets of Individual Investor's Special Situations Report to an unrelated third
party (see Note 10). During the three and six month periods ended June 30, 2001,
the Company's Online Services operations operated www.individualinvestor.com,
certain assets of which, including the domain name, were sold to an unrelated
third party in November 2001.
The Company's net loss from continuing operations for the three and six
months ended June 30, 2002 was approximately $0.1 million and $0.4 million,
respectively, an improvement of approximately $0.7 million and $1.4 million,
respectively, as compared to a net loss from continuing operations for the three
months and six months ended June 30, 2001 of approximately $0.8 million and $1.8
million, respectively. The improvement from the prior year is primarily due to
the Magazine Sale, the sale of other assets and the recovery of impaired
investment losses. No income taxes were provided in 2002 due to the net
operating loss carryovers or in 2001 due to the net loss. The basic and dilutive
net loss per weighted average common share from continuing operations for the
three and six months ended June 30, 2002 was approximately ($0.02) and ($0.05),
respectively, as compared to approximately ($0.09) and ($0.21), respectively,
for the three and six months ended June 30, 2001. There were approximately 0.7
million fewer common shares outstanding at the end of June 30, 2002 as compared
to June 30, 2001.
13
Revenues
No revenues were recorded for the three and six months ended June 30,
2002 and 2001 for the Index Licensing and Development segment.
Operating Expenses
Total operating expenses for the three and six months ended June 30,
2002 decreased approximately 85% and 73%, respectively, to approximately $0.1
million and $0.5 million, respectively, as compared to approximately $0.8
million and $1.9 million, respectively, for the three months and six months
ended June 30 2001. The declines are attributable primarily to the reduction of
expenses following the Magazine Sale and the discontinuation of the Online
Services operations. Operating expenses for the three and six months ended June
30, 2002 have been reduced by approximately $150,000, an amount received by the
Company 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, 2002 decreased approximately 87% and 72%, respectively, to
approximately $0.1 million and $0.5 million, respectively, as compared to
approximately $0.7 million and $1.6 million, respectively, for the three and six
months ended June 30, 2001. The decline is primarily attributable to a reduction
in headcount primarily due to the Magazine Sale. General and administrative
expenses for the three and six months ended June 30, 2002 have been reduced by
approximately $150,000, an amount received by the Company from a business
assistance program related to the September 11, 2001 disaster.
Depreciation and amortization expense for the three and six months
ended June 30, 2002 decreased approximately 78% and 80%, respectively to
approximately $33,000 and $57,000, respectively, as compared to approximately
$146,000 and $259,000, respectively, for the three and six months ended June 30,
2001. The decrease is primarily due to the disposal of assets related to the
Magazine Sale and the disposition of furniture and fixtures and computer
equipment in connection with the subleases that commenced May 2001 and January
2002, respectively.
Gain on Sale of Furniture and Fixtures
Gain on sale of assets for the six months ended June 30, 2002 of
approximately $0.1 million represents proceeds received from the sale of
furniture and fixtures and computer equipment during the first quarter ended
March 31, 2002. There were no comparable gains for the three months ended June
30, 2002 or for the three and six months ended June 30, 2001.
14
Gain on Disposition of Investments
Gain on disposition of investments for the six months ended June 30,
2002 of approximately $0.1 million represents proceeds from distributions
received as a result of an investment that had previously been written off
during the quarter ended December 31, 2000. There were no comparable gains for
the three months ended June 30, 2002 or for the three and six months ended June
30, 2001.
Investment and Other Income
Investment and other income for the three and six months ended June 30,
2002 decreased to approximately $3,000 and $9,000, respectively, as compared to
approximately $16,000 and $68,000, respectively, for the three and six months
ended June 30, 2001. The decreased income for the three and six months ended
June 30, 2002 is due to decreased cash balances and lower interest rates on
deposits.
Discontinued Operations
Gain from discontinued operations for the three and six months ended
June 30, 2002 was approximately $0.5 million and $1.0 million, respectively, as
compared to a loss from discontinued operations for the three months and six
months ended June 30, 2001 of approximately ($1.6) million and ($2.2) million,
respectively. The change from the prior year is primarily the result of the
recognition of deferred consulting revenue and deferred subscription revenue in
connection with the Magazine Sale and the significant decline in expenses of
discontinued operations following the Magazine Sale. At June 30, 2002, the
remaining balance of deferred revenue related to discontinued operations is:
deferred non-compete revenue, approximately $100,000, recognizable ratably
through the second quarter of 2006; deferred subscription revenue, approximately
$1.0 million, recognizable in decreasing monthly amounts through the second
quarter of 2011; and deferred advertising revenue, approximately $423,000,
recognizable in the third quarter of 2002.
Net Income (Loss)
The Company recorded net income for the three and six months ended June
30, 2002 of approximately $0.4 million and $0.6 million, respectively, as
compared to net loss of approximately ($2.3) million and ($4.0) million,
respectively, for the three and six months ended June 30, 2001. No income taxes
were provided in 2002 due to the net operating loss carryovers or in 2001 due to
the net loss. The basic net income (loss) per weighted average common share for
the three and six months ended June 30, 2002 was approximately $0.04 and $0.07,
respectively, as compared to approximately ($0.26) and ($0.45), respectively,
for the three and six months ended June 30, 2001. Dilutive net income (loss) per
weighted average common share for the three and six months ended June 30, 2002
was approximately $0.04 and $0.06, respectively, as compared to approximately
($0.26) and ($0.45), respectively, for the three and six months ended June 30,
2001.
Liquidity and Capital Resources
As of June 30, 2002, the Company had cash and cash equivalents totaling
approximately $0.7 million and negative working capital of approximately $0.5
million. During the six months ended June 30, 2002, the Company received cash
proceeds, net of cash expenses, of approximately $115,000 from the sale and
purchase of investments and furniture and fixtures. Net cash used in operating
activities during the six months ended June 30, 2002 was approximately $587,000.
Cash used in financing activities during the six months ended June 30, 2002 was
approximately $79,000. Cash provided by discontinued operations during the six
months ended June 30, 2002 was approximately $3,000. The Company's cash and cash
equivalents balance of approximately $0.7 million at June 30, 2002 represented a
decrease of approximately $0.5 million from the December 31, 2001 balance.
15
The Company's current levels of revenues are not sufficient to cover
its expenses. The Company 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(SM) 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(SM)
Index. The licensing revenue to the Company would be owed quarterly once the
exchange-traded fund based upon the America's Fastest Growing Companies(SM)
Index began trading. Since the Company has minimal expenses associated with
maintaining the America's Fastest Growing Companies(SM) Index, the royalties the
Company may derive could have a high gross margin (the higher the royalty
payments, the greater the gross margin). In March 2002, the Securities and
Exchange Commission ("Commission") granted Nuveen the exemptive order it sought
in order to be allowed to sponsor an exchange-traded fund based upon the
Company's America's Fastest Growing Companies(SM) Index. Such an exchange-traded
fund only could commence trading if a registration statement with respect to
such fund was declared effective by the Commission. Since Nuveen obtained the
effective order, the Company is not aware of any action taken by Nuveen to seek
to have such a registration statement declared effective. There can be no
assurance that Nuveen will seek to have the Commission declare effective, or
that the Commission would declare effective, a registration statement with
respect to such fund, or that an exchange-traded fund based upon the America's
Fastest Growing Companies(SM) Index will commence trading. There also can be no
assurance that, if it did commence trading, an exchange-traded fund based upon
the America's Fastest Growing Companies(SM) Index would 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 recently announced three
additional indexes, the America's Fastest Growing Companies(SM) MidCap Index,
the America's Fastest Growing Companies(SM) LargeCap Index and the America's
Fastest Growing Companies(SM) Total Growth Index and has developed additional
indexes as well. 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. There can no assurance the Company will execute licensing
agreements with respect to such 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.
The Company believes that its working capital and the amount it is
entitled to receive from its sublessees will be sufficient to fund its
operations and capital requirements through 2002. The Company's sublessees have
been current on their rental payments to the Company and the Company does not
currently have any reason to believe that any sublessee would fail to make the
rental payments owed to the Company. In the event that the Company's sublessees
failed to make the rental payments owed to the Company, the Company would need
to obtain additional capital in order to sustain operations. There can be no
assurance, however, that the Company would be able to obtain additional capital,
nor can there can 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.
16
Recent Accounting Pronouncements
In June 2001, the FASB approved the final standards resulting from its
business combinations project. The FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets," in July
2001. SFAS No. 141 is effective for any business combination accounted for by
the purchase method that is completed after June 30, 2001. SFAS No. 142, which
includes the requirements to test goodwill and intangible assets with indefinite
lives for impairment, rather than amortize them, will be effective for fiscal
years beginning after December 15, 2001. The adoption of SFAS No. 141 and No.
142 did not have a material impact on the financial position, results of
operations, or cash flows of the Company.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations and costs associated with the retirement of tangible
long-lived assets. The Company is required to implement SFAS No.143 on January
1, 2003, and has not yet determined the impact that this statement will have on
its results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and establishes accounting and reporting standards
for impairment of long-lived assets and long-lived assets to be disposed of by
sale. This standard applies to all long-lived assets, including discontinued
operations. SFAS No. 144 requires that assets to be disposed of by sale be
measured at the lower of carrying amount or fair value less cost to sell. SFAS
No. 144 also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity that will be eliminated from the ongoing operations of the entity
in a disposal transaction. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. SFAS No.144 was used to account for the discontinuance
of our Print Publications 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 cashflows of the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which changes the rules for how
companies must account for costs associated with exit or disposal activities.
The provisions of the new standard are effective for exit or disposal activities
initiated after December 31, 2002, with early application encouraged. The
Company believes that the adoption of SFAS 146 will not have a material impact
on the financial position, results of operations, or cash flows of the Company.
17
INDEX DEVELOPMENT PARTNERS, INC. AND SUBSIDIARIES
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
----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
Consideration received and
description of underwriting or Exemption from If option, warrant or
other discounts to market registration convertible security, terms
Date of sale Title of security Number Sold price afforded to purchasers claimed of exercise or conversion
----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
4/3/02 Options to purchase 3,713,985 Participating employees will Section 4(2) Vesting over a period of
common stock forbear all or a portion of bimonthly installments
granted to employees their respective salaries through December 31, 2002,
through December 31, 2002 subject to certain
(which through December 31, conditions of continued
2002 would total up to service; exercisable for a
$167,878) and render period lasting ten years
employment services; in from date of grant at
addition, exercise price would exercise price of $0.05 per
be received upon exercise share.
----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 18, 2002, the Company held the annual meeting of stockholders
for the purpose of electing two directors of the Company, Bruce L. Sokoloff and
Peter M. Ziemba, for a term of two years; electing one director of the Company,
S. Christopher Meigher III, for a term of three years; and to consider and vote
upon a proposal to amend the Company's Certificate of Incorporation to change
the Company's name to Index Development Partners, Inc. The shares of Common
Stock voted on the matters were as follows: 6,236,761 shares were cast in favor
and 34,270 were withheld for the election of Mr. Sokoloff; 6,235,461 shares were
cast in favor and 35,570 were withheld for the election of Mr. Ziemba; 6,235,961
shares were cast in favor and 35,070 were withheld for the election of Mr.
Meigher; and 6,219,765 shares were cast in favor, 45,606 shares were cast
against, 5,660 shares abstained and 1,623,521 shares were not voted to amend the
Company's Certificate of Incorporation to change the Company's name to Index
Development Partners, Inc.
18
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3.1 Certificate of Amendment of Amended and Restated Filed herewith
Certificate of Incorporation of Issuer dated June
18, 2002
3.2 Amended and Restated Certificate of Incorporation Filed herewith
of Issuer, as amended through June 18, 2002
3.3 By-laws of Issuer amended through April 27, 1999 Incorporated by reference to Exhibit 3.3 to the
Form 10-Q for the quarter ended June 30, 1999
99 Certain Risk Factors Filed herewith
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 25, 2002 with respect to
the name change from Individual Investor Group, Inc. to Index Development
Partners, Inc. (effective June 18, 2002) and the change in trading symbol to
IXDP (effective June 26, 2002).
19
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: August 14, 2002
INDEX DEVELOPMENT PARTNERS, INC. (Issuer)
By: /s/ Jonathan L. Steinberg
------------------------------------
Jonathan L. Steinberg,
Chief Executive Officer and Director
By: /s/ Gregory E. Barton
------------------------------------
Gregory E. Barton,
President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Howard B. Lorch
------------------------------------
Howard B. Lorch,
Vice President, Controller
(Principal Accounting Officer)
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Index Development Partners, Inc. (the
"Company") on Form 10-QSB for the period ended June 30, 2002 (the "Period"), as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), each of the undersigned, in the respective capacities and on the
date(s) indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company at June 30,
2002 and the results of operation of the Company for the three and six
months ended June 30, 2002.
By: /s/ Jonathan L. Steinberg
------------------------------------
Jonathan L. Steinberg,
Chief Executive Officer and Director
By: /s/ Gregory E. Barton
------------------------------------
Gregory E. Barton,
President and Chief Financial Officer
DATE: August 14, 2002
21