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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended DECEMBER 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file no.0-15152
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FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
NEW YORK 13-2670985
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 AVENUE OF THE AMERICAS, NEW YORK, NY 10011
- ---------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share
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Title of Class
******************************
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES NO X
--- ---
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As of March 1, 2002 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $8,395,032.
As of March 1, 2002 there were 10,075,043 shares of Common Stock, par value
$.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
1
PART I
ITEM 1
BUSINESS
GENERAL
FIND/SVP, Inc. ("FIND/SVP" or the "Company") provides broad consulting,
advisory and business intelligence services substantially by telephone primarily
to executives and other decision-making employees. The Company's strategy is to
build a base of regular clients who will utilize the Company's people and
resources for their research, business intelligence and information needs.
The Company was formed under the laws of New York in 1969. In 1971, the
Company became affiliated with SVP International S.A. ("SVP International")
through a licensing agreement which gave the Company the right to the SVP name
and provided access to the resources of what is currently 15 additional SVP
affiliated companies located around the world.
Through its Quick Consulting and Research Service ("QCS"), FIND/SVP
provides retainer clients with access to the subject and technical expertise of
its staff as well as the resources of a large information center. Within each
retainer client's organization, specific individuals receive a Membership Card,
which entitles them to make requests via the telephone and the Internet for
consultation and research assistance. In response, the staff of QCS provides
customized answers in rapid turnaround time, generally within two business days
or less of the request. The QCS service is positioned to be an indispensable
daily partner for decision-makers by providing, on a retainer basis, a
cost-effective "quick consulting" service accessible by telephone or the
Internet. The service is designed to be a valuable resource to small and medium
sized corporations that do not maintain in-house information centers and as a
supplement to in-house resource centers of large corporations. At December 31,
2001, there were 1,710 QCS retainer clients and 10,590 Membership Cardholders.
The Company intends to seek to expand its base of QCS retainer clients, and to
offer these clients an expanded array of business intelligence, research and
advisory services. The Company's Live AnswerDesk offers immediate, on-demand,
question answering and personal search assistance from live experts. It is
designed as a way to enhance the loyalty of the members of various consumer
groups. The Company also produces The Information Advisor newsletter.
In addition to QCS, the Company offers the market research services of
its Strategic Consulting and Research Group ("SCRG"), which is designed to
handle more extensive, in-depth custom market research and competitive
intelligence requests, as well as customer satisfaction and loyalty programs.
The QCS and SCRG businesses represent the core competencies of the Company,
which is to provide the expertise of its staff in an on-demand, consulting and
business advisory relationship with small, medium and large sized corporations.
FIND/SVP's research resources include access to approximately 4,000
computer databases and subscription-paid web sites, approximately 8,000 of its
own files organized by subject and by company, current and back issues of
approximately 1,500 periodicals and journals and approximately 5,000 books and
reference works. Through a licensing agreement, the Company is associated with
the international
2
SVP network of companies and correspondents providing similar services. This
enables FIND/SVP to obtain information through approximately 1,000 additional
consultants in the SVP worldwide network.
SERVICES AND PRODUCTS
The Company's services and products offer business executives fully
integrated research, business intelligence and management advisory services in a
broad range of industries and disciplines. The Company provides services to help
clients acquire, interpret and use knowledge.
FIND/SVP's research resources at December 31, 2001 include a staff of
89 consultants and researchers in its QCS and SCRG divisions, a reference center
which contains approximately 8,000 of its own subject and company files, access
to approximately 4,000 computer databases, current and back issues of
approximately 1,500 titles, and approximately 5,000 books and reference works,
and a field investigation team with entree into public and private libraries in
the New York area. Through a licensing agreement, the Company is associated with
the international SVP network of companies and correspondents, which enables it
to obtain information worldwide. See "SVP Network; Licensing Agreement With SVP
International." The materials used in the generation of the Company's services
and products are updated and checked by staff members. The Company has its own
training program in which its employees participate.
SERVICES
QUICK CONSULTING AND RESEARCH SERVICE ("QCS"). QCS provides clients
with access to the staff and resources of a large information center, which
seeks to handle research inquiries and requests for business assistance in rapid
turnaround time. Through QCS, the Company is in the business of providing, on a
volume basis, customized answers to business questions on a wide variety of
topics. The service is offered only on a retainer basis. Retainer client
organizations pay in advance, either monthly, quarterly, semi-annually or
annually, a retainer fee. In return, the client organizations receive Membership
Cards for their designated executives or employees. The Membership Card entitles
each cardholder to use QCS and also offers preferential use of, and/or discounts
on, the Company's other services and products. The Company has several fixed and
adjustable fee retainer programs in effect. Out-of-pocket expenses incurred to
answer questions are invoiced in addition to retainer fees.
Retainer clients call FIND/SVP with their business issues and research
needs, give their card number and explain their request to consultants who are
divided into the following six practice groups and three support teams:
PRACTICE GROUPS:
(1) THE CONSUMER PRODUCTS AND SERVICES GROUP is responsible for
research on retailing and apparel, home furnishings, cosmetics and
toiletries, food and beverages, media and entertainment, publishing,
sports and leisure, education, philanthropy, restaurants, food
services, household products, appliances and furniture;
(2) THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP covers
computers, software, electronic media and office equipment, and
provides expert help with Internet research, hands-on training, on-site
seminars, competitive intelligence, Web marketing/trends and Internet
user demographics.
3
(3) THE HEALTHCARE AND PHARMACEUTICALS GROUP covers products and
services manufactured by and marketed to businesses in healthcare
fields, including pharmaceuticals, medical and diagnostic equipment,
biotechnology, health resources and clinical information;
(4) THE FINANCIAL AND BUSINESS SERVICES GROUP handles requests on
banking, insurance, mergers and acquisitions, real estate and
mortgages, the securities and investment industries, customer
satisfaction and corporate management theory, and provides credit
reports on specific companies and Securities and Exchange Commission
documents on public companies;
(5) THE INDUSTRIAL PRODUCTS AND SERVICES GROUP covers manufacturing,
energy, chemicals, plastics, pulp and paper, metals and mining,
transportation, environment, construction and agriculture; and
(6) THE MANAGEMENT ADVISORY GROUP handles requests on legal research,
human resources research and accounting and tax issues;
SUPPORT TEAMS:
(1) THE INTERNATIONAL TEAM addresses executive's needs for
international finance and trade, global corporate competitive
intelligence and worldwide management strategies;
(2) THE DOCUMENTS TEAM locates and obtains copies of articles,
documents, patents, books, pamphlets, catalogs, conference proceedings,
government reports and product samples; and
(3) THE MARKETING TEAM covers direct marketing, advertising, sales
promotions and demographics.
Client cardholders discuss their research needs with the Company's
consultants and may obtain assistance in formulating their requests. After the
request has been clarified, FIND/SVP's specialists find the needed information
using a combination of the Company's available resources. After reviewing the
findings, the consultants select what appears most relevant to the client's
need, and report the findings, with commentary, as needed. Documentation of the
findings can be sent by any one or a combination of the following methods:
facsimile, courier, messenger, mail or electronic mail. QCS allows customers to
benefit from a fast, convenient and confidential way to gather knowledge and use
the multitude of research resources available today. Cardholders may ask
questions on virtually any subject.
Those requests requiring business intelligence from overseas are
answered by one or more of the information centers in 15 SVP companies worldwide
or by using special SVP correspondents in selected countries where no official
SVP company exists.
QCS is designed to handle client questions requiring less than
approximately three hours of actual staff time. These are automatically covered
by the retainer fee. Requests requiring a more extensive search or a lengthy
written report are not covered by the QCS retainer program and are referred to
the Company's Strategic Consulting and Research Group to be handled separately.
QCS activity is tracked and controlled by a proprietary management
information system called QUESTRAC, which uses recently upgraded
state-of-the-art software technology. The program is based on the know-how
provided by SVP France, the founders of the SVP concept of quick business
advisory
4
services by telephone. Input into the QUESTRAC system provides an exclusive and
confidential database of information about each client, and the information
requested and handled for clients.
At December 31, 2001, there were 1,710 retainer clients, a 10.3%
decrease from December 31, 2000, and 10,590 holders of the Membership Card, a
7.6% decrease from December 31, 2000. During 2001, monthly fees billed to
retainer clients (the retainer base) decreased by 7.1% to $1,470,659.
Approximately 50% of the top Fortune 100 industrial companies are QCS retainer
clients. Revenues generated by QCS represented 85%, 82% and 82% of the Company's
total revenues for the years ended December 31, 2001, 2000 and 1999,
respectively.
LIVE ANSWERDESK ("LAD"). LAD provides immediate, on-demand, question
answering and personal search assistance from live experts. It is designed as a
way to enhance the loyalty of the members of various consumer groups. Revenues
generated by LAD represented 2% and 1% of the Company's total revenues for the
year ended December 31, 2001 and 2000, respectively, and less than 1% for the
year ended December 31, 1999.
STRATEGIC CONSULTING AND RESEARCH GROUP ("SCRG"). SCRG is designed to
handle more in-depth custom market research and competitive intelligence
assignments. The service is most often used by the Company's QCS retainer
clients as a supplement to that service. Common project requests include
customized market and industry studies, telephone surveys, competitive
intelligence data-gathering and analysis assignments, acquisition studies and
large information collection projects. Additionally, through the Customer
Satisfaction and Loyalty Group, SCRG provides customer satisfaction and loyalty
programs. Through SCRG, the Company provides research as well as interpretation
and analysis. All projects are quoted in advance and billed separately. Revenues
generated by SCRG represented 13%, 16% and 17% of the Company's total revenues
for each of the years ended December 31, 2001, 2000 and 1999.
POTENTIAL RELATED SERVICES AND PRODUCTS
The Company plans to expand its services through continued internal
development during 2002. This includes various initiatives aimed at both
business-to-business and consumer users of the Internet. Additionally, the
Company will consider exploring possible alliances with and/or acquisitions of
consulting, research or information properties and companies whose primary
markets are the same as FIND/SVP's market and which would be accretive to the
Company's earnings. There are no commitments or understandings in this regard
and no assurance can be given that the Company will in fact conclude any
acquisitions or internally develop any related services. The foregoing plans are
subject to, among other things, the availability of funds for these purposes.
SVP NETWORK; LICENSING AGREEMENT WITH SVP INTERNATIONAL
Through licensing agreements with SVP ("S'il Vous Plait")
International, 16 companies (the "SVP companies"), including FIND/SVP, form an
international network of information centers. Since each SVP company is based in
a different country, the network has provided the means by which the Company can
obtain international information requested by its clients which it may not
maintain in its library or have access to if generated by or located in another
country. When an SVP company accesses the information center of another SVP
company it is charged a fee for the services provided thereby. Each SVP company
is linked to the SVP network primarily by virtue of its licensing agreement. In
1971, the Company entered into its licensing agreement with SVP International
(formerly SVP Conseil), which was amended in 1981 and again in 2001, and
obtained the U.S. rights, in perpetuity, to the SVP name and know-how and access
to the SVP International network. Pursuant thereto, SVP International assisted
in the creation,
5
implementation, development and operation of the Company. Historically, SVP
International has engaged in periodic telephonic conversations and meetings with
the Company. By virtue thereof, the Company has benefited from exchanges of
knowledge with SVP International with respect to any enhancements made to SVP
International's information retrieval or billing systems or other proprietary
know-how.
Until November 2001, SVP International (including affiliates) owned
approximately 37% of the outstanding common shares of the Company, excluding
outstanding warrants. In November 2001, SVP International and its affiliates
sold their entire interest (stock and warrants) in the Company to Marlin
Equities, LLC and Walke Associates, Inc., and terminated their management
involvement.
The license agreement provides that SVP International will not compete
with the Company in the United States or enter into any agreement or arrangement
with respect to services similar to those offered by the Company with any entity
which operates or proposes to operate such services in the United States. The
Company, in return, agreed to pay SVP International royalties of $18,000 per
year, plus 2% of the amount of FIND/SVP's gross revenues for each such year,
excluding publishing revenues, derived from certain of its services in excess of
$2,000,000 but less than $4,000,000 and 1% of the amount of such non-publishing
gross revenues in excess of $4,000,000 but less than $10,000,000, and 1.2% of
the gross profit from all publications included in FIND/SVP's gross revenue less
than $10,000,000 for such year. Royalty expense to SVP International totaled
$118,000, $118,000 and $119,000 for the years ended December 31, 2001, 2000 and
1999, respectively.
MARKETS AND CUSTOMERS
The market for FIND/SVP's services and products is comprised primarily
of business executives in a variety of functions, including top management and
marketing, planning, marketing research, sales, information/library, legal,
accounting, tax and new products. FIND/SVP's primary market, in terms of client
organizations, consists of medium to small sized companies. Larger corporations
are, however, among the Company's clients. In certain cases, the service is sold
to more than one department or division of a large corporation. The Company's
appeal to medium to small sized corporations is primarily based on the fact that
these companies do not ordinarily maintain their own research staff and resource
libraries and when they do, they are generally not comprehensive. Large
corporations, on the other hand, often maintain in-house resource centers.
Consequently, these corporations may perceive the Company's QCS service as
unnecessary. The Company believes, however, that in-house corporate libraries
are generally not as comprehensive. Therefore, QCS may be perceived as a
valuable supplemental resource. In addition, in-house centers are good prospects
for the Company's other services. Approximately 50% of the top Fortune 100
industrial companies are QCS retainer clients. Overall, the factors that will
affect the growth of the Company's potential market and its ability to penetrate
it include: (1) the market's perception of the need for and value of consulting,
business intelligence and research services; (2) the trends in the use of
internal information centers and databases; and (3) the Company's ability to
extend its personal selling efforts throughout the country.
6
SALES AND MARKETING
The Company's primary marketing focus is to expand its QCS retainer
client base. In addition to generating revenues from the QCS services, the
retainer client base serves as a ready-made marketplace for SCRG and other
potential services of the Company. QCS is marketed through a combination of
advertising, direct mail, exhibits, sales promotion activities and the Company's
web site. Qualified leads are followed up by FIND/SVP's sales force. These leads
are supplemented by referrals and cold-call selling efforts. The cost of the
Company's advertising and public relations efforts is modest.
COMPETITION
The Company faces competition from three distinct sources: (1) other
research and information services, (2) in-house corporate research centers, and
(3) institutions that sell information directly to end-users.
The Company is aware of several other smaller fee-based on-demand
business information services in the United States. The Company believes that of
these companies it is the largest in terms of revenues and staff size. The
Company believes that the competition may be more significant from organizations
such as Arthur D. Little, Stanford Research Institute and The Conference Board,
which have research capabilities with call-in-service for reference type
questions. To date, however, the call-in-service feature has not been emphasized
by these companies. Although the Company is not aware of direct competitive
companies with larger staffs and revenues, there is no assurance that as the
information industry expands, more competitive companies will not enter the
market. In addition, there is no assurance that a competitive company will not
develop a superior product or service. The Company believes, however, that by
reason of its experience in the industry, its association with the SVP network
and its intent to closely monitor the consulting industry, it will be able to
compete effectively with any potential competitors.
In-house corporate information and research centers present perhaps the
most significant source of competition for the Company today. Large
corporations, in an effort to stay on top of the vast amount of information
available, began to develop in increasing numbers, in-house libraries and
information centers for their employees. While the Company believes that its own
information center serves the added functions of analysis and generation of
information and is larger and better staffed than a majority of these corporate
resource centers, there is no assurance that a significant number of these large
companies will choose to utilize the Company's services and products.
The advent of on-line databases, the Internet and CD-ROM products has
increased the ability of companies to perform information searches and other
research for themselves. Consequently, to the extent companies perceive they can
directly access information from the Internet, on-line databases and acquire
CD-ROM products, FIND/SVP competes with information producers that sell to
end-users. The Company believes, however, that its consultants deliver a
value-added service based on their technical expertise and their ability to
search more information products more quickly than most end users, thereby
delivering a more thorough and economical service. There is no assurance,
however, that companies which develop extensive resource centers will not
accordingly staff them with equally productive personnel.
7
EMPLOYEES
As of December 31, 2001, the Company had 169 full-time employees,
including 5 executive officers, 41 marketing and sales employees, 89 consultants
and research employees, and 34 administrative and general personnel.
The Company's ability to develop, market and sell its services and to
establish and maintain its competitive position will depend, in part, on its
ability to attract and retain qualified personnel. While the Company believes
that it has been successful to date in attracting such personnel, there can be
no assurance that it will continue to do so in the future. The Company is not a
party to any collective bargaining agreements with its employees. It considers
its relations with its employees to be good.
ITEM 2
PROPERTIES
At December 31, 2001, the Company has a lease on approximately 32,000
square feet of office space at 625 Avenue of the Americas, New York, New York,
which became the main offices of the Company in 1987. The lease is subject to
standard escalation clauses, and expires in June 2005. Basic annual rent
expense, determined on the straight-line basis over the term of the lease, is
approximately $694,000.
The Company has additional leased office space for approximately 20,000
square feet at 641 Avenue of the Americas, New York, New York. Such lease
arrangements are subject to standard escalation clauses, and expire in June
2005. Basic annual rent expense, determined on the straight-line basis over the
term of the lease, is approximately $497,000.
ITEM 3
LEGAL PROCEEDINGS
None.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock, par value $.0001 per share ("Common
Stock"), is traded on the over-the-counter bulletin board under the symbol
"FSVP". The following table sets forth the high and low closing sale prices for
the Common Stock for the periods indicated.
PRICE RANGE HIGH LOW
- ----------- ---- ---
2001
- ----
1st Quarter 0.8100 0.5000
2nd Quarter 0.7700 0.3300
3rd Quarter 0.7500 0.4800
4th Quarter 1.0000 0.3400
2000
- ----
1st Quarter 4.0310 2.1880
2nd Quarter 2.6250 1.0000
3rd Quarter 1.2500 0.9380
4th Quarter 1.0000 0.5310
On March 1, 2002, there were approximately 850 holders of record of the
Common Stock. Such numbers do not include shares held in "street name."
In April 2001, due to its failure to comply with NASDAQ's $1.00 minimum
bid price requirement, the company's shares of Common Stock were delisted.
Trading has continued to be conducted on the non-NASDAQ over-the-counter
bulletin board.
DIVIDEND HISTORY AND POLICY
The Company has never paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will continue to follow a
policy of retaining earnings to finance the expansion and development of its
business. The Company's debt agreements restrict the payment of dividends.
9
ITEM 6
SELECTED FINANCIAL DATA
The following financial data set forth below is derived from the
consolidated financial statements of the Company.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
-----------------------
(in thousands, except per share amounts)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenues $22,215 $23,800 $22,738 $28,175 $32,027
Operating (Loss) Income (1,148) (753) 348 1,329 (3,136)
Net (Loss) Income (945) (535) 883 756 (2,852)
Net (Loss) Income Per Share:
Basic (.12) (.06) .12 .11 (.43)
Diluted (.12) (.06) .12 .11 (.43)
Weighted Average Number of Shares:
Basic 7,880 7,450 7,121 7,094 6,593
Diluted 7,880 7,450 7,213 7,100 6,593
Cash Dividends Paid Per
Common Share -- -- -- -- --
BALANCE SHEET DATA
DECEMBER 31
-----------
(in thousands)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Working Capital (Current assets
less current liabilities) $ 1,352 $ 1,587 $ 2,699 $ 2,569 $ 1,016
Total Assets 10,383 10,783 11,278 11,899 12,481
Long-Term Notes Payable
excluding current amounts 895 1,685 3,039 3,523 3,801
Shareholders' Equity 4,489 3,992 3,889 2,988 1,218
10
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
FIND/SVP, Inc. provides a broad consulting, advisory and business
intelligence service to executives and other decision-making employees of client
companies, primarily in the United States. The Company currently operates
primarily in two business segments, providing consulting and business advisory
services including: the Quick Consulting and Research Service ("QCS") which
provides retainer clients with access to the expertise of the Company's staff
and information resources as well as Live AnswerDesk ("LAD") services ("Quick
Consulting"); and the Strategic Consulting and Research Group ("SCRG") which
provides more extensive, in-depth custom market research and competitive
intelligence information, as well as customer satisfaction and loyalty programs
("Strategic Consulting"). The Company considers its QCS and SCRG service
businesses, which operate as "consulting and business advisory" businesses, to
be its core competency.
The Company had an operating loss of $1,148,000 for the year ended
December 31, 2001 versus an operating loss of $753,000 for the year ended
December 31, 2000 and operating income of $348,000 for the year ended December
31, 1999. The net loss for the year ended December 31, 2001 was $945,000 versus
net loss of $535,000 for the year ended December 31, 2000 and operating income
of $883,000 for the year ended December 31, 1999.
Revenues for 2001 were $22,215,000 and revenues for 2000 were
$23,800,000. The decrease in revenues was a result of a decrease in the
Company's retainer base (recurring monthly income) in 2001, coupled with a
decline in SCRG revenues for the year. Revenues for 1999 were $22,738,000. On a
comparable basis, 1999 revenues were $22,647,000 after deducting revenues of
$91,000 related to the sale of the Published Research business unit. The
increase in comparable revenues from 1999 to 2000 was a result of an increase in
the Company's retainer base (recurring monthly income) in 2000, coupled with a
significant increase in LAD revenue. This was partially offset by a decline in
SCRG revenues for the year.
Net income in 1999 was positively affected by a pretax gain of
$1,200,000 (approximately $672,000 after tax) resulting from a collaboration
agreement between FIND/SVP and idealab!, a leading creator and operator of
Internet businesses, to develop find.com, a new Internet site.
Selling, general and administrative expenses were $12,397,000, or 56%
of revenue, in 2001, a decrease of $29,000 from $12,426,000, or 52.2% of
revenue, in 2000. Direct costs (those costs directly related to generating
revenue, such as direct labor, expenses incurred on behalf of clients and the
costs of electronic resources and databases) were $10,966,000 in 2001, or 49.2%
of revenue as compared to $12,127,000, or 51.0% of revenue, for the year ended
December 31, 2000. Both total selling, general and administrative expenses and
total direct costs, decreased in terms of dollars primarily due to cost
containment measures that were put into place during the second quarter of 2001.
These measures continued throughout 2001 in response to the weakened economy.
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SEGMENT REPORTING
The Company operated in two segments during 2001, 2000 and 1999. Segment
data, which is useful in understanding results, is as follows:
- ------------------------------------------------------------------------------------
(in thousands) YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
---- ---- ----
REVENUES
Quick Consulting, including LAD $ 19,414 $ 19,930 $ 18,851
Strategic Consulting 2,801 3,870 3,887
--------------------------------
Total revenues 22,215 23,800 22,738
================================
OPERATING (LOSS) INCOME
Quick Consulting, including LAD 4,429 4,545 4,680
Strategic Consulting (314) (58) 156
--------------------------------
Segment operating income 4,115 4,487 4,836
Corporate and other (1) (5,263) (5,318) (3,664)
--------------------------------
(Loss) income before (benefit) provision
for income taxes (1,148) (831) 1,172
================================
DEPRECIATION AND AMORTIZATION
Quick Consulting, including LAD 539 583 520
Strategic Consulting 66 68 69
--------------------------------
Total segment depreciation and amortization 605 651 589
Corporate and other 495 531 516
--------------------------------
Total depreciation and amortization 1,100 1,182 1,105
================================
TOTAL ASSETS
Quick Consulting, including LAD 2,871 3,406
Strategic Consulting 315 843
--------------------
Total segment assets 3,186 4,249
Corporate and other 7,197 6,534
--------------------
Total assets 10,383 10,783
====================
CAPITAL EXPENDITURES
Quick Consulting, including LAD 119 160 218
Strategic Consulting 5 30 25
--------------------------------
Total segment capital expenditures 124 190 243
Corporate and other 180 380 429
--------------------------------
Total capital expenditures 304 570 672
================================
(1) Includes interest income, other income, gain on sale of net assets, interest
expense and other expense.
- --------------------------------------------------------------------------------
PRODUCT AND SERVICE REVENUES
The Company's revenues decreased by $1,585,000, or 6.7%, from
$23,800,000 in 2000 to $22,215,000 in 2001 and increased by $1,062,000, or 4.7%,
from $22,738,000 in 1999 to $23,800,000 in 2000. The decrease in 2001 was caused
by a decrease in the number and size of retainer clients and a decrease in the
number and size of SCRG projects, caused by the weakened economy, as described
below. The increase in 2000 was due to an increase in QCS and LAD revenues,
partially offset by a decrease in SCRG revenues, as described below.
12
QCS revenues decreased by $731,000, or 3.7%, from $19,709,000
in 2000 to $18,978,000 in 2001, and increased by $900,000, or 4.8%, from
$18,809,000 in 1999 to $19,709,000 in 2000. The decrease from 2000 to 2001 was
due to the weakened economy which caused cancellations and a decrease in new
sales. In addition, certain accounts cancelled when they ceased operation due to
the events of September 11, 2001. Also, the monthly fees billed to retainer
clients (the retainer base) decreased from the beginning of 2001 to the end of
2001 by 7.1% from $1,583,308 to $1,470,659. The increase from 1999 to 2000 was
due to an increase in the average monthly fee paid by retainer clients,
partially offset by the decline in the number of retainer clients. The monthly
fees billed to retainer clients (the retainer base) increased from the beginning
of 2000 to the end of 2000 by 5.0% from $1,507,782 to $1,583,308.
LAD revenues increased by $215,000, or 97.3%, from $221,000 in 2000 to
$436,000 in 2001, and increased by $179,000, or 426.2%, from $42,000 in 1999
(the year the service began) to $221,000 in 2000.
SCRG revenues decreased by $1,069,000, or 27.6%, from $3,870,000 in
2000 to $2,801,000 in 2001, and by $17,000, or 0.4%, from $3,887,000 in 1999 to
$3,870,000 in 2000. The decrease from 2000 to 2001 was due to a decline in new
projects booked, caused by the weakened economy. The decrease from 1999 to 2000
was a result of a decrease in sales leads due to employee turnover. The number
of new projects begun in the last half of 2000 decreased as compared to those
begun in the last half of 1999. The Customer Satisfaction and Loyalty Division
accounted for 16.7%, 13.6% and 22.7% of SCRG's revenue for 2001, 2000 and 1999,
respectively.
The Company earned $91,000 in royalties in 1999 from the sold Published
Research unit.
DIRECT COSTS
Direct costs (those costs directly related to generating revenue, such
as direct labor, expenses incurred on behalf of clients and the costs of
electronic resources and databases) decreased by $1,161,000, or 9.6%, from
$12,127,000 in 2000 to $10,966,000 in 2001 and increased by $584,000, or 5.1%,
from $11,543,000 in 1999 to $12,127,000 in 2000. Direct costs represented 49.2%,
51.0% and 50.8% of revenues, respectively, in 2001, 2000 and 1999. The decrease
in total direct costs from 2000 to 2001 was due primarily to a decrease in
expenses incurred on behalf of clients, in addition to a reduction in direct
labor costs. The increase in total direct costs from 1999 to 2000 was due
primarily to an increase in direct labor costs over the previous year, partially
offset by a decrease in all other direct costs as compared to the previous year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $29,000, or
less than 1%, from $12,426,000, or 52.2% of revenue, in 2000 to $12,397,000, or
55.8% of revenue, in 2001 and increased by $1,579,000, or 14.6%, from
$10,847,000, or 47.7% of revenues in 1999 to $12,426,000, or 52.2% of revenues
in 2000. In 2001, selling, general and administrative expenses included
approximately $169,000 in negative effects related to the World Trade Center
attack (described below). The decrease in selling, general and administrative
expenses in terms of dollars from 2000 to 2001 was due primarily to reductions
in general expenses in response to cost containment measures that began in the
second quarter of 2001. The increase in total selling, general and
administrative expenses in terms of dollars from 1999 to 2000 was due primarily
to an increase in labor costs over the previous year, coupled with an increase
in selling expenses.
13
EFFECTS OF WORLD TRADE CENTER ATTACK
As a result of the World Trade Center Attack, the Company has incurred
certain negative effects that it estimates to be $169,000. As a result of the
sudden economic shift among clients, staff was reduced, resulting in $13,000 in
severance costs. Subsequent to September 11, 2001, the Company reviewed
receivables on those clients directly affected by the tragedy, including
attempted communication with those accounts. As a result, the Company recorded
additional write offs of receivables of $125,000 attributed to the events of
September 11, 2001. The Company also incurred incremental costs related to
staffing and maintaining its ability to service clients during the week of
September 11, 2001 totaling $31,000.
OPERATING (LOSS) INCOME
The Company's operating loss was $1,148,000 in 2001, compared to
$753,000 in 2000, an increase in loss of $395,000. The increased loss was
primarily related to the effects of the weakened economy and the effects of the
attack on the World Trade Center.
The Company's operating loss was $753,000 in 2000, compared to
operating income of $348,000 in 1999, an increase in loss of $1,101,000. The
increase in loss was primarily related to the Company's emphasis on increasing
its retainer base through the use of increased marketing expense and the hiring
of a larger sales force.
INTEREST INCOME AND EXPENSE; OTHER ITEMS
In 2001, the Company earned $49,000 in interest income, which decreased
from $119,000 in 2000 and $88,000 in 1999. The decrease in 2001 was a result of
lower cash balances throughout 2001, coupled with interest rates reduced from
the previous years.
Interest expense in 2001 was $246,000, which was a decrease from
$336,000 in 2000, and from $464,000 in 1999. The decrease was a result of the
reduction in outstanding debt in 2001 as compared to previous years. In the
third quarter of 2000, the Company reduced its interest expense by replacing a
portion of its Senior Subordinated Notes with a Term Note bearing a lower
interest rate.
During the third quarter of 2000, the Company received payment of
$100,000 from a landlord in consideration for giving up its rights under a lease
agreement. This payment was classified as other income.
On December 30, 1999, the Company entered into an agreement with
idealab! and Find.com, Inc. whereby the Company assigned the domain name
"find.com" and licensed the use of certain rights to the trademarks "find.com"
and "find" to Find.com, Inc. idealab! and Find.com, Inc. are not otherwise
related to the Company. Under the terms of the agreement, the Company received
consideration in the form of cash and preferred shares amounting to
approximately $1,200,000, net of related expenses. The Company is also entitled
to certain future royalties. No royalty income was earned in the years ended
December 31, 2001 and 2000. The carrying value of the preferred shares is the
lower of historical cost or estimated net realizable value. The non-marketable
preferred share securities carry various rights including the ability to convert
into common shares of Find.com and a repurchase (put) option that becomes
exercisable in December 2002. The put option for the preferred shares is
$1,500,000. If the Company exercises its put option and idealab! does not
repurchase the preferred shares, the Company is entitled to keep the preferred
shares and get back the licensed rights. Since the preferred share securities
are an investment in a start-up enterprise,
14
it is reasonably possible in the near term that the Company's estimate of the
net realizable value of the preferred shares will be less than the $500,000
carrying value of the preferred shares.
INCOME TAXES
The $400,000 income tax benefit for the year ended December 31, 2001
represents 29.7% of pre-tax loss. The income tax benefit was lower than the
statutory rate due primarily to expenses that are not deductible for tax
purposes.
The $323,000 income tax benefit for the year ended December 31, 2000
represents 38.9% of pre-tax loss.
The $289,000 tax provision recognized for 1999 represents 24.7% of the
1999 pre-tax income. Income tax expense for 1999 was favorably reduced due to
the reversal of a $280,000 valuation reserve placed upon deferred tax assets
prior years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of financial condition and
results of operations are based on our consolidated financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles. Our preparation of our financial statements requires us to make
estimates and judgments that affect reported amounts of assets, liabilities and
revenues and expenses. On an ongoing basis, we evaluate our estimates, including
those related to allowances for doubtful accounts, restructuring, useful lives
of property, plant and equipment and intangible assets, income tax valuation
allowances, other accrued expenses. We base our estimates on historical
experience and on various other assumptions, which we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that may not be
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions. We have identified the
accounting policies below as critical to our business operations and the
understanding of our results of operations.
NON-MARKETABLE EQUITY SECURITIES: The preferred share securities in
idealab! are an investment in a start-up enterprise. It is reasonably possible
in the near term that the Company's estimate of the net realizable value of the
preferred shares will be less than the carrying value of the preferred shares.
INCOME TAXES: The Company has tax loss carryforwards that have been
recognized as assets in its financial statements. These assets are subject to
expiration from 2012 to 2021, and the Company's ability to realize these assets
is dependent upon its ability to generate taxable income of sufficient magnitude
prior to the expiration of the tax loss carryforward. Although realization is
not assured, management believes that it is more likely than not that the net
deferred tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from operations, borrowings, and prepaid retainer
fees provided by clients. Cash balances were $1,951,000 and $901,000 at December
31, 2001 and 2000, respectively. The Company's working capital position (current
assets, less current liabilities) at December 31, 2001 was $1,352,000, as
compared to $1,587,000 at December 31, 2000.
15
The Company believes that its cash generated from operations, together
with its existing cash balances, will be sufficient to meet its operating cash
needs and expected capital expenditures for the near term. To supplement
possible short-term cash needs, the Company has a $1,000,000 line of credit at
the prime commercial lending rate plus one-half percent. The line is renewable
annually, and was put in place on December 30, 1999. As of December 31, 2001,
$200,000 was outstanding under this line of credit.
Cash provided by (used in) operating activities was $299,000,
($690,000) and $1,093,000 in the years ended December 31, 2001, 2000 and 1999,
respectively.
Cash used in investing activities was $167,000, $433,000 and $472,000
in the years ended December 31, 2001, 2000 and 1999, respectively. Capital
expenditures during 2001 were mainly for computer hardware upgrades and
leasehold improvements. Capital expenditures for the migration of the Company's
10-year-old management information system to a new computer system platform were
a significant component of the amounts invested in 2000 and 1999. This new
system improves the consultants' ability to communicate with clients, access the
internet, and to integrate the Company's products, as well as to expand the
Company's enterprise network. Total capital expenditures were $304,000, $570,000
and $672,000 in the years ended December 31, 2001, 2000 and 1999, respectively.
During the year ending December 31, 2002, the Company expects to spend
approximately $600,000 for capital items, the major portions of which will be
used for computer hardware upgrades and for leasehold improvements.
Cash provided by (used in) financing activities was $918,000, ($72,000)
and ($832,000) in the years ended December 31, 2001, 2000 and 1999,
respectively. In 2001, the most significant item was the net proceeds obtained
from the issuance of common shares of $1,443,000. The share proceeds related to
equity purchases by a group of investors. In 2000 and 1999, the most significant
items related to the early repayment of debt, which were otherwise due in
installments in the years 2001 and 2002. In connection with the repayment of
such bank borrowings, the bank released two $1,000,000 standby letters of credit
that had been provided by a shareholder, SVP, S.A.
In the first quarter of 2000, warrants to acquire 266,945 common shares
were exercised and $601,000 of face value of the Senior Subordinated Note due
October 31, 2001 were surrendered as payment in a non-cash transaction.
On August 1, 2000, the Company entered into a financing agreement with
a commercial bank for a $1,400,000 Term Note, due June 30, 2005. The Note bears
interest at prime plus 1.25% and is payable in quarterly installments beginning
September 30, 2000. In early August 2000, the proceeds of the Note were used to
pay down a portion of the Company's Senior Subordinated Notes. In November 2000,
the Company also exchanged 150,000 shares of its common stock for 633,000
outstanding warrants to purchase common stock.
In February 2002, the Company entered into a financing
agreement with a commercial bank for a $2,000,000 Term Note, due December 31,
2006. The Term Note bears interest at prime plus 1.25%, and is payable in
quarterly installments beginning March 31, 2002. The proceeds from this Term
Note were used to repay the $1,100,000 balance of the existing term note, and to
repay the remaining portion of the Company's Senior Subordinated Notes.
After this financing, the following summarizes the Company's financial
obligations and their expected maturities and the effect such obligations are
expected to have on liquidity and cash flow in the periods indicated.
- --------------------------------------------------------------------------------
(in thousands)
As of December 31, 2001
------------------------------------------------
Less than 1
Total year 1-3 years After 3 years
-------------------------------------------------
Long term debt $2,520 $ 875 $ 845 $ 800
Long term lease commitment 3,225 1,093 1,706 426
Deferred compensation 380 -- -- 380
-------------------------------------------------
$6,125 $1,968 $2,551 $1,606
=================================================
- --------------------------------------------------------------------------------
16
In accordance with the terms of the Senior Subordinated Notes, the
payment of portions of accrued interest may be deferred. Accrued deferred
interest of $70,000 and $62,000 at December 31, 2001 and 2000, respectively, was
accrued and deferred under such terms. Such amounts compound and accrue interest
at the rate of 12%.
INFLATION
The Company has in the past been able to increase the price of its
products and services sufficiently to offset the effects of inflation on direct
costs, and anticipates that it will be able to do so in the future.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in June 2000 issued SFAS No. 138, which
amended certain provisions of SFAS No. 133. These statements require companies
to recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the use of the
derivatives and whether it qualifies for hedge accounting. The Company adopted
both pronouncements as of January 1, 2001. The Company does not have derivatives
or hedging activities as contemplated by these pronouncements, and there was no
effect of adoption.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statements of Financial Accounting
Standards No. 141, "Business Combinations" effective July 1, 2001, and No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142), effective for fiscal
years beginning after December 15, 2001. Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
statements. Other intangible assets will continue to be amortized over their
useful lives.
The Company will apply the new rules of accounting for goodwill and
other intangible assets as of January 1, 2002. On an annual basis, the Company's
amortization of goodwill has been approximately $10,000. The Company has
concluded that the adoption of SFAS Nos. 141 and 142 will not have a material
effect on its consolidated financial position or results of operations.
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations," which will be
adopted by the Company as of January 1, 2003. This standard addresses issues
associated with the retirement of tangible long-lived assets. The Company has
not completed its process of evaluating the impact, if any, on its consolidated
financial position and results of operations that will result from the adoption
of this standard.
17
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which will be adopted by the Company as of January 1, 2002. This
standard also addresses issues associated with the disposal of a segment of a
business. The Company has concluded that there is no effect of adoption of this
standard on its consolidated financial position or results of operations as of
January 1, 2002.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
This Annual Report on Form 10-K (and any other reports issued by the
Company from time to time) contains certain forward-looking statements made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements, including statements
regarding the Company's future cash flows, sales, gross margins and operating
costs, the effect of conditions in the industry and the economy in general, and
legal proceedings, are based on current expectations that involve numerous risks
and uncertainties. Actual results could differ materially from those anticipated
in such forward-looking statements as a result of various known and unknown
factors, including, without limitation, future economic, competitive,
regulatory, and market conditions, future business decisions, and those factors
discussed under Management's Discussion and Analysis of Financial Condition and
Results of Operations. Words such as "believes", "anticipates", "expects",
"intends", "may", and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. The Company undertakes no obligation to revise any of these
forward-looking statements. Subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by cautionary statements in this paragraph
and elsewhere in this Form 10-K, and in other reports filed by the Company with
the Securities and Exchange Commission.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The financial position of the Company is subject to market risk
associated with interest rate movements on outstanding debt. The Company has
debt obligations with both fixed and variable terms. The carrying value of the
Company's variable rate debt obligations approximates fair value as the market
rate is based on prime. An increase in the underlying interest rates would
result in a corresponding increase in interest expense, based on the then
outstanding borrowings.
18
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are submitted in a separate section of this
report on pages F-1 through F-27.
Quarterly financial data is as follows.
(in thousands, except per share data)
Income
Income (Loss) (loss) per
before Net share:
Operating extraordinary income basic and
Quarter Ended Revenues income (Loss) item (loss) diluted
------------- -------- ------------- ---- ------ -------
March 31, 2001 $ 6,123 $ 78 $ 18 $ 18 $ 0.00
June 30, 2001 5,753 (143) (143) (143) (0.02)
September 30, 2001 5,381 (268) (213) (213) (0.02)
December 31, 2001 4,958 (815) (607) (607) (0.08)
March 31, 2000 6,006 23 (34) (34) 0.00
June 30, 2000 5,961 (99) (111) (111) (0.01)
September 30, 2000 5,993 (361) (196) (223) (0.03)
December 31, 2000 5,840 (316) (167) (167) (0.02)
ITEM 9
Not applicable.
19
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
the information to be provided in the Company's definitive proxy statement,
which statement is anticipated to be filed within 120 days of the end of the
fiscal year to which this report relates.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers, directors and beneficial owners of more than
10% of any class of its equity securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 ("Reporting Persons") are required under
that Act to file reports of ownership and changes in beneficial ownership of the
Company's equity securities with the Securities and Exchange Commission. Copies
of those reports must also be furnished to the Company. Based solely on a review
of the copies of reports furnished to the Company pursuant to that Act, the
Company believes that during the fiscal year ended December 31, 2001, all filing
requirements applicable to Reporting Persons were complied with, except that
Form 4's were filed late for Howard S. Breslow and Frederick Fruitman, former
directors of the Company.
ITEM 11
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information to be provided in the Company's definitive proxy statement,
which statement is anticipated to be filed within 120 days of the end of the
fiscal year to which this report relates.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the information to be provided in the Company's definitive proxy statement,
which statement is anticipated to be filed within 120 days of the end of the
fiscal year to which this report relates.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
20
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this
10-K:
Independent Auditors' Reports.
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
(2) SCHEDULE
The following Financial Statement schedule is filed as part of
this 10-K:
Schedule II - Valuation and Qualifying Accounts
Other Financial Statement schedules are omitted because they
are not applicable or because the information required is
provided in the Consolidated Financial Statements or Notes
thereto included herein.
21
(3) EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- --------
3(a) Copy of restated Certificate of Incorporation as
amended (1), and amendment thereto.
(b) Copy of By-Laws, as amended.(3)
4(a) Copy of specimen of Common Stock Certificate.(1)
10(a) Copy of License Agreement, dated October 11, 1971,
between the Company and SVP International (formerly SVP
Conseil) and an amendment thereto, dated March 23,
1981.(1)
(b) Copy of Deferred Compensation and Salary Continuation
Agreement, dated June 30, 1984, between the Company and
Andrew P. Garvin .(1)
(c) Copy of the lease related to premises at 625 Avenue of
the Americas, NY, NY.(2) and amendment related
thereto.(5)
(d) Copy of Target Benefit Plan of the Company.(4)
(e) Copy of lease dated March 15, 1995 related to premises
on 4th floor at 641 Avenue of the Americas, NY, N.Y.
(6)
(f) Copy of 401(k) and Profit Sharing Plan of the
Company.(7)
(g) Copy of the Note and Warrant Purchase Agreement with
SVP, S.A. dated November 30, 1996. (9)
(h) FIND/SVP, Inc. 1996 Stock Option Plan. (10)
(i) Copy of the Stock Purchase Agreement between SVP, S.A.
and the Company dated January 15, 1998. (11)
(j) Copy of Peter J. Fiorillo's Severance Agreement. (12)
(k) Copy of the idealab! Agreement dated December 30, 1999.
(13)
(l) Copy of the Chase Manhattan Bank Loan Agreement dated
December 30, 1999. (13)
(m) Copy of Employment Agreement, amended and restated as
of November 21, 2001, between the Company and Andrew P.
Garvin.
(n) Copy of Employment Agreement, dated November 21, 2001,
between the Company and David Walke.
22
(o) Copy of Employment Agreement, amended as of February 6,
2002, between the Company and Martin E. Franklin.
(p) Copy of the JPMorgan Chase Bank Loan Agreement dated
February 20, 2002.
21 List of Subsidiaries. (8)
23 Independent Auditors' Consents.
(1) Incorporated by reference to the Company's Registration
Statement on Form S-18 (Reg. No. 33-8634-NY) which became
effective with the Securities and Exchange Commission on
October 31, 1986.
(2) Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on February 2, 1987.
(3) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1987.
(4) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1989.
(5) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1992.
(6) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Form S-8 filed on
March 29, 1996.
(8) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1995.
(9) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1996.
(10) Incorporated by reference to the Company's Form S-8, filed on
February 27, 1997.
(11) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1998.
(12) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1998.
(13) Incorporated by reference to the Company's Form 10-K filed for
the year ended December 31, 1999.
23
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed in the last quarter of the period
covered by this Form 10-K.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FIND/SVP, INC.
Date: April 1, 2002 BY: /s/ David Walke
---------------------------------------
David Walke, Chief Executive Officer
(Principal Executive Officer)
Date: April 1, 2002 BY: /s/ Fred S. Golden
---------------------------------------
Fred S. Golden
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirement(s) of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 1, 2002 /s/ Andrew P. Garvin
---------------------------------------
Andrew P. Garvin, President and Director
Date: April 1, 2002 /s/ Martin E. Franklin
---------------------------------------
Martin E. Franklin, Director
Date: April 1, 2002 /s/ David Walke
---------------------------------------
David Walke, Director
Date: April 1, 2002 /s/ Marc L. Reisch
---------------------------------------
Marc L. Reisch, Director
Date: April 1, 2002 /s/ Robert J. Sobel
---------------------------------------
Robert J. Sobel, Director
Date: April 1, 2002 /s/ Warren Struhl
---------------------------------------
Warren Struhl, Director
25
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIND/SVP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Operations
for the years ended December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7
Schedule:
Independent Auditors' Report on Supplemental Schedule F-26
Schedule II - Valuation and Qualifying Accounts F-27
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Find/SVP, Inc.
We have audited the accompanying consolidated balance sheets of Find/SVP, Inc.
and subsidiaries (the Company) as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Stamford, Connecticut
March 27, 2002
F-2
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Balance SheetsDecember 31
(in thousands, except share and per share data)
ASSETS 2001 2000
Current assets:
Cash and cash equivalents $ 1,951 $ 901
Accounts receivable, less allowance for doubtful accounts of
$126 and $101 in 2001 and 2000, respectively 1,415 2,520
Note receivable 138 138
Deferred tax assets 194 70
Prepaid expenses and other current assets 311 442
-------- --------
Total current assets 4,009 4,071
Equipment, software development and leasehold improvements, at cost,
less accumulated depreciation and amortization 2,892 3,558
Other assets:
Deferred tax assets 1,063 789
Accrued rent receivable 788 602
Cash surrender value of life insurance 747 703
Non-marketable equity securities 500 500
Note receivable -- 137
Other assets 384 423
-------- --------
$ 10,383 $ 10,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 924 $ 674
Trade accounts payable 469 791
Accrued expenses and other 1,175 979
Accrued interest 89 40
-------- --------
Total current liabilities 2,657 2,484
-------- --------
Unearned retainer income 1,753 2,071
Notes payable, including accrued deferred interest 895 1,685
Deferred compensation 380 323
Accrued rent payable 208 228
Commitments and contingencies
Shareholders' equity:
Common stock, $.0001 par value. Authorized 20,000,000 shares;
issued and outstanding 10,043,443 shares in 2001;
issued and outstanding 7,605,943 shares in 2000 1 1
Capital in excess of par value 6,985 5,542
Accumulated deficit (2,496) (1,551)
-------- --------
Total shareholders' equity 4,490 3,992
-------- --------
$ 10,383 $ 10,783
======== ========
See accompanying notes to consolidated financial statements
F-3
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31
(in thousands, except share and per share data)
2001 2000 1999
Revenues $ 22,215 $ 23,800 $ 22,738
----------- ----------- -----------
Operating expenses:
Direct costs 10,966 12,127 11,543
Selling, general and administrative expenses 12,397 12,426 10,847
----------- ----------- -----------
Operating (loss) income (1,148) (753) 348
Interest income 49 119 88
Other income -- 139 1,200
Interest expense (246) (336) (464)
----------- ----------- -----------
(Loss) income before (benefit) provision
for income taxes and extraordinary item (1,345) (831) 1,172
(Benefit) provision for income taxes (400) (323) 289
----------- ----------- -----------
(Loss) income before extraordinary item (945) (508) 883
Extraordinary item (net of tax effect of $9 in 2000) -- (27) --
----------- ----------- -----------
Net (loss) income $ (945) $ (535) $ 883
=========== =========== ===========
(Loss) earnings per common share - basic and diluted: $ (.12) $ (.06) $ .12
=========== =========== ===========
Weighted average number of common shares outstanding:
Basic 7,879,744 7,449,986 7,121,242
=========== =========== ===========
Diluted 7,879,744 7,449,986 7,213,270
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31
(in thousands, except share amounts)
Common Stock Capital in Total
------------ excess of Accumulated shareholders'
Shares Amount par value deficit equity
------ ------ --------- ------- ------
Balance at January 1, 1999 7,114,169 $ 1 $ 4,886 $ (1,899) $ 2,988
Net income -- -- -- 883 883
Exercise of stock options and warrants 22,750 -- 18 -- 18
------------------------------------------------------------------
Balance at December 31, 1999 7,136,919 1 4,904 (1,016) 3,889
------------------------------------------------------------------
Net loss -- -- -- (535) (535)
Exercise of stock options and warrants 319,024 -- 638 -- 638
Common stock issued in exchange for warrants 150,000 -- -- -- --
------------------------------------------------------------------
Balance at December 31, 2000 7,605,943 1 5,542 (1,551) 3,992
------------------------------------------------------------------
Net loss -- -- -- (945) (945)
Common stock issued 2,437,500 -- 1,443 -- 1,443
------------------------------------------------------------------
Balance at December 31, 2001 10,043,443 $ 1 $ 6,985 $ (2,496) $ 4,490
==================================================================
See accompanying notes to consolidated financial statements
F-5
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31
(in thousands)
2001 2000 1999
Cash flows from operating activities:
Net (loss) income $ (945) $ (535) $ 883
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,100 1,182 1,105
Provision for losses on accounts receivable 454 217 90
Increase in deferred compensation 57 56 74
(Decrease) increase in unearned retainer income (318) 142 12
Increase in non-marketable equity securities -- -- (500)
(Increase) decrease in deferred income taxes (398) (342) 245
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 651 (796) 157
Decrease (increase) in prepaid expenses and other
current assets 131 (119) 143
Increase in accrued rent receivable (186) (186) (186)
Increase in cash surrender value of life insurance (44) (70) (64)
Increase in other assets (89) (109) (102)
Decrease in accounts payable, accrued expenses
and accrued interest (94) (117) (810)
(Decrease) increase in accrued rent payable (20) (13) 46
------- ------- -------
Net cash provided by (used in) operating
activities 299 (690) 1,093
------- ------- -------
Cash flows from investing activities:
Capital expenditures (304) (570) (672)
Repayment of notes receivable 137 137 200
------- ------- -------
Net cash used in investing activities (167) (433) (472)
------- ------- -------
Cash flows from financing activities:
Principal borrowings under notes payable 200 1,400 --
Principal payments under notes payable (725) (1,474) (850)
Proceeds from exercise of stock options and warrants -- 37 18
Proceeds from issuance of common stock 1,443 -- --
Increase in deferred financing fees -- (35) --
------- ------- -------
Net cash provided by (used in) financing
activities 918 (72) (832)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 1,050 (1,195) (211)
Cash and cash equivalents at beginning of year 901 2,096 2,307
------- ------- -------
Cash and cash equivalents at end of year $ 1,951 $ 901 $ 2,096
======= ======= =======
See accompanying notes to consolidated financial statements.
F-6
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION
Find/SVP, Inc. and its wholly owned subsidiaries (the "Company")
provide a broad consulting, advisory and business intelligence
service to executives and other decision-making employees of
client companies, primarily in the United States. The Company
currently operates in two business segments, providing consulting
and business advisory services including: the Quick Consulting and
Research Service ("QCS") which provides retainer clients with
access to the expertise of the Company's staff and information
resources as well as a Live AnswerDesk service ("Quick
Consulting"); and the Strategic Consulting and Research Group
("SCRG") which provides more extensive, in-depth custom market
research and competitive intelligence information, as well as
customer satisfaction and loyalty programs ("Strategic
Consulting").
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company. All significant intercompany balances and transactions
have been eliminated in consolidation.
(C) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost.
Depreciation is computed by the straight-line method over the
estimated useful lives of the assets. Electronic equipment and
computer software is primarily depreciated over five years, and
the Company's proprietary management information software system
is depreciated over ten years. Leasehold improvements are
amortized by the straight-line method over the shorter of the term
of the lease or the estimated life of the asset.
(D) DEFERRED CHARGES AND GOODWILL
Deferred charges primarily comprise the cost of acquired library
information files and electronic databases, which are amortized to
expense over the estimated period of benefit of three years using
the straight-line method.
Goodwill arising from various acquisitions represents the excess
of purchase price over the fair value of assets and liabilities
acquired and is being amortized on a straight-line basis over 15
years.
F-7
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(E) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating losses
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using currently enacted tax rates. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Realization of the net deferred tax assets is dependent on
future reversals of existing taxable temporary differences and
adequate future taxable income, exclusive of reversing temporary
differences and carryforwards. Although realization is not
assured, management believes that it is more likely than not that
the net deferred tax assets will be realized.
(F) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed by dividing net
income (loss) by the weighted average number of common shares
outstanding during the year. Diluted earnings (loss) per share are
computed by dividing net income (loss) by a diluted weighted
average number of common shares outstanding during the year. Such
dilution is computed using the treasury stock method for the
assumed conversion of stock options and warrants whose exercise
price was less than the average market price of the common shares
during the respective period, and certain additional dilutive
effects of exercised, terminated and cancelled stock options. In
the years ended December 31, 2001 and 2000 there was no such
dilutive effect.
Options and warrants to purchase 3,460,472, 1,847,872 and
1,883,789 common shares during the years ended December 31, 2001,
2000 and 1999, respectively, were antidilutive and were therefore
excluded from the computation of diluted earnings per share.
F-8
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(G) REVENUE RECOGNITION
Revenues from annual retainer fees are recognized ratably over the
contractual period. Other revenues are recognized as earned.
Revenues include certain out-of-pocket and other expenses billed
to clients which aggregated approximately $1,111,000, $1,770,000
and $2,186,000 in 2001, 2000 and 1999, respectively.
(H) CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all highly liquid investments
with original maturities of three months or less.
(I) NON-MARKETABLE EQUITY SECURITIES
Non-marketable equity securities are valued at the lower of
historical cost or estimated net realizable value.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the
fair value of financial instruments:
The carrying values reported in the balance sheets for cash,
accounts receivable, prepaid expenses and other current assets,
accounts payable and accrued expenses approximate fair values.
The fair value of notes payable, which approximates its carrying
value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities.
(K) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-9
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(L) NEW ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133) and in June 2000 issued SFAS No. 138, which amended
certain provisions of SFAS No. 133. These statements require
companies to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Gains or
losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivatives and
whether it qualifies for hedge accounting. The Company adopted
both pronouncements as of January 1, 2001. The Company does not
have derivatives or hedging activities as contemplated by these
pronouncements, and there was no effect of adoption.
In June 2001, the FASB issued Statements of Financial Accounting
Standards No. 141, "Business Combinations" effective July 1, 2001,
and No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), effective for fiscal years beginning after December 15,
2001. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the
statements. Other intangible assets will continue to be amortized
over their useful lives.
The Company will adopt SFAS No. 142 as of January 1, 2002.
On an annual basis, the Company's amortization of goodwill has
been approximately $10,000. The Company has concluded that the
adoption of SFAS Nos. 141 and 142 will not have a material effect
on its consolidated financial position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations,"
which will be adopted by the Company as of January 1, 2003. This
standard addresses issues associated with the retirement of
tangible long-lived assets. The Company has not completed its
process of evaluating the impact, if any, on its consolidated
financial position and results of operations that will result from
the adoption of this standard.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which will be adopted by the Company as of
January 1, 2002. This standard also addresses issues associated
with the disposal of a segment of a business. The Company has
concluded that there is no effect of adoption of this standard on
its consolidated financial position or results of operations as of
January 1, 2002.
F-10
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(M) USE OF ESTIMATES
Management makes estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of
contingent assets and liabilities and the reported amounts of
revenue and expenses to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(N) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
At December 31, 2001 and 2000, equipment and leasehold
improvements consist of the following:
- --------------------------------------------------------------------------------
2001 2000
Furniture, fixtures and equipment, including
Computer software $9,202,000 $8,939,000
Leasehold improvements 1,954,000 1,913,000
------------- ------------
11,156,000 10,852,000
Less: accumulated depreciation and amortization 8,264,000 7,294,000
------------- ------------
$2,892,000 $3,558,000
============= ============
- --------------------------------------------------------------------------------
(3) OTHER ASSETS
At December 31, 2001 and 2000, other assets consist of the following:
- --------------------------------------------------------------------------------
2001 2000
Deferred charges $ 160,000 $ 176,000
Security deposits 132,000 132,000
Goodwill, net 75,000 86,000
Deferred financing fees, net 17,000 29,000
------------- ------------
$ 384,000 $ 423,000
============= ============
- --------------------------------------------------------------------------------
F-11
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LEASES
The Company has an operating lease agreement for its principal offices,
which expires in 2005. As a result of certain lease renegotiations,
rental expense is scheduled to decline over the term of the lease. Rental
expense under this lease is recorded on a straight-line basis. Scheduled
payments through December 31, 2001 and 2000 exceeded rental expense
recorded on this lease through such dates by $788,000 and $602,000,
respectively.
The Company has two operating leases for additional office space that
expire in 2005. Rental expense is scheduled to increase over the term of
the lease. Rental expenses on these leases are recorded on a
straight-line basis. Accordingly, rent recorded through December 31, 2001
and 2000 exceeded scheduled payments by $207,000 and $228,000,
respectively. In September 2000, the Company gave up its rights to a
portion of this space for which the Company received $100,000 from its
landlord, which is included in other income in 2000.
The Company's leases of office space include standard escalation clauses.
Rental expenses under leases for office space and certain equipment
accounted for as operating leases were $1,729,000, $1,573,000 and
$1,676,000 in 2001, 2000 and 1999, respectively.
The future minimum lease payments under noncancellable operating leases
as of December 31, 2001 were as follows:
- --------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31 OPERATING LEASES
- ----------------------- ----------------
2002 $ 1,093,000
2003 853,000
2004 853,000
2005 426,000
2006 --
Thereafter --
---------------
Total minimum lease payments $ 3,225,000
===============
- --------------------------------------------------------------------------------
F-12
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) NOTES PAYABLE
Notes payable as of December 31, 2001 and 2000 consist of the following:
- --------------------------------------------------------------------------------
2001 2000
Bank borrowings under term note $1,100,000 $1,350,000
Bank borrowings under line of credit 200,000 --
Borrowings under debt agreements with investors:
$475,000 Series A Senior Subordinated
Note - SVP, S.A., net of unamortized
discount of $1000 as of December 31, 2000, due
November 30, 2001 -- 474,000
$475,000 Series A Senior Subordinated
Note - SVP, S.A., net of unamortized
discount of $1,000 and $2,000 as of
December 31, 2001 and 2000, respectively, due
August 25, 2002 474,000 473,000
Note payable to landlord, due 2003 45,000 --
---------- ----------
Total notes payable 1,819,000 2,297,000
Less current installments 924,000 674,000
Plus accrued deferred interest -- 62,000
---------- ----------
Notes payable, excluding current
Installments $ 895,000 $1,685,000
========== ==========
- --------------------------------------------------------------------------------
(A) DEBT AGREEMENTS WITH BANK
On August 1, 2000, the Company entered into a financing agreement
with a commercial bank for a $1,400,000 Term Note (the "Note"), due
June 30, 2005. The Note bears interest at prime plus 1.25% and is
payable in quarterly installments beginning September 30, 2000. As
of December 31, 2001, there was $1,100,000 outstanding on this
Note.
The Company has a $1,000,000 line of credit at the prime commercial
lending rate plus 0.5%. The line is renewable annually, and was put
in place on December 30, 1999. As of December 31, 2001, $200,000
was outstanding under this line.
The Company's debt agreements with the bank are secured by a
general security agreement covering all of the Company's assets.
F-13
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
(B) AGREEMENTS WITH INVESTORS
Borrowings under the debt agreements with investors accrue interest
at an annual rate of 12% on the unpaid principal balance. Interest
payments are made periodically, and the agreements allow for the
automatic deferral of some of the interest. Any interest that is
deferred, compounds and accrues interest at 12%. As of December 31,
2001, there was approximately $89,000 of accrued but unpaid
interest of which $14,000 was deferred in accordance with said
provisions. As of December 31, 2000, there was approximately
$102,000 of accrued but unpaid interest, of which $62,000 was
deferred.
In early August 2000, the proceeds of the Term Note due June 30,
2005 were used to pay down a portion of the Company's Senior
Subordinated Notes, resulting in an after tax extraordinary loss of
$27,000.
The aggregate principal maturities of long-term debt for the next five
years, including deferred interest and after full amortization of
discounts, are as follows:
- --------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
2002 $ 925,000
2003 345,000
2004 350,000
2005 200,000
2006 --
Thereafter --
------------
$ 1,820,000
============
- --------------------------------------------------------------------------------
(6) SHAREHOLDERS' EQUITY
(A) SALE OF COMMON STOCK
In November 2001, the Company issued 2,437,500 shares for net cash
proceeds of $1,443,000, after transaction costs. This transaction
resulted in a triggering of the change in control provisions of
certain employment and severance agreements (See Note 9).
F-14
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
(B) COMMON STOCK WARRANTS
On January 1, 2000 warrants to purchase 1,472,000 of the Company's
common shares at $2.25 per share were outstanding. During the
first quarter of 2000, 266,945 of such warrants were exercised.
Under the terms of such warrants, $600,626 of face value of the
Senior Subordinated Note due October 31, 2001 was surrendered as
payment. In August 2000 as part of the early retirement of the
Senior Subordinated Note due October 31, 2001, 633,055 warrants
were converted into 150,000 shares of the Company's common stock.
At December 31, 2001 and 2000, warrants to purchase 572,222 of the
Company's common shares remained outstanding.
(C) STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan"), as amended in
1998, 2000 and 2001, authorizes grants of options to purchase up
to 3,500,000 shares of common stock, issuable to employees,
directors and consultants of the Company.
The options to be granted under the Plan will be designated as
incentive stock options or non-incentive stock options by the
Stock Option Committee. Options granted under the Plan are
exercisable during a period of no more than ten years from the
date of the grant (five years for options granted to holders of
10% or more of the outstanding shares of common stock). All
options outstanding at December 31, 2001 expire within the next
ten years if not exercised. Options that are cancelled or expire
during the term of the Plan are eligible to be re-issued under the
Plan and, therefore, are considered available for grant.
There were no options outstanding under the 1986 Stock Option Plan
as of December 31, 2001, and there were no options available for
grant under this plan at December 31, 2001
F-15
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
Activity under the stock option plans is summarized as follows:
- --------------------------------------------------------------------------------
WEIGHTED
AVAILABLE AVERAGE
FOR OPTIONS EXERCISE
GRANT GRANTED PRICE
---------- ---------- --------
January 1, 1999 567,150 989,763 $ 1.31
Granted (247,500) 247,500 0.80
Exercised -- (22,750) 0.77
Cancelled and terminated 338,613 (338,613) 1.09
No longer available under 1986 Plan (171,963) -- --
---------- ---------- --------
December 31, 1999 486,300 875,900 1.12
Additional authorized 500,000 -- --
Granted (772,500) 772,500 2.15
Exercised -- (80,910) 1.68
Cancelled and terminated 291,840 (291,840) 1.14
No longer available under 1986 Plan (30,140) -- --
---------- ---------- --------
December 31, 2000 475,500 1,275,650 1.74
Additional authorized 1,850,000 -- --
Granted (1,872,050) 1,872,050 0.49
Exercised -- --
Cancelled 259,450 (259,450) 1.84
No longer available under the 1986 Plan (166,200) -- --
---------- ---------- --------
December 31, 2001 546,700 2,888,250 0.92
========== ========== ========
Exercisable at December 31, 2001 863,779 $ 1.25
========== ========
Exercisable at December 31, 2000 435,550 $ 1.56
========== ========
Exercisable at December 31, 1999 327,075 $ 1.40
========== ========
- -------------------------------------------------------- -----------------------
During 2001 options to purchase 1,872,050 shares of common stock
were granted under the Company's Stock Option Plan, at prices
ranging from $0.41 to $0.80.
As of December 31, 2001, there were 2,888,250 options outstanding,
exercisable at $0.41 to $3.6875, with an average remaining
contractual life of 6.69 years. As of December 31, 2001, there
were 863,779 exercisable options, exercisable at $0.50 to $3.6875,
with an average remaining contractual life of 6.69 years.
F-16
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
The Company applies APB Opinion No. 25 when accounting for stock
options, and no compensation cost is recognized for grants made to
employees or directors when the grant price is greater than or
equal to the market price of a common share on the date of grant.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net
income (loss) would have been reduced (increased) to the pro forma
amounts indicated below:
- --------------------------------------------------------------------------------
2001 2000 1999
Net (loss) income As reported $ (945,000) $ (535,000) $ 883,000
Proforma (1,196,000) (756,000) 759,000
---------------------------------------------
(Loss) earnings per share Basic
As reported (0.12) (0.06) 0.12
Proforma (0.15) (0.10) 0.11
---------------------------------------------
Diluted
As reported (0.12) (0.06) 0.12
Proforma (0.15) (0.10) 0.11
---------------------------------------------
- --------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted
during 2001, 2000 and 1999 was $0.30, $1.21 and $0.43,
respectively. Such amounts were determined using the Black-Scholes
option-pricing model with the following weighted-average
assumptions: 2001 - expected dividend yield of 0%, risk-free
interest rate of 6%, volatility of 93.0% and an expected life of 3
years; 2000 - expected dividend yield of 0%, risk-free interest
rate of 6%, volatility of 82.1% and an expected life of 3 years;
1999 - expected dividend yield of 0%, risk-free interest rate of
6%, volatility of 75.6% and an expected life of 3 years.
Volatility is calculated over the five preceding years.
(D) PREFERRED STOCK
The Company has authorized and unissued preferred stock consisting
of 2,000,000 shares at $.0001 par value.
F-17
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) SVP INTERNATIONAL
The Company has an agreement with SVP International, a subsidiary of
Amalia S.A. Prior to November 2001, SVP International and its affiliates
owned 37% of the common shares of the Company. The agreement provides
that SVP International will aid and advise the Company in the operation
of an information service and permit access to other global SVP
information centers, and the use of the SVP trademark and logo. The
agreement shall continue in perpetuity, unless amended by the parties.
The Company pays royalties to SVP International computed using a formula
based on percentages of service and product revenues, subject to certain
limitations.
Royalty expense under the agreement was $118,000, $118,000 and $119,000
in the years ended December 31, 2001, 2000 and 1999, respectively.
Amounts due to SVP International, included in accrued expenses, were
approximately $338,000 and $278,000 at December 31, 2001 and 2000,
respectively.
The Company receives and renders information services to other members of
the SVP network. Charges for such services are made at rates similar to
those used for the Company's other clients.
(8) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
- --------------------------------------------------------------------------------
2001 2000 1999
Current:
Federal $ -- $ -- $ --
State and local -- -- 20,000
--------------------------------------------------------------
-- -- 20,000
Deferred:
Federal (348,000) (260,000) 524,000
State and local (52,000) (63,000) 25,000
--------------------------------------------------------------
(400,000) (323,000) 549,000
Change in valuation allowance -- -- (280,000)
--------------------------------------------------------------
(400,000) (323,000) 269,000
--------------------------------------------------------------
$ (400,000) $ (323,000) $ 289,000
==============================================================
- ----------------------------------------------------------- --------------------
F-18
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8), CONTINUED
Income tax (benefit) expense differs from the amount computed by
multiplying the statutory rate of 34% to income before income taxes due
to the following:
- --------------------------------------------------------------------------------
2001 2000 1999
Income tax (benefit) expense at statutory rate $(457,000) $(283,000) $ 398,000
Increase (reduction) in income taxes resulting
from:
Change in valuation allowance -- -- (280,000)
State and local (benefit) taxes, net of federal
income tax benefit (52,000) (63,000) 118,000
Nontaxable income -- (24,000) (18,000)
Nondeductible expenses 66,000 25,000 31,000
Other 43,000 22,000 40,000
-----------------------------------
$(400,000) $(323,000) $ 289,000
===================================
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, net of deferred tax liabilities at
December 31, 2001 and 2000 are presented below:
- --------------------------------------------------------------------------------
2001 2000
Deferred tax assets:
Federal tax loss carryforwards $ 445,000 $ 226,000
State and local tax loss carryforwards 348,000 317,000
Deferred compensation 159,000 142,000
Royalty expenses 141,000 115,000
Depreciation and amortization 136,000 17,000
Other, net 28,000 42,000
-----------------------------
Net deferred tax asset $1,257,000 $ 859,000
=============================
- --------------------------------------------------------------------------------
Of the net deferred tax asset, $194,000 and $70,000 as of December 31,
2001 and December 31, 2000, respectively, are classified as current.
Federal tax loss carryforward assets expire in 2020 and 2021. Of the
state and local tax loss carryforward assets, approximately $167,000
expire in 2012, with the remainder expiring in 2020 and 2021.
F-19
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
(A) EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) and profit sharing plan under which
eligible participants may elect to defer eligible compensation up
to governmental limitations. The Company contributes 20% of the
employees' contributions up to 1% of their annual compensation and
may contribute additional profit sharing amounts at the discretion
of the Company. Expense was $88,000, $86,000 and $61,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
During 2000 the Company terminated its Target Benefit Pension
Plan. All funds were distributed to participants as of December
31, 2000.
(B) DEFERRED COMPENSATION
The Company has deferred compensation agreements with two
individuals, with benefits commencing upon retirement, death or
disability. Deferred compensation expense under these agreements
was approximately $56,000, $56,000 and $74,000 in 2001, 2000 and
1999, respectively.
(C) EMPLOYMENT AGREEMENTS
The Company has an employment agreement with the President of the
Company, which expires in December 2005. The employment agreement
contains certain severance provisions entitling the President to
receive compensation for various lengths of time upon termination
without cause, or voluntary termination upon certain conditions,
which includes the acquisition by a party of 30% or more of the
outstanding shares of common stock of the Company or a change in
the majority of incumbent Board members, and certain other
occurrences.
The Company has an employment agreement with the CEO of the
Company, which expires in November 2004. The employment agreement
provides for the issuance of options to purchase shares of the
Company's common stock. The options are to vest ratably over the
first three years of the term of the employment agreement, and
such vesting shall accelerate and vest immediately upon certain
conditions. The employment agreement also contains certain
severance provisions entitling the CEO to receive compensation and
certain benefits for various lengths of time upon termination
without cause, or voluntary termination upon certain conditions,
which includes the acquisition by a party of 30% or more of the
outstanding shares of common stock of the Company or a change in
the majority of incumbent Board members, and certain other
occurrences.
F-20
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9), CONTINUED
The Company has an employment agreement with the Chairman of the
Board of Directors of the Company, which expires in November 2004.
The employment agreement provides for the issuance of options to
purchase shares of the Company's common stock. The options are to
vest ratably over the term of the employment agreement, and such
vesting shall accelerate and vest immediately upon certain
conditions, which includes the acquisition by a party of 30% or
more of the outstanding shares of common stock of the Company or a
change in the majority of incumbent Board members, or upon his
termination of employment without cause or upon his death or
disability.
Severance arrangements for three members of the Operating
Management Group ("OMG") were authorized by the Board of Directors
on January 25, 1999. In the event of certain changes of control,
severance agreements with such members of the OMG would be
triggered. Such agreements provide for (a) a normal severance
benefit for nine (9) months, which would be increased to one (1)
year after the employee has served as a member of the OMG for a
continuous period of two (2) years, in the event the employee's
services are terminated without cause, and (b) a severance benefit
of one (1) year in the event the separation from service is due to
(i) a change in control, and (ii) the employee suffers, within one
(1) year thereafter, either (A) a discontinuation of duties, or
(B) an office change of at least 50 miles, or (C) a reduction in
compensation, or (D) a termination of employment other than for
cause. Following the change in control in November 2001, the
Company recorded its estimate of the amounts that will become
payable under these provisions.
Following the change in control in November 2001, the Company
recorded a liability of $134,000, its estimate of the amounts that
will become payable under these provisions.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the years ended December
31, 2001, 2000 and 1999 was as follows:
- --------------------------------------------------------------------------------
2001 2000 1999
Interest $ 236,000 $ 235,000 $644,000
========================================
Income taxes $ 12,000 $ 10,000 $ 60,000
========================================
- --------------------------------------------------------------------------------
F-21
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10), CONTINUED
The Company had the following non-cash financing activities:
During the first quarter of 2000, the Company issued 266,945 common
shares upon the exercise of warrants in exchange for the retirement of
$600,626 of the Company's Senior Subordinated Note due October 31, 2001.
In August 2000, the Company issued 150,000 shares of common stock in
exchange for the cancellation of 633,055 warrants to purchase common
stock.
During 2000, the Company recorded the cashless exercise of 47,860 options
at prices ranging from $0.75 to $2.25, in exchange for 28,831 shares of
common stock at prices ranging from $3.3125 to $4.01325. Such shares were
held for a period of at least six months before the respective exchange.
The value of these transactions was $97,000.
(11) ACCRUED EXPENSES
Accrued expenses at December 31, 2001 and 2000 consisted of the
following:
- --------------------------------------------------------------------------------
2001 2000
Accrued bonuses and employee benefits $ 372,000 $ 403,000
Accrued restructuring charges 94,000 --
Accrued expenses incurred on behalf of clients 27,000 41,000
Accrued SVP royalty 338,000 278,000
Other accrued expenses 344,000 257,000
----------------------------
$1,175,000 $ 979,000
============================
- -------------------------------------------------------------------------------
In 2001, the Company recorded an accrual for restructuring under a
severance plan approved by the Board of Directors and communicated to
employees.
F-22
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) OTHER INCOME
Other income consists of the following:
- -------------------------------------------------------------------------------
2001 2000 1999
Early termination of lease $ -- $ 139,000 $ --
Domain name assignment and trademark
license agreement -- -- 1,200,000
-------------------------------------
$ -- $ 139,000 $1,200,000
=====================================
- -------------------------------------------------------------------------------
On December 30, 1999, the Company entered into an agreement with idealab!
and Find.com, Inc. whereby the Company assigned the domain name
"find.com" and licensed the use of certain rights to the trademarks
"find.com" and "find" to Find.com, Inc. idealab! and Find.com, Inc. are
not otherwise related to the Company. Under the terms of the agreement,
the Company received consideration in the form of cash and preferred
shares amounting to approximately $1,200,000, net of related expenses.
The Company is also entitled to certain future royalties. No royalty
income was earned in the years ended December 31, 2001 and 2000. The
carrying value of the preferred shares is the lower of historical cost or
estimated net realizable value. The non-marketable preferred share
securities carry various rights including the ability to convert into
common shares of Find.com and a repurchase (put) option that becomes
exercisable in December 2002. Since the preferred share securities are an
investment in a start-up enterprise, it is reasonably possible in the
near term that the Company's estimate of the net realizable value of the
preferred shares will be less than the $500,000 carrying value of the
preferred shares.
F-23
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) SEGMENT REPORTING
The Company manages its consulting and business advisory services in two
business segments: Quick Consulting and Strategic Consulting. The Company
operates primarily in the United States. The Company considers its quick
consulting and strategic consulting services to be its core competency.
Corporate and other relates to assets and activities that are not
allocated to a segment.
- -------------------------------------------------------------------------------
(in thousands) YEARS ENDED DECEMBER 31,
-----------------------
2001 2000 1999
---- ---- ----
REVENUES
Quick Consulting, including LAD $ 19,414 $ 19,930 $ 18,851
Strategic Consulting 2,801 3,870 3,887
--------------------------------
Total revenues 22,215 23,800 22,738
================================
OPERATING (LOSS) INCOME
Quick Consulting, including LAD 4,429 4,545 4,680
Strategic Consulting (314) (58) 156
--------------------------------
Segment operating (loss) income 4,115 4,487 4,836
Corporate and other (1) (5,263) (5,318) (3,664)
--------------------------------
(Loss) income before (benefit) provision
for income taxes (1,148) (831) 1,172
================================
DEPRECIATION AND AMORTIZATION
Quick Consulting, including LAD 539 583 520
Strategic Consulting 66 68 69
--------------------------------
Total segment depreciation and amortization 605 651 589
Corporate and other 495 531 516
--------------------------------
Total depreciation and amortization 1,100 1,182 1,105
================================
TOTAL ASSETS
Quick Consulting, including LAD 2,871 3,406
Strategic Consulting 315 843
--------------------
Total segment assets 3,186 4,249
Corporate and other 7,197 6,534
--------------------
Total assets 10,383 10,783
====================
CAPITAL EXPENDITURES
Quick Consulting, including LAD 119 160 218
Strategic Consulting 5 30 25
--------------------------------
Total segment capital expenditures 124 190 243
Corporate and other 180 380 429
--------------------------------
Total capital expenditures 304 570 672
================================
(1) Includes interest income, other income, gain on sale of net assets, interest
expense and other expense.
- --------------------------------------------------------------------------------
F-24
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) SUBSEQUENT EVENT
In February 2002, the Company entered into a financing agreement with a
commercial bank for a $2,000,000 Term Note, due December 31, 2006. The
Term Note bears interest at prime plus 1.25%, and is payable in quarterly
installments beginning March 31, 2002.
The proceeds from this Term Note were used to repay the $1,100,000
balance of the existing term note, and to repay the remaining portion of
the Company's Senior Subordinated Notes.
F-25
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders of Find/SVP, Inc.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
table of contents on page F-1 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements. This
schedule is the responsibility of the Company's management. Such schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
Deloitte & Touche LLP
Stamford, Connecticut
March 27, 2002
F-26
SCHEDULE II
FIND/SVP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000 and 1999
(in thousands of dollars)
Balance at Additions
beginning charged to Deduc- Balance at
CLASSIFICATION Of year earnings tions (1) end of year
------- ------- --------- -----------
Year ended December 31, 2001:
Allowance for doubtful accounts $ 101 $ 454 $ 429 $ 126
=== === === ===
Year ended December 31, 2000:
Allowance for doubtful accounts $ 101 $ 202 $ 202 $ 101
=== === === ===
Year ended December 31, 1999:
Allowance for doubtful accounts $ 104 $ 90 $ 93 $ 101
=== === === ===
Note: (1) Amounts written off, net of recoveries.
F-27