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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2002
Commission file no.0-15152
FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2670985
--------------------------------- ---------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 Avenue of the Americas, New York, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
Number of shares of Common Stock outstanding at November 6, 2002: 10,181,327
FIND/SVP, INC. AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
September 30, 2002 (unaudited) and December 31, 2001
Condensed Consolidated Statements of Operations 4
Nine Months Ended September 30, 2002 and 2001 (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months Ended September 30, 2002 and 2001 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
Nine Months Ended September 30, 2002 and 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 17
ITEM 4. Disclosure Controls and Procedures 18
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 19
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
CERTIFICATIONS 22
2
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, December 31,
2002 2001
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 829 $ 1,951
Marketable securities 786 --
Accounts receivable, net 1,658 1,415
Note receivable 110 138
Deferred tax assets 194 194
Prepaid expenses and other current assets 947 828
-------- --------
Total current assets 4,524 4,526
Equipment and leasehold improvements, at cost, less accumulated
depreciation and amortization of $8,890 in 2002 and
$8,264 in 2001 2,529 2,892
Other assets:
Deferred tax assets 1,321 1,063
Accrued rent receivable 640 580
Cash surrender value of life insurance 690 747
Non-marketable equity securities 500 500
Other assets, including $75,448 of goodwill for both periods 509 384
-------- --------
$ 10,713 $ 10,692
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 1,400 $ 924
Trade accounts payable 240 469
Accrued expenses and other 1,466 1,692
Accrued interest -- 89
-------- --------
Total current liabilities 3,106 3,174
-------- --------
Unearned retainer income 1,640 1,753
Notes payable, including accrued deferred interest 1,375 895
Other liabilities 422 380
Commitments and contingencies
Shareholders' equity:
Common stock, $.0001 par value. Authorized 100,000,000 shares;
issued and outstanding 10,177,977 at September 30, 2002 and
10,043,443 at December 31, 2001 1 1
Capital in excess of par value 7,267 6,985
Accumulated deficit (3,098) (2,496)
-------- --------
Total shareholders' equity 4,170 4,490
-------- --------
$ 10,713 $ 10,692
======== ========
See accompanying notes to condensed consolidated financial statements
3
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Nine months ended September 30
(in thousands, except share and per share data)
2002 2001
------------ ------------
Revenues $ 15,479 $ 17,257
------------ ------------
Operating expenses:
Direct costs 7,698 8,397
Selling, general and administrative expenses 8,582 9,193
------------ ------------
Operating loss (801) (333)
Interest income 12 42
Other income 44 --
Interest expense (118) (199)
------------ ------------
Loss before benefit for income taxes (863) (490)
Benefit for income taxes (258) (152)
------------ ------------
Net loss $ (605) $ (338)
============ ============
Earnings per common share:
Basic $ (0.06) $ (0.04)
============ ============
Diluted $ (0.06) $ (0.04)
============ ============
Weighted average number of common shares:
Basic 10,132,731 7,605,943
============ ============
Diluted 10,132,731 7,605,943
============ ============
See accompanying notes to condensed consolidated financial statements.
4
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended September 30
(in thousands, except share and per share data)
2002 2001
------------ ------------
Revenues $ 5,209 $ 5,381
------------ ------------
Operating expenses:
Direct costs 2,491 2,684
Selling, general and administrative expenses 2,605 2,965
------------ ------------
Operating income (loss) 113 (268)
Interest income 3 7
Other income 5 --
Interest expense (42) (62)
------------ ------------
Income (loss) before provision (benefit) for income taxes 79 (323)
Provision (benefit) for income taxes 24 (110)
------------ ------------
Net income (loss) $ 55 $ (213)
============ ============
Earnings per common share:
Basic $ 0.01 $ (0.03)
============ ============
Diluted $ 0.00 $ (0.03)
============ ============
Weighted average number of common shares:
Basic 10,200,680 7,605,943
============ ============
Diluted 11,583,601 7,605,943
============ ============
See accompanying notes to condensed consolidated financial statements.
5
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30
(in thousands)
2002 2001
------- -------
Cash flows from operating activities:
Net loss $ (605) $ (338)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 706 819
Amortization of deferred financing fees 12 12
Provision for losses on accounts receivable 126 310
Unrealized gain on marketable securities (43) --
Stock option compensation expense 200 --
Changes in assets and liabilities:
Increase in marketable securities (743) --
(Increase) decrease in accounts receivable (369) 353
Increase in prepaid expenses (110) (109)
Increase in deferred tax assets (258) (152)
Increase in other assets (228) (338)
Decrease in accounts payable (229) (231)
Decrease in accrued expenses and
other current liabilities (311) (156)
Decrease in unearned retainer income (113) (304)
Increase in other liabilities 42 30
------- -------
Net cash used in operating activities (1,923) (104)
------- -------
Cash flows from investing activities:
Capital expenditures (264) (275)
Repayment of note receivable 28 137
------- -------
Net cash used in investing activities (236) (138)
------- -------
Cash flows from financing activities:
Principal borrowings under notes payable 3,030 --
Principal payments under notes payable (2,075) (150)
Proceeds from exercise of stock options 82 --
------- -------
Net cash provided by (used in) financing activities 1,037 (150)
------- -------
Net decrease in cash (1,122) (392)
Cash at beginning of period 1,951 901
------- -------
Cash at end of period $ 829 $ 509
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 105 $ 88
======= =======
Taxes paid $ 1 $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
6
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. MANAGEMENT'S STATEMENT
In the opinion of Management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to present fairly the financial
position at September 30, 2002, and the results of operations for the nine and
three month periods ended September 30, 2002 and 2001 and cash flows for the
nine month periods ended September 30, 2002 and 2001. All such adjustments are
of a normal and recurring nature. Operating results for the nine and three month
periods ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002.
FIND/SVP, Inc. and its Subsidiaries (the "Company") have reclassified certain
prior year balances to conform with the current year presentation. References in
this report to "we," "us," or "our" refer to FIND/SVP, Inc. and its
subsidiaries.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with our
consolidated financial statements and notes thereto for the year ended December
31, 2001 included in the Company's 2001 Annual Report on Form 10-K.
B. (LOSS) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding . Diluted earnings per
share is computed by dividing net income (loss) by a diluted weighted average
number of common shares outstanding. Diluted net income (loss) per share
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock,
unless they are anti-dilutive. In computing basic and diluted earnings per share
for the nine months ended September 30, 2002 and 2001, the Company used a
weighted average number of common shares outstanding of 10,132,731 and
7,605,943, respectively. In computing basic earnings per share for the three
months ended September 30, 2002 and 2001, the Company used a weighted average
number of common shares outstanding of 10,200,680 and 7,605,943, respectively.
In computing diluted earnings per share for the three months ended September 30,
2002 and 2001, the Company used a weighted average number of common shares
outstanding of 11,583,601 and 7,605,943, respectively. For the three months
ended September 30, 2002, diluted weighted average number of common shares
outstanding exceeded that of basic by 1,382,922, which represented the dilutive
effect of 3,045,372 options and warrants after applying the treasury stock
method.
Options and warrants to purchase 3,417,622 and 1,763,630 common shares during
the nine months ended September 30, 2002 and 2001, respectively, were excluded
from the computation of diluted earnings per share as the effect would be
anti-dilutive. Options and warrants to purchase 372,250 and 1,808,222 common
shares during the three months ended September 30, 2002 and 2001, respectively,
were excluded from the computation of diluted earnings per share as the effect
would be anti-dilutive.
C. MARKETABLE SECURITIES
In January 2002, the Company received shares of common stock of a mutual company
that had converted to a stock company. As a result, the Company recognized
$33,000 as other revenue. These
7
securities are classified as trading securities, as they are being held
primarily for sale in the near term. The shares have been recorded at their fair
market value. As a result, the Company recorded an unrealized holding loss on
these securities of $6,000 and $1,000, which is included in other income for the
nine and three month periods ended September 30, 2002, respectively.
In July 2002, the Company acquired approximately 3% of the outstanding common
shares of a publicly traded research and consulting company for approximately
$824,000. The Company sold a portion of its holdings for $82,000, which
approximated the carrying value of these securities. These securities are
classified as trading securities, as they are being held primarily for sale in
the near term. The shares have been recorded at their fair market value. As a
result, the Company recorded an unrealized holding gain on these securities of
$11,000, which is included in other income for the nine and three month periods
ended September 30, 2002. In October 2002, the Company sold its remaining shares
of a publicly traded research and consulting company for $742,000, which
approximated carrying value.
D. DEBT
The Company has a $1,000,000 line of credit at its lender's prime commercial
lending rate plus 0.5%. The Company, as of September 30, 2002, had outstanding
letters of credit totaling $30,000. The line is renewable annually, and was put
in place on December 30, 1999. In July 2002, the Company borrowed $1,000,000
under its line of credit, of which approximately $824,000 was used to acquire
approximately 3% of the outstanding common shares of a publicly traded research
and consulting company. Interest expense for the nine and three months ended
September 30, 2002 related to this line of credit was $6,700. The Company
consulted with, and obtained the consent of, its lender with respect to this
transaction. As of September 30, 2002, the Company had no more borrowing
capacity under the line of credit. The Company sold a portion of its holdings
for approximately $82,000, which approximated the carrying value of these
securities, during the quarter ended September 30, 2002. In October 2002, the
Company sold its remaining shares of a publicly traded research and consulting
company for $742,000, which approximated carrying value.
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. As of September 30, 2002, there was $1,700,000 of
principal outstanding under this Term Note. Interest expense for the nine and
three months ended September 30, 2002 related to this Term Note was $67,000 and
$28,000, respectively.
The proceeds from this Term Note were used to repay the $1,100,000 balance of a
previous term note, dated August 1, 2000, and to repay the remaining portion of
the Company's Senior Subordinated Notes.
The Company's debt agreements with its lender are secured by a general security
interest in all of the Company's assets.
8
E. INCOME TAXES
The ($258,000) income tax (benefit) for the nine months ended September 30, 2002
and the $24,000 income tax provision for the three months ended September 30,
2002 represents 30% of the (loss)/income before (benefit) provision for income
taxes. The difference between this rate and the statutory rate primarily relates
to expenses that are not deductible for income tax purposes.
F. NEW ACCOUNTING PRINCIPLES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, BUSINESS
COMBINATIONS, effective July 1, 2001, and SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, 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 adopted SFAS No. 142 as of January 1, 2002. On an annual basis, the
Company's amortization of goodwill had been approximately $10,000. The Company
retains $75,448 of net goodwill on its balance sheet in other assets.
In July 2001, the FASB issued SFAS 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 does not believe that there will be any impact on its
consolidated financial position and results of operations that will result from
the adoption of this standard.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, which was adopted by the Company as of January 1,
2002. This standard also addresses issues associated with the disposal of a
segment of a business. There was no effect of adoption of this standard on its
consolidated financial position or results of operations as of January 1, 2002.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS NO.
4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS.
This statement eliminates the automatic classification of gain or loss on
extinguishments of debt as an extraordinary item of income and requires that
such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
Operations". This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. The Company will adopt this statement on January 1,
2003. Management believes that the adoption of this standard will not have an
impact on the Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 will supersede Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Management believes that the adoption of this standard will not have an impact
on the Company's reported financial position or results of operations, as
treatment of this standard is prospective.
9
G. STOCK OPTIONS
During the nine month period ended September 30, 2002, options to purchase
321,750 shares of common stock were granted under the Company's Stock Option
Plan, at prices ranging from $0.83 to $1.50.
During the nine month period ended September 30, 2001, options to purchase
181,550 shares of common stock were granted under the Company's Stock Option
Plan, at prices ranging from $0.625 to $0.800.
Stock options that were granted in November 2001 for future services to be
rendered to the Company by the Chief Executive Officer, the Chairman and a
consultant were granted at a price below the fair market value of the Company's
common stock on the measurement date for accounting purposes. Compensation
expense related to such grants is amortized over the vesting period of the
options and was $200,000 and $68,000 in the nine and three month periods ended
September 30, 2002, respectively.
At the Annual Meeting of Shareholders of the Company on June 6, 2002, an
amendment to the Company's 1996 Stock Option Plan was ratified whereby the
number of shares of common stock issuable thereunder was increased from
1,650,000 to 3,500,000.
H. SEGMENT REPORTING
The Company manages its consulting and business advisory services in two
business segments: Quick Consulting (which includes LiveAnswer Desk ("LAD")) 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 businesses. References to "Corporate and other" in our financial
statements refer to assets and activities that are not allocated to a segment.
- ------------------------------------------------------------------------------------------------
(in thousands) NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
REVENUES
Quick Consulting, including LAD $ 13,789 $ 14,907 $ 4,658 $ 4,683
Strategic Consulting 1,690 2,350 551 698
-------------------- --------------------
Total revenues $ 15,479 $ 17,257 $ 5,209 $ 5,381
==================== ====================
OPERATING INCOME
Quick Consulting, including LAD $ 3,005 $ 3,509 $ 1,152 $ 985
Strategic Consulting (183) (96) (11) (9)
-------------------- --------------------
Segment operating income 2,822 3,413 1,141 976
-------------------- --------------------
Corporate and other (1) (3,685) (3,903) (1,062) (1,299)
-------------------- --------------------
(Loss) Income before provision (benefit)
for income taxes $ (863) $ (490) $ 79 $ (323)
==================== ====================
(1) Includes interest income and interest expense
- ------------------------------------------------------------------------------------------------
10
I. ACCRUED EXPENSES
During the quarter ended March 31, 2002 the Company accrued an additional
liability of $188,000 related to contractual severance payments due to the
former Chief Financial Officer, a former member of the Operating Management
Group. Such contractual severance benefits were triggered by personnel changes
after the change in control of FIND/SVP, Inc. in November 2001. Severance
benefits relating to the resignation of our former Chief Financial Officer were
reduced by $93,000 during the three-month period ended September 30, 2002, as
the result of a revised agreement between the Company and the former Chief
Financial Officer that was signed in the quarter ended September 30, 2002.
Accrued restructuring charges of $228,000 were recorded at December 31, 2001
under a severance plan approved by our Board of Directors. The estimated cost of
the accrued severance was increased by $21,000 during the quarter ended March
31, 2002 as final calculations were made. Payments totaling $206,000 were made
to 9 individuals during the nine months ended September 30, 2002. The remainder
of the balance will be paid through May 2003.
J. SUBSEQUENT EVENTS
In October 2002, the Company sold its remaining shares of a publicly traded
research and consulting company for $742,000, which approximated carrying value.
In October 2002, options to purchase 60,500 shares of common stock were granted
under the Company's Stock Option Plan, at a grant price of $1.40.
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine and three months ended September 30, 2002 compared to nine and three months
ended September 30, 2001.
GENERAL
FIND/SVP, Inc. provides a broad range of 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 (together
the "Quick Consulting" segment); 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 (the "Strategic Consulting" segment). The Company considers its
QCS and SCRG service businesses, which operate as "consulting and business
advisory" businesses, to be its core businesses.
REVENUES
Revenues decreased by $1,778,000 or 10.3% to $15,479,000 for the nine-month
period ended September 30, 2002 from $17,257,000 for the nine-month period ended
September 30, 2001. Revenues decreased by $172,000 or 3.2% to $5,209,000 for the
three-month period ended September 30, 2002 from $5,381,000 for the three-month
period ended September 30, 2001.
QCS revenues decreased by 5.6%, LAD revenues decreased by 83.1% and SCRG
revenues decreased by 27.7% for the nine-month period ended September 30, 2002
as compared to the comparable period of the prior year. QCS accounted for 87.7%
and 83.4%, LAD accounted for 0.5% and 2.4% and SCRG accounted for 11.0% and
13.6% of our revenues for the nine-month periods ended September 30, 2002 and
2001, respectively.
QCS revenues decreased by 1.6%, LAD revenues decreased by 47.5% and SCRG
revenues decreased by 19.7% for the three-month period ended September 30, 2002
as compared to the comparable period of the prior year. QCS accounted for 87.6%
and 86.1%, LAD accounted for 0.4% and 0.3% and SCRG accounted for 10.8% and
13.4% of our revenues for the three-month periods ended September 30, 2002 and
2001, respectively.
We believe that the decreases in revenue, in all aspects of our business, were
related to the weakened economy and the weakened market for the Company's
services, most notably since the events of September 11, 2001. Both segments of
our business were affected by cancellations, which were not sufficiently offset
by new business, during the first nine months of 2002.
DIRECT COSTS
Direct costs (those costs directly related to generating revenue, such as direct
labor and expenses incurred to provide services to clients and the costs of
electronic resources and databases) decreased by 8.3% or $699,000 to $7,698,000
for the nine-month period ended September 30, 2002, from $8,397,000 for the
nine-month period ended September 30, 2001. Direct costs represented 47.2% and
47.7% of
12
revenues for the nine-month periods ended September 30, 2002 and 2001,
respectively.
Direct costs decreased by 7.2% or $193,000 to $2,491,000 for the three-month
period ended September 30, 2002, from $2,684,000 for the three-month period
ended September 30, 2001. Direct costs represented 48.9% and 47.5% of revenues
for the three-month periods ended September 30, 2002 and 2001, respectively.
The decrease in total direct costs in terms of dollars was due primarily to the
decrease in revenues, as well as various cost containment measures implemented
by the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by 6.6% or $611,000 to
$8,582,000 for the nine-month period ended September 30, 2002, from $9,193,000
for the nine-month period ended September 30, 2001. The September 30, 2002
expenses include one-time costs of $96,000 for severance benefits relating to
the resignation of our former Chief Financial Officer. Selling, general and
administrative expenses represented 52.7% and 53.3% of revenues for the
nine-month periods ended September 30, 2002 and 2001, respectively.
Selling, general and administrative expenses decreased by 12.1% or $360,000 to
$2,605,000 for the three-month period ended September 30, 2002, from $2,965,000
for the three-month period ended September 30, 2001. Severance benefits relating
to the resignation of our former Chief Financial Officer were reduced by $93,000
during the three-month period ended September 30, 2002. This resulted from a
mutual agreement between the Company and our former Chief Financial Officer.
Selling, general and administrative expenses represented 51.1% and 55.1% of
revenues for the three-month periods ended September 30, 2002 and 2001,
respectively.
The decrease in selling, general and administrative expenses in terms of dollars
was due primarily to various cost containment measures that were implemented
during the second half of 2001 and the first nine months of 2002.
EFFECTS OF THE WORLD TRADE CENTER ATTACK
During the quarter ended September 30, 2001, the Company incurred losses, which
are included in selling, general, and administrative expenses, of $165,000 as a
result of the World Trade Center Attack on September 11, 2001. These losses were
related to the recording of additional reserves on receivables and incremental
staffing costs necessary to maintain service to clients during the week of
September 11, 2001.
OPERATING INCOME
The Company had an operating loss of $801,000 for the nine months ended
September 30, 2002, as compared to an operating loss of $333,000 for the nine
months ended September 30, 2001.
The Company had operating income of $113,000 for the three months ended
September 30, 2002, as compared to an operating loss of $268,000 for the three
months ended September 30, 2001.
13
INTEREST INCOME AND EXPENSE; OTHER ITEMS
During the nine months ended September 30, 2002, the Company earned $12,000 in
interest income, which decreased from $42,000 for the same period in 2001.
During the three months ended September 30, 2002, the Company earned $3,000 in
interest income, which decreased from $7,000 for the same period in 2001. The
decrease was a result of lower cash balances in interest bearing accounts during
the first nine months of 2002 as compared to the same period in 2001.
Interest expense was $118,000 for the nine-month period ended September 30,
2002, which was a decrease from $199,000 for the same period in 2001. Interest
expense was $42,000 for the three-month period ended September 30, 2002, which
was a decrease from $62,000 for the same period in 2001. The decrease was a
result of the replacement of the remaining Senior Subordinated Note with a term
note bearing a lower interest rate.
In January 2002, the Company received shares of common stock of a mutual company
which had converted to a stock company. As a result, the Company recognized
$33,000 as other revenue. These securities are classified as trading securities,
as they are being held primarily for sale in the near term. The shares have been
recorded at their fair market value. As a result, the Company recorded an
unrealized holding loss on these securities of $6,000, which is included in
other income for the nine and three month periods ended September 30, 2002.
In July 2002, the Company acquired approximately 3% of the outstanding common
shares of a publicly traded research and consulting company for approximately
$824,000. The Company sold a portion of its holdings for $82,000, which
approximated the carrying value of these securities. These securities are
classified as trading securities, as they are being held primarily for sale in
the near term. The shares have been recorded at their fair market value. As a
result, the Company recorded an unrealized holding gain on these securities of
$11,000, which is included in other income for the nine and three month period
ended September 30, 2002. In October 2002, the Company sold its remaining shares
of a publicly traded research and consulting company for $742,000, which
approximated carrying value.
Stock options that were granted in November 2001 for future services to be
rendered to the Company by the Chief Executive Officer, the Chairman and a
consultant were granted at a price below the fair market value of the Company's
common stock on the measurement date for accounting purposes. Compensation
expense related to such grants is amortized over the vesting period of the
options and was $200,000 and $68,000 in the nine and three month periods ended
September 30, 2002, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our preparation of our financial statements requires us to make estimates and
judgments that affect reported amounts of assets, liabilities, revenues and
expenses, as more fully disclosed in our 2001 annual report on Form 10-K.
Accounting policies which we believe are critical to our business operations and
the understanding of our results of operations continue to include the
accounting for the Company's investment in non-marketable idealab! preferred
equity securities and income taxes and deferred tax assets. Management continues
to assess the recoverability of the Company's investment in idealab!.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital resources
have been cash flow from operations (including prepaid retainer fees from
clients) and borrowings. Cash balances were $829,000
14
and $1,951,000 at September 30, 2002 and December 31, 2001, respectively. The
Company's working capital position (current assets less current liabilities) at
September 30, 2002 was $1,418,000, as compared to $1,352,000 at December 31,
2001.
The Company maintains a $1,000,000 line of credit at its lender's prime
commercial lending rate plus one-half percent. The Company, as of September 30,
2002,had outstanding letters of credit totaling $30,000. The line is renewable
annually, and was put in place on December 30, 1999. In July 2002, the Company
borrowed $1,000,000 under its line of credit, of which approximately $824,000
was used to acquire approximately 3% of the outstanding common shares of a
publicly traded research and consulting company. The Company consulted with, and
obtained the consent of, its lender with respect to this transaction. As of
September 30, 2002, the Company had no more borrowing capacity under the line of
credit. The Company sold a portion of its holdings for $82,000, which
approximated the carrying value of these securities, during the quarter ending
September 30, 2002. In October 2002, the Company sold its remaining shares of a
publicly traded research and consulting company for $742,000, which approximated
carrying value.
The Company believes that its existing funds, cash generated from our operations
and our credit facility are adequate to satisfy our working capital and capital
expenditure requirements for the foreseeable future.
Cash used in operating activities was $1,923,000 and $104,000 in the nine-month
periods ended September 30, 2002 and 2001, respectively.
Cash used in investing activities was $236,000 and $138,000 in the nine-month
periods ended September 30, 2002 and 2001, respectively. The major portion of
capital expenditures in 2002 and 2001 were for computer hardware upgrades and
for leasehold improvements. The Company expects to spend approximately $88,000
for capital items during the remainder of 2002.
Cash provided by (used in) financing activities was $1,037,000 and ($150,000) in
the nine-month periods ended September 30, 2002 and 2001, respectively.
During the nine months ended September 30, 2002, the Company granted options to
purchase 321,750 shares of common stock under the Company's Stock Option Plan,
at prices ranging from $0.83 to $1.50.
During the nine months ended September 30, 2001, the Company granted options to
purchase 181,550 shares of common stock under the Company's Stock Option Plan,
at prices ranging from $0.625 to $0.800.
In October 2002, options to purchase 60,500 shares of common stock were granted
under the Company's Stock Option Plan, at a grant price of $1.40.
In May 2002, the Company's lender agreed to revise the minimum tangible net
worth covenant in our Term Note agreement to $3,500,000, and the bank waived the
prior covenant at the March 31, 2002 reporting date. The Company is currently in
compliance with its debt covenants.
15
The Company's debt agreements with its lender are secured by a general security
interest in all of the Company's assets.
MARKET FOR COMPANY'S COMMON EQUITY
In April 2001, due to our failure to comply with NASDAQ's $1.00 minimum bid
price requirement, our shares of common stock were delisted. Trading has
continued to be conducted on the Over-The-Counter Bulletin Board.
INFLATION
The Company has historically been able to increase the prices of its products
and services sufficiently to offset the effects of inflation on direct costs,
and anticipates that, based on current rate trends, it will be able to do so in
the future.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
This Report on Form 10-Q (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 Act of 1995. Such
forward-looking statements, including statements regarding its future cash
flows, sales, gross margins and operating costs, and the effect of conditions in
the industry and the economy in general, 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-Q, and in other reports filed by the Company with
the Securities and Exchange Commission.
16
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposures to market risks include fluctuations in interest
rates on its short-term and long-term borrowings of $2,700,000 as of September
30, 2002 under its credit facility. Management does not believe that the risk
inherent in the variable-rate nature of these instruments will have a material
adverse effect on the Company's consolidated financial statements. However, no
assurance can be given that such a risk will not have a material adverse effect
on the Company's financial statements in the future.
As of September 30, 2002, the outstanding balance on all of the Company's credit
facilities was $2,700,000. Based on this balance, an immediate change of one
percent in the interest rate would cause a change in interest expense of
approximately $14,000 on an annual basis. The Company's objective in maintaining
these variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings.
In July 2002, the Company borrowed $1,000,000 under its line of credit, of which
approximately $824,000 was used to acquire approximately 3% of the outstanding
common shares of a publicly traded research and consulting company. As a result,
the Company's total outstanding debt increased as compared to December 31, 2001,
which has increased the Company's exposure to interest rate market risk. The
Company consulted with, and obtained the consent of, its lender with respect to
this transaction. As of September 30, 2002, the Company had no more borrowing
capacity under the line of credit. The Company sold a portion of its holdings of
this publicly traded research and consulting company for $82,000, which
approximated the carrying value of these securities, during the quarter ending
September 30, 2002, and in October 2002, the Company sold its remaining shares
of this publicly traded research and consulting company for $742,000, which
approximated carrying value.
Except as set forth in the preceding paragraph, there has been no material
change in the Company's assessment of its sensitivity to market risk as of
September 30, 2002, as compared to the information included in Part II, Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk", of the Company's
Form 10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission on April 1, 2002.
17
ITEM 4.
DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the Chief Executive Officer and Chief Financial Officer, concluded that the
Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.
18
PART II.
OTHER INFORMATION
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS
For the nine months ended September 30, 2002, options to purchase 321,750 shares
of common stock were granted under the Company's Stock Option Plan, at prices
ranging from $0.83 to $1.50, to various employees. These were private
transactions not involving a public offering that were exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
At the time of issuance, the foregoing securities were deemed to be restricted
securities for purposes of the Securities Act.
19
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Description
- ------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
20
SIGNATURES
Pursuant to the requirements 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.
-------------
(REGISTRANT)
Date: November 12, 2002 /S/ DAVID WALKE
- ------------------------ ----------------------------------
David Walke
Chief Executive Officer
Date: November 12, 2002 /S/ PETER M. STONE
- ------------------------ ----------------------------------
Peter M. Stone
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
21
CERTIFICATIONS
I, David Walke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ DAVID WALKE
-----------------------
David Walke
Chief Executive Officer
22
CERTIFICATIONS (CONTINUED)
I, Peter Stone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ PETER M. STONE
-----------------------
Peter M. Stone
Chief Financial Officer
23
EXHIBIT INDEX
Exhibit Description
- ------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith