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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO_______________
FIND/SVP, INC.
NEW YORK 0-15152 13-2670685
State of Incorporation Commission File Number IRS Identification Number
625 AVENUE OF THE AMERICAS
NEW YORK, NY 10011
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: NONE
-------------------- -----------------------------------------
COMMON STOCK, $.0001 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF 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. [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES [ ] NO [X]
AS OF APRIL 7, 2003, THE AGGREGATE MARKET VALUE OF THE VOTING COMMON STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $8,232,160 BASED ON THE AVERAGE BID
AND ASK PRICE PER SHARE OF THE COMMON STOCK ON THE OTC BULLETIN BOARD ON APRIL
7, 2003, WHICH WAS $1.43 PER SHARE.
ALL (I) EXECUTIVE OFFICERS AND DIRECTORS OR THE REGISTRANT AND (II) ALL
PERSONS FILING A SCHEDULE 13D WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RESPECT TO REGISTRANT'S COMMON STOCK WHO HOLD 10% OR MORE OF THE REGISTRANT'S
OUTSTANDING COMMON STOCK, HAVE BEEN DEEMED, SOLELY FOR THE PURPOSE OF THE
FOREGOING CALCULATION, TO BE "AFFILIATES" OF THE REGISTRANT.
THERE WERE 10,790,644 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK,
PAR VALUE $.0001 PER SHARE, AS OF APRIL 7, 2003.
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.
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FIND/SVP, INC.
INDEX TO FORM 10-K
PART I PAGE
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
28
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management 29
Item 13. Certain Relationships and Related Transactions 29
Item 14. Disclosure Controls and Procedures 29
PART IV
Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 30
Signatures 33
Certifications 34
Index to Exhibits 36
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PART I
ITEM 1. BUSINESS
FIND/SVP, Inc. and its wholly owned subsidiaries (collectively,
"FIND/SVP" or the "Company" which may be also referred to in this report as
"we", "us" or "our") was incorporated in the state 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 8 additional SVP
affiliated companies located around the world. We are a knowledge services
company that leverages the expertise and resources of its professional research
teams on behalf of executives and other decision-making employees of client
companies, primarily in the United States. The Company currently operates in two
business segments, our 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 ("LAD") service; and our
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 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.
Substantially all of the Company's personnel and operations are located in
Manhattan.
Through 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 QCS membership card (the "Membership Card"), which
entitles them to make requests via the telephone and the Internet for immediate
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 primarily delivered by electronic
mail. 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,
2002, we had 1,563 QCS retainer clients and 10,162 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 market research services of SCRG are 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 our licensing agreement with SVP International, we are
associated with its network of companies and correspondents
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providing similar services. This enables FIND/SVP to obtain information for our
clients through the use of approximately 1,000 additional consultants in the SVP
worldwide network.
RECENT DEVELOPMENTS
On April 1, 2003, the Company purchased all of the issued and
outstanding stock of Guideline Research Corp. ("Guideline"). Guideline, together
with its wholly owned subsidiaries Guideline/Chicago, Inc., Advanced Analytics,
Inc., Guideline Consulting Corp., and Tabline Data Services, Inc. is a provider
of custom market research. Simultaneously with the acquisition, Guideline
entered into employment agreements with, among others, the former shareholders
of Guideline, Robert La Terra and Jay L. Friedland. Also, 150,000 stock options
were granted to one of the former shareholders after the close of this
transaction pursuant to the terms of an employment agreement entered into with
Guideline at the closing.
The purchase price consisted of approximately $4,454,000 in cash
(including $525,000 of estimated transaction costs), and 571,237 unregistered
shares of the Company's common stock, of which 295,043 shares were placed in
escrow. The shares placed in escrow will be distributed to the Sellers on or
about May 31, 2004, subject to reduction for the resolution of purchase price
adjustments, if any.
The Guideline purchase price was financed by the Company's cash
resources, the assumption of certain liabilities of Guideline, and by the
receipt of $3,400,000 (net of financing costs) obtained from the issuance of:
(i) a promissory note with a $3,000,000 face value, with stated interest at
13.5%, due April 1, 2008 (the "Note") to Petra Mezzanine Fund, L.P. ("Petra"),
which is secured by a second lien and security interest on substantially all of
the Company's assets; (ii) 333,333 shares of convertible, redeemable, cumulative
preferred stock, designated as Series A Preferred Stock, to Petra, which are
redeemable at Petra's option beginning April 1, 2009 at an initial redemption
price of $1.50 per share, or $500,000, plus all accrued but unpaid dividends;
and (iii) warrants to Petra to purchase 675,000 shares of the Company's common
stock at an exercise price of $.01 per share. The preferred shares are entitled
to receive either cash or "payment-in-kind" dividends at a rate of 8.0%
annually, and the future redemption price is subject to adjustment for
anti-dilution. The warrants are exercisable at any time, and, beginning April 1,
2009, and for a period of four years thereafter, Petra shall have the right to
cause the Company to use commercially reasonable efforts to complete a private
placement to sell Petra's shares of the Company's common stock issuable upon
exercise of the Warrant (the "Warrant Shares") to one or more third parties at a
price equal to the market value of the Warrant Shares based on the closing bid
price of the Company's common shares as of the date Petra so notifies the
Company (the "Put Exercise Date"). In the event a change in control takes place
during the period in which the put may be exercised, Petra would have the right
to cause the Company to fulfill its repurchase obligations in the same form of
consideration as that received by the other selling shareholders.
On April 1, 2003, the Company also amended and restated: (i) its term
Note with JP Morgan Chase Bank, in the principal amount of $1,500,000 and (ii)
its line of credit with JP Morgan Chase Bank in the principal amount of
$1,000,000. These amended and restated agreements had the effect of reducing the
term Note principal amount from $2,000,000 to $1,500,000, reflecting the current
outstanding balance. The final repayment date of the term Note has been moved up
from December 31, 2006 to December 31, 2005. As a result, the Company will have
a $500,000 balloon payment due at December 31, 2005 instead of making payments
of $100,000 each quarter in 2006. In addition, JP Morgan Chase Bank consented to
the Company's acquisition of Guideline and the related financing transactions
with Petra, and amended various financial covenants of both the term Note and
line of credit as follows:
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1) The previous Debt to Consolidated Tangible Net Worth Covenant of 2.00
was replaced with a Senior Debt to Consolidated Tangible Net Worth plus
Subordinated Debt covenant of 0.75; and
2) The previous Consolidated Tangible Net Worth covenant of $3,500,000
was replaced with a Consolidated Tangible Net Worth plus Subordinated
Debt covenant of $3,300,000.
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 information.
At December 31, 2002, Find/SVP's staff included 80 consultants and
researchers in its QCS and SCRG divisions. 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 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.
When our retainer clients call FIND/SVP with their business issues and
research needs, they provide their card number and explain their request to our
staff consultants who are organized into the following six practice groups:
PRACTICE GROUPS:
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.
THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP is responsible for
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.
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THE HEALTHCARE AND PHARMACEUTICALS GROUP is responsible for products and
services manufactured by and marketed to businesses in healthcare
fields, including pharmaceuticals, medical and diagnostic equipment,
biotechnology, health resources and clinical information.
THE FINANCIAL AND BUSINESS SERVICES GROUP is responsible for 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.
THE INDUSTRIAL PRODUCTS AND SERVICES GROUP is responsible for
manufacturing, energy, chemicals, plastics, pulp and paper, metals and
mining, transportation, environment, construction and agriculture.
THE MANAGEMENT ADVISORY GROUP is responsible for legal research, human
resource issues, accounting and tax issues, international trade and
finance, and the advertising and marketing industries.
Each of our groups are supported by THE DOCUMENTS TEAM which locates and
obtains copies of articles, documents, patents, books, pamphlets,
catalogs, conference proceedings, government reports and product samples
to supplement the information provided to our clients.
Membership Cardholders discuss their research needs with the Company's
staff consultants who provide assistance in formulating a focused information
request. 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 staff consultants select what appears most
relevant to the client's need, and report the findings, with commentary, as
needed. Documentation of the findings are primarily sent by electronic mail or
any one of a combination of the following methods: facsimile, courier,
messenger, mail or electronic mail. QCS allows clients to benefit from a fast,
convenient and confidential method to gather knowledge and use the multitude of
research resources available today. Cardholders may ask questions on virtually
any business subject.
Information requests that require business intelligence from overseas
are answered by one or more of the information centers in 9 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 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.
6
At December 31, 2002, there were 1,563 retainer clients, an 8.6%
decrease from December 31, 2001, and 10,162 holders of the Membership Card, a
4.0% decrease from December 31, 2001. During 2002, monthly fees billed to
retainer clients (the retainer base) increased by 1.2% to $1,488,338.
Approximately 40% of the top Fortune 100 industrial companies are QCS retainer
clients. Revenues generated by QCS represented 88%, 85% and 82% of the Company's
total revenues for the years ended December 31, 2002, 2001 and 2000,
respectively. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part II of this Report.
STRATEGIC CONSULTING AND RESEARCH GROUP
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 Survey & Research Group, SCRG provides customer
satisfaction and loyalty programs, through focus groups and customer surveys.
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 11%, 13% and 16% of the Company's total revenues
for each of the years ended December 31, 2002, 2001 and 2000. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II of this Report.
GROWTH STRATEGY
The Company intends to expand its services through continued internal
development during 2003. This includes various initiatives aimed at both
business-to-business and consumer users of the Internet. Additionally, the
Company will consider exploring possible strategic alliances with and/or
acquisitions of consulting, research or information properties and companies
whose primary markets are complimentary to FIND/SVP's market and which would be
accretive to our earnings. However, there are no commitments or understandings
in this regard and no assurance can be given that the Company will in fact enter
into such relationships, 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. Except for the Petra Financing in
connection with the closing of Guideline, we have not made arrangements for, and
such additional external funding may never be, available to us on acceptable
terms, if at all. See RECENT DEVELOPMENTS above.
SVP NETWORK; LICENSING AGREEMENT WITH SVP INTERNATIONAL
Through licensing agreements with SVP International, 9 companies (each
an "SVP International Company," and collectively, the "SVP International
Companies"), including FIND/SVP, form an international network of information
centers. Since each SVP International 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
International Company accesses the information center of another SVP
International Company it is charged a fee for the services provided thereby.
Each SVP International Company is linked to the SVP International network
primarily by virtue of its licensing agreement. In 1971, the Company entered
into its licensing agreement with SVP International, which was amended in 1981
and again in 2001, and obtained the U.S. rights, in perpetuity, to the "SVP"
name and
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know-how and access to the SVP International network. Pursuant thereto, SVP
International assisted in the creation, 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 its 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.
Our license agreement provides that SVP International or any SVP
International Company 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, pays 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.
MARKETS AND CLIENTS
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 product development. 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. The Company believes, however, that in-house corporate
libraries are generally not as comprehensive. Therefore, QCS may be perceived as
a valuable supplemental resource to our client's in-house capabilities. In
addition, in-house centers are good prospects for the Company's other services.
Approximately 40% 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.
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
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are supplemented by referrals and cold-call selling efforts. The cost of the
Company's advertising and public relations efforts is modest. The Company also
produces The Information Advisor newsletter. This newsletter is published
monthly, and provides a comprehensive evaluation of research tools, new sources
valuable to researchers and analysis of the most popular information sources.
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, staff size and
resources. 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 International
Companies 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 a
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.
EMPLOYEES
As of December 31, 2002, the Company had approximately 160 full-time
employees, including 34 marketing and sales employees, 80 staff consultants and
research employees, and 39 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.
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The corporate headquarters are located at 625 Avenue of the Americas,
New York, NY 10011, and the telephone number is (212) 645-4500. The Company
makes available free of charge through our website, www.findsvp.com, the annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports, and the proxy statement for the annual
meeting of stockholders, as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities and Exchange
Commission.
ITEM 2. PROPERTIES
At December 31, 2002, 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 have been the main offices of the Company since 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
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, par value $.0001 per share ("Common Stock") is traded
on the Over The Counter Bulletin Board under the symbol "FSVP.OB". There were
approximately 847 common shareholders of record on April 7, 2003. The Company
currently does not and does not intend to pay cash dividends on its common stock
in the foreseeable future, and is restricted from doing so under the terms of
its debt agreements. Cash generated from operations will be used for general
corporate purposes, including acquisitions and supporting organic growth.
The following table sets forth the range of high and low bids of our
Common Stock for the calendar quarters indicated. The quotes listed below
reflect inter-dealer prices or transactions solely between market-makers,
without retail mark-up, mark-down or commission and may not represent actual
transactions. 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 since continued to be conducted on the Over The Counter
Bulletin Board.
Price Range High Low
- ----------- ---- ---
2002
- ----
1st Quarter 1.80 0.80
2nd Quarter 1.75 1.05
3rd Quarter 1.50 0.97
4th Quarter 1.53 1.30
2001
- ----
1st Quarter 0.81 0.50
2nd Quarter 0.77 0.33
3rd Quarter 0.75 0.48
4th Quarter 1.00 0.34
CHANGES IN SECURITIES AND USE OF PROCEEDS
During 2002, options to purchase 353,000 shares of common stock were
granted under the Plan, at prices ranging from $0.83 to $1.429, 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.
Information regarding our equity compensation plans required by Item 5,
including both stockholder approved plans and non-stockholder approved plans,
appearing under the caption "Executive Compensation--Equity Compensation Plan
Information" in our proxy statement for the 2003 Annual Meeting of Stockholders
is incorporated herein by reference. The proxy statement is anticipated to be
filed with the Commission on or about April 30, 2003.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial data as of and for
the years ended December 31, 2002, 2001, 2000, 1999 and 1998. The selected
financial data set forth below has been derived from our audited consolidated
financial statements and related notes for the respective fiscal years. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
Part II of this Report as well as our consolidated financial statements and
notes thereto. These historical results are not necessarily indicative of the
results to be expected in the future.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
-------------------------------------------------
(in thousands, except per share amounts)
2002 2001 2000 1999 1998
-------- -------- -------- ------- -------
Revenues $ 20,828 $ 22,215 $ 23,800 $22,738 $28,175
Operating (Loss) Income (1,007) (1,148) (753) 348 1,329
Net (Loss) Income (1,124) (945) (535) 883 756
Net (Loss) Income Per Share:
Basic (.11) (.12) (.06) .12 .11
Diluted (.11) (.12) (.06) .12 .11
Weighted Average Number
of Shares:
Basic 10,139 7,880 7,450 7,121 7,094
Diluted 10,139 7,880 7,450 7,213 7,100
Cash Dividends Paid Per
Common Share -- -- -- -- --
BALANCE SHEET DATA
AS OF DECEMBER 31
-------------------------------------------------
(in thousands)
2002 2001 2000 1999 1998
-------- -------- -------- ------- -------
Working Capital (Current assets
less current liabilities) $ 1,433 $ 1,352 $ 1,587 $ 2,699 $ 2,569
Total Assets 9,538 10,692 11,012 11,443 12,064
Long-Term Notes Payable
excluding current amounts 1,200 895 1,685 3,039 3,523
Shareholders' Equity 3,713 4,490 3,992 3,889 2,988
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" as well as our consolidated financial statements and
notes thereto appearing elsewhere in this Form 10-K.
GENERAL
FIND/SVP, Inc. and its wholly owned subsidiaries provided 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; 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 Company considers its QCS and SCRG service businesses,
which operate as "consulting and business advisory" businesses, to be its core
competency.
On April 1, 2003, the Company acquired Guideline Research Corp. and its
wholly owned subsidiaries (see RECENT DEVELOPMENTS in Part 1, Item 1. Business,
of this report). The Company expects Guideline to immediately contribute to
earnings.
RESULTS OF OPERATIONS
CALENDAR YEAR 2002 COMPARED TO CALENDAR YEAR 2001
REVENUES
Revenues for 2002 were $20,828,000 and revenues for 2001 were
$22,215,000. 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. Specifically, QCS
was affected by cancellations of retainer accounts, which was not sufficiently
offset by new business, during 2002. The primary factor, which contributed to
the decline in SCRG revenue, was the decline in the number of new projects
booked.
QCS
QCS revenues, which result from annual retainer contracts paid by
clients on a monthly, quarterly, semi-annual or annual basis, decreased by
$469,000, or 2.5%, from $18,978,000 in 2001 to $18,509,000 in 2002. The decrease
from 2001 to 2002 was a result of cancellations which were not sufficiently
offset by new clients and increased rates. At December 31, 2002, there were a
greater number of annual renewals which were billed than the same period in the
prior year, and this contributed to a higher accounts receivable balance at
December 31, 2002 than December 31, 2001. The fees billed to retainer clients
(the retainer base) increased from the beginning of 2002 to the end of 2002 by
1.2% from $1,470,659 to $1,488,338.
LAD revenues decreased by $321,000, or 73.6%, from $436,000 in 2001 to
$115,000 in 2002. The decrease from 2001 to 2002 was a result of the
cancellation of the service's largest client.
13
SCRG
SCRG revenues, which result from consulting engagements addressing
clients' business issues, decreased by $597,000, or 21.3%, from $2,801,000 in
2001 to $2,204,000 in 2002. The decrease from 2001 to 2002 was due to the
continued decline in new projects booked. The Customer Satisfaction Survey and
Research Division accounted for 19.0% and 16.7% of SCRG's revenue for 2002 and
2001, respectively.
COSTS OF PRODUCTS AND SERVICES SOLD
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 $939,000, or 8.6%, from
$10,966,000 in 2001 to $10,027,000 in 2002. Direct costs represented 48.1% and
49.4% of revenues, respectively, in 2002 and 2001. The decrease in total direct
costs was due primarily to a decrease in expenses incurred on behalf of clients,
in addition to a reduction in direct labor costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $589,000, or
4.8%, from $12,397,000, or 55.8% of revenue, in 2001 to $11,808,000, or 56.7% of
revenue, in 2002. In 2002 and 2001, the Company recorded an accrual of $257,000
and $228,000, respectively, for restructuring under a Severance Plan approved by
the Board of Directors and communicated to employees. In 2001, selling, general
and administrative expenses included approximately $169,000 in negative effects
related to the events of September 11, 2001. The decrease in selling, general
and administrative expenses in terms of dollars during 2002 was due primarily to
reductions in general expenses in response to cost containment measures that
began in the second quarter of 2001. Bad debt expense decreased as a result of a
significant improvement in accounts receivable management during 2002. Also,
telecommunication costs decreased as a result of more favorable rates with
carriers.
INTEREST INCOME AND EXPENSE
In 2002, the Company earned $15,000 in interest income, which decreased
from $49,000 in 2001. The decrease in 2002 was a result of lower cash balances
in interest bearing accounts throughout 2002.
Interest expense in 2002 was $156,000, which was a decrease from
$246,000 in 2001. The decrease was a result of the replacement of certain of our
senior subordinated notes with a term note bearing a lower interest rate.
IMPAIRMENT ON INVESTMENT
In 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 terms of the agreement, the Company received cash and
non-marketable preferred shares in idealab!, and was entitled to certain future
royalties. The preferred shares received were valued by the Company at $500,000,
and carried various rights including the ability to convert them into common
shares of Find.com, Inc., and a put option to resell the shares to idealab! The
put option became exercisable in December 2002.
14
Under the terms of the put option, idealab! could either repurchase the
preferred shares for $1,500,000 in cash, or elect to return the find.com domain
name to the Company. In the latter case, the Company would retain the preferred
shares.
In January 2003, the Company exercised its put option and idealab!
declined to repurchase the preferred shares. This information was considered by
the Company in its recurring evaluation of the carrying value of the preferred
shares at the lower of historical cost or estimated net realizable value. Using
this information together with other publicly available information about
idealab!, the Company concluded the net realizable value of its idealab!
preferred shares had declined to an estimated $185,000 at December 31, 2002,
which resulted in a charge to operations of $315,000 during the quarter ended
December 31, 2002. Since the idealab! preferred shares continue to be 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 further reduced.
OPERATING (LOSS) INCOME
The Company's operating loss was $1,007,000 in 2002, compared to
$1,148,000 in 2001, a decrease in loss of $141,000. This is primarily the result
of decreases in direct costs and selling, general and administrative expenses.
INCOME TAXES
The $339,000 income tax benefit for the year ended December 31, 2002
represents 23% of pre-tax loss. In 2002, a valuation allowance was provided for
certain state and local carryforward tax operating loss assets, as the Company
determined that it was no longer more likely than not that such assets would be
realized during the carryforward period. It is reasonably possible that future
valuation allowances will need to be recorded contingent upon the Company's
ability to produce future taxable income to offset deferred tax assets. The
income tax benefit was lower than the statutory rate due primarily to the
recording of a valuation allowance, and expenses, such as meals and
entertainment and key-man life insurance premiums, which are not deductible for
tax purposes.
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, such as meals and entertainment
expense and non-deductible goodwill, which are not deductible for tax purposes.
CALENDAR YEAR 2001 COMPARED TO CALENDAR YEAR 2000
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. 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.
QCS
QCS revenues, which result from annual retainer contracts paid by
clients on a monthly, quarterly, semi-annual or annual basis, decreased by
$731,000, or 3.7%, from $19,709,000 in 2000 to $18,978,000 in 2001. The decrease
was due to the weakened economy which caused
15
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.
SCRG
SCRG revenues, which result from consulting engagements addressing
clients' business issues, decreased by $1,069,000, or 27.6%, from $3,870,000 in
2000 to $2,801,000 in 2001. The decrease was due to a decline in new projects
booked, caused by the weakened economy. The Customer Satisfaction Survey and
Research Division accounted for 16.7% and 13.6% of SCRG's revenue for 2001 and
2000, respectively.
COSTS OF PRODUCTS AND SERVICES SOLD
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. Direct costs represented 49.4% and
51.0% of revenues, respectively, in 2001 and 2000. The decrease in total direct
costs was due primarily to a decrease in expenses incurred on behalf of clients,
in addition to a reduction in direct labor costs.
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 revenues in 2000 to $12,397,000, or
55.8% of revenues in 2001. In 2001, selling, general and administrative expenses
included approximately $169,000 in negative effects related to the events of
September 11, 2001. In 2001, the Company recorded an accrual of $228,000 for
restructuring under a Severance Plan. The decrease in selling, general and
administrative expenses in terms of dollars was due primarily to reductions in
general expenses in response to cost containment measures that began in the
second quarter of 2001. Specifically, there were decreases in travel and
entertainment expenses, computer supplies, hiring fees, due to the reduced usage
of outside agencies, and professional fees, offset by increases in bad debt
expense, sales literature and copier rentals.
During 2001, the Company incurred losses, which were included in
selling, general and administrative expenses, of $169,000 as a result of the
events of 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.
INTEREST INCOME AND EXPENSE
In 2001, the Company earned $49,000 in interest income, which decreased
from $119,000 in 2000. 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. 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.
16
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
events of September 11, 2001.
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, such as meals and entertainment
expense and non-deductible goodwill, which 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.
SEGMENT REPORTING
The Company operated in two segments during 2002, 2001 and 2000. Segment
data, which is useful in understanding results, is as follows:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
--------------------------------
2002 2001 2000
-------- -------- --------
REVENUES
QCS, including LAD $ 18,624 $ 19,414 $ 19,930
SCRG 2,204 2,801 3,870
-------- -------- --------
Total revenues $ 20,828 $ 22,215 $ 23,800
======== ======== ========
OPERATING (LOSS) INCOME
QCS, including LAD $ 4,127 $ 4,429 $ 4,545
SCRG (99) (314) (58)
-------- -------- --------
Segment operating income 4,028 4,115 4,487
Corporate and other (1) (5,035) (5,263) (5,240)
-------- -------- --------
Operating loss $ (1,007) $ (1,148) $ (753)
======== ======== ========
DEPRECIATION AND AMORTIZATION
QCS, including LAD $ 460 $ 539 $ 583
SCRG 59 66 68
-------- -------- --------
Total segment depreciation
and amortization 519 605 651
Corporate and other 420 482 459
-------- -------- --------
Total depreciation and amortization $ 939 $ 1,087 $ 1,110
======== ======== ========
TOTAL ASSETS
QCS, including LAD $ 3,161 $ 2,871
SCRG 467 315
-------- --------
Total segment assets 3,628 3,186
Corporate and other 5,910 7,506
-------- --------
Total assets $ 9,538 $ 10,692
======== ========
CAPITAL EXPENDITURES
QCS, including LAD $ 134 $ 119 $ 160
SCRG 3 5 30
-------- -------- --------
Total segment capital expenditures 137 124 190
Corporate and other 320 180 380
-------- -------- --------
Total capital expenditures $ 457 $ 304 $ 570
======== ======== ========
(1) Includes certain direct costs and selling, general and administrative
expenses not attributable to a single segment.
17
QUARTERLY FINANCIAL DATA
The following table sets forth selected quarterly data for the years
ended December 31, 2002 and 2001 (in thousands, except per share data). The
operating results are not indicative of results for any future period.
(Loss)
income
before
provision (Loss) (Loss)
(benefit) income income
Operating for Net per per
(loss) income (loss) share: share:
Quarter Ended Revenues income taxes income basic diluted
------------- -------- ------ ----- ------ ----- -------
March 31, 2002 $ 5,044 $ (674) $ (674) $ (473) $(0.05) $(0.05)
June 30, 2002 5,226 (239) (267) (186) (0.02) (0.02)
September 30, 2002 5,209 113 79 55 0.01 0.00
December 31, 2002 5,349 (207) (600) (520) (0.05) (0.05)
March 31, 2001 $ 6,123 $ 78 $ 24 $ 18 $ 0.00 $ 0.00
June 30, 2001 5,753 (143) (191) (143) (0.02) (0.02)
September 30, 2001 5,381 (268) (323) (213) (0.03) (0.03)
December 31, 2001 4,958 (815) (855) (607) (0.08) (0.08)
In the fourth quarter of 2002, the Company recorded a charge to
operations of $315,000 to write-down the carrying value of its preferred shares
of idealab! In the fourth quarter of 2002 and 2001, charges related to severance
costs of $147,000 and $228,000, respectively, were recorded. Also, approximately
$80,000 was recorded related to bonus and commission arrangements at December
31, 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from retainer accounts (including prepaid retainer
fees from clients) and borrowings. Cash balances were $968,000 and $1,951,000 at
December 31, 2002 and 2001, respectively. The Company's working capital position
(current assets, less current liabilities) at December 31, 2002 was $1,433,000,
as compared to $1,352,000 at December 31, 2001.
Cash provided by (used in) operating activities was $(677,000), $299,000
and $(690,000) in the years ended December 31, 2002, 2001 and 2000,
respectively.
Cash used in investing activities was $319,000, $167,000 and $433,000 in
the years ended December 31, 2002, 2001 and 2000, respectively. Capital
expenditures during 2002 and 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.
18
Total capital expenditures were $457,000, $304,000 and $570,000 in the years
ended December 31, 2002, 2001 and 2000, respectively. During the year ending
December 31, 2003, the Company expects to spend approximately $500,000 for
capital items, the major portions of which will be used for computer hardware
and software upgrades and for leasehold improvements.
Cash provided by (used in) financing activities was $13,000, $918,000
and ($72,000) in the years ended December 31, 2002, 2001 and 2000, respectively.
In 2001, the most significant item was the net proceeds obtained from the
issuance of shares of common stock for $1,443,000. In 2000, 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 February 2002, the Company entered into a financing arrangement with
JP Morgan Chase Bank providing for a term note (the "Term Note") in the
principal amount of $2,000,000. The Term Note bears interest at prime plus
1.25%, and is payable in quarterly installments beginning March 31, 2002. As of
December 31, 2002, there was $1,600,000 outstanding on this Note, of which
$400,000 is classified as current. Interest expense related to this note
amounted to $94,000 for the year ended December 31, 2002. The Term Note contains
certain restrictions on the conduct of our business, including, among other
things, restrictions, generally, on incurring debt, making investments, creating
or suffering liens, tangible net worth, cash flow coverage, or completing
mergers.
The proceeds from the February 2002 Term Note were used to repay the
$1,100,000 balance on its $1,400,000 Term Note, due June 30, 2005, and to repay
the remaining balance of $475,000 on certain outstanding senior subordinated
notes.
The Company maintains a $1,000,000 line of credit with JP Morgan Chase
Bank (the "Line of Credit"). Interest on the unpaid balance of the Line of
Credit is at JP Morgan Chase Bank's prime commercial lending rate plus one-half
percent. The Line of Credit is renewable annually, and was initially put in
place on December 30, 1999. In July 2002, we accessed $1,000,000 under the Line
of Credit, of which approximately $824,000 was used to acquire approximately 3%
of the outstanding shares of common stock of a publicly traded research and
consulting company. The Company consulted with, and obtained the consent of, JP
Morgan Chase Bank with respect to this transaction. The Company sold all of its
holdings in this publicly traded research and consulting company, and the
proceeds approximated the carrying value of these securities. The proceeds from
the sale of these securities were used to repay $824,000 of the balance
outstanding on the Line of Credit. As of December 31, 2002, $176,000 remains
outstanding. The Line of Credit contains certain restrictions on the conduct of
our business, including, among other things, restrictions, generally, on
incurring debt, and creating or suffering liens.
The Company's Term Note and Line of Credit are secured by a general
security interest in substantially all of the Company's assets. In May 2002, JP
Morgan Chase agreed to lower the minimum tangible net worth covenant in the Term
Note agreement to $3,500,000, and the waived the prior covenant at the March 31,
2002 report date. In March 2003, JP Morgan Chase agreed to waive the prior cash
flow coverage covenant for the twelve-month period ended December 31, 2002.
On April 1, 2003, the Company amended and restated: (i) its term Note
with JP Morgan Chase Bank, in the principal amount of $1,500,000 and (ii) its
line of credit with JP Morgan
19
Chase Bank in the principal amount of $1,000,000. These amended and restated
agreements had the effect of reducing the term Note principal amount from
$2,000,000 to $1,500,000, reflecting the current outstanding balance. The final
repayment date of the term Note has been moved up from December 31, 2006 to
December 31, 2005. As a result, the Company will have a $500,000 balloon payment
due at December 31, 2005 instead of making payments of $100,000 each quarter in
2006. In addition, JP Morgan Chase Bank consented to the Company's acquisition
of Guideline and the related financing transactions with Petra, and amended
various financial covenants of both the term Note and line of credit as follows:
1) The previous Debt to Consolidated Tangible Net Worth Covenant of
2.00 was replaced with a Senior Debt to Consolidated Tangible Net
Worth plus Subordinated Debt covenant of 0.75; and
2) The previous Consolidated Tangible Net Worth covenant of
$3,500,000 was replaced with a Consolidated Tangible Net Worth
plus Subordinated Debt covenant of $3,300,000.
As a result of these financial covenant amendments and the consent by JP
Morgan Chase, the Company believes it was in compliance with all of its loan
agreements with JP Morgan Chase upon the closing of the Company's acquisition of
Guideline and its related financing with Petra.
The Company believes that cash generated from operations, the proceeds
from its Term Note and Line of Credit with JP Morgan Chase and its cash and cash
equivalents will be sufficient to fund our operations for the foreseeable
future.
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.
- --------------------------------------------------------------------------------
As of December 31, 2002
(in thousands)
---------------------------------------------------
Less than 1 - 3 After 3
Total 1 year years years
--------- --------- --------- ---------
Notes payable $ 1,806 $ 606 $ 1,200 $ --
Long term lease commitments 2,132 853 1,279 --
Deferred compensation 441 -- -- 441
--------- --------- --------- ---------
$ 4,379 $ 1,459 $ 2,479 $ 441
========= ========= ========= =========
- --------------------------------------------------------------------------------
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.
20
CRITICAL ACCOUNTING POLICIES
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 and 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.
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. The Company has tax loss
carryforwards that have been recognized as assets on its balance sheet. These
assets are subject to expiration from 2012 to 2022. 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. In 2002, after the Company performed an
analysis of its deferred tax assets and projected future taxable income, a
valuation allowance was provided for certain state and local carryforward tax
operating loss assets, as the Company determined that it was no longer more
likely than not that such assets would be realized during the carryforward
period. It is reasonably possible that future valuation allowances will need to
be recorded if the Company is unable to generate sufficient future taxable
income to realize such deferred tax assets during the carryforward period.
Although realization is not assured, management believes that it is more likely
than not that the deferred tax assets will be realized.
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.
NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
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
21
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.
RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT
NO. 13, AND TECHNICAL CORRECTIONS
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". The Company elected to early adopt the provisions of this omnibus
statement, which makes changes to several existing authoritative pronouncements
to make technical corrections, to clarify meanings, or to describe their
applicability under changed conditions. The adoption of this standard did not
affect the current financial position or results of operations of the Company.
Adoption of the standard caused the loss on repayment of debt that occurred in
the year ended December 31, 2000 to be reclassified as interest expense on the
statement of operations, from its prior presentation as an extraordinary item.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 supersedes 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.
ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE - AN
AMENDMENT OF FASB STATEMENT NO. 123
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123." This statement amends SFAS No. 123 by providing alternative
methods of adopting the fair-value method of accounting for stock-based
compensation, if an entity elects to discontinue using the intrinsic-value
method of accounting permitted in Accounting Principles Board (APB) Opinion No.
25. One of these adoption methods, under which a prospective adoption of the
fair-value method would be permitted without the need for a cumulative
restatement of prior periods, is only available to the Company if adopted in
2003. The statement also amended with immediate effect certain disclosure
requirements of SFAS No. 123 which the Company adopted as of December 31, 2002.
Management continues to study whether it will continue to account for
stock-based compensation under APB No. 25 or whether it will adopt SFAS No. 123
as amended.
COMMITMENTS AND CONTINGENCIES
In March 2003, the Company became aware of a lease modification
agreement from 1992 related to its primary offices at 625 Avenue of the Americas
that differs from a second lease modification agreement signed by the same
parties also in 1992. The lease modification agreement that the Company believes
to be in effect has been consistently disclosed and used to account for this
operating lease since 1992. These two agreements are dated within two days of
each other. The significant difference between the terms of the documents are
that the newly
22
discovered document indicates a lease expiration in June 2004, one year prior to
the June 2005 expiration date in the agreement that the Company believes to be
in effect. The Company has requested its landlord to investigate their files,
however, this investigation remains incomplete and accordingly no determination
as to which agreement is definitive has been made. The Company believes that the
agreement it has consistently relied upon and which expires in June 2005 is the
governing agreement. Based upon review of the documents that have been located,
outside counsel has advised the Company that a reasonable basis exists for the
Company's position.
If the newly discovered document is determined to be the definitive
agreement, as of December 31, 2002 the Company would be obligated to write-off
approximately $310,000 of the rental asset recorded on its balance sheet, which
would cause an after-tax reduction to shareholders equity of approximately
$210,000.
FORWARD-LOOKING STATEMENTS
In this report, and from time to time, we may make or publish
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products, and
similar matters. Such statements are necessarily estimates reflecting
management's best judgment based on current information. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. Such statements are usually identified by the use of words or
phrases such as "believes," "anticipates," "expects," "estimates," "planned,"
"outlook," and "goal." Because forward-looking statements involve risks and
uncertainties, our actual results could differ materially. In order to comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in forward-looking statements. While it
is impossible to identify all such factors, the risks and uncertainties that may
affect the operations, performance and results of our business include the
following:
FACTORS THAT COULD AFFECT OUR FUTURE RESULTS
WE ARE DEPENDENT ON CLIENT RENEWALS OF OUR RETAINER-BASED SERVICES.
We derived approximately 90% of our total revenues in 2002 from QCS, our
retainer business. In the year ended December 31, 2002, QCS experienced an 8.6%
decrease in retainer clients, and a 4% decrease in holders of its Membership
Card. We may not be successful in maintaining retainer renewal rates or the size
of its retainer client base. Also, the Company's ability to renew retainer
accounts is subject to a number of risks, including the following:
o We may be unsuccessful in delivering consistent, high quality and
timely analysis and advice to its clients.
o We may not be able to hire and retain a large and growing number of
highly talented professionals in a very competitive job market.
o We may be unsuccessful in understanding and anticipating market
trends and the changing needs of its clients.
o We may not be able to deliver products and services of the quality
and timeliness to withstand competition.
If the Company is unable to successfully maintain its retainer rates or
sustain the necessary level of performance, such an inability could have a
material adverse effect on the
23
Company's business and financial results, which may require us to modify our
business objectives or reduce or cease some of products and services that we
offer.
WE ARE DEPENDENT ON THE REVENUE WE RECEIVE FROM NON-RECURRING SCRG ENGAGEMENTS.
The Company derived approximately 10% of its revenues during the year
ended December 31, 2002, from SCRG. The Company currently anticipates growth in
revenues from SCRG as projected demand increases for projects of longer duration
and complexity. SCRG engagements vary in number, size and scope and typically
are project based and non-recurring. The Company's ability to replace completed
SCRG engagements with new engagements is subject to a number of risks, including
the following:
o We may be unsuccessful in delivering consistent, high quality and
timely consulting services to its clients.
o We may not be able to hire and retain a large and growing number of
highly talented professionals in a very competitive job market.
o We may be unsuccessful in understanding and anticipating market
trends and the changing needs of its clients.
o We may not be able to deliver consulting services of the quality and
timeliness to withstand competition.
If the Company is not able to replace completed SCRG engagements with
new engagements, such an inability could have a material adverse effect on the
Company's business and financial results, which may require us to modify our
business objectives or reduce or cease some of products and services that we
offer.
OUR OPERATING RESULTS ARE SUBJECT TO POTENTIAL FLUCTUATIONS BEYOND OUR CONTROL.
The Company's operating results vary from quarter to quarter. The
Company expects future operating results to fluctuate due to several factors,
many of which are out of the Company's control:
o The disproportionately large portion of our QCS retainers that expire
in the fourth quarter of each year.
o The level and timing of renewals of retainers of our QCS services.
o The mix of QCS revenue versus SCRG revenue.
o The number, size and scope of SCRG engagements in which the Company
is engaged, the degree of completion of such engagements, and the
Company's ability to complete such engagements.
o The timing and amount of new business generated by the Company.
o The timing of the development, introduction, and marketing of new
products and services and modes of delivery.
o The timing of hiring consultants and corporate sales personnel.
o Consultant utilization rates and specifically, the accuracy of
estimates of resources required to complete ongoing SCRG engagements.
o Changes in the spending patterns of the Company's clients.
o The Company's accounts receivable collection experience.
o Competitive conditions in the industry.
24
Due to these factors, the Company believes period-to-period comparisons
of results of operations are not necessarily meaningful and should not be relied
upon as an indication of future results of operations.
WE MAY NOT BE ABLE TO TIMELY RESPOND TO RAPID CHANGES IN THE MARKET OR THE NEEDS
OF OUR CLIENTS.
The Company's success depends in part upon its ability to anticipate
rapidly changing market trends and to adapt its products and services to meet
the changing needs of its clients. Frequent and often dramatic changes,
including the following, characterize the Company's industry:
o Introduction of new products and obsolescence of others
o Changing client demands concerning the marketing and delivery of the
Company's products and services
This environment of rapid and continuous change presents significant
challenges to the Company's ability to provide its clients with current and
timely analysis and advice on issues of importance to them. The Company commits
substantial resources to meeting these challenges. If the Company fails to
provide insightful timely information in a manner that meets changing market
needs, such a failure could have a material and adverse effect on the Company's
future operating results.
WE ARE DEPENDENT ON OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL.
The Company needs to hire, train and retain a significant number of
additional qualified employees to execute its strategy and support its growth.
In particular, the Company needs trained consultants, corporate sales
specialists, and product development and operations staff. The Company continues
to experience intense competition in recruiting and retaining qualified
employees. The pool of experienced candidates is small, and the Company competes
for qualified employees against many companies. If the Company is unable to
successfully hire, retain, and motivate a sufficient number of qualified
employees, such an inability will have a material adverse effect on the
Company's business and financial results.
WE FACE SEVERE COMPETITION.
The consulting industry is extremely competitive. The Company competes
directly with other independent providers of similar services and indirectly
with the internal staffs of current and prospective client organizations. The
Company also competes indirectly with larger electronic and print media
companies and consulting firms. The Company's indirect competitors, many of
which have substantially greater financial, information gathering and marketing
resources than the Company, could choose to compete directly against the Company
in the future.
The Company's market has few barriers to entry. New competitors could
easily compete against the Company in one or more market segments addressed by
the Company's QCS or SCRG services. The Company's current and future competitors
may develop products and services that are more effective than the Company's
products and services. Competitors may also produce their products and services
at less cost and market them more effectively. If the Company is unable to
successfully compete against existing or new competitors, such an inability will
have a material adverse effect on the Company's operating results and would
likely result in pricing pressure and loss of market share.
25
WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT AND MARKETING OF NEW PRODUCTS OR
SERVICES.
The Company's future success depends on its ability to develop or
acquire new products and services that address specific industry and business
sectors and changes in client requirements. The process of internally
researching, developing, launching and gaining client acceptance of a new
product or service is inherently risky and costly. Assimilating and marketing an
acquired product or service is also risky and costly. Currently, the Company has
formed several strategic alliances with other information providers and various
business associations in order to expand its client base and allow for the
rollout of a new service continuum. If the Company is unable to develop new
products and services or manage its strategic investments, such inabilities
could have a material adverse effect on the Company's operating results.
WE ARE DEPENDENT ON KEY PERSONNEL, THE LOSS OF ANY MAY ADVERSELY EFFECT THE
COMPANY.
The Company relies, and will continue to rely, in large part on its key
management, research, consulting, sales, product development and operations
personnel. The Company's success in part depends on its ability to motivate and
retain highly qualified employees. If any members of the Company's Operating
Management Group, which, at the time of the filing of this Report, includes the
CEO, President, CFO and two other Senior Vice Presidents, leave the Company,
such loss or losses could have a material adverse effect on the Company.
RISK OF PRODUCT PRICING LIMITING POTENTIAL MARKET.
The Company's pricing strategy may limit the potential market for the
Company's QCS and SCRG services to substantial commercial and governmental
entities. As a result, the Company may be required to reduce prices for its QCS
and SCRG services or to introduce new products and services with lower prices or
offered for free over the Internet in order to expand or maintain its market
share or broaden its addressed market. These actions could have a material
adverse effect on the Company's business and results of operations.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH.
Growth places significant demands on the Company's management,
administrative, operational and financial resources. The Company's ability to
manage growth, should it continue to occur, will require the Company to continue
to improve its systems and to motivate and effectively manage an evolving
workforce. If the Company's management is unable to effectively manage a
changing and growing business, the quality of the Company's products, its
retention of key employees, and its results of operations could be materially
adversely affected.
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
As part of its business strategy, the Company looks to buy or make
investments in complementary businesses, products and services. If the Company
finds a business it wishes to acquire, the Company could have difficulty
negotiating the terms of the purchase, financing the purchase, and integrating
and assimilating the employees, products and operations of the acquired
business. Acquisitions may disrupt the ongoing business of the Company and
distract management. Furthermore, acquisition of new businesses may not lead to
the successful development of new products, or if developed, such products may
not achieve market acceptance or prove to be profitable. A given acquisition may
also have a material adverse effect on the
26
Company's financial condition or results of operations. In addition, the Company
may be required to incur debt or issue equity to pay for any future
acquisitions.
WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.
The market prices of our common stock have been highly volatile. The
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Please see the table contained in Item 5 "Market for Registrant's
Common Equity and Related Stockholder Matters" of Part II of this Report which
sets forth the range of high and low bids of our common stock for the calendar
quarters indicated.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
Although our shareholders may receive dividends if, as and when declared
by our board of directors, we do not intend to pay dividends on our common stock
in the foreseeable future. Therefore, you should not purchase our common stock
if you need immediate or future income by way of dividends from your investment.
OUR COMMON STOCK IS SUBJECT TO RULES REGARDING "PENNY STOCKS" WHICH MAY AFFECT
ITS LIQUIDITY.
In April 2001, due to its failure to comply with NASDAQ's minimum bid
price, our Common Stock was delisted from the NASDAQ and is now traded on the
OTC Bulletin Board. Because the trading price of our common stock is currently
below $5.00 per share, trading is subject to certain other rules of the
Securities Exchange Act of 1934. Such rules require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock." "Penny stock" is defined as any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such rules require the delivery of a disclosure schedule explaining the penny
stock market and the risks associated with that market before entering into any
penny stock transaction. Disclosure is also required to be made about
compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities. The rules also impose various sales
practice requirements on broker-dealers who sell penny stocks to persons other
than established customers and accredited investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and must receive the purchaser's written consent to the
transaction prior to the sale. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stocks. The additional
burdens imposed upon broker-dealers by such requirements could discourage
broker-dealers from effecting transactions in our Common Stock. This could
severely limit the market liquidity of our Common Stock and your ability to sell
the Common Stock.
ITEM 7A. 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 $1,806,000 as of
December 31, 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 December 31, 2002, the outstanding balance on all of the Company's
credit facilities was $1,806,000. Based on this balance, an immediate change of
one percent in the
27
interest rate would cause a change in interest expense of approximately $20,000
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. In September and October 2002, the Company
sold its shares of a publicly traded research and consulting company for
approximately $824,000. These proceeds were used to pay down a portion of this
line of credit. As of December 31, 2002, approximately $176,000 was outstanding
under this line. Interest expense related to this note amounted to approximately
$20,000 for the year ended December 31, 2002.
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 December 31, 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.
The Company does not invest or trade in any derivative financial or
commodity instruments, nor does it invest in any foreign financial instruments.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other information required by Item 10 including information regarding
directors, appearing under the captions "Election of Directors" and "Other
Matters" of the Company's proxy statement for the 2003 Annual Meeting of
Stockholders is incorporated herein by reference. The proxy statement is
anticipated to be filed with the Commission on or about April 30, 2003.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 appearing under the caption
"Executive Compensation" of the Company's proxy statement for the 2003 Annual
Meeting of Stockholders is incorporated herein by reference. The proxy statement
is anticipated to be filed with the Commission on or about April 30, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 appearing under the captions
"Executive Compensation - Equity Compensation Plans" and "Security Ownership of
Certain Beneficial Owners and Management" of the Company's proxy statement for
the 2003 Annual Meeting of Stockholders is incorporated herein by reference. The
proxy statement is anticipated to be filed with the Commission on or about April
30, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 appearing under the caption "Certain
Relationships and Related Transactions" of the Company's proxy statement for the
2003 Annual Meeting of Stockholders is incorporated herein by reference. The
proxy statement is anticipated to be filed with the Commission on or about April
30, 2003.
ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation was
performed under the supervision and 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.
29
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Location
In 10-K
----------
Report of independent auditors F-2
Consolidated balance sheets - December 31, 2002 and 2001 F-3
Consolidated statements of operations - Years ended
December 31, 2002, 2001 and 2000 F-4
Consolidated statements of changes in stockholders' equity -
Years ended December 31, 2002, 2001 and 2000 F-5
Consolidated statements of cash flows - Years ended
December 31, 2002 2001 and 2000 F-6
Notes to consolidated financial statements F-7
(2) Financial Statement Schedule:
See Schedule II of this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2002
(c) Exhibits:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3.1 Certificate of Incorporation of the Company
(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)
3.2 Certificate of Amendment of Certificate of Incorporation
of the Company (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)
3.3 Certificate of Amendment of Certificate of Incorporation
of the Company (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)
30
3.4 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 2,
1995)
3.5 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 13,
1998)
3.6 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 27,
1998)
3.7 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 10,
2002)
3.8 By-laws of the Company (incorporated by reference to the
Company's Form 10-K filed for the year ended December
31, 1987)
3.9 Amendment to the By-laws of the Company (filed herewith)
4.1 Specimen of the Company's Common Stock Certificate
(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)
10.1 License Agreement, dated October 11, 1971, between the
Company and SVP International (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)
10.2 Amendment to License Agreement, dated March 23, 1981,
between the Company and SVP International (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)
10.3 Amendment to License Agreement, dated November 21, 2001,
between the Company and SVP International (filed
herewith)
10.4 Lease, dated March 15, 1995, between Urbicum Associates,
L.P. and the Company, related to premises on 4th floor
at 641 Avenue of the Americas, New York, NY
(incorporated by reference to the Company's Form 10-K
filed for the year ended December 31, 1994)
10.5 Lease, dated December 15, 1986, between Chelsea Green
Associates and the Company, related to premises at 625
Avenue of the Americas, New York, NY (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 1992)
10.6 The Company's 401(k) and Profit Sharing Plan
(incorporated by reference to the Company's Form S-8,
filed on March 29, 1996)*
10.7 The Company's 1996 Stock Option Plan (incorporated by
reference to the Company's Definitive Proxy Statement,
filed on May 10, 2002)*
31
10.8 Collaboration Agreement, dated as of December 19, 1999,
by and among Bill Gross' idealab!, the Company, and
find.com, Inc. (incorporated by reference to the
Company's Form 10-K filed for the year ended December
31, 1999)
10.9 $2,000,000 Term Note, dated February 20, 2002, by the
Company in favor of JPMorgan Chase Bank (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 2001)
10.10 $1,000,000 Senior Grid Promissory Note, dated June 18,
2002, by the Company in favor of JPMorgan Chase Bank
(filed herewith)
10.11 Stock Purchase Agreement, dated January 15, 1998,
between SVP, S.A. and the Company (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 1999)
10.12 Amended and restated Employment Agreement, dated
November 21, 2001, between the Company and Andrew P.
Garvin (incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 2001)*
10.13 Amendment No. 1 to Amended and Restated Employment
Agreement, dated December 31, 2002, between the Company
and Andrew P. Garvin (filed herewith)*
10.14 Employment Agreement, dated November 21, 2001, between
the Company and David Walke (incorporated by reference
to the Company's Form 10-K filed for the year ended
December 31, 2001)*
10.15 Employment Agreement, dated February 6, 2002, between
the Company and Martin E. Franklin (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 2001)*
10.16 Employment Agreement, dated May 13, 2002, between the
Company and Peter M. Stone (incorporated by reference to
the Company's Form 10-Q filed for the quarter ended June
30, 2002)*
10.17 Employment Agreement, dated May 13, 2002, between the
Company and Daniel S. Fitzgerald (incorporated by
reference to the Company's Form 10-Q filed for the
quarter ended June 30, 2002)*
21 List of Subsidiaries (filed herewith)
23 Consent of Independent Auditors (filed herewith)
99.1 Certifications Pursuant to 18 U. S. C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith)
* This exhibit represents a management contract or a compensatory plan.
32
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.
(Registrant)
By: /s/ DAVID WALKE
---------------------------------
David Walke,
Chief Executive Officer
April 11, 2003
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.
(1) Principal Executive Officer:
/s/ DAVID WALKE Chief Executive Officer
--------------------------------- April 11, 2003
David Walke
(2) Principal Financial Officer and Principal Accounting Officer:
/s/ PETER M. STONE Chief Financial Officer
--------------------------------- April 11, 2003
Peter M. Stone
(3) Board of Directors:
/s/ ANDREW P. GARVIN President and Director
--------------------------------- April 11, 2003
Andrew P. Garvin
/s/ MARTIN E. FRANKLIN Chairman of Board of Directors
--------------------------------- April 11, 2003
Martin E. Franklin
/s/ MARC L. REISCH Director
--------------------------------- April 11, 2003
Marc L. Reisch
/s/ DENISE L. SHAPIRO Director
--------------------------------- April 11, 2003
Denise L. Shapiro
/s/ ROBERT J. SOBEL Director
--------------------------------- April 11, 2003
Robert J. Sobel
/s/ WARREN STRUHL Director
--------------------------------- April 11, 2003
Warren Struhl
33
CERTIFICATIONS
I, David Walke, certify that:
1. I have reviewed this annual report on Form 10-K of FIND/SVP, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: April 11, 2003
/s/ DAVID WALKE
- ---------------
David Walke
Chief Executive Officer
34
CERTIFICATIONS (CONTINUED)
I, Peter Stone, certify that:
1. I have reviewed this annual report on Form 10-K of FIND/SVP, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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) 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) 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: April 11, 2003
/s/ PETER M. STONE
- ------------------
Peter M. Stone
Chief Financial Officer
35
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3.1 Certificate of Incorporation of the Company
(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)
3.2 Certificate of Amendment of Certificate of Incorporation
of the Company (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)
3.3 Certificate of Amendment of Certificate of Incorporation
of the Company (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)
3.4 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 2,
1995)
3.5 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 13,
1998)
3.6 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 27,
1998)
3.7 Certificate of Amendment of Certificate of Incorporation
of the Company (incorporated by reference to the
Company's Definitive Proxy Statement, filed on May 10,
2002)
3.8 By-laws of the Company (incorporated by reference to the
Company's Form 10-K filed for the year ended December
31, 1987)
3.9 Amendment to the By-laws of the Company (filed herewith)
4.1 Specimen of the Company's Common Stock Certificate
(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)
10.1 License Agreement, dated October 11, 1971, between the
Company and SVP International (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)
10.2 Amendment to License Agreement, dated March 23, 1981,
between the Company and SVP International (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)
36
10.3 Amendment to License Agreement, dated November 21, 2001,
between the Company and SVP International (filed
herewith)
10.4 Lease, dated March 15, 1995, between Urbicum Associates,
L.P. and the Company, related to premises on 4th floor
at 641 Avenue of the Americas, New York, NY
(incorporated by reference to the Company's Form 10-K
filed for the year ended December 31, 1994)
10.5 Lease, dated December 15, 1986, between Chelsea Green
Associates and the Company, related to premises at 625
Avenue of the Americas, New York, NY (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 1992)
10.6 The Company's 401(k) and Profit Sharing Plan
(incorporated by reference to the Company's Form S-8,
filed on March 29, 1996)*
10.7 The Company's 1996 Stock Option Plan (incorporated by
reference to the Company's Definitive Proxy Statement,
filed on May 10, 2002) *
10.8 Collaboration Agreement, dated as of December 19, 1999,
by and among Bill Gross' idealab!, the Company, and
find.com, Inc. (incorporated by reference to the
Company's Form 10-K filed for the year ended December
31, 1999)
10.9 $2,000,000 Term Note, dated February 20, 2002, by the
Company in favor of JPMorgan Chase Bank (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 2001)
10.10 $1,000,000 Senior Grid Promissory Note, dated June 18,
2002, by the Company in favor of JPMorgan Chase Bank
(filed herewith)
10.11 Stock Purchase Agreement, dated January 15, 1998,
between SVP, S.A. and the Company (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 1999)
10.12 Amended and restated Employment Agreement, dated
November 21, 2001, between the Company and Andrew P.
Garvin (incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 2001)*
10.13 Amendment No. 1 to Amended and Restated Employment
Agreement, dated December 31, 2002, between the Company
and Andrew P. Garvin (filed herewith)*
10.14 Employment Agreement, dated November 21, 2001, between
the Company and David Walke (incorporated by reference
to the Company's Form 10-K filed for the year ended
December 31, 2001)*
10.15 Employment Agreement, dated February 6, 2002, between
the Company and Martin E. Franklin (incorporated by
reference to the Company's Form 10-K filed for the year
ended December 31, 2001)*
10.16 Employment Agreement, dated May 13, 2002, between the
Company and Peter M. Stone (incorporated by reference to
the Company's Form 10-Q filed for the quarter ended June
30, 2002)*
37
10.17 Employment Agreement, dated May 13, 2002, between the
Company and Daniel S. Fitzgerald (incorporated by
reference to the Company's Form 10-Q filed for the
quarter ended June 30, 2002)*
21 List of Subsidiaries (filed herewith)
23 Consent of Independent Auditors (filed herewith)
99.1 Certifications Pursuant to 18 U. S. C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith)
38
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, 2002 and 2001 F-3
Consolidated Statements of Operations
for the years ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2002, 2001 and 2000 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, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. 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, 2002
and 2001, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Stamford, Connecticut
April 4, 2003
F-2
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
(in thousands, except share and per share data)
ASSETS 2002 2001
Current assets:
Cash and cash equivalents $ 968 $ 1,951
Accounts receivable, less allowance for
doubtful accounts of $150 and $126
in 2002 and 2001, respectively 1,953 1,415
Note receivable -- 138
Deferred tax assets 272 194
Prepaid expenses and other current assets 948 828
-------- --------
Total current assets 4,141 4,526
Equipment, software development and leasehold
improvements, at cost, less accumulated
depreciation and amortization 2,334 2,892
Other assets:
Deferred tax assets 1,324 1,063
Rental asset 575 580
Cash surrender value of life insurance 418 747
Non-marketable equity securities 185 500
Other assets 561 384
-------- --------
$ 9,538 $ 10,692
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 606 $ 924
Trade accounts payable 353 469
Accrued expenses and other 1,749 1,781
-------- --------
Total current liabilities 2,708 3,174
-------- --------
Unearned retainer income 1,476 1,753
Notes payable 1,200 895
Deferred compensation 441 380
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.0001 par value
Authorized 2,000,000 shares; zero issued
and outstanding in both 2002 and 2001 -- --
Common stock, $.0001 par value. Authorized
100,000,000 shares; issued and outstanding
10,214,102 shares in 2002; issued and
outstanding 10,043,443 shares in 2001 1 1
Capital in excess of par value 7,332 6,985
Accumulated deficit (3,620) (2,496)
-------- --------
Total shareholders' equity 3,713 4,490
-------- --------
$ 9,538 $ 10,692
======== ========
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)
2002 2001 2000
Revenues $ 20,828 $ 22,215 $ 23,800
----------- ---------- ----------
Operating expenses:
Direct costs 10,027 10,966 12,127
Selling, general and
administrative expenses 11,808 12,397 12,426
----------- ---------- ----------
Operating loss (1,007) (1,148) (753)
Interest income 15 49 119
Other income -- -- 139
Interest expense (156) (246) (372)
Impairment on investment (315) -- --
----------- ---------- ----------
Loss before benefit for income taxes (1,463) (1,345) (867)
Benefit for income taxes (339) (400) (332)
----------- ---------- ----------
Net loss $ (1,124) $ (945) $ (535)
=========== ========== ==========
Loss per common share - basic
and diluted: $ (.11) $ (.12) $ (.06)
=========== ========== ==========
Weighted average number of
common shares outstanding:
Basic 10,138,703 7,879,744 7,449,986
=========== ========== ==========
Diluted 10,138,703 7,879,744 7,449,986
=========== ========== ==========
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, 2000 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
Net loss -- -- -- (1,124) (1,124)
Exercise of stock options and warrants 108,159 -- 49 -- 49
Common stock issued 62,500 -- 50 -- 50
Stock-based compensation -- -- 248 -- 248
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 10,214,102 $ 1 $ 7,332 $ (3,620) $ 3,713
============ ============ ============ ============ ============
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)
2002 2001 2000
Cash flows from operating activities:
Net loss $(1,124) $ (945) $ (535)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 939 1,087 1,110
Allowance for doubtful accounts 128 454 217
Unearned retainer income (277) (318) 142
Deferred income taxes (339) (398) (342)
Compensation from option grants 248 -- --
Impairment on investment 315 -- --
Deferred compensation 61 57 56
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (666) 651 (796)
(Increase) decrease in prepaid
expenses and other current assets (120) 131 (119)
Decrease (increase) in rental asset 5 (206) (199)
Decrease (increase) in cash surrender
value of life insurance 329 (44) (70)
Increase in other assets (29) (76) (37)
Decrease in accounts payable and
accrued expenses (147) (94) (117)
------- ------- -------
Net cash (used in) provided by
operating activities (677) 299 (690)
------- ------- -------
Cash flows from investing activities:
Capital expenditures (457) (304) (570)
Repayment of notes receivable 138 137 137
------- ------- -------
Net cash used in investing activities (319) (167) (433)
------- ------- -------
Cash flows from financing activities:
Principal borrowings under notes payable 3,230 200 1,400
Principal payments under notes payable (3,243) (725) (1,474)
Proceeds from exercise of stock options
and warrants 49 -- 37
Proceeds from issuance of common stock 50 1,443 --
Increase in deferred financing fees
and acquisition costs (73) -- (35)
------- ------- -------
Net cash provided by (used in)
financing activities 13 918 (72)
------- ------- -------
Net (decrease) increase in cash
and cash equivalents (983) 1,050 (1,195)
Cash and cash equivalents at beginning of year 1,951 901 2,096
------- ------- -------
Cash and cash equivalents at end of year $ 968 $ 1,951 $ 901
======= ======= =======
See accompanying notes to consolidated financial statements.
F-6
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(1) ORGANIZATION AND NATURE OF OPERATIONS
Find/SVP, Inc. and its wholly owned subsidiaries (the "Company") is
a knowledge services company that leverages the expertise and
resources of its professional research teams on behalf of executives
and other decision-making employees, 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 ("Quick Consulting") which provides
retainer clients with access to the expertise of the Company's staff
and information resources as well as a Live AnswerDesk ("LAD")
service; 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. Substantially all of the
Company's personnel and operations are located in Manhattan.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Find/SVP, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
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.
GOODWILL
Goodwill consists of the excess of the purchase price over the fair
value of identifiable net assets of businesses acquired. Effective
January 1, 2002 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," under which goodwill is no longer amortized.
Instead, goodwill is evaluated for impairment using a two-step
process that is performed at least annually and whenever events or
circumstances indicate impairment may have occurred. The first step
is a comparison of the fair value an internal reporting unit with
its carrying amount including goodwill. If the fair value of the
reporting unit exceeds its carrying value, goodwill of the reporting
unit is not considered impaired and the second step is unnecessary.
If the carrying value of the reporting unit exceeds its fair value,
a
F-7
second test is performed to measure the amount of impairment by
comparing the carrying amount of the goodwill to a determination of
the implied value of the goodwill. If the carrying amount of the
goodwill is greater than the implied value, an impairment loss is
recognized for the difference. The implied value of the goodwill is
determined as of the test date by performing a purchase price
allocation as if the reporting unit had just been acquired, using
currently estimated fair values of the individual assets and
liabilities of the reporting unit, together with an estimate of the
fair value of the reporting unit taken as a whole. The estimate of
the fair value of the reporting unit is based upon information
available regarding prices of similar groups of assets, or other
valuation techniques including present value techniques based upon
estimates of future cash flow.
Prior to adoption of SFAS No. 142, the Company amortized goodwill on
a straight-line basis, resulting in the recording of approximately
$10,000 of expense in each of the years ended December 31, 2001 and
2000. The Company retains $75,000 of goodwill on its balance sheet
in other assets, for which no impairment has been identified.
DEFERRED CHARGES
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.
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.
(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 years ended December 31, 2002, 2001 and 2000, the Company used a
weighted average number of common shares outstanding of 10,138,703,
7,879,744 and 7,449,986, respectively. In the years ended December
31, 2002, 2001 and 2000 there was no dilutive effect.
F-8
Options and warrants to purchase 3,320,522, 3,460,472 and 1,847,872
common shares during the years ended December 31, 2002, 2001 and
2000, respectively, were antidilutive and were therefore excluded
from the computation of diluted earnings per share.
REVENUE RECOGNITION
Revenues from annual retainer fees are recognized ratably over the
contractual period. Revenues from projects are recognized as work is
completed. Revenues from publications are recognized on a
subscription basis as issues are delivered. Revenues include certain
out-of-pocket and other expenses billed to clients which aggregated
approximately $1,221,000, $1,111,000 and $1,770,000 in 2002, 2001
and 2000, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all highly liquid investments
with original maturities of three months or less.
NON-MARKETABLE EQUITY SECURITIES
Non-marketable equity securities are valued at the lower of
historical cost or estimated net realizable value.
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The adoption of this
standard did not affect the current financial position or results of
operations of the Company.
Long-lived assets of the Company (other than goodwill, deferred tax
assets and financial instruments) including equipment, software
development and leasehold improvements, rental asset, and deferred
charges, are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount 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
F-9
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 exceeds 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.
STOCK BASED EMPLOYEE COMPENSATION COSTS
The Company applies Accounting Principles Board 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", as amended by
SFAS No. 148, the Company's net income (loss) would have been
reduced (increased) to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
2002 2001 2000
Net loss, as reported $(1,124,000) $ (945,000) $ (535,000)
Add: Stock based employee compensation
expense included in reported net loss,
net of tax related effects 174,000 -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (296,000) (299,000) (222,000)
----------- ----------- -----------
Pro forma net loss $(1,246,000) $(1,244,000) $ (757,000)
=========== =========== ===========
Loss per share:
Basic and Diluted
As reported $(0.11) $(0.12) $(0.06)
====== ====== ======
Pro forma $(0.12) $(0.16) $(0.10)
====== ====== ======
- --------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted
during 2002, 2001 and 2000 was $0.96, $0.30 and $1.21, respectively.
Such amounts were determined using the Black-Scholes option pricing
model with the following weighted-average assumptions: 2002 -
expected dividend yield of 0%, risk-free interest rate of 6%,
volatility of 111% and an expected life of 5 years; 2001 - expected
dividend yield of 0%, risk-free interest rate of 6%, volatility of
93.0% and an expected life of 5 years; 2000 - expected dividend
yield of 0%, risk-free interest rate of 6%, volatility of 82.1% and
an expected life of 5 years. Volatility is calculated over the five
preceding years.
F-10
NEW ACCOUNTING PRINCIPLES
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 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". The Company elected to adopt the
provisions of this omnibus statement early, which makes changes to
several existing authoritative pronouncements to make technical
corrections, to clarify meanings, or to describe their applicability
under changed conditions. The adoption of this standard did not
affect the current financial position or results of operations of
the Company. Adoption of the standard caused the loss on repayment
of debt that occurred in the year ended December 31, 2000 to be
reclassified as interest expense on the statement of operations,
from its prior presentation as an extraordinary item.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146
supersedes 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.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment
of FASB Statement No. 123." This statement amends SFAS No. 123 by
providing alternative methods of adopting the fair-value method of
accounting for stock-based compensation, if an entity elects to
discontinue using the intrinsic-value method of accounting permitted
in Accounting Principles Board (APB) Opinion No. 25. One of these
adoption methods, under which a prospective adoption of the
fair-value method would be permitted without the need for a
cumulative restatement of prior periods, is only available to the
Company if adopted in 2003. The statement also amended with
immediate effect certain disclosure requirements of SFAS No. 123
which the Company adopted as of December 31, 2002. Management
continues to study whether it will continue to account for
stock-based compensation under APB No. 25 or whether it will adopt
SFAS No. 123 as amended.
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.
F-11
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
At December 31, 2002 and 2001, equipment and leasehold improvements
consist of the following:
- --------------------------------------------------------------------------------
2002 2001
Furniture, fixtures and equipment, including
computer software $ 9,459,000 $ 9,202,000
Leasehold improvements 1,987,000 1,954,000
----------- -----------
11,446,000 11,156,000
Less: accumulated depreciation and amortization 9,112,000 8,264,000
----------- -----------
$ 2,334,000 $ 2,892,000
=========== ===========
- --------------------------------------------------------------------------------
Depreciation expense amounted to approximately $939,000, $1,087,000
and $1,110,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.
(4) OTHER ASSETS
At December 31, 2002 and 2001, other assets consist of the
following:
- --------------------------------------------------------------------------------
2002 2001
Deferred charges $ 278,000 $ 160,000
Security deposits 132,000 132,000
Goodwill, net 75,000 75,000
Employee loan receivable 50,000 --
Deferred financing fees, net 26,000 17,000
----------- -----------
$ 561,000 $ 384,000
=========== ===========
- --------------------------------------------------------------------------------
(5) LEASES
The Company has an operating lease agreement for its principal
offices, which expires in 2005, under which rental payments decline
over the term of the lease. Rental expense under this lease is
recorded on a straight-line basis. Rental payments through December
31, 2002 and 2001 exceeded rental expense recorded on this lease
through such dates by $741,000 and $788,000, respectively.
The Company has two operating leases for additional office space
that expire in 2005, under which rental payments increase over the
term of the lease. Rental expense on these leases is recorded on a
straight-line basis. Accordingly, rent recorded through December 31,
2002 and
F-12
2001 exceeded scheduled payments through such dates by $166,000 and
$207,000, 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 expense under leases for office space was
$1,504,000, $1,587,000 and $1,497,000 in 2002, 2001 and 2000,
respectively.
The future minimum lease payments under noncancellable operating
leases as of December 31, 2002 were as follows:
- --------------------------------------------------------------------------------
Year ending December 31 Operating Leases
- ----------------------- ----------------
2003 $ 853,000
2004 853,000
2005 426,000
Thereafter --
----------
Total minimum lease payments $2,132,000
==========
- --------------------------------------------------------------------------------
(6) NOTES PAYABLE
Notes payable as of December 31, 2002 and 2001 consist of the
following:
- --------------------------------------------------------------------------------
2002 2001
Bank borrowings under term note $ 1,600,000 $ 1,100,000
Bank borrowings under line of credit 176,000 200,000
Borrowings under debt agreements with investors:
$475,000 Series A Senior Subordinated
Note - SVP, S.A., net of unamortized
discount of $1,000 as of December 31, 2001,
due August 25, 2002 -- 474,000
Note payable to landlord, due 2003 30,000 45,000
----------- -----------
Total notes payable 1,806,000 1,819,000
Less current installments 606,000 924,000
----------- -----------
Notes payable, excluding current
installments $ 1,200,000 $ 895,000
=========== ===========
- --------------------------------------------------------------------------------
F-13
DEBT AGREEMENTS WITH BANK
In February 2002, the Company entered into a financing agreement
with a commercial bank for a Term Note. The Term Note bears interest
at prime plus 1.25%, and is payable in quarterly installments
beginning March 31, 2002. As of December 31, 2002, there was
$1,600,000 outstanding on this note, of which $400,000 is classified
as current. Interest expense related to this note amounted to
$94,000 for the year ended December 31, 2002. This agreement was
amended and restated on April 1, 2003, reducing the principal amount
from $2,000,000 to $1,500,000, reflecting the current outstanding
balance, and moving the final repayment date from December 31, 2006
to December 31, 2005. This will require the Company to make a
balloon payment of $500,000 on December 31, 2005.
The proceeds from this Term Note were used to repay the $1,100,000
balance on a Term Note due June 30, 2005, and to repay the remaining
portion of the Company's Senior Subordinated Notes.
At December 31, 2001, the Company had a term note at the prime
commercial lending rate plus 1.25% with commercial bank under which
$1,100,000 was borrowed. Interest expense related to this note was
$9,000, $102,000, and $63,000 for the years ended December 31, 2002,
2001 and 2000, respectively.
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 expires
on December 30, 2003. At December 31, 2002 and 2001, $176,000 and
$200,000, respectively, were outstanding under this line of credit.
Average borrowings under the line of credit were $379,000 and
$30,000 in the years ended December 31, 2002 and 2001, with the
highest month end balances being $1,000,000 and $200,000,
respectively. Related interest expense was $20,000 and $2,000 in the
years ended December 31, 2002 and 2001, respectively. There were no
borrowings under the line during the year ended December 31, 2000.
DEBT AGREEMENTS WITH INVESTORS
Prior to their repayment in February 2002, the Company had Senior
Subordinated Notes under debt agreements with investors. Such notes
accrued interest at an annual rate of 12%. Interest expense under
such notes was $12,000, $112,000, and $270,000 in the years ended
December 31, 2002, 2001, and 2000, respectively.
F-14
The aggregate principal maturities of notes payable for the next
five years, including full amortization of discounts, are as
follows:
- --------------------------------------------------------------------------------
Year Ending December 31,
- ------------------------
2003 $ 606,000
2004 400,000
2005 800,000
Thereafter --
------------
$ 1,806,000
============
- --------------------------------------------------------------------------------
(7) SHAREHOLDERS' EQUITY
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 of $557,000. This
transaction resulted in a triggering of the change in control
provisions of certain employment and severance agreements (see Note
10).
COMMON STOCK WARRANTS
On January 1, 2000 warrants to purchase 1,472,222 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. As a
result of this transaction, no gain or loss was recognized.
At December 31, 2002 and 2001, warrants to purchase 572,222 of the
Company's common shares remain outstanding.
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 our Board
of Directors' 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, 2002 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.
F-15
Activity under the stock option plans is summarized as follows:
- --------------------------------------------------------------------------------
WEIGHTED
AVAILABLE AVERAGE
FOR OPTIONS EXERCISE
GRANT GRANTED PRICE
---------- --------- --------
January 1, 2000 486,300 875,900 $ 1.12
Additional authorized 500,000 -- --
Granted (772,500) 772,500 2.15
Exercised -- (80,910) 1.68
Cancelled 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
Granted (353,000) 353,000 1.10
Exercised -- (142,850) 0.76
Cancelled 350,100 (350,100) 1.99
---------- --------- --------
December 31, 2002 543,800 2,748,300 $ 0.82
========== ========= ========
Exercisable at December 31, 2002 1,351,724 $ 0.92
========= ========
Exercisable at December 31, 2001 863,779 $ 1.25
========= ========
Exercisable at December 31, 2000 435,550 $ 1.56
========= ========
- --------------------------------------------------------------------------------
During 2002, options to purchase 353,000 shares of common stock were
granted under the Plan at prices ranging from $0.83 to $1.429. The
options issued qualified as incentive stock options whereby the
price of the options were at fair market value at the time of grant.
As of December 31, 2002, there were 2,748,300 options outstanding,
having exercise prices ranging from $0.41 to $3.6875, with an
average remaining contractual life of 6.5 years. As of December 31,
2002, there were 1,351,724 exercisable options, having exercise
prices ranging from $0.41 to $3.6875, with an average remaining
contractual life of 6.5 years.
PREFERRED STOCK
The Company has authorized and unissued preferred stock consisting
of 2,000,000 shares at $.0001 par value.
F-16
(8) SVP INTERNATIONAL
The Company has an agreement with SVP International S.A. ("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, as defined.
Royalty expense under the agreement was $133,000 for the year ended
December 31, 2002 and $118,000 in each of the years ended December
31, 2001 and 2000.
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.
(9) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
- --------------------------------------------------------------------------------
2002 2001 2000
Current:
Federal $ -- $ -- $ --
State and local -- -- --
---------- ---------- ----------
-- -- --
Deferred:
Federal (455,000) (348,000) (267,000)
State and local (127,000) (52,000) (65,000)
---------- ---------- ----------
(582,000) (400,000) (332,000)
---------- ---------- ----------
Change in valuation allowance 243,000 -- --
---------- ---------- ----------
(339,000) (400,000) (332,000)
---------- ---------- ----------
$ (339,000) $ (400,000) $ (332,000)
========== ========== ==========
- --------------------------------------------------------------------------------
In 2002, a valuation allowance was provided for certain state and
local carryforward tax operating loss assets, as the Company
determined that it was no longer more likely than not that such
assets would be realized during the carryforward period. It is
reasonably possible that future valuation allowances will need to be
recorded if the Company is unable to generate sufficient future
taxable income to realize such deferred tax assets during the
carryforward period. 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:
F-17
- --------------------------------------------------------------------------------
2002 2001 2000
Income tax (benefit) expense at
statutory rate $ (494,000) $ (457,000) $ (295,000)
Increase (reduction) in income taxes
resulting from:
Change in valuation allowance 243,000 -- --
State and local (benefit) taxes, net
of federal income tax benefit (127,000) (52,000) (66,000)
Taxable (nontaxable) income resulting
from decrease (increase) in cash
surrender value of life insurance -- -- (24,000)
Nondeductible expenses 22,000 66,000 25,000
Other 17,000 43,000 28,000
---------- ---------- ----------
$ (339,000) $ (400,000) $ (332,000)
========== ========== ==========
- --------------------------------------------------------------------------------
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, 2002 and 2001 are presented below:
- --------------------------------------------------------------------------------
2002 2001
Deferred tax assets:
Federal tax loss carryforwards $ 653,000 $ 445,000
State and local tax loss carryforwards 402,000 348,000
Deferred compensation 184,000 159,000
Royalty expenses 179,000 141,000
Depreciation and amortization 139,000 136,000
Stock compensation expense 104,000 --
Write-down of non-marketable equity securities 132,000 --
Other, net 46,000 28,000
----------- -----------
Deferred tax asset 1,839,000 1,257,000
Valuation allowance (243,000) --
----------- -----------
Net deferred tax asset $ 1,596,000 $ 1,257,000
=========== ===========
- --------------------------------------------------------------------------------
Of the net deferred tax asset, $272,000 and $194,000 as of December
31, 2002 and 2001, respectively, are classified as current.
Federal tax loss carryforward assets expire from 2020 to 2022. Of
the state and local tax loss carryforward assets, approximately
$236,000 expire in 2012, with the remainder expiring from 2020 to
2022.
F-18
(10) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
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 relating to the 401(k) and profit sharing
plan was $79,000, $88,000 and $86,000 for the years ended December
31, 2002, 2001 and 2000, respectively.
DEFERRED COMPENSATION
The Company has deferred compensation agreements with two
individuals, with benefits commencing upon retirement, death or
disability. Deferred compensation is a discounted obligation. In
2002, the expense was determined using a discount rate of 6%. In
2001 and 2000, a discount rate of 8.5% was used. Deferred
compensation expense under these agreements was approximately
$61,000 in 2002 and $56,000 in both 2001 and 2000.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Andrew Garvin, 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 David Walke, 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.
The Company has an employment agreement with Peter Stone, the CFO of
the Company, which expires in May 2005. 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 CFO to receive compensation and certain
benefits for various lengths of time upon termination without cause,
or voluntary termination upon certain
F-19
conditions, which includes the acquisition by a party of 30% or more
of the outstanding shares of common stock of the Company and certain
other occurrences.
The Company has an employment agreement with Martin Franklin, 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 one member of the Operating Management
Group ("OMG") was authorized by the Board of Directors on January
25, 1999. In the event of certain changes of control, the severance
agreement with this member of the OMG would be triggered. The
agreement provides for (a) a normal severance benefit for one (1)
year 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 estimated at December 31, 2001 that
$134,000 would be payable under these provisions. In March 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 OMG. Severance benefits relating to
the resignation of our former Chief Financial Officer were reduced
by $93,000 during the quarter ended September 30, 2002, as the
result of a revised and signed agreement between the Company and the
former Chief Financial Officer. At December 31, 2002, $60,000
remains payable to a former member of the OMG.
(11) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the years ended
December 31, 2002, 2001 and 2000 was as follows:
- --------------------------------------------------------------------------------
2002 2001 2000
Interest $ 217,000 $ 236,000 $ 235,000
========== ========== ==========
Income taxes $ 6,000 $ 12,000 $ 10,000
========== ========== ==========
- --------------------------------------------------------------------------------
The Company had the following non-cash financing activities:
During 2002, the Company recorded the cashless exercise of 79,000
options at prices ranging from $0.50 to $1.062, in exchange for
34,691 shares of common stock at prices ranging from $1.40 to $1.71.
Such shares were held for a period of at least six months before the
respective exchange. The value of these transactions was $59,000.
F-20
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.
(12) ACCRUED EXPENSES
Accrued expenses at December 31, 2002 and 2001 consisted of the
following:
- --------------------------------------------------------------------------------
2002 2001
Accrued bonuses and employee benefits $ 538,000 $ 554,000
Accrued expenses incurred on behalf of clients 27,000 27,000
Accrued SVP royalty 954,000 854,000
Other accrued expenses 230,000 346,000
----------- -----------
$ 1,749,000 $ 1,781,000
=========== ===========
- --------------------------------------------------------------------------------
In 2002 and 2001, the Company recorded an accrual $257,000 and
$228,000, respectively, for restructuring under a severance plan
approved by the Board of Directors and communicated to employees.
The $228,000 amount included the $134,000 of severance related to
OMG employment agreements discussed in Note 10. In 2002, the Company
paid $273,000 related to both the restructuring plans. As of
December 31, 2002, a balance of $212,000 remains accrued, which
includes the $60,000 related to a former OMG member as discussed in
Note 10. Payments related to the remaining severance accrual at
December 31, 2002 will be completed by the end of October 2003.
(13) NON-MARKETABLE EQUITY SECURITIES
In 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 terms of the
agreement, the Company received cash and non-marketable preferred
shares in idealab!, and was entitled to certain future royalties.
The preferred shares received were valued by the Company at
$500,000, and carried various rights including the ability to
convert them into common shares of Find.com, Inc., and a put option
to resell the shares to idealab! The put option became exercisable
in December 2002. Under the terms of the put option, idealab! could
either repurchase the preferred shares for
F-21
$1,500,000 in cash, or elect to return the find.com domain name to
the Company. In the latter case, the Company would retain the
preferred shares.
In January 2003, the Company exercised its put option and idealab!
declined to repurchase the preferred shares. This information was
considered by the Company in its recurring evaluation of the
carrying value of the preferred shares at the lower of historical
cost or estimated net realizable value. Using this information
together with other publicly available information about idealab!,
the Company concluded the net realizable value of its idealab!
preferred shares had declined to an estimated $185,000 at December
31, 2002, which resulted in a charge to operations of $315,000
during the quarter ended December 31, 2002. Since the idealab!
preferred shares continue to be 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 further reduced.
F-22
(14) 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,
2002 2001 2000
Revenues
QCS, including LAD $ 18,624 $ 19,414 $ 19,930
SCRG 2,204 2,801 3,870
---------- ---------- ----------
Total revenues $ 20,828 $ 22,215 $ 23,800
========== ========== ==========
Operating (loss) income
QCS, including LAD $ 4,127 $ 4,429 $ 4,545
SCRG (99) (314) (58)
---------- ---------- ----------
Segment operating (loss) income 4,028 4,115 4,487
Corporate and other (1) (5,035) (5,263) (5,240)
---------- ---------- ----------
Operating loss $ (1,007) $ (1,148) $ (753)
========== ========== ==========
Depreciation and amortization
QCS, including LAD $ 460 $ 539 $ 583
SCRG 59 66 68
---------- ---------- ----------
Total segment depreciation
and amortization 519 605 651
Corporate and other 420 482 459
---------- ---------- ----------
Total depreciation and amortization $ 939 $ 1,087 $ 1,110
========== ========== ==========
Total Assets
QCS, including LAD $ 3,161 $ 2,871
SCRG 467 315
---------- ----------
Total segment assets 3,628 3,186
Corporate and other 5,910 7,506
---------- ----------
Total assets $ 9,538 $ 10,692
========== ==========
Capital Expenditures
QCS, including LAD $ 134 $ 119 $ 160
SCRG 3 5 30
---------- ---------- ----------
Total segment capital expenditures 137 124 190
Corporate and other 320 180 380
---------- ---------- ----------
Total capital expenditures $ 457 $ 304 $ 570
========== ========== ==========
(1) Includes certain direct costs and selling, general, and administrative
expenses not attributable to a single segment.
- --------------------------------------------------------------------------------
F-23
(15) FOURTH QUARTER EVENTS (UNAUDITED)
As discussed in Note 13, in the fourth quarter of 2002, the Company
recorded a charge to operations of $315,000 to write-down the
carrying value of its preferred shares of idealab! As discussed in
Note 12, in the fourth quarter of 2002 and 2001, charges related to
severance costs of $147,000 and $228,000, respectively, were
recorded. Also, approximately $80,000 was recorded related to bonus
and commission arrangements in the quarter ended December 31, 2002.
(16) COMMITMENTS AND CONTINGENCIES
In March 2003, the Company became aware of a lease modification
agreement from 1992 related to its primary offices at 625 Avenue of
the Americas that differs from a second lease modification agreement
signed by the same parties also in 1992. The lease modification
agreement that the Company believes to be in effect has been
consistently disclosed and used to account for this operating lease
since 1992. These two agreements are dated within two days of each
other. The significant difference between the terms of the documents
are that the newly discovered document indicates a lease expiration
in June 2004, one year prior to the June 2005 expiration date in the
agreement that the Company believes to be in effect. The Company has
requested its landlord to investigate their files, however, this
investigation remains incomplete and accordingly no determination as
to which agreement is definitive has been made. The Company believes
that the agreement it has consistently relied upon and which expires
in June 2005 is the governing agreement. Based upon review of the
documents that have been located, outside counsel has advised the
Company that a reasonable basis exists for the Company's position.
If the newly discovered document is determined to be the definitive
agreement, as of December 31, 2002 the Company would be obligated to
write-off approximately $310,000 of the rental asset recorded on its
balance sheet, which would cause an after-tax reduction to
shareholders equity of approximately $210,000.
(17) SUBSEQUENT EVENT
On April 1, 2003, the Company purchased all of the issued and
outstanding stock of Guideline Research Corp. ("Guideline").
Guideline, together with its wholly owned subsidiaries
Guideline/Chicago, Inc., Advanced Analytics, Inc., Guideline
Consulting Corp., and Tabline Data Services, Inc. is a provider of
custom market research. Simultaneously with the acquisition,
Guideline entered into employment agreements with, among others, the
former shareholders of Guideline, Robert La Terra and Jay L.
Friedland. Also, 150,000 stock options were granted to one of the
former shareholders after the close of this transaction pursuant to
the terms of an employment agreement entered into with Guideline at
the closing.
The purchase price consisted of approximately $4,454,000 in cash
(including $525,000 of estimated transaction costs), and 571,237
unregistered shares of the Company's common stock, of which 295,043
shares were placed in escrow. The shares placed in escrow will be
distributed to the Sellers on or about May 31, 2004, subject to
reduction for the resolution of purchase price adjustments, if any.
F-24
The Guideline purchase price was financed by the Company's cash
resources, the assumption of certain liabilities of Guideline, and
by the receipt of $3,400,000 (net of financing costs) obtained from
the issuance of: (i) a promissory note with a $3,000,000 face value,
with stated interest at 13.5%, due April 1, 2008 (the "Note") to
Petra Mezzanine Fund, L.P. ("Petra"), which is secured by a second
lien and security interest on substantially all of the Company's
assets; (ii) 333,333 shares of convertible, redeemable, cumulative
preferred stock, designated as Series A Preferred Stock, to Petra,
which are redeemable at Petra's option beginning April 1, 2009 at an
initial redemption price of $1.50 per share, or $500,000, plus all
accrued but unpaid dividends; and (iii) warrants to Petra to
purchase 675,000 shares of the Company's common stock at an exercise
price of $.01 per share. The preferred shares are entitled to
receive either cash or "payment-in-kind" dividends at a rate of 8.0%
annually, and the future redemption price is subject to adjustment
for anti-dilution. The warrants are exercisable at any time, and,
beginning April 1, 2009, and for a period of four years thereafter,
Petra shall have the right to cause the Company to use commercially
reasonable efforts to complete a private placement to sell Petra's
shares of the Company's common stock issuable upon exercise of the
Warrant (the "Warrant Shares") to one or more third parties at a
price equal to the market value of the Warrant Shares based on the
closing bid price of the Company's common shares as of the date
Petra so notifies the Company (the "Put Exercise Date"). In the
event a change in control takes place during the period in which the
put may be exercised, Petra would have the right to cause the
Company to fulfill its repurchase obligations in the same form of
consideration as that received by the other selling shareholders.
On April 1, 2003, the Company also amended and restated: (i) its
term Note with JP Morgan Chase Bank, in the principal amount of
$1,500,000 and (ii) its line of credit with JP Morgan Chase Bank in
the principal amount of $1,000,000. These amended and restated
agreements had the effect of reducing the term Note principal amount
from $2,000,000 to $1,500,000, reflecting the current outstanding
balance. The final repayment date of the term Note has been moved up
from December 31, 2006 to December 31, 2005. As a result, the
Company will have a $500,000 balloon payment due at December 31,
2005 instead of making payments of $100,000 each quarter in 2006. In
addition, JP Morgan Chase Bank consented to the Company's
acquisition of Guideline and the related financing transactions with
Petra, and amended various financial covenants of both the term Note
and line of credit as follows:
1) The previous Debt to Consolidated Tangible Net Worth
Covenant of 2.00 was replaced with a Senior Debt to
Consolidated Tangible Net Worth plus Subordinated Debt
covenant of 0.75; and
2) The previous Consolidated Tangible Net Worth covenant of
$3,500,000 was replaced with a Consolidated Tangible Net
Worth plus Subordinated Debt covenant of $3,300,000.
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
April 4, 2003
F-26
SCHEDULE II
FIND/SVP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2002, 2001 and 2000
(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, 2002:
Allowance for doubtful accounts $ 126 $ 128 $ 104 $ 150
===== ===== ===== =====
Year ended December 31, 2001:
Allowance for doubtful accounts $ 101 $ 454 $ 429 $ 126
===== ===== ===== =====
Year ended December 31, 2000:
Allowance for doubtful accounts $ 101 $ 217 $ 217 $ 101
===== ===== ===== =====
Note: (1) Amounts written off, net of recoveries.
F-27