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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2003
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Commission file no. 0-15152
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FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2670985
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 Avenue of the Americas, New York, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES _____ NO __X__
Number of shares of Common Stock, $.0001 par value per share, outstanding at May
12, 2003: 10,791,464
FIND/SVP, INC. AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
March 31, 2003 (unaudited) and December 31, 2002
Condensed Consolidated Statements of Operations (unaudited) 4
Three Months Ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows (unaudited) 5
Three Months Ended March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18
ITEM 4. Disclosure Controls and Procedures 18
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
CERTIFICATIONS 21
INDEX TO EXHIBITS 23
2
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, December 31,
2003 2002
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,294 $ 968
Accounts receivable, net 2,263 1,953
Deferred tax assets 252 272
Prepaid expenses and other current assets 978 948
-------- --------
Total current assets 4,787 4,141
Equipment and leasehold improvements, at cost, less accumulated
depreciation and amortization of $8,816 in 2003 and
$8,626 in 2002 2,170 2,334
Other assets:
Deferred tax assets 1,324 1,324
Rental asset 515 575
Cash surrender value of life insurance 424 418
Non-marketable equity securities 185 185
Other assets, including $75 of goodwill for both periods 730 561
-------- --------
$ 10,135 $ 9,538
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 576 $ 606
Trade accounts payable 256 353
Accrued expenses and other 1,463 1,749
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Total current liabilities 2,295 2,708
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Unearned retainer income 2,498 1,476
Notes payable 1,100 1,200
Deferred compensation 455 441
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.0001 par value. Authorized 2,000,000 shares;
zero issued and outstanding in both 2003 and 2002 -- --
Common stock, $.0001 par value. Authorized 100,000,000 shares;
issued and outstanding 10,219,410 at March 31, 2003 and
10,214,102 at December 31, 2002 1 1
Capital in excess of par value 7,362 7,332
Accumulated deficit (3,576) (3,620)
-------- --------
Total shareholders' equity 3,787 3,713
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$ 10,135 $ 9,538
======== ========
See accompanying notes to condensed consolidated financial statements
3
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended March 31
(in thousands, except share and per share data)
2003 2002
---- ----
Revenues $ 5,102 $ 5,044
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Operating expenses:
Direct costs 2,367 2,638
Selling, general and administrative expenses 2,730 3,080
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Operating income (loss) 5 (674)
Other income 87 34
Interest expense (27) (34)
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Income (loss) before (provision) benefit for income taxes 65 (674)
(Provision) benefit for income taxes (20) 201
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Net income (loss) $ 45 $ (473)
=========== ===========
Earnings (loss) per common share:
Basic $ 0.00 $ (0.05)
=========== ===========
Diluted $ 0.00 $ (0.05)
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Weighted average number of common shares:
Basic 10,215,730 10,061,371
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Diluted 11,635,280 10,061,371
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
(in thousands)
2003 2002
---- ----
Cash flows from operating activities:
Net income (loss) $ 45 $ (473)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 248 262
Allowance for doubtful accounts (9) 38
Unearned retainer income 1,022 829
Deferred income taxes 20 (202)
Compensation from option grants 28 55
Increase in marketable securities -- (34)
Deferred compensation 14 7
Changes in assets and liabilities:
Increase in accounts receivable (301) (144)
Increase in prepaid expenses and other current assets (30) (141)
Decrease (increase) in rental asset 60 (47)
(Increase) decrease in cash surrender value of life insurance (6) 76
Increase in other assets (164) (20)
Decrease in accounts payable and accrued expenses (383) (331)
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Net cash provided by (used in) operating activities 544 (125)
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Cash flows from investing activities:
Capital expenditures (90) (99)
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Net cash used in investing activities (90) (99)
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Cash flows from financing activities:
Principal borrowings under notes payable -- 2,030
Principal payments under notes payable (130) (1,775)
Proceeds from exercise of stock options 2 24
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Net cash (used in) provided by financing activities (128) 279
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Net increase in cash and cash equivalents 326 55
Cash and cash equivalents at beginning of period 968 1,951
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Cash and cash equivalents at end of period $ 1,294 $ 2,006
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 24 $ 122
======= =======
Taxes paid $ -- $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
5
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to present fairly the financial
position at March 31, 2003, and the results of operations and cash flows for the
three month periods ended March 31, 2003 and 2002. All such adjustments are of a
normal and recurring nature. Operating results for the three month period ended
March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003.
FIND/SVP, Inc. and its subsidiaries (the "Company") have reclassified certain
prior year balances to conform with the current year presentation. References in
this report to "we," "us," or "our" refer to FIND/SVP, Inc. and its
subsidiaries.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with our
consolidated financial statements and notes thereto for the year ended December
31, 2002 included in the Company's 2002 Annual Report on Form 10-K.
B. (LOSS) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing net income (loss) by a diluted weighted average number
of common shares outstanding. Diluted net income (loss) per share reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock, unless they are
anti-dilutive. In computing basic earnings per share for the three-month periods
ended March 31, 2003 and 2002, the Company used a weighted average number of
common shares of 10,215,730, and 10,061,371, respectively. In computing diluted
earnings per share for the three-month periods ended March 31, 2003 and 2002,
the Company used a weighted average number of common shares of 11,635,280, and
10,061,371, respectively. For the three months ended March 31, 2003, diluted
weighted average number of common shares exceeded that of basic by 1,419,550,
which represented the dilutive effect of 3,088,072 options and warrants after
applying the treasury stock method.
Options and warrants to purchase 389,500 and 3,495,122 common shares during the
three-month periods ended March 31, 2003 and 2002, respectively, were excluded
from the computation of diluted earnings per share as the effect would be
anti-dilutive.
C. INVESTMENTS
PARTNERSHIP INTEREST
The Company has a 9.1% interest in a limited partnership, and in March 2003,
received an $87,000 distribution. This is the first distribution that the
Company has received from this partnership interest, and the distribution was
recognized as other income during the quarter ended March 31, 2003.
6
MARKETABLE SECURITIES
In January 2002, the Company received shares of common stock of a mutual company
that had converted to a stock company. As a result, the Company recognized
$33,000 as other revenue.
D. DEBT
As of March 31, 2003, there was $1,500,000 outstanding on a term note with JP
MorganChase Bank (the "Term Note"), of which $400,000 is classified as current.
Interest expense related to the Term Note amounted to $21,000 for the three
months ended March 31, 2003. 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 Company maintains a $1,000,000 line of credit with JP Morgan Chase Bank (the
"Line of Credit"). As of March 31, 2003, $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.
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 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 Research Corp.
("Guideline") and the related financing transactions with Petra Mezzanine Fund,
L.P. ("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.
In connection with the above, on April 1, 2003, the Company and JPMorgan Chase
Bank entered into amendment no. 1 to their existing security agreement (the
"Security Agreement Amendment"). Also on April 1, 2003, Guideline together with
its subsidiaries executed and delivered in favor JPMorgan Chase Bank: (i) a
security agreement (the "Subsidiary Security Agreement"), granting a first lien
and security interest on substantially all of their assets; and (ii) a guaranty
agreement (the "Guaranty Agreement"), guaranteeing the Company's payment and
performance obligations under the Term Note and the Line of Credit.
The Company believes it was in compliance with all of its loan agreements with
JP Morgan Chase as of March 31, 2003.
E. INCOME TAXES
The $20,000 income tax provision for the three months ended March 31, 2003
represents 30% of the income before provision for income taxes. The $201,000
income tax benefit as of March 31, 2002 represents 30% of the loss before
benefit for income taxes. The difference between these rates and the statutory
rate primarily relates to expenses that are not deductible for income tax
purposes.
7
Of the net deferred tax asset, $252,000 and $272,000 are classified as current
as of March 31, 2003 and December 31, 2002, respectively.
F. NEW ACCOUNTING PRINCIPLES
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. 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.
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:
- --------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED
MARCH 31, 2003 MARCH 31, 2002
Net income (loss), as reported $ 45,000 $(473,000)
Add: Stock based employee compensation expense
included in reported net income (loss), net of
tax related effects 20,000 38,500
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (107,000) (109,000)
--------- ---------
Pro forma net loss $ (42,000) $(543,500)
========= =========
Earnings (loss) per share:
Basic and Diluted
As reported $ 0.00 $(0.05)
====== ======
Pro forma $(0.00) $(0.05)
====== ======
- --------------------------------------------------------------------------------
Such amounts were determined using the Black-Scholes option pricing model with
the following weighted-average assumptions: 2003 - expected dividend yield of
0%, risk-free interest rate of 6%, volatility of 110% and an expected life of 5
years; 2002 - expected dividend yield of 0%, risk-free interest rate of 6%,
volatility of 111% and an expected life of 5 years.
8
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
and is effective for contracts entered into or modified after June 30, 2003. The
Company is currently evaluating the impact that this Statement may have on its
financial position and results of operations.
G. STOCK OPTIONS
During the three month period ended March 31, 2003, options to purchase 218,500
shares of common stock were granted under the Company's Stock Option Plan, at a
price of $1.25.
During the three month period ended March 31, 2002, options to purchase 149,250
shares of common stock were granted under the Company's Stock Option Plan, at
prices ranging from $0.63 to $1.429.
Stock options were granted in November 2001 for future services to be rendered
to the Company by the Chief Executive Officer, the Chairman and a consultant.
Compensation expense related to such grants is amortized over the vesting period
of the options and was $28,000 and $55,000 for the three-month periods ended
March 31, 2003 and 2002, respectively.
H. SEGMENT REPORTING
The Company manages its consulting and business advisory services in the
following two business segments: Quick Consulting ("QCS") and Strategic
Consulting ("SCRG"). The Company operates primarily in the United States.
References to "Corporate" and "Other" in our financial statements refer to the
portion of assets and activities that are not allocated to a segment. Prior year
segment amounts have been revised as a result of a realignment of certain
activities, including the association of certain QCS expenses with Corporate and
Other.
- --------------------------------------------------------------------------------
(in thousands) THREE MONTHS
ENDED MARCH 31,
-------------------
2003 2002
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REVENUES
QCS $ 4,516 $ 4,358
SCRG 586 686
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Revenues $ 5,102 $ 5,044
======= =======
INCOME (LOSS) BEFORE INCOME TAXES
QCS $ 816 $ 934
SCRG (157) (157)
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Total segment income before income taxes 659 777
------- -------
Corporate & other (1) (594) (1,451)
------- -------
Income (Loss) before (provision) benefit for
income taxes $ 65 $ (674)
======= =======
(1) Includes certain direct costs and selling, general, and administrative
expenses not attributable to a single segment
- --------------------------------------------------------------------------------
9
I. ACCRUED EXPENSES
As of December 31, 2002, a balance of $212,000 remained accrued for
restructuring charges under a severance plan approved by our Board of Directors.
Payments totaling $119,000 were made to 12 individuals during the three months
ended March 31, 2003. The remainder of the balance will be paid through October
2003.
J. 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 differed
from a second lease modification agreement signed by the same parties also in
1992, raising questions as to which set of terms properly applied to the lease.
In May 2003, the landlord provided a written acknowledgement that the version of
the lease which had been relied upon by the Company since 1992 was the correct
version, thereby resolving this contingency in favor of the Company's position.
No adjustments to recorded amounts in the financial statements resulted from the
resolution of this matter.
K. SUBSEQUENT EVENT
On April 1, 2003, the Company purchased all of the issued and outstanding stock
of 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, 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-
10
kind" dividends at a rate of 8.0% annually, and the future redemption price is
subject to adjustment for anti-dilution. The warrants are immediately
exercisable, 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. 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 its Term Note and Line
of Credit with JP Morgan Chase Bank. See Note D.
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three months ended March 31, 2003 compared to three months ended March 31, 2002.
GENERAL
FIND/SVP, Inc. and its wholly owned subsidiaries provide a broad consulting,
advisory and business intelligence service to executives and other
decision-making employees of client companies, primarily in the United States.
The Company manages its consulting and business advisory services in two
business segments: Quick Consulting ("QCS"), which provides retainer clients
with access to the expertise of the Company's staff and information resources;
and Strategic Consulting ("SCRG"), which provides more extensive, in-depth
custom market research and competitive intelligence information, as well as
customer satisfaction and loyalty programs. References to "Corporate" and
"Other" in our financial statements refer to the portion of assets and
activities that are not allocated to a segment.
On April 1, 2003, the Company acquired Guideline Research Corp. ("Guideline")
and its wholly owned subsidiaries (see the heading SUBSEQUENT EVENT in this Item
below). The Company believes that Guideline will immediately contribute to
earnings.
RESULTS OF OPERATIONS
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002
REVENUES
Revenues for the three-month period ended March 31, 2003 were $5,102,000 and
revenues for the three-month period ended March 31, 2002 were $5,044,000.
QCS
QCS revenues, which result from annual retainer contracts paid by clients on a
monthly, quarterly, semi-annual or annual basis, increased by $158,000, or 3.6%,
from $4,358,000 for the three months ended March 31, 2002 to $4,516,000 for the
three months ended March 31, 2003. The increase was the result of the
implementation of a pricing program whereby the Company is reimbursed for
certain operating expenses necessary to provide retainer services.
SCRG
SCRG revenues, which result from consulting engagements addressing clients'
business issues, decreased by $100,000, or 14.6%, from $686,000 for the three
months ended March 31, 2002 to $586,000 for the three months ended March 31,
2003. The decrease was due to the continued decline in new projects booked.
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 $271,000, or 10.3%, from $2,638,000 for
the three months ended March 31, 2002 to $2,367,000 for the three months ended
March 31, 2003. Direct costs represented 46.4% and 52.3% of revenues,
respectively, for the three-
12
month periods ended March 31, 2003 and 2002. The decrease in total direct costs
was due primarily to a decrease in expenses incurred on behalf of clients,
specifically a reduction in the use of subcontracted services to fulfill various
projects, in addition to a reduction in direct labor costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $350,000, or 11.4%,
from $3,080,000, or 61.1% of revenue, for the three months ended March 31, 2002
to $2,730,000, or 53.5% of revenue, for the three months ended March 31, 2003.
The decrease in selling, general and administrative was due primarily to a
restructuring charge of $209,000, which was recorded during the quarter ended
March 31, 2002. In addition, cost containment measures continually have been in
place during the quarter ended March 31, 2003. Primarily, the Company
experienced decreases in bad debt expense, as the level of uncollectible
accounts decreased; travel and entertainment decreased as a result of reduced
staff levels and the use of video and teleconferencing. Telecommunications
expense decreased as a result of more favorable rates with carriers. We
experienced a decrease in public relations expense as we brought this function
in-house during the quarter ended March 31, 2003.
OPERATING INCOME (LOSS)
The Company's operating income was $5,000 for the three months ended March 31,
2003, compared to an operating loss of $674,000 for the three months ended March
31, 2002, an improvement of $679,000. This is primarily the result of increased
revenues, offset by decreases in direct costs and selling, general and
administrative expenses.
OTHER INCOME
The Company has a 9.1% interest in a limited partnership, and in March 2003,
received an $87,000 distribution. This is the first distribution that the
Company has received from this partnership interest, and the distribution was
recognized as other income during the quarter ended March 31, 2003.
In January 2002, the Company received shares of common stock of a mutual company
that had converted to a stock company. As a result, the Company recognized
$33,000 as other revenue.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2003 was $27,000, which
was a decrease from $34,000 for the three months ended March 31, 2002. The
decrease was a result of lower outstanding balances on existing debt during 2003
as compared with 2002.
INCOME TAXES
The $20,000 income tax provision for the three months ended March 31, 2003 and
the $201,000 income tax benefit for the three months ended March 31, 2002,
represents 30% of the income/loss before provision/ benefit for income taxes.
The difference between these rates and the statutory rate primarily relates to
expenses that are not deductible for income tax purposes.
OTHER ITEMS
Stock options were granted in November 2001 for future services to be rendered
to the Company by the Chief Executive Officer, the Chairman and a consultant.
Compensation expense related to such grants is amortized over the vesting period
of the options and was $28,000 and $55,000 for the three-
13
month periods ended March 31, 2003 and 2002, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. 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, deferred tax asset
valuation allowances, valuation of non-marketable equity securities 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.
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 $1,294,000 and $968,000 at March 31,
2003 and December 31, 2002, respectively. The Company's working capital position
(current assets, less current liabilities) at March 31, 2003 was $2,492,000 as
compared to $1,433,000 at December 31, 2002.
14
Cash of $544,000 was provided by and $125,000 was used in operating activities
in the quarters ended March 31, 2003 and 2002, respectively.
Cash used in investing activities was $90,000 and $99,000 in the quarters ended
March 31, 2003 and 2002, respectively. Capital expenditures were mainly for
computer hardware upgrades and leasehold improvements. 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 of $128,000 was used in and $279,000 was provided by financing activities
in the quarters ended March 31, 2003 and 2002, respectively. In 2003, the most
significant item was the repayment of $130,000 of outstanding debt. In 2002, the
most significant item was the net proceeds obtained from the borrowings under
notes payable.
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 with interest at prime plus 1.25% (5.5% at March 31, 2003).
As of March 31, 2003, there was $1,500,000 outstanding on this Term Note, of
which $400,000 is classified as current. Interest expense related to this Term
Note amounted to $21,000 and $10,000 for the quarters ended March 31, 2003 and
2002, respectively. 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 (4.75%
at March 31, 2003). The Line of Credit is renewable annually. As of March 31,
2003, $176,000 is 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 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
15
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.
In connection with the above, on April 1, 2003, the Company and JPMorgan Chase
Bank entered into amendment no. 1 to their existing security agreement (the
"Security Agreement Amendment"). Also on April 1, 2003, Guideline together with
its subsidiaries executed and delivered in favor JPMorgan Chase Bank: (i) a
security agreement (the "Subsidiary Security Agreement"), granting a first lien
and security interest on substantially all of their assets; and (ii) a guaranty
agreement (the "Guaranty Agreement"), guaranteeing the Company's payment and
performance obligations under the Term Note and the Line of Credit.
The Company believes it was in compliance with all of its loan agreements with
JP Morgan Chase as of March 31, 2003.
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.
MARKET FOR COMPANY'S COMMON EQUITY
Trading of our shares of common stock is conducted on the Over-The-Counter
Bulletin Board.
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.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY 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 risks and uncertainties 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 risks
and uncertainties set forth in the section headed "Factors That May Affect Our
Future Results" of Part 7 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 and those risks and uncertainties described in this
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
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 differed
from a second lease modification agreement signed by the same parties also in
1992, raising questions as to which set of terms properly applied to the lease.
In May 2003, the landlord provided a written acknowledgement that the version of
the lease which had been relied upon by the Company since 1992 was the correct
version, thereby resolving this contingency in favor of the Company's position.
No adjustments to recorded amounts in the financial statements resulted from the
resolution of this matter.
16
SUBSEQUENT EVENT
On April 1, 2003, the Company purchased all of the issued and outstanding stock
of 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, 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
immediately exercisable, 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. 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 its Term Note and Line
of Credit with JP Morgan Chase Bank. See the heading "Liquidity and Capital
Resources" in this Item above.
17
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to our exposure to market risk since December
31, 2002.
ITEM 4.
DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the Chief Executive Officer and Chief Financial Officer, concluded that the
Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.
18
PART II.
OTHER INFORMATION
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS
At March 31, 2003, options to purchase 218,500 shares of common stock were
granted under the Company's Stock Option Plan, at a price of $1.25, to various
employees and non-employee directors. 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.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Description
- ------- -----------
3.1 Certificate of Amendment to Certificate of Incorporation of
Find/SVP, Inc. (incorporated by reference from the Company's Form
8-K filed on April 16, 2003).
10.1 Stock Purchase Agreement, dated as of April 1, 2003, by and among
Jay L. Friedland, Robert La Terra, Guideline Research Corp. and
Find/SVP, Inc. (incorporated by reference from the Company's Form
8-K filed on April 16, 2003).
10.2 Escrow Agreement, dated as of April 1, 2003, by and among Jay L.
Friedland, Robert La Terra, Morris Whitcup, Find/SVP, Inc. and Kane
Kessler, P.C. (incorporated by reference from the Company's Form 8-K
filed on April 16, 2003).
10.3 Employment Agreement, dated as of April 1, 2003, by and between Jay
L. Friedland and Guideline Research Corp. (incorporated by reference
from the Company's Form 8-K filed on April 16, 2003).
10.4 Employment Agreement, dated as of April 1, 2003, by and between
Robert La Terra and Guideline Research Corp. (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
10.5 Stock Option Agreement, dated April 1, 2003, by and between
Find/SVP, Inc. and Robert La Terra (incorporated by reference from
the Company's Form 8-K filed on April 16, 2003).
10.6 Promissory Note, dated as of April 1, 2003, made by Find/SVP, Inc.
in favor of Petra Mezzanine Fund, L.P. (incorporated by reference
from the Company's Form 8-K filed on April 16, 2003).
10.7 Loan Agreement, dated as of April 1, 2003, by and between Petra
Mezzanine Fund, L.P. and Find/SVP, Inc. (incorporated by reference
from the Company's Form 8-K filed on April 16, 2003).
10.8 Security Agreement, dated as of April 1, 2003, made by Find/SVP,
Inc. in favor of Petra Mezzanine Fund, L.P. (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
10.9 Trademark and Patent Security Agreement, dated as of April 1, 2003,
made by Find/SVP, Inc. in favor of Petra Mezzanine Fund, L.P.
(incorporated by reference from the Company's Form 8-K filed on
April 16, 2003).
10.10 Security Agreement, dated as of April 1, 2003, made by Guideline
Research Corp., Tabline Data Services, Inc., Guideline/Chicago,
Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in
favor of Petra Mezzanine Fund, L.P. (incorporated by reference from
the Company's Form 8-K filed on April 16, 2003).
10.11 Guaranty Agreement, dated as of April 1, 2003, made by Guideline
Research Corp., Tabline Data Services, Inc., Guideline/Chicago,
Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in
favor of Petra Mezzanine Fund, L.P. (incorporated by reference from
the Company's Form 8-K filed on April 16, 2003).
10.12 Series A Preferred Stock Purchase Agreement, dated as of April 1,
2003, by and between Petra Mezzanine Fund, L.P. and Find/SVP, Inc.
(incorporated by reference from the Company's Form 8-K filed on
April 16, 2003).
10.13 Stock Purchase Warrant issued as of April 1, 2003, by Find/SVP, Inc.
to Petra Mezzanine Fund, L.P. (incorporated by reference from the
Company's Form 8-K filed on April 16, 2003).
10.14 Investor Rights Agreement, dated as of April 1, 2003, by and among
Find/SVP, Inc., Petra Mezzanine Fund, L.P., Martin E. Franklin and
David Walke (incorporated by reference from the Company's Form 8-K
filed on April 16, 2003).
10.15 Amended and Restated Term Promissory Note, dated as of April 1,
2003, made by Find/SVP, Inc. in favor of JPMorgan Chase Bank
(incorporated by reference from the Company's Form 8-K filed on
April 16, 2003).
10.16 Amended and Restated Senior Grid Promissory Note, dated as of April
1, 2003, made by Find/SVP, Inc. in favor of JPMorgan Chase Bank
(incorporated by reference from the Company's Form 8-K filed on
April 16, 2003).
10.17 Amendment No. 1 to Security Agreement, dated as of April 1, 2003,
made by Find/SVP, Inc. and JPMorgan Chase Bank (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
10.18 Subordination Agreement, dated as of April 1, 2003, Petra Mezzanine
Fund, L.P., Find/SVP, Inc., Guideline Research Corp., Tabline Data
Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc.,
Guideline Consulting Corp., and JPMorgan Chase Bank (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
10.19 Subsidiary Security Agreement, dated as of April 1, 2003, made by
Guideline Research Corp., Tabline Data Services, Inc.,
Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline
Consulting Corp. in favor of JPMorgan Chase Bank (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
10.20 Subsidiary Guaranty Agreement , dated as of April 1, 2003, made by
Guideline Research Corp., Tabline Data Services, Inc.,
Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline
Consulting Corp. in favor of JPMorgan Chase Bank (incorporated by
reference from the Company's Form 8-K filed on April 16, 2003).
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIND/SVP, Inc.
-------------
(REGISTRANT)
Date: May 15, 2003 /S/ DAVID WALKE
- ------------------- ------------------------------------
David Walke
Chief Executive Officer
Date: May 15, 2003
- ------------------- /S/ PETER M. STONE
------------------------------------
Peter M. Stone
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
20
CERTIFICATIONS
I, David Walke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/S/ DAVID WALKE
------------------------
David Walke
Chief Executive Officer
21
CERTIFICATIONS (CONTINUED)
I, Peter Stone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/S/ PETER M. STONE
-----------------------
Peter M. Stone
Chief Financial Officer
22
EXHIBIT INDEX
Number Exhibit
- ------ -------
99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
23