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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ______________________ TO _____________________
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Commission file no.0-15152
FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2670985
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 Avenue of the Americas, New York, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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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 August 6, 2003: 13,124,248
FIND/SVP, INC. AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
June 30, 2003 (unaudited) and December 31, 2002 (as revised)
Condensed Consolidated Statements of Operations (unaudited) 4
Six Months Ended June 30, 2003 and 2002
Condensed Consolidated Statements of Operations (unaudited) 5
Three Months Ended June 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows (unaudited) 6
Six Months Ended June 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements (unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 24
ITEM 4. Disclosure Controls and Procedures 24
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 25
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 5. Other Matters 26
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
INDEX TO EXHIBITS 28
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)
June 30, December 31,
2003 2002
----------- ------------
(unaudited) (as revised)
ASSETS
Current assets:
Cash and cash equivalents $ 485 $ 968
Accounts receivable, net 3,910 1,953
Deferred tax assets 312 272
Prepaid expenses and other current assets 989 948
-------- --------
Total current assets 5,696 4,141
Equipment and leasehold improvements, at cost, less accumulated
depreciation and amortization of $9,007 in 2003 and
$8,626 in 2002 2,181 2,334
Other assets:
Goodwill, net 5,074 75
Deferred tax assets 1,362 1,324
Rental asset 455 575
Cash surrender value of life insurance 237 418
Non-marketable equity securities 185 185
Other assets 851 486
-------- --------
$ 16,041 $ 9,538
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 577 $ 606
Trade accounts payable 1,280 353
Accrued expenses and other 2,351 1,749
Unearned retainer income 2,524 1,476
-------- --------
Total current liabilities 6,732 4,184
-------- --------
Notes payable 2,919 1,200
Deferred compensation 469 441
Commitments and contingencies
Redeemable, convertible, Preferred stock, $.0001 par value
Authorized 2,000,000 shares; issued and outstanding 333,333
at June 30, 2003 and zero at December 31, 2002 500 --
Redeemable common stock, $.0001 par value, issued and
outstanding 571,237 at June 30, 2003 and zero at December 31, 2002 874 --
Shareholders' equity:
Common stock, $.0001 par value. Authorized 100,000,000 shares;
issued and outstanding 10,792,864 at June 30, 2003 and
10,214,102 at December 31, 2002 1 1
Capital in excess of par value 8,225 7,332
Accumulated deficit (3,679) (3,620)
-------- --------
Total shareholders' equity 4,547 3,713
-------- --------
$ 16,041 $ 9,538
======== ========
See accompanying notes to condensed consolidated financial statements
3
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Six months ended June 30
(in thousands, except share and per share data)
2003 2002
------------ ------------
Revenues $ 12,165 $ 10,270
------------ ------------
Operating expenses:
Direct costs 6,281 5,207
Selling, general and administrative expenses 5,844 5,976
------------ ------------
Operating income (loss) 40 (913)
Other income 92 48
Interest expense (217) (76)
------------ ------------
Loss before benefit for income taxes (85) (941)
Benefit for income taxes 26 282
------------ ------------
Net loss (59) (659)
Less! Accretion on redeemable
common shares (147) --
------------ ------------
Net loss attributable to common
shareholders $ (206) $ (659)
============ ============
Loss per common share:
Basic $ (0.02) $ (0.07)
============ ============
Diluted $ (0.02) $ (0.07)
============ ============
Weighted average number of common shares:
Basic 10,505,680 10,098,193
============ ============
Diluted 10,505,680 10,098,193
============ ============
See accompanying notes to condensed consolidated financial statements.
4
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended June 30
(in thousands, except share and per share data)
2003 2002
------------ ------------
Revenues $ 7,063 $ 5,226
------------ ------------
Operating expenses:
Direct costs 3,914 2,569
Selling, general and administrative expenses 3,114 2,896
------------ ------------
Operating income (loss) 35 (239)
Other income 4 8
Interest expense (189) (36)
------------ ------------
Loss before benefit for income taxes (150) (267)
Benefit for income taxes 46 81
------------ ------------
Net loss (104) (186)
Less! Accretion on redeemable
common shares (147) --
------------ ------------
Net loss attributable to common
shareholders $ (251) $ (186)
============ ============
Loss per common share:
Basic $ (0.02) $ (0.02)
============ ============
Diluted $ (0.02) $ (0.02)
============ ============
Weighted average number of common shares:
Basic 10,792,443 10,134,611
============ ============
Diluted 10,792,443 10,134,611
============ ============
See accompanying notes to condensed consolidated financial statements.
5
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30
(in thousands)
2003 2002
------- -------
Cash flows from operating activities:
Net loss $ (59) $ (659)
Adjustments to reconcile loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 511 529
Allowance for doubtful accounts 60 80
Unearned retainer income 1,048 428
Deferred income taxes (78) (283)
Compensation from option grants 69 132
Increase in marketable securities -- (39)
Deferred compensation 28 8
Non-cash interest expense 51 --
Changes in assets and liabilities:
Increase in accounts receivable (2,017) (749)
Increase in prepaid expenses and other current assets (41) (133)
Decrease (increase) in rental asset 120 (93)
Decrease in cash surrender value of life insurance 181 74
Increase in other assets (404) (183)
Increase (decrease) in accounts payable and accrued expenses 942 (153)
------- -------
Net cash provided by (used in) operating activities 411 (1,041)
------- -------
Cash flows from investing activities:
Purchase of Guideline Research Corp., including transaction costs,
and net of cash acquired (3,842) --
Capital expenditures (222) (184)
------- -------
Net cash used in investing activities (4,064) (184)
------- -------
Cash flows from financing activities:
Principal borrowings under notes payable, net of closing costs 1,966 2,030
Principal payments under notes payable (230) (1,875)
Issuance of preferred stock 693 --
Issuance of warrant 742 --
Proceeds from exercise of stock options 4 78
Payment on capital lease payable (5) --
------- -------
Net cash provided by financing activities 3,170 233
------- -------
Net decrease in cash and cash equivalents (483) (992)
Cash and cash equivalents at beginning of period 968 1,951
------- -------
Cash and cash equivalents at end of period $ 485 $ 959
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 113 $ 143
======= =======
Taxes paid $ -- $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
6
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to present fairly the financial
position at June 30, 2003, the results of operations for the six and three month
periods ended June 30, 2003 and 2002, and cash flows for the six months ended
June 30, 2003 and 2002. All such adjustments are of a normal and recurring
nature. Operating results for the six and three month periods ended June 30,
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 (also see Note
M). 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 and diluted earnings per share for the six-month periods
ended June 30, 2003 and 2002, the Company used a weighted average number of
common shares of 10,505,680, and 10,098,193, respectively. In computing basic
and diluted earnings per share for the three-month periods ended June 30, 2003
and 2002, the Company used a weighted average number of common shares of
10,792,443 and 10,134,611, respectively.
For the computation of diluted earnings per share, 333,333 and zero shares of
convertible preferred stock, and options and warrants to purchase 3,105,697 and
3,538,122 common shares were excluded from the computation during the six and
three months ended June 30, 2003 and 2002, respectively, 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 six months ended June 30, 2003.
D. DEBT
7
As of June 30, 2003, there was $1,400,000 outstanding on a term note with JP
Morgan Chase Bank (the "Term Note"), of which $400,000 is classified as current.
Interest expense related to the Term Note amounted to $43,000 for the six months
ended June 30, 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, current ratio, 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 June 30, 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 lien and
security interest on substantially all of the Company's 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.
On August 18, 2003, the Company received the confirmation of JPMorgan Chase Bank
that an amendment was approved to the definition of consolidated current
liabilities for purposes of calculating the ratio of current assets to current
liabilities under the Term Note, to exclude unearned retainer income from the
calculation.
The Company believes it was in compliance with all of its loan agreements, as
amended, with JP Morgan Chase as of June 30, 2003.
On April 1, 2003, the Company issued a Promissory Note (the "Note") with a face
value of $3,000,000 and a stated interest rate of 13.5%, as a part of the
financing for the acquisition of Guideline. Quarterly principal payments of
$250,000 are due beginning March 31, 2006. The Note was recorded at its initial
relative fair value of $1,868,000. The difference between the initial relative
fair value and the stated value will be accreted as additional interest expense
over the maturities of the Note, and the resulting effective interest rate is
approximately 30%. Related interest expense was $151,000 for the six and three
months ended June 30, 2003, of which $51,000 related to the non-cash accretion
of the carrying value of the Note. The Company has the right to prepay the Note
at any time without premium or penalty. The Note is secured by a security
interest in substantially all assets of the Company, and is subject to covenants
relating to the conduct of the Company's business including financial covenants
related to a defined fixed charge coverage and a defined funded indebtedness to
EBITDA ratio. The Company believes it was in compliance with this loan agreement
with as of June 30, 2003.
8
E. INCOME TAXES
The $26,000 and $282,000 income tax benefit for the six months ended June 30,
2003 and 2002, respectively, and the $46,000 and $81,000 income tax benefit for
the three months ended June 30, 2003 and 2002, respectively, represents 30% of
the loss before benefit for income taxes. The difference between this rate and
the statutory rate primarily relates to expenses that are not deductible for
income tax purposes.
Of the net deferred tax asset, $312,000 and $272,000 are classified as current
as of June 30, 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 loss would have
been increased to the pro forma amounts indicated below:
9
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Net loss attributable to common shareholders,
as reported $(206,000) $(659,000) $(251,000) $(186,000)
Add: Stock based employee compensation expense
included in reported net loss, net of
tax related effects 48,000 92,000 29,000 54,000
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (193,000) (145,000) (101,000) (72,000)
--------- --------- --------- ---------
Pro forma net loss attributable to
common shareholders $(351,000) $(712,000) $(323,000) $(204,000)
========= ========= ========= =========
Earnings (loss) per share:
Basic and Diluted
As reported $ (0.02) $ (0.07) $ (0.02) $ (0.02)
========= ========= ========= =========
Pro forma $ (0.03) $ (0.07) $ (0.03) $ (0.02)
========= ========= ========= =========
- --------------------------------------------------------------------------------
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 3.24%, volatility of 109% 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.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity.
This Statement will become effective for financial instruments entered into or
modified after May 31, 2003, and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003. For financial
instruments created before the issuance date of this Statement and still
existing at the beginning of the interim period of adoption, transition shall be
achieved by reporting the cumulative effect of a change in an accounting
principle by initially measuring the financial instruments at fair value or
other measurement attribute required by this Statement. The adoption of this
Statement is not expected to have a material impact on the Company's
consolidated results of operations or financial position.
G. STOCK OPTIONS
During the six month period ended June 30, 2003, options to purchase 543,500
shares of common stock were granted under the Company's Stock Option Plan, at
prices ranging from $1.15 to $1.25, a
10
substantial portion of which were one-time issuances to Guideline employees in
connection with the Company's acquisition of Guideline.
During the six month period ended June 30, 2002, options to purchase 256,750
shares of common stock were granted under the Company's Stock Option Plan, at
prices ranging from $0.83 to $1.50.
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 $69,000 and $132,000 and $42,000 and $77,000 for the six
and three month periods ended June 30, 2003 and 2002, respectively.
H. SEGMENT REPORTING
The Company manages its consulting and business advisory services in the
following three business segments: Quick Consulting ("QCS"), Strategic
Consulting ("SCRG") and Guideline Research ("GR"). The Company operates
primarily in the United States. Guideline Research was added as a segment as a
result of its acquisition by the Company on April 1, 2003. See footnote K
"Acquisition" for a more detailed description of this acquisition. 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) SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------ --------------------------
2003 2002 2003 2002
-------- -------- -------- --------
REVENUES
- --------
QCS $ 8,984 $ 8,784 $ 4,468 $ 4,608
SCRG 1,077 1,486 491 618
GR 2,104 -- 2,104 --
-------- -------- -------- --------
Revenues $ 12,165 $ 10,270 $ 7,063 $ 5,226
======== ======== ======== ========
INCOME (LOSS) BEFORE INCOME TAXES
- ---------------------------------
QCS $ 1,242 $ 1,902 $ 426 $ 940
SCRG (385) (172) (228) (15)
GR (59) -- (59) --
-------- -------- -------- --------
Total segment income before income taxes 798 1,730 139 925
Corporate & other (1) (883) (2,671) (289) (1,192)
-------- -------- -------- --------
Income (Loss) before benefit for income
taxes $ (85) $ (941) $ (150) $ (267)
======== ======== ======== ========
(1) Includes certain direct costs and selling, general, and administrative
expenses not attributable to a single segment
- --------------------------------------------------------------------------------
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 $198,000 were made to 12 individuals during the six months
ended June 30, 2003. The remainder of the balance will be paid through October
2003.
11
J. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the recording of the Guideline acquisition, the Company
issued 571,237 unregistered shares of the Company's common stock that were fair
valued at $760,000 (See footnote K "Acquisition").
K. ACQUISITION
On April 1, 2003, the Company purchased all of the issued and outstanding stock
of Guideline. Guideline is a provider of custom market research.
The consideration for this acquisition consisted of the following:
o Approximately $4,058,000 to be paid in cash, less cash acquired
(includes $595,000 of paid and accrued transaction costs as of June
30, 2003).
o 571,237 common shares. 295,043 of the common shares were placed in
escrow to secure the indemnification obligations of the sellers.
o Within thirty days from the first anniversary date of the acquisition,
a potential deferred consideration amount (the "One Year Deferred
Consideration") of $1 million contingent upon Guideline achieving
adjusted EBITDA (as defined in the Purchase Agreement) for the
twelve-month period following the acquisition ("One Year Adjusted
EBITDA") of at least $1.2 million. If One Year Adjusted EBITDA is less
than $1.2 million, but greater than $841,000, the One Year Deferred
Consideration shall be between $0 and $1.0 million based on a specific
formula set forth in the Purchase Agreement. Each of the Sellers may
separately elect to have up to fifty percent (50%) of the amount of
any One Year Deferred Consideration payable to such Seller in an
amount of duly authorized and non-assessable unregistered shares of
Company common stock.
o Within thirty days from the second anniversary date of the
acquisition, a potential deferred consideration amount (the "Two Year
Deferred Consideration") of $1.845 million contingent upon Guideline
achieving adjusted EBITDA (as defined in the Purchase Agreement) for
the 24-month period following the acquisition ("Two Year Adjusted
EBITDA") of $2.65 million plus 25% of the amount by which Two Year
Adjusted EBITDA exceeds $2.65 million. If Two Year Adjusted EBITDA is
less than $2.65 million, but greater than $2.2 million, the Two Year
Deferred Consideration shall be between $0 and $1.845 million based on
a specific formula set forth in the Purchase Agreement.
The 571,237 shares issued to the former owners of Guideline may be put back to
the Company during a 120-day period beginning April 5, 2005. Such shares are
classified in the balance sheet as redeemable common stock. If the shares are
put back to the Company, the cash to be paid by the Company will be the greater
of (i) $727,000, which was the defined initial redemption value of the shares at
the acquisition date of Guideline, or (ii) a defined average trading price of
the Company's common shares immediately prior to the exercise of the put.
However, in the latter case, the cash to be paid by the Company upon exercise of
the put is limited to 150% of the initial redemption value of the shares, or
$1,090,000. The redeemable common shares were recorded at their fair value of
$760,000 when issued. If the fair value of the shares at a balance sheet date is
in the range between the initial redemption value of the shares and 150% of the
original amount, the redemption value of such shares is accreted or decreted as
a charge or credit, respectively, to "Capital in excess of par value" using the
defined redemption value of the shares at each balance sheet date.
12
Simultaneously with the acquisition, Guideline entered into new employment
agreements with each of the sellers, as well as three other senior executives of
Guideline.
This acquisition was financed at closing with the combination of the Company's
cash resources, the assumption of certain liabilities of Guideline and by the
receipt of cash of $3,303,000 (net of financing costs, of which, $98,000 is
outstanding as of June 30, 2003), consisting of (a) a promissory note with a
$3,000,000 face value; (b) the issuance of 333,333 shares of convertible,
redeemable, Series A preferred stock ("Preferred Stock"); and (c) the issuance
of a Warrant.
The 333,333 shares of Preferred Stock were issued pursuant to a Series A
Preferred Stock Purchase Agreement (the "Preferred Stock Purchase Agreement")
dated April 1, 2003. These shares have been recorded at their initial estimated
relative fair value of $693,000. The Preferred Stock is convertible into shares
of the Company's common stock one-for-one, subject to adjustment for certain
dilutive issuances, splits and combinations. The Preferred Stock is also
redeemable at the option of the holders of the Preferred Stock beginning April
1, 2009, at a redemption price of $1.50 per share, or $500,000 in the aggregate,
plus all accrued but unpaid dividends. The holders of the Preferred Stock shall
be entitled to receive cumulative dividends, prior and in preference to any
declaration or payment of any dividend on the common stock of the Company, at
the rate of 8% on the $500,000 redemption value, per annum, payable in cash or
through the issuance of additional shares of Preferred Stock at the Company's
discretion. The holders of shares of Preferred Stock shall have the right to one
vote for each share of common stock into which shares of the Preferred Stock
could be converted into, and with respect to such vote, each holder of shares of
Preferred Stock shall have full voting rights and powers equal to the voting
rights and powers of the holders of the Company's common stock.
In connection with the Loan Agreement and the Preferred Stock Purchase
Agreement, the Company issued to Petra, a Warrant to purchase 675,000 shares of
the Company's common stock, at an exercise price of $.01 per share, subject to
adjustment for reorganization or distribution of common stock, or the issuance
of convertible or option securities. This Warrant was recorded at its initial
estimated relative fair value of $742,000. The Warrant is immediately
exercisable, and, for a four-year period commencing in 2009, Petra shall have
the right to cause the Company to use commercially reasonable efforts to
complete a private placement to sell the 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 that it is exercising its put right.
The Company also entered into an investor rights agreement (the "Investor Rights
Agreement") dated April 1, 2003 among Petra, David Walke, the Company's CEO, and
Martin Franklin, Chairman of the Board of the Company, pursuant to which, among
other things, Petra was granted certain rights with respect to common stock
issuable upon conversion of the Preferred Stock and Warrant. The Investor Rights
Agreement also provides Petra with certain registration, demand, piggyback and
co-sale rights.
On April 1, 2003, the Company also amended and restated its banking arrangements
with JPMorgan Chase (see footnote D. "Debt").
13
The Company is in the process of finalizing its valuation of the assets and
liabilities it has acquired for its allocation of the purchase price of the
transaction. The Company expects to finalize its valuation no later than the
fourth quarter of 2003. The Company's preliminary allocation of the purchase
price is subject to refinement based on the final determination of fair values.
The following table sets forth the components of the purchase price:
Cash paid (including $379,000 of transaction costs) $ 3,842,000
Accrued transaction costs 216,000
Common stock issued to sellers 760,000
-----------
Total purchase price $ 4,818,000
===========
The following table provides the preliminary estimated fair value of the
acquired assets and assumed liabilities:
Current assets $ 1,686,000
Property and equipment 102,000
Other assets 267,000
Liabilities assumed, current (2,236,000)
-----------
Fair value of net liabilities assumed (181,000)
Preliminary goodwill 4,999,000
-----------
Total estimated fair value of net liabilities assumed and
recorded goodwill $ 4,818,000
===========
In accordance with the provisions of SFAS No. 142 "Goodwill and other Intangible
Assets", the Company will not amortize goodwill with indefinite lives recorded
in connection with the acquisition of Guideline. The Company will perform an
annual impairment test of goodwill and once finalized, but has not yet
determined what effect these tests will have on the results of operations or the
financial position of the Company in future periods.
The unaudited pro forma information below represents the consolidated results of
operations as if the acquisition of Guideline had occurred as of January 1, 2003
and 2002. The unaudited pro forma information has been included for comparative
purposes and is not indicative of the results of operations of the consolidated
Company had the acquisition occurred as of January 1, 2003 and 2002, nor is it
necessarily indicative of future results.
PRO FORMA RESULTS OF OPERATIONS
(in thousands, except share and per SIX MONTHS ENDED JUNE 30,
share data) 2003 2002
------------ ------------
Total pro forma revenue $ 14,120 $ 14,577
Pro forma net loss $ (181) $ (302)
Pro forma basic earnings per share $ (0.02) $ (0.04)
Pro forma weighted average number
of shares outstanding 10,884,400 10,669,430
L. SUBSEQUENT EVENT
As of July 1, 2003, TTech Acquisition Corp. ("TTech"), a newly-formed subsidiary
of the Company purchased from Sopheon Corporation ("Sopheon") assets and assumed
certain specified liabilities of Sopheon's Teltech business unit ("Teltech").
Teltech is a provider of custom research and information services, focusing on
Research and Development and Engineering Departments of larger corporations.
14
The consideration for this acquisition consisted of, among other things, the
following:
o Approximately $3,754,000 paid in cash (including transaction costs)
o 32,700 unregistered shares of the Company's common stock, which was
placed in escrow to secure the indemnification obligations of Sopheon.
o An amount of up to a maximum of $400,000 may become payable by TTech
to Sopheon if certain customer subscription renewal goals, as defined
in the Purchase Agreement, are attained.
The acquisition was funded at closing as follows:
o The Company's available cash resources
o A private placement whereby the Company raised $2,350,000 through the
issuance of 1,598,685 shares of its common stock and warrants to
purchase 799,293 shares of its common stock (the "Private Placement
Warrants"). The Private Placement Warrants are exercisable through
July 11, 2006, at an exercise price of $1.47 per share, subject to
adjustment for dilution and recapitalization.
o The receipt of $476,000 (net of financing costs) upon issuance of a
promissory note and a warrant to purchase 70,000 common shares.
The promissory note has a $500,000 face value, with stated interest at 13.5%,
and is due April 1, 2008. The note is secured by a lien and security interest in
substantially all of the Company's assets. The warrant to purchase 70,000 shares
of the Company's common stock has an exercise price of $.01 per share, and is
exercisable through April 1, 2013. Beginning April 1, 2009, and for a period of
four years thereafter, the holder of the warrant has the right to cause the
Company to use certain defined commercially reasonable efforts to complete a
private placement to sell its shares of the Company's common stock issuable upon
exercise of this warrant.
M. BALANCE SHEET RECLASSIFICATION
Prior to the issuance of its condensed consolidated financial statements for the
quarter ended June 30, 2003, the Company's management determined that unearned
retainer income should be reclassified on the balance sheet as a current
liability. As a result, the accompanying balance sheet as of December 31, 2002,
has been revised to reflect this reclassification. A Financial Covenant under
the Company's Term Note and Line of Credit with JPMorgan Chase Bank was also
amended as described in Note D. The effect on the December 31, 2002 balance
sheet was as follows:
DECEMBER 31, 2002
As previously
reported As revised
Unearned retainer income (current) $ -- $ 1,476,000
Current Liabilities $ 2,708,000 $ 4,184,000
Unearned retainer income (non-current)
$ 1,476,000 $ --
The Company will file a Form 10-K/A to revise its annual report for the year
ended December 31, 2002 in the near future.
15
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Six months ended June 30, 2003 compared to six months ended June 30, 2002. Three
months ended June 30, 2003 compared to three months ended June 30, 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 three
business segments: Quick Consulting ("QCS"), which provides retainer clients
with access to the expertise of the Company's staff and information resources;
Strategic Consulting ("SCRG"), which provides more extensive, in-depth custom
market research and competitive intelligence information, as well as customer
satisfaction and loyalty programs; and Guideline Research ("GR"), which also
provides custom market research. 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 Guideline's results of operations are included in the Company's results of
operations as of such date.
On July 1, 2003, the Company acquired from Sopheon Corporation (the "Seller"),
its business unit Teltech ("Teltech") (see the heading "SUBSEQUENT EVENT" later
in this Item below). The Company believes that Teltech will immediately
contribute to earnings.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
REVENUES
Revenues for the six-month period ended June 30, 2003 were $12,165,000 and
revenues for the six-month period ended June 30, 2002 were $10,270,000.
QCS
- ---
QCS revenues, which result from annual retainer contracts paid by clients on a
monthly, quarterly, semi-annual or annual basis, increased by $200,000, or 2.3%,
from $8,784,000 for the six months ended June 30, 2002 to $8,984,000 for the six
months ended June 30, 2003. The increase was the result 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 $409,000, or 27.5%, from $1,486,000 for the six
months ended June 30, 2002 to $1,077,000 for the six months ended June 30, 2003.
The decrease was due to the continued decline in new projects booked.
16
GR
- --
GR revenues, which result from custom market research consulting engagements,
such as conducting surveys and focus groups, was $2,104,000 for the six months
ended June 30, 2003. The Company acquired this line of business on April 1,
2003.
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) increased by $1,074,000, or 20.6%, from $5,207,000 for
the six months ended June 30, 2002 to $6,281,000 for the six months ended June
30, 2003. Direct costs represented 51.5% and 50.7% of revenues, respectively,
for the six-month periods ended June 30, 2003 and 2002. The increase in total
direct costs was primarily the result of the acquisition of Guideline during the
quarter ended June 30, 2003. Guideline's direct costs consist of direct labor
and direct costs, such as subcontractors who perform fieldwork for many of
Guideline's studies. Exclusive of Guideline, direct costs decreased as a result
of decreased use of sub-contractors in SCRG, and more favorable pricing from the
Company's use of outside electronic services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $132,000, or 2.2%,
from $5,976,000, or 58.2% of revenue, for the six months ended June 30, 2002 to
$5,844,000, or 48.0% of revenue, for the six months ended June 30, 2003. The
decrease in selling, general and administrative was due primarily to a
restructuring charge of $209,000 in the first half of 2002. In addition, various
cost containment measures have been implemented during the six months ended June
30, 2003. Primarily, the Company experienced decreases in bad debt expense, as
the level of uncollectible accounts decreased; travel and entertainment, 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 six months ended June 30, 2003.
OPERATING INCOME (LOSS)
The Company's operating income was $40,000 for the six months ended June 30,
2003, compared to an operating loss of $913,000 for the six months ended June
30, 2002, an improvement of $953,000. This is primarily the result of increased
revenues and a decrease in selling, general and administrative expenses, offset
by an increase in direct costs.
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 six months ended June 30, 2003.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 2003 was $217,000, which was
an increase from $76,000 for the six months ended June 30, 2002. The increase
was a result of additional borrowings, related to the acquisition of Guideline,
during the six months ended June 30, 2003, partially offset by repayments on
existing debt.
17
INCOME TAXES
The $26,000 income tax benefit for the six months ended June 30, 2003 and the
$282,000 income tax benefit for the six months ended June 30, 2002, represent
approximately 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.
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
REVENUES
Revenues for the three-month period ended June 30, 2003 were $7,063,000 and
revenues for the three-month period ended June 30, 2002 were $5,226,000.
QCS
- ---
QCS revenues, which result from annual retainer contracts paid by clients on a
monthly, quarterly, semi-annual or annual basis, decreased by $140,000, or 3.0%,
from $4,608,000 for the three months ended June 30, 2002 to $4,468,000 for the
three months ended June 30, 2003. The decrease was the result of client
cancellations in excess of new retainer accounts additions.
SCRG
- ----
SCRG revenues, which result from project-based consulting engagements addressing
general business issues, decreased by $127,000, or 20.6%, from $618,000 for the
three months ended June 30, 2002 to $491,000 for the three months ended June 30,
2003. The decrease was due to the continued decline in new projects booked.
GR
- --
GR revenues, which result from custom market research consulting engagements,
such as conducting surveys and focus groups, was $2,104,000 for the three months
ended June 30, 2003. The Company acquired this line of business on April 1,
2003.
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) increased by $1,345,000, or 52.4%, from $2,569,000 for
the three months ended June 30, 2002 to $3,914,000 for the three months ended
June 30, 2003. Direct costs represented 55.2% and 49.2% of revenues,
respectively, for the three-month periods ended June 30, 2003 and 2002. The
increase in total direct costs was primarily the result of the acquisition of
Guideline during the quarter ended June 30, 2003. Guideline's direct costs
consist of direct labor and direct costs, such as subcontractors who perform
fieldwork for many of Guideline's studies. Exclusive of Guideline, direct costs
decreased as a result of decreased use of sub-contractors in SCRG, and more
favorable pricing from the Company's use of outside electronic services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $218,000, or 7.5%,
from $2,896,000, or 55.4% of revenue, for the three months ended June 30, 2002
to $3,114,000, or 44.0% of revenue, for the three months ended June 30, 2003.
The increase in selling, general and administrative was primarily due to the
acquisition of Guideline, offset by decreases in other selling, general and
administrative expenses as a result of continued cost containment measures.
18
OPERATING INCOME (LOSS)
The Company's operating income was $35,000 for the three months ended June 30,
2003, compared to an operating loss of $239,000 for the three months ended June
30, 2002, an improvement of $274,000. This is primarily the result of increased
revenues, offset by increases in direct costs and selling, general and
administrative expenses.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 2003 was $189,000, which
was a increase from $36,000 for the three months ended June 30, 2002. The
increase was a result of additional borrowings related to the acquisition of
Guideline, during the six months ended June 30, 2003, partially offset by
repayments on existing debt.
INCOME TAXES
The $46,000 income tax benefit for the three months ended June 30, 2003 and the
$81,000 income tax benefit for the three months ended June 30, 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.
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 $69,000 and $132,000, and $42,000 and $77,000 for the six
and three month periods ended June 30, 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, 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
19
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 $485,000 and $968,000 at June 30,
2003 and December 31, 2002, respectively. The Company's working capital position
(current assets, less current liabilities) at June 30, 2003 was $(1,036,000) as
compared to $(43,000) at December 31, 2002. Working capital is reduced by
$2,524,000 and $1,476,000 of unearned retainer income as of June 30, 2003 and
December 31, 2002, respectively. Such amounts reflect amounts billed, but not
yet earned.
Prior to the issuance of its condensed consolidated financial statements for the
quarter ended June 30, 2003, the Company's management determined that unearned
retainer income should be reclassified on the balance sheet as a current
liability. As a result, the accompanying balance sheet as of December 31, 2002,
has been revised to reflect this reclassification. A Financial Covenant under
the Company's Term Note and Line of Credit with JPMorgan Chase Bank was also
amended as described in Note D. The effect on the December 31, 2002 balance
sheet was as follows:
DECEMBER 31, 2002
As previously
reported As revised
Unearned retainer income (current) $ -- $ 1,476,000
Current Liabilities $ 2,708,000 $ 4,184,000
Unearned retainer income (non-current)
$ 1,476,000 $ --
The Company will file a Form 10-K/A to revise its annual report for the year
ended December 31, 2002 in the near future.
Cash of $411,000 was provided by, and $1,041,000 was used in operating
activities in the six months ended June 30, 2003 and 2002, respectively.
Cash used in investing activities was $4,064,000 and $184,000 in the six months
ended June 30, 2003 and 2002, respectively. The primary use of cash was the
acquisition of Guideline during the quarter ended June 30, 2003 for $3,842,000.
Capital expenditures were made 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 $3,170,000 and $233,000 was provided by financing activities in the six
months ended June 30, 2003 and 2002, respectively. In 2003, the most significant
items were the net proceeds obtained from the borrowings under notes payable of
$1,966,000, related to the acquisition of Guideline, offset by repayments of
$230,000, the issuance of preferred stock for $693,000, and the issuance of a
warrant for $742,000.
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 June 30, 2003),
as amended on April 1, 2003. As of June 30, 2003, there was $1,400,000
outstanding on this Term Note, of which $400,000 is classified as current.
Interest expense related to this Term Note amounted to $43,000 and $44,000 for
the six months ended June 30, 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, current ratio 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
20
$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-quarter percent (4.5%
at June 30, 2003). The Line of Credit is renewable annually. As of June 30,
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 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 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 lien and
security interest on substantially all of the Company's 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.
21
On August 18, 2003, the Company received the confirmation of JPMorganChase Bank
that an amendment was approved to the definition of consolidated current
liabilities for purposes of calculating the ratio of current assets to current
liabilities under the Term Note, to exclude unearned retainer income from the
calculation.
The Company believes it was in compliance with all of its loan agreements, as
amended, with JP Morgan Chase as of June 30, 2003.
On April 1, 2003, the Company issued a Promissory Note (the "Note") with a face
value of $3,000,000 and a stated interest rate of 13.5%, as a part of the
financing for the acquisition of Guideline. Quarterly principal payments of
$250,000 are due beginning March 31, 2006. The Note was recorded at its initial
relative fair value of $1,868,000. The difference between the initial relative
fair value and the stated value will be accreted as additional interest expense
over the maturities of the Note, and the resulting effective interest rate is
approximately 30%. Related interest expense was $151,000 for the six and three
months ended June 30, 2003, of which $51,000 related to the non-cash accretion
of the carrying value of the Note. The Company has the right to prepay the Note
at any time without premium or penalty. The Note is secured by a security
interest in substantially all assets of the Company, and is subject to covenants
relating to the conduct of the Company's business including financial covenants
related to a defined fixed charge coverage and a defined funded indebtedness to
EBITDA ratio. The Company believes it was in compliance with this loan agreement
with as of June 30, 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
22
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 June 30, 2003.
SUBSEQUENT EVENT
As of July 1, 2003, TTech Acquisition Corp. ("TTech"), a newly-formed subsidiary
of the Company purchased from Sopheon Corporation ("Sopheon") assets and assumed
certain specified liabilities of Sopheon's Teltech business unit ("Teltech").
Teltech is a provider of custom research and information services, focusing on
Research and Development and Engineering Departments of larger corporations.
The consideration for this acquisition consisted of, among other things, the
following:
o Approximately $3,754,000 paid in cash (including transaction costs)
o 32,700 unregistered shares of the Company's common stock, which was
placed in escrow to secure the indemnification obligations of Sopheon.
o An amount of up to a maximum of $400,000 may become payable by TTech
to Sopheon if certain customer subscription renewal goals, as defined
in the Purchase Agreement, are attained.
The acquisition was funded at closing as follows:
o The Company's available cash resources
o A private placement whereby the Company raised $2,350,000 through the
issuance of 1,598,685 shares of its common stock and warrants to
purchase 799,293 shares of its common stock (the "Private Placement
Warrants"). The Private Placement Warrants are exercisable through
July 11, 2006, at an exercise price of $1.47 per share, subject to
dilution and recapitalization.
o The receipt of $476,000 (net of financing costs) upon issuance of a
promissory note and warrant to purchase 70,000 common shares.
The promissory note has a $500,000 face value, with stated interest at 13.5%,
and is due April 1, 2008. The note is secured by a lien and security interest in
substantially all of the Company's assets. The warrant to purchase 70,000 shares
of the Company's common stock has an exercise price of $.01 per share, and is
exercisable through April 1, 2013. Beginning April 1, 2009, and for a period of
four years thereafter, the holder of the warrant has the right to cause the
Company to use certain defined commercially reasonable efforts to complete a
private placement to sell its shares of the Company's common stock issuable upon
exercise of this warrant.
23
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
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 as of the end of the period covered
by this report. 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.
During the quarter ended June 30, 2003, the Company integrated the internal
controls of Guideline as a result of its acquisition by the Company on April 1,
2003. The Company's management, including the Chief Executive Officer and Chief
Financial Officer, also concluded that Guideline's controls and procedures were
effective.
Except as mentioned above, 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.
24
PART II.
OTHER INFORMATION
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS
At June 30, 2003, options to purchase 325,000 shares of common stock were
granted under the Company's Stock Option Plan, at a price range of $1.15 to
$1.16, to various employees and non-employee directors. Furthermore, 333,333
shares of convertible, redeemable preferred stock were issued at a price of
$1.50 per share, and a warrant to purchase 675,000 shares of common stock was
issued at a price of $.01 per share, in conjunction with the Company's
acquisition of Guideline. 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 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 12, 2003.
Shareholders voted on three proposals.
The following votes were cast on Proposal #1, for the nominees for election of
directors, and all such nominees were elected.
FOR AGAINST WITHHELD
Martin E. Franklin 8,608,389 0 15,681
David Walke 8,601,314 0 22,756
Andrew P. Garvin 8,602,664 0 21,406
Marc L. Reisch 8,608,639 0 15,431
Robert J. Sobel 8,609,139 0 14,931
Warren Struhl 8,608,639 0 15,431
Denise Shapiro 8,592,564 0 31,506
The following votes were cast on Proposal #2, on the ratification of the
FIND/SVP, Inc. 2003 Stock Incentive Plan.
6,153,298 votes for ratification and approval
67,091 votes against ratification and approval
6,805 votes abstained from voting
2,396,876 votes did not vote
The following votes were cast on Proposal #3, on the ratification of the
selection of Deloitte & Touche LLP as independent auditors for the Company for
the year ending December 31, 2003.
8,582,872 votes for the ratification and approval
15,089 votes against the ratification and approval
26,109 votes abstained from voting
25
ITEM 5.
Other Matters
The Company will file a Form 10-K/A to its annual report for the year ended
December 31, 2002 in the near future for the matters discussed in Note M. to the
accompanying condensed consolidated financial statements for the quarter ended
June 30, 2003.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Description
- ------- -----------
10.1 Letter dated August 18, 2003 from JPMorgan Chase Bank to the Company.*
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 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.
The Company filed a Form 8-K on April 9, 2003 with respect to the
Company's press release announcing its 2002 fourth quarter and year-end
results.
The Company filed a Form 8-K on April 16, 2003 with respect to the
acquisition of assets of Guideline Research Corp.
The Company filed a Form 8-K on May 20, 2003 with respect to the Company's
press release announcing its 2003 first quarter results.
The Company filed a Form 8-K/A on June 16, 2003 which amended the
Company's Form 8-K filed on April 16, 2003 with respect to the acquisition
of assets of Guideline Research Corp. Included as exhibits to this report
were: 99.1 "Guideline Research Corp. and Subsidiaries Consolidated
Financial Statements as of January 31, 2002 and 2001 and for the years
then ended", 99.2 "Guideline Research Corp. and Subsidiaries Condensed
Consolidated Financial Statements as of October 31, 2002 and for the nine
months ended October 31, 2002 and 2001", and 99.3 "FIND/SVP, Inc.'s
unaudited pro forma combined balance sheet as of December 31, 2002 and
unaudited pro forma combined statement of operations for the twelve months
ended December 31, 2002 giving effect to the acquisition of Guideline
Research Corp., and various other transactions related to financing, all
as part of the same agreement".
26
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: August 18, 2003 /s/ DAVID WALKE
- ---------------------- --------------------------------
David Walke
Chief Executive Officer
Date: August 18, 2003
- ---------------------- /s/ PETER M. STONE
--------------------------------
Peter M. Stone
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
27
EXHIBIT INDEX
Number Exhibit
- ------ -------
10.1 Letter dated August 18, 2003 from JPMorgan Chase Bank to the Company.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
28