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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD_____________ TO _____________
--------------------------------------
Commission file no.0-15152
FIND/SVP, INC.
------------------------------------------------------
(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
----------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------------ ----------------
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
------------------ ----------------
Number of shares of Common Stock, $.0001 par value per share outstanding at May
10, 2004: 19,325,704
FIND/SVP, INC. AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
March 31, 2004 (unaudited) and December 31, 2003
Condensed Consolidated Statements of Operations 4
Three Months Ended March 31, 2004 and 2003 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 2004 and 2003 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and 17
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 29
ITEM 4. Controls and Procedures 29
PART II. OTHER INFORMATION
ITEM 5. Other Information 31
ITEM 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
INDEX TO EXHIBITS 33
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,
ASSETS 2004 2003
(unaudited)
Current assets:
Cash and cash equivalents $ 541 $ 821
Accounts receivable, net 7,841 6,645
Deferred tax assets 505 505
Prepaid expenses and other current assets 1,081 920
-------- --------
Total current assets 9,968 8,891
Equipment, software development and leasehold
improvements, at cost, less accumulated
depreciation and amortization of $10,389
in 2004 and $10,125 in 2003 2,254 2,368
Goodwill, net 10,162 8,765
Intangibles, net 1,103 1,137
Deferred tax assets 1,117 1,090
Deferred rent 368 398
Cash surrender value of life insurance 127 214
Non-marketable equity securities 90 185
Other assets 583 554
-------- --------
$ 25,772 $ 23,602
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 1,276 $ 1,076
Trade accounts payable 2,181 2,609
Accrued expenses and other 3,649 3,205
Unearned retainer income 6,017 4,067
-------- --------
Total current liabilities 13,123 10,957
Notes payable 3,138 3,170
Deferred compensation and other liabilities 411 419
-------- --------
Total liabilities 16,672 14,546
-------- --------
Redeemable convertible preferred stock,
$.0001 par value. Authorized
2,000,000 shares; issued and outstanding
333,333 shares in 2004 and 2003,
and accrued dividends 540 530
-------- --------
Redeemable common stock, $.0001 par value.
Issued and outstanding 571,237 shares
in 2004 and 2003 1,090 977
-------- --------
Commitments and contingencies (Note I)
Shareholders' equity:
Common stock, $.0001 par value. Authorized
100,000,000 shares; issued and outstanding
12,737,068 shares in 2004 and 12,641,295
shares in 2003 1 1
Capital in excess of par value 10,910 10,983
Deferred stock-based compensation (15) (20)
Accumulated deficit (3,426) (3,415)
-------- --------
Total shareholders' equity 7,470 7,549
-------- --------
$ 25,772 $ 23,602
======== ========
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)
2004 2003
----------- -----------
Revenues $ 9,606 $ 5,102
----------- -----------
Operating expenses:
Direct costs 5,554 2,367
Selling, general and administrative expenses 3,746 2,730
----------- -----------
Total operating expenses 9,300 5,097
----------- -----------
Operating income 306 5
Other income -- 87
Impairment of investment (95) --
Interest expense (226) (27)
----------- -----------
(Loss) income before benefit (provision)
for income taxes (15) 65
Benefit (provision) for income taxes 4 (20)
----------- -----------
Net (loss) income (11) 45
Less: Preferred dividends (10) --
Less: Accretion on redeemable common shares (113) --
----------- -----------
Net (loss) income attributable to
common shareholders $ (134) $ 45
=========== ===========
(Loss) income per common share:
Basic and diluted $ (0.01) $ 0.00
=========== ===========
Weighted average number of common shares:
Basic 13,246,906 10,215,730
=========== ===========
Diluted 13,246,906 11,635,280
=========== ===========
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)
2004 2003
-------- --------
Cash flows from operating activities:
Net (loss) income $ (11) $ 45
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 314 248
Allowance for doubtful accounts 70 (9)
Unearned retainer income 1,950 1,022
Deferred income taxes (27) 20
Compensation from option grants 29 28
Deferred compensation (8) 14
Non-cash interest 84 --
Impairment of investment 95 --
Changes in assets and liabilities:
Increase in accounts receivable (1,266) (301)
Increase in prepaid expenses and
other current assets (161) (30)
Decrease in rental asset 30 60
Decrease (increase) in cash
surrender value of life insurance 87 (6)
Increase in other assets (57) (164)
Decrease in accounts payable
and accrued expenses (1,213) (383)
-------- --------
Net cash (used in) provided
by operating activities (84) 544
-------- --------
Cash flows from investing activities:
Capital expenditures (151) (90)
Purchase of Guideline (8) --
Purchase of Teltech (160) --
-------- --------
Net cash used in investing
activities (319) (90)
-------- --------
Cash flows from financing activities:
Principal borrowings under notes payable,
net of closing costs 200 --
Principal payments under notes payable (100) (130)
Proceeds from exercise of stock options
and warrants 25 2
Payments under capital lease (2) --
-------- --------
Net cash provided by (used in)
financing activities 123 (128)
-------- --------
Net (decrease) increase in
cash and cash equivalents (280) 326
Cash and cash equivalents at beginning of period 821 968
-------- --------
Cash and cash equivalents at end of period $ 541 $ 1,294
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 142 $ 24
======== ========
Taxes paid $ 22 $ --
======== ========
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, 2004, the results of operations for the three month
periods ended March 31, 2004 and 2003, and cash flows for the three months ended
March 31, 2004 and 2003. All such adjustments are of a normal and recurring
nature. Operating results for the three-month period ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
References in this report to "Company", "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, 2003 included in the Company's 2003 Annual Report on Form 10-K.
B. REVENUE RECOGNITION
The Company's subscription services are provided under two different types of
subscription contracts - retainer contracts and deposit contracts. Retainer
contracts, which are used primarily by QCS, charge customers fixed monthly
subscription fees to access QCS services, and revenues are recognized ratably
over the term of each subscription. Retainer fees are required to be paid in
advance by customers on either a monthly, quarterly or annual basis, and all
billed amounts relating to future periods are recorded as an unearned retainer
income liability on the Company's balance sheet. In the case of deposit
contracts, which are used primarily by Teltech, a customer pays a fixed annual
fee, which entitles it to access any of the Company's service offerings
throughout the contract period, up to the total amount of the annual deposit
fee. Since deposit account customers can "spend" their contract fee at any time
within the annual contract period, deposit account revenues are only recognized
within the contract period as services are actually provided to customers, with
any unused deposit amounts recognized as revenue in the final month of the
contract. As with retainer fees, deposit contract fees are required to be paid
in advance, primarily annually, and any billed amounts relating to future
periods are recorded as unearned retainer income, a current liability on the
Company's balance sheet.
With regard to the Company's non-subscription based services, including
quantitative market research, in-depth consulting and outsourced information
services, revenues are recognized primarily on a percentage-of-completion basis.
The Company typically enters into discrete contracts with customers for these
services on a project-by-project basis. Payment milestones differ from contract
to contract based on the client and the type of work performed. Generally, the
Company invoices a client for a portion of a project in advance of work
performed, with the balance invoiced throughout the fulfillment period and/or
after the work is completed. However, revenue and costs are only recognized to
the extent of each contract's percentage-of-completion. Any revenue earned in
excess of billings is recorded as a current asset on the Company's balance
sheet, while any billings in excess of revenue earned, which represent billed
amounts relating to future periods, are recorded as unearned revenue, a current
liability on the Company's balance sheet.
6
C. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing net income (loss)
attributable to common shareholders by the weighted average number of common
shares outstanding. Diluted earnings (loss) per common share is computed by
dividing net income (loss) attributable to common shareholders by a diluted
weighted average number of common shares outstanding. Diluted earnings (loss)
per common 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.
The table below sets forth the number of common shares used in computing basic
and diluted earnings (loss) per share:
- --------------------------------------------------------------------------------
Three months ended March 31,
2004 2003
----------------------------------
Basic number of common shares 13,246,906 10,215,730
==================================
Effect of dilutive securities:
Warrants -- 154,123
Convertible preferred stock -- --
Stock options -- 1,265,427
----------------------------------
Diluted number of common shares 13,246,906 11,635,280
==================================
- --------------------------------------------------------------------------------
Warrants to purchase 2,125,515 and 150,000 shares of common stock at prices
ranging from $0.01 to $3.6875 per share and at $2.25 per share, respectively,
were outstanding during the three months ended March 31, 2004 and 2003,
respectively, and options and redeemable convertible preferred shares, including
accrued preferred dividends, to purchase 2,863,775 and 239,500 shares of common
stock at prices ranging from $1.40 to $3.6875 per share were outstanding during
the three months ended March 31, 2004 and 2003, respectively, but were not
included in the computation of diluted EPS because the Company had a net loss
attributable to common shareholders for the three months ended March 31, 2004
and because the warrants', options', preferred shares' and dividends' exercise
price was greater than the average market price of the common shares for the
three months ended March 31, 2003.
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, was 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:
7
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
Net income (loss) attributable to common
shareholders, as reported $ (134,000) $ 45,000
Add: Stock based employee compensation expense
included in reported net loss, net of tax
related effects 16,000 19,000
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (47,000) (92,000)
----------------------------
Pro forma net loss attributable to common
shareholders $ (165,000) $ (28,000)
============================
Earnings (loss) per share:
Basic and Diluted
As reported $ (0.01) $ 0.00
======= =======
Pro forma $ (0.01) $ (0.00)
======= =======
- --------------------------------------------------------------------------------
Such amounts were determined using the Black-Scholes option pricing model with
the following weighted-average assumptions: 2004 - expected dividend yield of
0%, risk-free interest rate of 3.24%, volatility of 96% and an expected life of
5 years; 2003 - expected dividend yield of 0%, risk-free interest rate of 6%,
volatility of 110% and an expected life of 5 years.
D. NON-MARKETABLE EQUITY SECURITIES
In 1999, the Company entered into an agreement with idealab! and Find.com, Inc.
whereby it assigned the domain name "find.com" and licensed the use of certain
rights to the trademarks "find.com" and "find" to Find.com, Inc. idealab! and
Find.com, Inc. are not otherwise related to the Company. Under terms of the
agreement, the Company received cash and non-marketable preferred shares in
idealab!, and are entitled to certain future royalties. The preferred shares
received were valued at $500,000, and carried various rights including the
ability to convert them into common shares of Find.com, Inc., and a put option
to resell the shares to idealab! The put option became exercisable in December
2002. Under the terms of the put option, idealab! could either repurchase the
preferred shares for $1,500,000 in cash, or elect to return the find.com domain
name to us. In the latter case, the Company would retain the preferred shares.
In January 2003, the Company exercised its put option and idealab! declined to
repurchase the preferred shares. This information was considered in the
recurring evaluation of the carrying value of the preferred shares at the lower
of historical cost or estimated net realizable value. Using this information
together with other publicly available information about idealab!, the Company
concluded the net realizable value of its idealab! preferred shares had declined
to an estimated $185,000 at December 31, 2003.
Subsequent to the quarter ended March 31, 2004 in a letter dated April 23, 2004
from idealab! to its
8
shareholders, idealab! announced that it had reached a settlement with Series D
plaintiffs, which does not include the Company (the "plaintiffs"), whereby the
plaintiffs agreed to vote their shares in favor of an amendment to idealab!'s
charter that would reduce the liquidation preference of idealab!'s Series D
Preferred Stock from $100.00 per share to $19.00 per share. Furthermore, upon
completion of the above settlement, idealab! plans to commence a tender offer to
the remaining Series D shareholders, which the Company is included, for $19.00
per share. The settlement agreement requires that the purchase price be reduced
by the tendering holders' pro rata share of the plaintiffs' litigation expenses.
These expenses will range from $1.00 to $1.50 per share. As a result of this
pending settlement, the Company concluded the net realizable value of its
idealab! preferred shares had declined to an estimated $90,000 at March 31,
2004, and took a charge to operations of $95,000 during the quarter then ended.
Since the idealab! preferred shares continue to be an investment in a start-up
enterprise, it is reasonably possible in the near term that our estimate of the
net realizable value of the preferred shares could be further reduced.
The Company has a 9.1% interest in Strategic Research Institute, L.P. ("SRI"),
and in March 2003, received an $87,000 distribution in respect of that interest.
The Company shares in profits of SRI, but does not share in losses. This is the
first distribution that was received from this partnership interest, and the
distribution was recognized as other income during the three months ended March
31, 2003. SRI is a business conference and event company. The value of this
investment is zero.
E. DEBT
As of March 31, 2004, there was $1,100,000 outstanding on a term note with JP
Morgan Chase Bank (the "Term Note"), of which $400,000 is classified as current.
The Term Note bears interest at prime plus 1.25% (5.25% at March 31, 2004), and
is payable in quarterly installments and a $500,000 balloon payment through
December 31, 2005. Interest expense related to the Term Note amounted to $16,000
for the quarter ended March 31, 2004. 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"). The Line of Credit bears interest at prime plus 0.50% (4.5%
at March 31, 2004). As of March 31, 2004 $876,000 remains outstanding. Interest
expense related to the Line of Credit amounted to $8,000 for the quarter ended
March 31, 2004. The Line of Credit contains certain restrictions on the conduct
of its business, including, among other things, restrictions, generally, on
incurring debt, and creating or suffering liens.
The Term Note and Line of Credit are secured by a general security interest in
substantially all of the Company's assets.
On May 11, 2004, the covenants to compute the ratio of senior debt to
consolidated tangible net worth and to compute consolidated tangible net worth
under the Term Note and Line of Credit were waived as of March 31, 2004.
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 25%. Related interest expense was $159,000 for the quarter ended
March 31, 2004, of which $58,000 related to the non-cash accretion of the
carrying value of the
9
Note for the quarter ended March 31, 2004. 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 our business including financial covenants
related to a defined fixed charge coverage and a defined funded indebtedness to
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") ratio.
The Company is in compliance with this loan agreement as of March 31, 2004.
On July 1, 2003, the Company issued a Second Promissory Note (the "Second Note")
with a face value of $500,000 and a stated interest rate of 13.5%, as a part of
the financing for the acquisition of Teltech, a business unit of Sopheon
Corporation ("Teltech"). Quarterly principal payments of $42,000 are due
beginning March 31, 2006. The Second Note was recorded at its initial relative
fair value of $320,000. The difference between the initial relative fair value
and the stated value will be accreted as additional interest expense over the
maturities of the Second Note, and the resulting effective interest rate is
approximately 25%. Related interest expense was $27,000 for the quarter ended
March 31, 2004, of which $10,000 related to the non-cash accretion of the
carrying value of the Note for the quarter ended March 31, 2004. The Company has
the right to prepay the Second Note at any time without premium or penalty. The
Second Note is secured by a security interest in substantially all assets of the
Company, and is subject to covenants relating to the conduct of our business
including financial covenants related to a defined fixed charge coverage and a
defined funded indebtedness to EBITDA ratio. The Company is in compliance with
this loan agreement as of March 31, 2004.
F. INCOME TAXES
The $4,000 income tax benefit for the three months ended March 31, 2004
represents 27% of the loss before benefit for income taxes. The $20,000 income
tax provision for the three months ended March 31, 2003 represents 31% of income
before provision for income taxes. The difference between these rates and the
statutory rate primarily relates to expenses that are not deductible for income
tax purposes.
Of the net deferred tax asset, $505,000 is classified as current as of March 31,
2004 and December 31, 2003.
G. STOCK OPTIONS
During the three month period ended March 31, 2004, options to purchase 37,500
shares of common stock were granted under the Company's Stock Option Plans, at a
price of $1.79, which represents the fair market value of such shares on the
dates of grant.
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, which represents the fair market value of such shares on the
dates of grant.
Stock options were granted in November 2001 for future services to be rendered
to the Company by the Chief Executive Officer ("CEO"), the Chairman and a
consultant. In 2003, the Company's Board approved the acceleration of the
vesting of 117,000 and 105,000 options granted to the CEO and Chairman,
respectively. This action was taken to generate additional funds at the time of
the Company's acquisition of Teltech. Compensation expense related to such
grants is amortized over the vesting period of the options and was $5,000 and
$27,000 for the three-month periods ended March 31, 2004 and 2003, respectively.
10
H. SEGMENT REPORTING
The Company manages its consulting and business advisory services in the
following four business segments: Quick Consulting ("QCS"), Strategic Consulting
("SCRG"), Quantitative Market Research and Teltech. The Company operates
primarily in the United States. Quantitative Market Research was added as a
segment as a result of the acquisition of Guideline on April 1, 2003. Teltech
was added as a segment as a result of its acquisition by the Company on July 1,
2003. See footnote M. "Acquisitions" for a more detailed description of these
acquisitions. References to "Corporate" and "Other" in our financial statements
refer to the portion of assets and activities that are not allocated to a
segment.
- --------------------------------------------------------------------------------
(in thousands) THREE MONTHS ENDED MARCH 31,
2004 2003 $ Change % Change
------------ ------------ ------------ ------------
REVENUES
QCS (1) $ 4,373 $ 4,708 $ (335) 7.1%
SCRG (1) 407 394 13 3.3%
Quantitative Market Research 2,713 -- 2,713 --
Teltech 2,113 -- 2,113 --
------------ ------------ ------------ ------------
Revenues $ 9,606 $ 5,102 $ 4,504 88.3%
============ ============ ============ ============
OPERATING INCOME (LOSS)
QCS (1) $ 479 $ 786 $ (307) 39.1%
SCRG (1) (82) (349) 267 76.5%
Quantitative Market Research 321 -- 321 --
Teltech 282 -- 282 --
------------ ------------ ------------ ------------
Total segment operating income 1,000 437 563 128.8%
Corporate & other (1)(2) (694) (432) (262) 60.6%
------------ ------------ ------------ ------------
Operating income $ 306 $ 5 $ 301 6,020.0%
============ ============ ============ ============
INCOME (LOSS) BEFORE INCOME TAXES
QCS (1) $ 479 $ 786 $ (307) 39.1%
SCRG (1) (82) (349) 267 76.5%
Quantitative Market Research 228 -- 228 --
Teltech 188 -- 188 --
------------ ------------ ------------ ------------
Total segment income before income taxes 813 437 376 86.0%
Corporate & other (1)(2) (828) (372) (456) 122.6%
------------ ------------ ------------ ------------
Income before provision for income taxes $ (15) $ 65 $ (80) 123.1%
============ ============ ============ ============
(1) Prior year segment amounts have been revised as a result of a realignment
of certain activities, including the association of certain QCS segment
activity with Corporate and Other.
(2) Includes certain direct costs and selling, general, and administrative
expenses not attributable to a single segment
- --------------------------------------------------------------------------------
I. COMMITMENTS AND CONTINGENCIES
See Note M. "Acquisitions" for information regarding contingent payments related
to the acquisitions of Guideline and Teltech.
J. ACCRUED EXPENSES
As of December 31, 2003, a balance of $458,000 remained accrued for charges
under a severance plan approved by the Board of Directors. Payments totaling
$136,000 were made to 7 individuals during the three months ended March 31,
2004. The remainder of the balance will be paid through October 2004.
11
K. DEFERRED COMPENSATION
The Company has a deferred compensation arrangement with Andrew Garvin, the
founder and former President of the Company. In November 2003, Mr. Garvin
announced his early retirement as of December 31, 2003. The Company revised the
calculation of Mr. Garvin's accrued deferred compensation to reflect his
announced date of retirement. Accordingly, the present value of the obligation
as of December 31, 2003 was approximately $243,000. This will be paid over the
contractual term of 10 years, beginning in January 2004.
L. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the quarter ended March 31, 2004, the Company recorded the cashless
exercise of 94,975 options at prices ranging from $0.50 to $1.062, in exchange
for 67,224 shares of common stock at prices ranging from $1.70 to $2.50. Such
shares were held for a period of at least six months before the respective
exchange. The value of these transactions was $174,000.
During the three months ended March 31, 2004, the Company recorded preferred
dividends of $10,000, and accretion on redeemable common shares of $113,000.
M. ACQUISITIONS
GUIDELINE
On April 1, 2003, the Company purchased all of the issued and outstanding stock
of Guideline. Guideline is a provider of quantitative custom market research.
Guideline's ability to provide high-level analytic survey research was a
strategic fit with the Company's efforts to address its clients' critical
business needs. The integration of Guideline's services allowed the Company to
address the requirements of its many marketing and market research clients. The
addition of Guideline will also make the Company one of the first fully
comprehensive research and advisory firms to offer an inclusive suite of both
primary and secondary specialized business intelligence, strategic research and
consulting services.
The consideration for this acquisition consisted of the following:
o Approximately $3,903,000 paid in cash (includes $431,000 and
$8,000 of paid transaction costs during the year ended December 31,
2003, and the three months ended March 31, 2004, respectively), net of
cash acquired. $60,000 of transaction costs and a $50,000 payment to
one of the Guideline executives remain accrued as of March 31, 2004;
o 571,237 common shares valued at $760,000 (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. It is anticipated that $1 million
will be due, and this amount has been accrued by the Company as of
March 31, 2004. Each of the Sellers may separately elect to have up
to fifty
12
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 would be due. If Two Year
Adjusted EBITDA is less than $2.65 million, but greater than $2.2
million, the Two Year Deferred Consideration would 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 equal to
150% of the initial redemption value of the shares, or $1,090,000. Based on the
fair value of the shares as of March 31, 2004, the Company recorded accretion on
redeemable common stock of $113,000 for the quarter ended March 31, 2004,
resulting in redeemable common stock having a carrying value of $1,090,000.
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 estimated fair value of
$693,000 using the relative fair value method. 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 are 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 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 has full voting rights and powers equal to
the voting rights and powers of the holders of the Company's common stock. For
the quarter ended March 31, 2004, the Company recorded preferred dividends of
$10,000, resulting in Preferred Stock of $540,000 at March 31, 2004.
The Company has finalized its valuation of the assets and liabilities acquired
for the allocation of the purchase price of the Guideline transaction as of
March 31, 2004, with the exception of the Two Year Deferred Consideration, which
is contingent until 2005.
TELTECH
As of July 1, 2003, Ttech Acquisition Corp. ("Ttech"), a 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, focused on
R&D and engineering departments of larger corporations, markets into which the
Company would like to expand. This acquisition offered significant cross-selling
opportunities and cost synergies.
13
The consideration for this acquisition consisted of the following:
o Approximately $3,235,000 paid in cash (including $177,000 of
transaction costs). As of March 31, 2004, of the $236,000 in total
transaction costs, approximately $65,000 of transaction costs remains
accrued.
o 32,700 unregistered shares of the Company's Common Stock, valued
at $50,000. These shares were placed in escrow to secure the
indemnification obligations of the Sellers set forth in the purchase
agreement through June 25, 2004, pursuant to an escrow agreement among
Sopheon, the Company, Ttech and Kane Kessler, P.C. (the "Escrow
Agreement").
o Contingent consideration of up to a maximum of $200,000 may
become payable by the Company to Sopheon in the first half of 2004 if
certain customer subscription renewal goals, as defined in the
purchase agreement, are attained. This amount has been accrued as of
March 31, 2004.
The Company is in the process of finalizing its valuation of the assets and
liabilities it has acquired and assumed for its allocation of the purchase price
of the Teltech transaction. The Company expects to finalize its valuation no
later than the second quarter of 2004. The Company's preliminary allocation of
the purchase price of the Teltech acquisition is subject to refinement based on
the final determination of fair values.
The following table sets forth the components of the purchase price for both the
Guideline and Teltech acquisitions:
- --------------------------------------------------------------------------------
GUIDELINE TELTECH TOTAL
Cash paid (including transaction costs) $3,903,000 $3,235,000 $7,138,000
Accrued contingent earnout payments 1,050,000 200,000 1,250,000
Accrued transaction costs 60,000 65,000 125,000
Common stock issued to sellers 760,000 50,000 810,000
------------------------------------
Total purchase consideration $5,773,000 $3,550,000 $9,323,000
====================================
- --------------------------------------------------------------------------------
The following table provides the preliminary estimated fair value of the
acquired assets and assumed liabilities:
- --------------------------------------------------------------------------------
GUIDELINE TELTECH TOTAL
Current assets $1,786,000 $1,235,000 $3,021,000
Property and equipment 102,000 287,000 389,000
Other assets 267,000 -- 267,000
Liabilities assumed, current (2,236,000) (3,358,000) (5,594,000)
Liabilities assumed, non-current (67,000) -- (67,000)
------------------------------------
Fair value of net liabilities assumed (148,000) (1,836,000) (1,984,000)
Preliminary goodwill 5,352,000 4,735,000 10,087,000
Amortizable intangible assets 421,000 527,000 948,000
Indefinite-lived intangible assets 148,000 124,000 272,000
------------------------------------
Total purchase consideration $5,773,000 $3,550,000 $9,323,000
====================================
- --------------------------------------------------------------------------------
14
Amortizable intangible assets are amortized over a period of 7 years.
Amortization of intangible assets was $34,000 for the quarter ended March 31,
2004.
The unaudited pro forma information below represents consolidated results of
operations as if the acquisitions of Guideline and Teltech had occurred as of
January 1, 2003. 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, nor is
it necessarily indicative of future results.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 2003
Total pro forma revenue $8,904,000
Pro forma net income $2,000
Pro forma earnings per share attributable to
common shareholders:
Basic and diluted $0.00
- --------------------------------------------------------------------------------
N. SUBSEQUENT EVENTS
On May 10, 2004 (the "Closing Date"), the Company raised $13,500,000 through a
private placement of (i) 6,000,000 shares of the Company's common stock, par
value $0.0001 per share (the "Common Stock") and (ii) warrants to purchase an
aggregate of 3,000,000 shares of Common Stock. The Company sold 6,000,000 units
at $2.25 per unit, with each unit consisting of one share of Common Stock and
one warrant to purchase one-half of one share of Common Stock at an exercise
price of $3.00 per full share. The net proceeds of the sale of the Common Stock
and the warrants is intended to be used by the Company for repaying debt,
working capital and general corporate purposes, including the financing of
potential acquisitions. The Common Stock and warrants are characterized as
"restricted securities" under the U.S. federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the 1933 Act only in certain limited
circumstances. The Company is obligated to file a Registration Statement within
35 days of the Closing Date covering the resale of the Common Stock purchased in
the private placement, as well as those shares of Common Stock underlying the
warrants.
On April 21, 2004, the Company sold its Information Advisor newsletter business
("IA") to Information Today. The sale proceeds to the Company consisted of
$52,500 in cash, $15,000 of free advertising, and the buyer's assumption of an
unearned income liability, less modest transaction expenses.
On April 1, 2004, Stephan B. Sigaud, an Executive Vice President, and the
Company mutually and amicably agreed that Mr. Sigaud would end his employment
with the Company. A specific date for Mr. Sigaud's formal departure has not been
set but Mr. Sigaud has agreed to stay with the Company until at
15
least June 1, 2004.
On April 28, 2004, the Company entered into an employment agreement with Marc
Litvinoff, commencing on May 17, 2004 and continuing until May 16, 2005;
provided, that the employment agreement shall be automatically renewed for an
additional one-year period unless the Company provides Mr. Litvinoff with
written notice. Commencing May 17, 2004, Mr. Litvinoff will serve as the
Company's Chief Operating Officer, and a member of the Company's Operating
Management Group. Mr. Litvinoff will assume all responsibilities for client
services at the Company. See Part II. Item 5.--Other Information.
16
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three months ended March 31, 2004 compared to three months ended March 31, 2003.
GENERAL
FIND/SVP, Inc. and its wholly-owned subsidiaries provide a full range of custom
research, consulting, quantitative market research and outsourced information
services that are designed to address our customers' critical business
information needs. We function as many of our customers' primary information and
business intelligence resource on an outsourced basis, especially among
companies that have downsized their internal research staffs and information
resources. We also serve as a reliable supplemental resource to customers'
internal capabilities. As a result of our acquisitions in 2003 of each of
Guideline and Teltech, combined with further internal development of new service
offerings, we provide a range of specialized higher priced research and
consulting services. For example, we currently provide quantitative custom
market research and due diligence research services which serve to address
particular strategic business information needs within specific markets such as
R&D, healthcare, marketing and private equity/money management.
We are organized into four business segments: Quick Consulting Service ("QCS"),
which is a subscription-based service that functions like an in-house corporate
research center for our customers; Strategic Consulting and Research Group
("SCRG"), which provides in-depth custom research and competitive intelligence
services for larger projects; Quantitative Market Research, effectively the
Guideline business, which provides full service quantitative custom market
research services, such as large-scale consumer surveys; and Teltech, which
provides a full range of outsourced information and consulting services to
customers in R&D and related technical sectors. 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, we acquired Guideline, and Guideline's results of operations
are included in our results of operations as of such date.
On July 1, 2003, we acquired Teltech, and Teltech's results of operations are
included in our results of operations as of such date.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2003
The Company manages its consulting and business advisory services in the
following four business segments: Quick Consulting ("QCS"), Strategic Consulting
("SCRG"), Quantitative Market Research and Teltech. The Company operates
primarily in the United States. Quantitative Market Research was added as a
segment as a result of the acquisition of Guideline on April 1, 2003. Teltech
was added as a segment as a result of its acquisition by the Company on July 1,
2003. See footnote M. "Acquisitions" for a more detailed description of these
acquisitions. References to "Corporate" and "Other" in our financial statements
refer to the portion of assets and activities that are not allocated to a
segment.
- --------------------------------------------------------------------------------
(in thousands) THREE MONTHS ENDED MARCH 31,
2004 2003 $ Change % Change
------------ ------------ ------------ ------------
REVENUES
QCS (1) $ 4,373 $ 4,708 $ (335) 7.1%
SCRG (1) 407 394 13 3.3%
Quantitative Market Research 2,713 -- 2,713 --
Teltech 2,113 -- 2,113 --
------------ ------------ ------------ ------------
Revenues $ 9,606 $ 5,102 $ 4,504 88.3%
============ ============ ============ ============
OPERATING INCOME (LOSS)
QCS (1) $ 479 $ 786 $ (307) 39.1%
SCRG (1) (82) (349) 267 76.5%
Quantitative Market Research 321 -- 321 --
Teltech 282 -- 282 --
------------ ------------ ------------ ------------
Total segment operating income 1,000 437 563 128.8%
Corporate & other (1) (2) (694) (432) (262) 60.6%
------------ ------------ ------------ ------------
Operating income $ 306 $ 5 $ 301 6,020.0%
============ ============ ============ ============
INCOME (LOSS) BEFORE INCOME TAXES
QCS (1) $ 479 $ 786 $ (307) 39.1%
SCRG (1) (82) (349) 267 76.5%
Quantitative Market Research 228 -- 228 --
Teltech 188 -- 188 --
------------ ------------ ------------ ------------
Total segment income before income taxes 813 437 376 86.0%
Corporate & other (1) (2) (828) (372) (456) 122.6%
------------ ------------ ------------ ------------
Income before provision for income taxes $ (15) $ 65 (80) 123.1%
============ ============ ============ ============
(1) Prior year segment amounts have been revised as a result of a realignment
of certain activities, including the association of certain QCS segment
activity with Corporate and Other.
(2) Includes certain direct costs and selling, general, and administrative
expenses not attributable to a single segment.
- --------------------------------------------------------------------------------
REVENUES
Revenues increased from $5,102,000 for the three months ended March 31, 2003 to
$9,606,000 for the three months ended March 31, 2004, which represents an
increase of 88.3% from 2003 to 2004. The increase in revenue was due to the
acquisitions of Guideline on April 1, 2003, and Teltech on July 1, 2003 and
increases in our SCRG segment, which were offset by declines in our QCS segment.
Specifically, QCS was affected by cancellations of retainer accounts, which were
not sufficiently offset by new retainer sales during 2003, and the first quarter
of 2004. We believe that cancellations primarily resulted from continued weak
general economic conditions, as well as the perception among certain customers
that research can be conducted internally using the internet. The primary factor
contributing to the increase in SCRG revenue was the greater number of cash
projects booked during the quarter ended March 31, 2004 as compared to the
quarter ended March 31, 2003.
17
QCS
QCS revenues, which result from annual retainer contracts paid by clients
on a monthly, quarterly, semi-annual or annual basis, decreased by
$335,000, or 7.1%, from $4,708,000 for the three months ended March 31,
2003 to $4,373,000 for the three months ended March 31, 2004. The decrease
from 2003 to 2004 was a result of cancellations that were not sufficiently
offset by new clients despite increased retainer rates. We believe that
cancellations were primarily a result of continued weak economic
conditions, as well as the perception among certain customers that research
can be conducted internally using the internet. However, at March 31, 2004,
there were a greater number of annual renewals which were billed than the
same period in the prior year.
SCRG
SCRG revenues, which result from consulting engagements addressing clients'
business issues, increased by $13,000, or 3.2%, from $394,000 for the three
months ended March 31, 2003 to $407,000 for the three months ended March
31, 2004. The increase from 2003 to 2004 was due to a greater number of
cash projects booked during the quarter ended March 31, 2004 as compared to
the quarter ended March 31, 2003
QUANTITATIVE MARKET RESEARCH
Quantitative Market Research revenues, which result from custom market
research consulting engagements, such as conducting surveys and focus
groups, were $2,713,000 for the three months ended March 31, 2004. We
acquired this line of business on April 1, 2003.
TELTECH
Teltech revenues, which result from on-demand research, outsourced
information services and in-depth projects, were $2,113,000 for the three
months ended March 31, 2004. We acquired this line of business on July 1,
2003.
COSTS OF PRODUCTS AND SERVICES SOLD
Direct costs, which are 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 $3,187,000, or 134.6%, from
$2,367,000 for the three months ended March 31, 2003 to $5,554,000 for the three
months ended March 31, 2004. Direct costs represented 57.8% and 46.3% of
revenues for the three months ended March 31, 2004 and 2003, respectively. The
increase in total direct costs was primarily the result of the acquisition of
Guideline during the quarter ended June 30, 2003 and the acquisition of Teltech
during the quarter ended September 30, 2003. Guideline's and Teltech's direct
costs consist of both direct labor and direct costs, such as subcontractors who
perform fieldwork for many of their projects, annual costs related to the use of
external content providers, and other necessary costs incurred in order to
fulfill client requests. Exclusive of Guideline and Teltech, direct costs
decreased by approximately $143,000 from 2003 to 2004 as a result of decreased
direct labor costs, decreased use of sub-contractors in SCRG, and more favorable
pricing from our use of outside electronic services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $1,016,000, or 37.2%,
from $2,730,000, or
18
53.5% of revenue, for the three months ended March 31, 2003 to $3,746,000, or
38.9% of revenue, for the three months ended March 31, 2004. The increase in
selling, general and administrative was due primarily to the acquisitions of
Guideline, which took place during the quarter ended June 30, 2003 (total
Guideline selling, general and administrative expenses were $381,000), and
Teltech, which took place during the quarter ended September 30, 2003 (total
Teltech selling, general and administrative expenses were $513,000). Even though
selling, general, and administrative expenses increased, the percentage of
revenue that these expenses represents decreased from 2003 to 2004. Exclusive of
Guideline and Teltech, selling, general and administrative expenses increased by
$122,000, or 4.4%, from 2003 to 2004, as a result primarily of increased
indirect labor costs, increased professional fees, increased public relations
fees, and increased bad debt expense because part of the bad debt reserve was
released during the quarter ended March 31, 2003. These expense increases were
partially offset by various cost containment measures.
INTEREST EXPENSE
Interest expense increased by $199,000 from $27,000 for the three months ended
March 31, 2003 to $226,000 for the three months ended March 31, 2004. The
increase was a result of additional borrowings, related to the acquisitions of
Guideline and Teltech during the year ended December 31, 2003, which were
partially offset by repayments on existing debt. Included in interest expense
was non-cash interest expense of $67,000, which was accreted as additional
interest expense due to the difference between the initial relative fair value
and the stated value of the Petra debt (See "Liquidity and Capital Resources").
IMPAIRMENT OF INVESTMENT
In March 2004, the Company reduced the value of its investment in idealab! to
$90,000, the value of the shares based on the latest contemplated tender offer
by idealab!. Accordingly, the Company recorded a $95,000 pre-tax charge during
the quarter ended March 31, 2004.
OTHER INCOME
We have a 9.1% interest in Strategic Research Institute, L.P. ("SRI"), and in
March 2003, received an $87,000 distribution in respect of that interest. We
share in profits of SRI, but do not share in losses. This is the first
distribution that we received from this partnership interest, and the
distribution was recognized as other income. SRI is a business conference and
event company.
OPERATING INCOME
Our results of operations improved by $301,000 from operating income of $5,000
for the three months ended March 31, 2003 to operating income of $306,000 for
the three months ended March 31, 2004. This is primarily the result of the
acquisitions of Guideline and Teltech during 2003 and increased operating income
in SCRG, offset by decreased operating income in QCS and increased Corporate and
other expenses.
INCOME TAXES
The $4,000 income tax benefit for the quarter ended March 31, 2004 represents
27% of pre-tax loss. The income tax benefit was different than the statutory
rate because expenses, such as meals and entertainment and key-man life
insurance premiums, which are not deductible for tax purposes, resulted in a
different effective tax rate than the statutory rate.
19
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 difference
between this rate and the statutory rate primarily relates to expenses that are
not deductible for income tax purposes.
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
20
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 revenue recognition,
allowances for doubtful accounts, useful lives of property, plant and equipment
and intangible assets, goodwill, 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.
REVENUE RECOGNITION
Approximately 60% of the Company's revenues were derived from subscription
contracts with customers, including all of the revenues of the QCS business
segment and approximately 50% of the revenues of the Teltech business segment.
The remaining 40% of the Company's revenues consisted of quantitative market
research projects, in-depth consulting projects and outsourced information
services.
The Company's subscription services are provided under two different types of
subscription contracts - retainer contracts and deposit contracts. Retainer
contracts, which are used primarily by QCS, charge customers fixed monthly
subscription fees to access QCS services, and revenues are recognized ratably
over the term of each subscription. Retainer fees are required to be paid in
advance by customers on either a monthly, quarterly or annual basis, and all
billed amounts relating to future periods are recorded as an unearned retainer
income liability on the Company's balance sheet. In the case of deposit
contracts, which are used primarily by Teltech, a customer pays a fixed annual
fee, which entitles it to access any of the Company's service offerings
throughout the contract period, up to the total amount of the annual deposit
fee. Since deposit account customers can "spend" their contract fee at any time
within the annual contract period, deposit account revenues are only recognized
within the contract period as services are actually provided to customers, with
any unused deposit amounts recognized as revenue in the final month of the
contract. As with retainer fees, deposit contract fees are required to be paid
in advance, primarily annually, and any billed amounts relating to future
periods are recorded as unearned retainer income, a current liability on the
Company's balance sheet.
With regard to the Company's non-subscription based services, including
quantitative market research, in-depth consulting and outsourced information
services, revenues are recognized primarily on a percentage-of-completion basis.
The Company typically enters into discrete contracts with customers for these
services on a project-by-project basis. Payment milestones differ from contract
to contract based on the client and the type of work performed. Generally, the
Company invoices a client for a portion of a project in advance of work
performed, with the balance invoiced throughout the fulfillment period and/or
after the work is completed. However, revenue and costs are only recognized to
the extent of each contract's percentage-of-completion. Any revenue earned in
excess of billings is recorded as a current asset on the Company's balance
sheet, while any billings in excess of revenue earned, which represent billed
amounts relating to future periods, are recorded as unearned revenue, a current
liability on the Company's balance sheet.
GOODWILL AND INTANGIBLES
Goodwill consists of the excess of the purchase price over the fair value of
identifiable net assets of businesses acquired. Effective January 1, 2002 we
adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," under which goodwill is no longer
21
amortized. Instead, goodwill is evaluated for impairment using a two-step
process that is performed at least annually and whenever events or circumstances
indicate impairment may have occurred. The first step is a comparison of the
fair value of an internal reporting unit to its carrying amount, including
goodwill. If the fair value of the reporting unit exceeds its carrying value,
goodwill of the reporting unit is not considered impaired and the second step is
unnecessary. If the carrying value of the reporting unit exceeds its fair value,
a second test is performed to measure the amount of impairment by comparing the
carrying amount of the goodwill to a determination of the implied value of the
goodwill. If the carrying amount of the goodwill is greater than the implied
value, an impairment loss is recognized for the difference. The implied value of
the goodwill is determined as of the test date by performing a purchase price
allocation as if the reporting unit had just been acquired, using currently
estimated fair values of the individual assets and liabilities of the reporting
unit, together with an estimate of the fair value of the reporting unit taken as
a whole. The estimate of the fair value of the reporting unit is based upon
information available regarding prices of similar groups of assets, or other
valuation techniques including present value techniques based upon estimates of
future cash flow. The Company performs its annual impairment test on the first
day of the third quarter of its fiscal year.
Intangible Assets, including customer relationships, trademarks and other
intangible assets are amortized over their estimated useful lives unless they
are deemed to have indefinite useful lives. Upon the adoption of SFAS 142,
intangible assets deemed to have indefinite useful lives, such as trade names,
are not amortized and are subject to annual impairment tests. An impairment
exists if the carrying value of the indefinite-lived intangible asset exceeds
its fair value. For other intangible assets subject to amortization, an
impairment is recognized if the carrying amount is not recoverable and the
carrying amount exceeds the fair value of the intangible asset. Amortizable
intangibles are tested for impairment if a triggering event occurs.
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. We have tax loss carryforwards that have been
recognized as assets on our balance sheet. These assets are subject to
expiration from 2013 to 2023. 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 we performed an analysis of our deferred tax
assets and projected future taxable income, a valuation allowance was provided
for certain state and local carryforward tax operating loss assets, as we
determined that it was more likely than not that these assets would not be
realized during the carryforward period. It is reasonably possible that future
valuation allowances will need to be recorded if we are unable to generate
sufficient future taxable income to realize such deferred tax assets during the
carryforward period.
NON-MARKETABLE EQUITY SECURITIES
The preferred share securities in idealab! is an investment in a start-up
enterprise. As of March 31, 2004, the carrying value of these preferred share
securities is $90,000. It is reasonably possible in the near term that our
estimate of the net realizable value of the preferred shares will be less than
the carrying value of the preferred shares.
22
LIQUIDITY AND CAPITAL RESOURCES
Historically, our 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 $541,000 and $821,000 at March 31, 2004 and
December 31, 2003, respectively. Our working capital (deficiency) position
(current assets, less current liabilities) at March 31, 2004 was $(3,155,000) as
compared to $(2,066,000) at December 31, 2003. Included in current liabilities
is unearned retainer income of $6,017,000 as of March 31, 2004 and $4,067,000 as
of December 31, 2003. Such amounts reflect amounts billed, but not yet earned.
Cash of $84,000 was used in operating activities during the quarter ended March
31, 2004 and cash of $544,000 was provided by operating activities in the
quarter ended March 31, 2003. During the three months ended March 31, 2004,
operating cash uses primarily related to the payment of a bonus to an executive
of Guideline, and payment of a portion of previously accrued royalties to SVP
International S.A. ("SVP International"). Prior to November 2001, SVP
International and its affiliates owned 37% of the common shares of the Company.
Cash used in investing activities was $319,000 and $90,000 in the quarters ended
March 31, 2004 and 2003, respectively, and relate primarily to capital
expenditures for computer hardware upgrades and leasehold improvements. In 2004,
additional consultation fees on the Guideline and Teltech acquisitions of
approximately $168,000 was paid. During the year ending December 31, 2004 the
Company expects to spend approximately $600,000 for capital items, the major
portions of which will be used for computer hardware and software upgrades and
for leasehold improvements.
Cash of $123,000 was provided by financing activities in the quarter ended March
31, 2004 and cash of $128,000 was used in financing activities in the quarter
ended March 31, 2003. In 2004, the most significant items were $200,000 borrowed
under notes payable, offset by note repayments of $100,000. In 2003, the most
significant item was the repayment of $130,000 of outstanding debt.
As of March 31, 2004, there was $1,100,000 outstanding on a term note with JP
Morgan Chase Bank (the "Term Note"), of which $400,000 is classified as current.
The Term Note bears interest at prime plus 1.25% (5.25% at March 31, 2004), and
is payable in quarterly installments, and a $500,000 balloon payment through
December 31, 2005. Interest expense related to the Term Note amounted to $16,000
for the quarter ended March 31, 2004. 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.
We maintain a $1,000,000 line of credit with JP Morgan Chase Bank (the "Line of
Credit"). The Line of Credit bears interest at prime plus 0.50% (4.50% at March
31, 2004). As of March 31, 2004, $876,000 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 Term Note and the Line of Credit are secured by a general security interest
in substantially all of the Company's assets.
On May 11, 2004, the covenants to compute the ratio of senior debt to
consolidated tangible net worth and to compute consolidated tangible net worth
under the Term Note and Line of Credit were waived as of March 31, 2004.
On April 1, 2003, we issued a Promissory Note (the "Note") to Petra with a face
value of $3,000,000 and
23
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 25%.
Related interest expense was $159,000 for the quarter ended March 31, 2004, of
which $58,000 related to the non-cash accretion of the carrying value of the
Note for the quarter ended March 31, 2004. We have 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 our business including financial covenants related to
a defined fixed charge coverage and a defined funded indebtedness to Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA") ratio. We were
in compliance with this loan agreement as of March 31, 2004.
On July 1, 2003, we issued a Second Promissory Note (the "Second Note") also to
Petra with a face value of $500,000 and a stated interest rate of 13.5%, as a
part of the financing for the acquisition of Teltech, a business unit of Sopheon
Corporation ("Teltech"). Quarterly principal payments of $42,000 are due
beginning March 31, 2006. The Second Note was recorded at its initial relative
fair value of $320,000. The difference between the initial relative fair value
and the stated value will be accreted as additional interest expense over the
maturities of the Second Note, and the resulting effective interest rate is
approximately 25%. Related interest expense was $27,000 for the quarter ended
March 31, 2004, of which $10,000 related to the non-cash accretion of the
carrying value of the Note for the quarter ended March 31, 2004. We have the
right to prepay the Second Note at any time without premium or penalty. The
Second Note is secured by a security interest in substantially all assets of the
Company, and is subject to covenants relating to the conduct of our business
including financial covenants related to a defined fixed charge coverage and a
defined funded indebtedness to EBITDA ratio. We were in compliance with this
loan agreement as of March 31, 2004.
We believe that our cash and cash equivalents on hand, including amounts drawn
from the Term Note and the Line of Credit, cash generated from operations and
collections of our accounts receivable, and the availability of the Line of
Credit with JP Morgan Chase, will be sufficient to fund our operations for the
foreseeable future.
OTHER COMMITMENTS AND CONTINGENCIES
Within thirty days from the first anniversary date of the Guideline 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.
It is anticipated that $1 million will be due, and this amount has been accrued
by the Company as of March 31, 2004. 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.
Within thirty days from the second anniversary date of the acquisition of
Guideline, 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 would be due. If
Two Year Adjusted EBITDA is less than $2.65 million, but greater than $2.2
million, the Two Year Deferred Consideration would be between $0 and $1.845
million based on a specific formula set forth in the purchase agreement.
24
Contingent consideration of up to a maximum of $200,000 may become payable by
the Company to Sopheon in the first half of 2004 if certain customer
subscription renewal goals, as defined in the Teltech purchase agreement, are
attained. This amount has been accrued as of March 31, 2004.
ACQUISITIONS
GUIDELINE
On April 1, 2003, the Company purchased all of the issued and outstanding stock
of Guideline. Guideline is a provider of quantitative custom market research.
Guideline's ability to provide high-level analytic survey research was a
strategic fit with the Company's efforts to address its clients' critical
business needs. The integration of Guideline's services allowed the Company to
address the requirements of its many marketing and market research clients. The
addition of Guideline will also make the Company one of the first fully
comprehensive research and advisory firms to offer an inclusive suite of both
primary and secondary specialized business intelligence, strategic research and
consulting services.
The consideration for this acquisition consisted of the following:
o Approximately $3,903,000 paid in cash, net of cash acquired
(includes $431,000 and $8,000 of paid transaction costs during the
year ended December 31, 2003, and the three months ended March 31,
2004, respectively). $60,000 of transaction costs and a $50,000
payment to one of the Guideline executives remain accrued as of March
31, 2004;
o 571,237 common shares valued at $760,000 (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. It is anticipated that $1 million
will be due, and this amount has been accrued by the Company as of
March 31, 2004. 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 would be due. If Two Year
Adjusted EBITDA is less than $2.65 million, but greater than $2.2
million, the Two Year Deferred Consideration would 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
25
common stock. If the shares are put back to the Company, the cash to be paid by
the Company will be equal to 150% of the initial redemption value of the shares,
or $1,090,000. Based on the fair value of the shares as of March 31, 2004, the
Company recorded accretion on redeemable common stock of $113,000 for the
quarter ended March 31, 2004, resulting in redeemable common stock having a
carrying value of $1,090,000.
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 estimated fair value of
$693,000 using the relative fair value method. 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 are 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 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 has full voting rights and powers equal to
the voting rights and powers of the holders of the Company's common stock. For
the quarter ended March 31, 2004, the Company recorded preferred dividends of
$10,000, resulting in Preferred Stock of $540,000 at March 31, 2004.
The Company has finalized its valuation of the assets and liabilities acquired
for the allocation of the purchase price of the Guideline transaction as of
March 31, 2004, with the exception of the Two Year Deferred Consideration, which
is contingent until 2005.
TELTECH
As of July 1, 2003, Ttech Acquisition Corp. ("Ttech"), a 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, focused on
R&D and engineering departments of larger corporations, markets into which the
Company would like to expand. This acquisition offered significant cross-selling
opportunities and cost synergies.
The consideration for this acquisition consisted of the following:
o Approximately $3,235,000 paid in cash (including $177,000 of
transaction costs). As of March 31, 2004, of the $236,000 in total
transaction costs, approximately $65,000 of transaction costs remains
accrued.
o 32,700 unregistered shares of the Company's Common Stock, valued
at $50,000. These shares were placed in escrow to secure the
indemnification obligations of the Sellers set forth in the purchase
agreement through June 25, 2004, pursuant to an escrow agreement among
Sopheon, the Company, Ttech and Kane Kessler, P.C. (the "Escrow
Agreement").
o Contingent consideration of up to a maximum of $200,000 may
become payable by the Company to Sopheon in the first half of 2004 if
certain customer subscription renewal goals, as defined in the
purchase agreement, are attained. This amount has been accrued as of
March 31, 2004.
26
The Company is in the process of finalizing its valuation of the assets and
liabilities it has acquired and assumed for its allocation of the purchase price
of the Teltech transaction. The Company expects to finalize its valuation no
later than the second quarter of 2004. The Company's preliminary allocation of
the purchase price of the Teltech acquisition is subject to refinement based on
the final determination of fair values.
The following table sets forth the components of the purchase price for both the
Guideline and Teltech acquisitions:
- --------------------------------------------------------------------------------
GUIDELINE TELTECH TOTAL
Cash paid (including transaction costs) $3,903,000 $3,235,000 $7,138,000
Accrued contingent earnout payments 1,050,000 200,000 1,250,000
Accrued transaction costs 60,000 65,000 125,000
Common stock issued to sellers 760,000 50,000 810,000
------------------------------------
Total purchase consideration $5,773,000 $3,550,000 $9,323,000
====================================
- --------------------------------------------------------------------------------
The following table provides the preliminary estimated fair value of the
acquired assets and assumed liabilities:
- --------------------------------------------------------------------------------
GUIDELINE TELTECH TOTAL
Current assets $1,786,000 $1,235,000 $3,021,000
Property and equipment 102,000 287,000 389,000
Other assets 267,000 -- 267,000
Liabilities assumed, current (2,236,000) (3,358,000) (5,594,000)
Liabilities assumed, non-current (67,000) -- (67,000)
------------------------------------
Fair value of net liabilities assumed (148,000) (1,836,000) (1,984,000)
Preliminary goodwill 5,352,000 4,735,000 10,087,000
Amortizable intangible assets 421,000 527,000 948,000
Indefinite-lived intangible assets 148,000 124,000 272,000
------------------------------------
Total purchase consideration $5,773,000 $3,550,000 $9,323,000
====================================
- --------------------------------------------------------------------------------
Amortizable intangible assets are amortized over a period of 7 years.
Amortization of intangible assets was $34,000 for the quarter ended March 31,
2004.
The unaudited pro forma information below represents consolidated results of
operations as if the acquisitions of Guideline and Teltech had occurred as of
January 1, 2003. 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, nor is
it necessarily indicative of future results.
27
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 2003
Total pro forma revenue $8,904,000
Pro forma net income $2,000
Pro forma earnings per share attributable to
common shareholders:
Basic and diluted $0.00
- --------------------------------------------------------------------------------
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, 2003 and those risks and uncertainties described in this
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
SUBSEQUENT EVENTS
On May 10, 2004 (the "Closing Date"), the Company raised $13,500,000 through a
private placement of (i) 6,000,000 shares of the Company's common stock, par
value $0.0001 per share (the "Common Stock") and (ii) warrants to purchase an
aggregate of 3,000,000 shares of Common Stock. The Company sold 6,000,000 units
at $2.25 per unit, with each unit consisting of one share of Common Stock and
one warrant to purchase one-half of one share of Common Stock at an exercise
price of $3.00 per full share. The net proceeds of the sale of the Common Stock
and the warrants are intended to be used by the Company for repaying debt,
working capital and general corporate purposes, including the financing of
potential acquisitions. The Common Stock and warrants are characterized as
"restricted securities" under the U.S. federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold
28
without registration under the 1933 Act only in certain limited circumstances.
The Company is obligated to file a Registration Statement within 35 days of the
Closing Date covering the resale of the Common Stock purchased in the private
placement, as well as those shares of Common Stock underlying the warrants.
On April 21, 2004, the Company sold its Information Advisor newsletter business
("IA") to Information Today. The sale proceeds to the Company consisted of
$52,500 in cash, $15,000 of free advertising, and the buyer's assumption of an
unearned income liability, less modest transaction expenses.
On April 1, 2004, Stephan B. Sigaud, an Executive Vice President, and the
Company mutually and amicably agreed that Mr. Sigaud would end his employment
with the Company. A specific date for Mr. Sigaud's formal departure has not been
set but Mr. Sigaud has agreed to stay with the Company until at least June 1,
2004, and possibly longer, as the Company conducts a search for his replacement.
On April 28, 2004, the Company entered into an employment agreement with Marc
Litvinoff, commencing on May 17, 2004 and continuing until May 16, 2005;
provided, that the employment agreement shall be automatically renewed for an
additional one-year period unless the Company provides Mr. Litvinoff with
written notice. Commencing May 17, 2004, Mr. Litvinoff will serve as the
Company's Chief Operating Officer, and a member of the Company's Operating
Management Group. Mr. Litvinoff will assume all responsibilities for client
services at the Company. See Part II. Item 5.--Other Information.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk affecting the
Company, see Item 7A, "Quantitative and Qualitative Disclosures About Market
Risk" of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, which is incorporated herein by reference. There has been no
material change to our exposure to market risk since December 31, 2003.
ITEM 4.
CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing, and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
29
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.
30
PART II.
OTHER INFORMATION
ITEM 5.
OTHER INFORMATION
On April 28, 2004, the Company entered into an employment agreement with Marc
Litvinoff, commencing on May 17, 2004 and continuing until May 16, 2005;
provided, that the employment agreement shall be automatically renewed for an
additional one-year period unless the Company provides Mr. Litvinoff with
written notice. Commencing May 17, 2004, Mr. Litvinoff will serve as the
Company's Chief Operating Officer, and a member of the Company's Operating
Management Group. Mr. Litvinoff will assume all responsibilities for client
services at the Company. Mr. Litvinoff's employment agreement provides for a
base salary of $230,000 per annum, plus incentive compensation. Pursuant to the
employment agreement, Mr. Litvinoff will be granted a ten-year stock option to
purchase 50,000 shares of the Company's Common Stock at the fair market value on
the date of grant. Options to purchase 10,001 shares under this grant vested
immediately with the balance generally vesting, subject to certain acceleration
events, ratably at the end of each of the first three years of Employee's
employment. Pursuant to Mr. Litvinoff's employment agreement, Mr. Litvinoff will
also be awarded (i) 100,000 shares of restricted common stock under the
Company's 2003 Stock Incentive Plan on the commencement date and (ii) 25,000
shares of restricted common stock upon commencement of a second year term. Mr.
Litvinoff's employment agreement provides further that if Mr. Litvinoff leaves
the employ of the Company for good reason, is terminated by the Company without
cause, or the employment agreement is not renewed by the Company, then, in each
such case, Mr. Litvinoff shall be entitled to receive the base salary described
above (and certain benefits) for a period (the "Restricted Period") of six (6)
months from the date of termination; provided, that for each full month that Mr.
Litvinoff is employed by the Company after the commencement of the term, such
period shall be increased by one additional month up to an additional six months
(equaling up to an aggregate maximum period of twelve months). Mr. Litvinoff has
agreed to a non-competition covenant during the term and the Restricted Period.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT DESCRIPTION
*#10.1 Employment Agreement, dated April 28, 2004, between the Company
and Marc Litvinoff.
*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
# This exhibit represents a management contract or a compensatory plan.
(b) Reports on Form 8-K.
In a Form 8-K filed on March 16, 2004, the Company filed a press release and a
transcription of a related conference call announcing its fourth quarter and
year-end 2003 earnings.
31
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 14, 2004 /s/ DAVID WALKE
- ------------------ ------------------------------------
David Walke
Chief Executive Officer
DATE: MAY 14, 2004 /s/ PETER M. STONE
- ------------------ ------------------------------------
Peter M. Stone
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
32
EXHIBIT INDEX
NUMBER EXHIBIT
10.1 Employment Agreement, dated April 28, 2004, between the Company
and Marc Litvinoff.
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.
33