SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
625 Avenue of the Americas, New York, N.Y. 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, par value $0.0001 per share: 6,601,984 shares as of May 5, 1997.
<PAGE>
FIND/SVP, INC.
CONTENTS
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets .................................... 3
March 31, 1997(unaudited)and December 31, 1996
Consolidated Condensed Statements of Operations ......................... 5
Three Months Ended March 31, 1997 and 1996(unaudited)
Consolidated Condensed Statements of Cash Flows ......................... 6
Three Months Ended March 31, 1997 and 1996(unaudited)
Notes to Consolidated Condensed Financial ............................... 7
Statements
Management's Discussion and Analysis of ................................. 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION ................................................ 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 13
SIGNATURES ................................................................ 14
2
<PAGE>
FIND/SVP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
------ ------------- ------------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $306,000 $634,000
Accounts receivable, net 3,114,000 2,837,000
Note receivable 50,000 50,000
Prepaid and refundable income taxes 757,000 549,000
Inventories 2,269,000 2,281,000
Deferred tax assets 89,000 99,000
Prepaid expenses and other current assets 629,000 525,000
-------- -------
Total current assets 7,214,000 6,975,000
---------- ---------
Equipment and leasehold improvements, net 3,858,000 3,687,000
Other assets:
Deferred charges 1,534,000 1,197,000
Goodwill, net 271,000 276,000
Cash surrender value of life insurance 447,000 424,000
Deferred tax assets 240,000 200,000
Deferred financing fees, net 132,000 93,000
Security deposits 144,000 144,000
-------- -------
Total assets $13,840,000 $12,996,000
============ ===========
See notes to consolidated condensed financial statements.
3
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(CONTINUED)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ --------- -----------
(unaudited) (audited)
Current liabilities:
Notes payable, current installments $511,000 $516,000
Trade accounts payable 1,254,000 1,082,000
Accrued expenses 1,362,000 1,440,000
---------- ---------
Total current liabilities 3,127,000 3,038,000
---------- ---------
Unearned retainer income 2,869,000 1,724,000
Notes payable, excluding
current installments 3,702,000 3,826,000
Accrued rent payable 178,000 197,000
Deferred compensation 158,000 152,000
Shareholders' equity Preferred stock,
$0.0001 par value.
Authorized 2,000,000 shares; none
issued and outstanding -- --
Common stock, $0.0001 par value.
Authorized 10,000,000 shares
6,600,984 and 6,547,184 shares issued
and outstanding at March 31, 1996
and December 31, 1996, respectively 1,000 1,000
Capital in excess of par value 3,925,000 3,861,000
Accumulated (deficit) earnings (120,000) 197,000
--------- -------
Total shareholders' equity 3,806,000 4,059,000
---------- ---------
$13,840,000 $12,996,000
============ ===========
See notes to consolidated condensed financial statements.
4
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
----------- -----------
Revenues ........................................ $ 7,832,000 $ 7,769,000
----------- -----------
Operating expenses:
Direct costs .................................. 4,504,000 4,201,000
Selling, general and administrative
expenses ..................................... 3,772,000 3,254,000
----------- -----------
Operating (loss) income ...................... (444,000) 314,000
Interest income ................................. 5,000 4,000
Interest expense ................................ (115,000) (64,000)
----------- -----------
(Loss) income before
provision for income taxes ................ (554,000) 254,000
(Benefit) provision for income taxes ............ (237,000) 112,000
----------- -----------
Net (loss) income ......................... (317,000) 142,000
=========== ===========
(Loss) income per common
and common equivalent share:
Net (loss) income ............................ ($ 0.05) $ 0.02
=========== ===========
See notes to consolidated condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIND/SVP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(317,000) $ 142,000
---------- - ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 280,000 269,000
Amortization of discount on notes payable 1,000 --
Provision for losses on accounts receivable 55,000 56,000
Common stock issued for services 38,000 --
Increase in deferred compensation 6,000 5,000
Decrease in accrued rent payable (19,000) (35,000)
Increase in cash surrender value of life insurance (23,000) (15,000)
Increase in deferred income taxes (30,000) (5,000)
Change in assets and liabilities:
Increase in accounts receivable (332,000) (175,000)
Increase in prepaid and refundable income taxes (208,000) --
Decrease (increase) in inventory 12,000 (276,000)
Increase in prepaid expenses, deferred
charges, deferred financing fees and goodwill (552,000) (322,000)
Increase (decrease) in trade accounts payable
and accrued expenses 94,000 (423,000)
Increase in unearned retainer income 1,145,000 822,000
---------- -------
Total adjustments 467,000 (99,000)
-------- --------
Net cash provided by operating activities 150,000 43,000
Investing Activities:
Capital expenditures (374,000) (404,000)
--------- ---------
Net cash used in investing activities (374,000) (404,000)
--------- ---------
Financing Activities:
Principal borrowings under notes payable -- 232,000
Principal payments under notes payable (130,000) (105,000)
Proceeds from exercise of stock options 26,000 6,000
------- -----
Net cash (used in) provided by financing activities (104,000) 133,000
--------- -------
Net decrease in cash and cash equivalents (328,000) (228,000)
Cash and cash equivalents at December 31, 1996 and 1995 634,000 522,000
-------- -------
Cash and cash equivalents at March 31, 1997 and 1996 $306,000 $294,000
========= ========
See notes to consolidated condensed financial statements.
6
</TABLE>
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. MANAGEMENT'S STATEMENT
In the opinion of Management, the accompanying consolidated condensed financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position at March 31, 1997, and the results of operations
and cash flows for the three month periods ended March 31, 1997 and 1996.
Operating results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
The Company has reclassified certain prior year balances to conform with current
presentation.
The Company applies APB Opinion No. 25 and the related interpretations in
accounting for its stock option plan. During 1996, the FASB issued Statement No.
123, Accounting for Stock Based Compensation. Accordingly, the Company presented
pro forma net income and earnings per share information beginning with its
fiscal year-ended December 31, 1996 Financial Statements, and will present pro
forma information with future year-end financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
condensed financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
B. INCOME TAXES
The provision for income taxes consists of federal, state and local income
taxes. The $237,000 tax benefit recognized as of March 31, 1997 represents 42.8%
of the loss before benefit for income taxes as of March 31, 1997. The benefit
represents a net operating loss carryback for federal purposes, a deferred tax
benefit from a net operating loss carryforward for state and local taxes and a
net deferred tax benefit for temporary items. The effective tax rate was 44.1%
in 1996.
Based on the Company's history of prior operating earnings and its expectations
for the future, which include the Company's restructuring efforts to improve
performance, management has determined that the future operating income of the
Company will more likely than not be sufficient to recognize fully the net
deferred tax assets.
7
<PAGE>
FIND/SVP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared to three months ended March 31, 1996.
GENERAL
During the fourth quarter of 1996 the Company announced a $2.5 million financing
arrangement (12% subordinated notes of the Company) led by a fund managed by
Furman Selz Investments LLC. The proceeds are being used to adopt a more
aggressive growth strategy in conjunction with the restructuring of operations
which began in the third quarter of 1996, the goal of which is to increase the
long term revenues and profitability of the Company and to position the Company
to take advantage of ongoing changes in the marketplace for its services.
It is expected that the growth strategy will result in a significant increase in
operating expenses during 1997, however the resultant revenue increase is not
anticipated to affect operating income before the fourth quarter of 1997. In
addition to the growth strategy, the Company intends to use the proceeds for
strategic acquisitions and for general corporate purposes, including but not
limited to, the enhancement of the management of the Company.
There can be no assurances of such revenue increases or the timing of such
revenues.
Additionally, the financing arrangement has an option for up to an additional
$2.5 million financing at the discretion of the participants. If the second
round of financing is provided, the Company will re-evaluate the growth strategy
at that time with the intention of utilizing the funds in the most effective
manner for the long-term success of the Company.
OPERATING REVENUES
Operating Revenues increased by $63,000 or 0.8% to $7,832,000 for the
three-month period ended March 31, 1997 as compared to the comparable period of
the prior year.
The Company's Quick Consulting and Research Service revenues grew by $253,000 or
5.3% to $4,996,000 for the three-month period ended March 31, 1997 as compared
to the comparable period of the prior year. The increase was due primarily to an
increase in the number of retainer clients and an increase in the average fee
paid per client.
8
<PAGE>
Strategic Research revenues increased $15,000 or 1.2% to $1,222,000 for the
three-month period ended March 31, 1997 as compared to the comparable period of
the prior year.
Published Products sales decreased by $177,000 or 10.2% to $1,567,000 for the
three-month period ended March 31, 1997 as compared to the comparable period of
the prior year. The decrease was primarily due to a general softening in the
print study marketplace and a planned reduction in multiclient study production
for the quarter, partially offset by an increase in study revenues received from
third-party on-line services and by revenues from new services in the Emerging
Technologies Research Group.
The Company operates a small newsletter publishing operation. However, the
newsletters that are produced generated less than 1% of the Company's revenues
in 1997 and 1996.
DIRECT COSTS
Direct costs increased by 7.2% or $303,000 to $4,504,000 for the three-month
period ended March 31, 1997 as compared to the comparable period of 1996. As a
percent of revenues, direct costs increased to 57.5% for the three-month period
ended March 31, 1997 from 54.1% for the corresponding period in 1996. The
increase in total direct costs is due to new service offerings and the planned
expansion of current services. The increase in the percentage of revenue is due
mainly to the timing of costs related to the expansion of services versus the
timing of the incremental revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses rose by 15.9% or $518,000 to
$3,772,000 for the three-month period ended March 31, 1997 as compared to the
corresponding period of the prior year. As a percent of revenues, selling,
general and administrative expenses increased to 48.1% for the three-month
period ended March 31, 1997 from 41.9% for the corresponding period in 1996. The
increase in expenses in the selling, general and administrative areas is due to
the significant investment in sales and promotional efforts to generate
incremental revenues in accordance with the Company's restructuring plans and
the use of proceeds from financing received during the fourth quarter of 1996,
and the continued management development in the general and administrative
areas.
OPERATING LOSS
Operating loss was $444,000 for the three-month period ended March 31, 1997 as
compared to operating income of $314,000 for the corresponding period in 1996.
The operating loss was due primarily to an increase in direct costs and selling,
general and administrative expenses.
9
<PAGE>
INTEREST INCOME AND EXPENSE
Interest income was $5,000 for the three-month period ended March 31, 1997 and
$4,000 for the corresponding period in 1996. Interest expense was $115,000 for
the three-month period ended March 31, 1997 as compared to $64,000 for the
corresponding period in 1996. The increase in interest expense for the period
ended March 31, 1997 was due to the issuance of Subordinated Notes of the
Company in the fourth quarter of 1996 and the incurrence of additional bank
borrowings during the second quarter of 1996 for equipment and facility
expansion.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, there was a positive cash flow from
operating activities of $150,000 which resulted primarily from an increase in
unearned retainer income of $1,145,000, an increase in trade accounts payable
and accrued expenses of $94,000, a decrease in inventory of $12,000, an increase
in deferred compensation of $6,000, amortization of discount on notes payable of
$1,000, depreciation and amortization of $280,000, a provision for losses on
accounts receivable of $55,000 and common stock issued for services of $38,000.
This was partially offset by a net loss of $317,000, an increase in prepaid
expenses, deferred charges, deferred financing fees and goodwill of $552,000, an
increase in accounts receivable of $332,000, an increase in prepaid and
refundable income taxes of $208,000, an increase in deferred income taxes of
$30,000, an increase in cash surrender value of life insurance of $23,000 and a
decrease in accrued rent payable of $19,000.
For the three months ended March 31, 1996, there was a positive cash flow from
operating activities of $43,000 which resulted from net income of $142,000, an
increase in unearned retainer income of $822,000, depreciation and amortization
of $269,000, a provision for losses on accounts receivable of $56,000 and an
increase in deferred compensation of $5,000. This was partially offset by a
decrease in trade accounts payable and accrued expenses of $423,000, an increase
in prepaid expenses, deferred charges, deferred financing fees and goodwill of
$322,000, an increase in inventory of $276,000, an increase in accounts
receivable of $175,000, a decrease in accrued rent payable of $35,000, an
increase in cash surrender value of life insurance of $15,000 and an increase in
deferred income taxes of $5,000.
The Company's financing activities for the three months ended March 31, 1997
include $130,000 for principal payments under notes payable offset by proceeds
from exercise of stock options of $26,000, resulting in net cash used in
financing activities of $104,000. This compares to principal borrowings under
notes payable of $232,000 and proceeds from exercise of stock options of $6,000,
10
<PAGE>
partially offset by principal payments under notes payable of $105,000,
resulting in net cash provided by financing activities of $133,000 for the three
months ended March 31, 1996.
The Company had investing activities of $374,000 for capital expenditures for
the three months ended March 31, 1997. This compares to $404,000 for capital
expenditures for the three months ended March 31, 1996. The major portion of the
expenditures for the three months ended March 31, 1997 was for the purchase of
computer equipment.
The Company's working capital increased by $150,000 to $4,087,000 on March 31,
1997 as compared to December 31, 1996. Cash balances were $306,000 and $634,000
on March 31, 1997 and December 31, 1996, respectively.
On October 31, 1996, the Company and its subsidiaries entered into a Note and
Warrant Purchase Agreement (the "Agreement") with Furman Selz SBIC, L.P.
("Furman Selz"). Pursuant to the Agreement, Furman Selz purchased from the
Company and its subsidiaries, for an aggregate consideration of $2,025,000,
five-year promissory notes ("Notes") in the principal amount of $2,025,000, and
ten-year warrants ("Warrants") to purchase 900,000 shares of the Company's
common stock, par value $.0001 per share ("Common Stock"), at $2.25 per share.
The Notes accrue interest at an annual rate of 12% on the unpaid principal
balance. Accrued but unpaid interest is due and payable on November 30, 1997,
November 30, 1998 and on May 30 and November 30 of each year thereafter,
commencing on May 30, 1999, except that final payment of interest shall be due
and payable on October 31, 2001. However, one-half of the interest due and
payable on November 30, 1997 shall be deferred and payable on November 30, 2000
and one-half of the interest due and payable on November 30, 1998, May 30, 1999
and November 30, 1999 shall be deferred and payable on October 31, 2001. Any
interest deferred shall compound and accrue interest at the rate of the Notes
until paid.
The Agreement also provides that the Company and its subsidiaries may enter into
an agreement on similar terms with SVP, S.A. or affiliates thereof, pursuant to
which SVP, S.A. may purchase Notes from the Company and its subsidiaries up to
the principal amount of $475,000, and Warrants to purchase up to 211,111 shares
of Common Stock. On November 30, 1996, the Company and SVP, S.A. entered into
such a Note and Warrant Agreement as described above, for an aggregate
consideration of $475,000. SVP, S.A. currently owns about 1,438,374 shares of
Common Stock, including shares issuable under outstanding Warrants, or
approximately 21.3% of the outstanding shares.
The Agreement further provides that Furman Selz and SVP, S.A. at their option,
can purchase up to the amount of their respective initial investments, up to an
11
<PAGE>
additional $2,500,000 in Notes and Warrants on the same terms and conditions as
the first $2,500,000, at any time before December 31, 1997.
On September 19, 1996 the Company signed a thirty-day Commercial Revolving
Promissory Note with State Street Bank and Trust Company (the "Bank") for
$500,000 at .25 percentage points above the prime rate. The Note expired on
October 18, 1996 and was accordingly paid in full and cancelled on that date.
The Note was in addition to the $2,000,000 Commercial Revolving Promissory Note
with State Street Bank signed on April 27, 1995.
On May 31, 1996 the Company signed a Commercial Term Loan and Security Agreement
with the Bank for $500,000. The Term Loan is for a period of five years at .75
percentage points above the prime rate and requires quarterly principal payments
of $25,000.
The Revolving and Term Promissory Notes are secured by all of the assets of the
Company. As of March 31, 1997, there was $1,725,000 outstanding on the term
loans and $0 outstanding under the $2,000,000 revolving credit agreement.
The Company expects to spend approximately $925,000 for capital items for the
remainder of 1997, the major portion of which will be to continue to enlarge the
local area network that serves the Company's library and on-line and research
areas. Such purchases are in connection with a general expansion of
infrastructure being undertaken by the Company in anticipation of increased
revenues (for which there can be no assurance).
The Company believes that cash flow from operations and borrowings under the
line of credit will be sufficient to cover its expected capital expenditures for
the next 12 months and that it has sufficient liquidity for the next 12 months.
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 wages and other
expenses, and anticipates that it will be able to do so in the future.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
B. REPORTS ON FORM 8-K
None
13
<PAGE>
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, 1997 /S/ ANDREW P. GARVIN
- ------------------- ------------------------------
Andrew P. Garvin, Chairman and
President
DATE: MAY 14, 1997 /S/ PETER J. FIORILLO
------------------- ---------------------------------
Peter J. Fiorillo
Executive Vice President
(Principal Financial Officer
and Principal Accounting Officer)
14
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(Replace this text with the legend)I
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<S> <C> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996 MAR-31-1996
<CASH> 306 634 0
<SECURITIES> 0 0 0
<RECEIVABLES> 3,164 2,887 0
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<INVENTORY> 2,269 2,281 0
<CURRENT-ASSETS> 7,214 6,975 0
<PP&E> 3,858 3,687 0
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<TOTAL-ASSETS> 13,840 12,996 0
<CURRENT-LIABILITIES> 3,127 3,038 0
<BONDS> 0 0 0
0 0 0
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<OTHER-SE> (120) 197 0
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