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 June 30, 1998
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: 7,112,119 shares as of
August 3, 1998.
<PAGE>
FIND/SVP, Inc.
CONTENTS
PART I. FINANCIAL INFORMATION Page
Consolidated Condensed Balance Sheets 3
June 30, 1998(unaudited) and December 31, 1997
Consolidated Condensed Statements of Operations 5
Six Months Ended June 30, 1998 and 1997(unaudited)
Consolidated Condensed Statements of Operations 6
Three Months Ended June 30, 1998 and 1997(unaudited)
Consolidated Condensed Statements of Cash Flows 7
Six Months Ended June 30, 1998 and 1997(unaudited)
Notes to Consolidated Condensed Financial 8
Statements
Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
2
<PAGE>
FIND/SVP INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
------ -------------------- -------------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash $1,312,000 $139,000
Accounts receivable, net 2,858,000 3,394,000
Note receivable 62,000 62,000
Prepaid and refundable income taxes 278,000 299,000
Deferred tax assets 319,000 286,000
Prepaid expenses and other current assets 422,000 328,000
Assets held for sale 1,459,000 1,558,000
-------------------- -------------------
Total current assets 6,710,000 6,066,000
-------------------- -------------------
Equipment and leasehold improvements, net 4,467,000 4,546,000
Other assets:
Deferred charges 234,000 245,000
Goodwill, net 112,000 117,000
Note receivable 32,000 63,000
Cash surrender value of life insurance 455,000 479,000
Deferred tax assets 409,000 681,000
Deferred financing fees, net 121,000 141,000
Security deposits 142,000 143,000
-------------------- -------------------
Total assets $12,682,000 $12,481,000
==================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities and Shareholders' Equity 1998 1997
------------------------------------ -------------------- -------------------
(unaudited) (audited)
<S> <C> <C>
Current liabilities:
Notes payable, current installments $500,000 $1,749,000
Trade accounts payable 626,000 1,305,000
Accrued expenses 1,876,000 1,872,000
Accrued interest, current installments 200,000 124,000
Other liabilities 250,000 --
-------------------- -------------------
Total current liabilities 3,452,000 5,050,000
-------------------- -------------------
Unearned retainer income 2,721,000 2,023,000
Notes payable, excluding current installments 3,554,000 3,801,000
Accrued interest, excluding current installments 203,000 104,000
Accrued rent payable 59,000 112,000
Deferred compensation 183,000 173,000
Shareholders' equity
Preferred stock, $0.0001 par value.
Authorized 2,000,000 shares; none
issued and outstanding -- --
Common stock, $0.0001 par value.
Authorized 20,000,000 shares;
7,111,319 and 6,575,669 shares issued
and outstanding at June 30, 1998
and December 31, 1997, respectively 1,000 1,000
Capital in excess of par value 4,882,000 3,872,000
Accumulated deficit (2,373,000) (2,655,000)
-------------------- -------------------
Total shareholders' equity 2,510,000 1,218,000
-------------------- -------------------
$12,682,000 $12,481,000
==================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Revenues $16,067,000 $15,737,000
------------------- -------------------
Operating expenses:
Direct costs 8,233,000 9,166,000
Selling, general and administrative
expenses 6,789,000 7,526,000
Restructuring charge 321,000 --
------------------- -------------------
Operating income (loss) 724,000 (955,000)
Interest income 15,000 9,000
Other income 364,000 --
Interest expense (267,000) (244,000)
Other expense (315,000) --
------------------- -------------------
Income (loss) before provision (benefit)
for income taxes 521,000 (1,190,000)
Provision (benefit) for income taxes 239,000 (503,000)
------------------- -------------------
Net income (loss) 282,000 (687,000)
=================== ===================
Income (loss) per common and common stock equivalent share:
Basic $0.04 ($0.10)
=================== ===================
Diluted 0.04 (0.10)
=================== ===================
Weighted average number of common and common stock
equivalent shares outstanding:
Basic 7,075,165 6,584,567
=================== ===================
Diluted 7,081,861 6,584,567
=================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Revenues $7,870,000 $7,905,000
------------------- -------------------
Operating expenses:
Direct costs 3,909,000 4,662,000
Selling, general and administrative
expenses 3,281,000 3,754,000
------------------- -------------------
Operating income (loss) 680,000 (511,000)
Interest income 8,000 4,000
Other income 75,000 --
Interest expense (131,000) (129,000)
Other expense (26,000) --
------------------- -------------------
Income (loss) before provision (benefit)
for income taxes 606,000 (636,000)
Provision (benefit) for income taxes 278,000 (266,000)
------------------- -------------------
Net income (loss) 328,000 (370,000)
=================== ===================
Income (loss) per common and common stock equivalent share:
Basic $0.05 ($0.06)
=================== ===================
Diluted 0.05 (0.06)
=================== ===================
Weighted average number of common and common stock
equivalent shares outstanding:
Basic 7,108,152 6,595,317
=================== ===================
Diluted 7,117,444 6,595,317
=================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 282,000 $(687,000)
------------------- ------------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 568,000 560,000
Amortization of discount on notes payable 3,000 2,000
Amortization of deferred financing fees 20,000 17,000
Provision for losses on accounts receivable 97,000 106,000
Common stock issued for services -- 38,000
Increase in deferred compensation 10,000 11,000
Decrease in accrued rent payable (53,000) (41,000)
Increase in cash surrender value of life insurance (18,000) (27,000)
Decrease (increase) in deferred income taxes 239,000 (45,000)
Decrease in assets held for sale 99,000 --
Change in assets and liabilities:
Decrease (increase) in accounts receivable 439,000 (602,000)
Decrease (increase) in prepaid & refundable income taxes 21,000 (461,000)
Decrease in inventories -- 119,000
Increase in prepaid expenses, deferred charges and
security deposits (173,000) (564,000)
(Decrease) increase in trade accounts payable
and accrued expenses (675,000) 387,000
Increase in accrued interest 175,000 138,000
Increase in unearned retainer income 698,000 722,000
------------------- ------------------
Total adjustments 1,450,000 360,000
------------------- ------------------
Net cash provided by (used in) operating activities 1,732,000 (327,000)
Investing Activities:
Capital expenditures (393,000) (1,382,000)
Increase in other liabilities 250,000 --
Surrender of life insurance 42,000 --
Repayment of notes receivable 31,000 --
------------------- ------------------
Net cash used in investing activities (70,000) (1,382,000)
------------------- ------------------
Financing Activities:
Principal borrowings under notes payable -- 1,722,000
Principal payments under notes payable (1,499,000) (261,000)
Proceeds from issuance of convertible note 250,000 --
Proceeds from exercise of stock options 10,000 25,000
Proceeds from issuance of common stock 750,000 --
Repurchase of treasury stock (206,000) (55,000)
Proceeds from insurance company, net of expenses 206,000 --
Increase in deferred financing fees -- (11,000)
------------------- ------------------
Net cash (used in) provided by financing activities (489,000) 1,420,000
------------------- ------------------
Net increase (decrease) in cash 1,173,000 (289,000)
Cash at December 31, 1997 and 1996 139,000 634,000
------------------- ------------------
Cash at June 30, 1998 and 1997 $1,312,000 $345,000
=================== ==================
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE>
FIND/SVP, INC. and Subsidiary
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 June 30, 1998, and the results of operations
for the three and six month periods ended June 30, 1998 and 1997 and cash flows
for the six month periods ended June 30, 1998 and 1997. Operating results for
the three and six month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
The Company has reclassified certain prior year balances to conform with current
presentation.
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, 1997
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
B. ASSETS HELD FOR SALE
In the Company's Form 10-K for the year ended December 31, 1997, the Company
announced its intention to sell the majority of assets held in its Published
Research Division, and, accordingly, retained the services of an investment
banking firm to effectuate the sale. As a result, the Company has reported the
carrying value of the assets held for sale at the lower of cost or their
estimated net realizable values. The Company has presented the assets held for
sale as a separate line item in its June 30, 1998 and December 31, 1997
consolidated balance sheets.
On July 2, 1998, the Company completed the sale of the aforementioned assets
pursuant to an Asset Purchase Agreement dated as of June 26, 1998. The assets
included, among other things, the tangible and intangible assets, properties,
rights and business of Published Products relating to the following product
lines of Published Products: (i) FIND/SVP Market Intelligence Reports; (ii)
Packaged Facts Market Intelligence Reports; (iii) Specialists in Business
Information Market Intelligence Reports; (iv) MarketLinks; (v) Ice Cream Report:
The Newsletter for Ice Cream Executives; (vi) How to Find Market Research
Online; (vii) Analyzing Your Competition; (viii) Finding Business Research on
the Web; and (ix) ShareFacts. The Company received, in consideration of the
sale, $1,250,000 in cash, a
8
<PAGE>
Promissory Note (the "Note") in the amount of $550,000 and the purchaser assumed
certain liabilities in the amount of $85,000. The Note bears interest at a rate
of 8% per annum and is payable in four equal annual installments commencing June
26, 1999. Interest is payable annually with each installment of principal. The
Company was granted a purchase money security interest in the assets, which is
subordinate to a security interest in assets held by a lender of the purchaser.
The Note is guaranteed by a principal of the purchaser. During the six months
ended June 30, 1998, revenues from the assets held for sale were $2,522,000. On
June 29, 1998, the Company received a payment of $250,000 related to the
aforementioned transaction. The final payment of $1,000,000 was received on July
2, 1998. Accordingly, the Company recorded the receipt of the $250,000 as an
other liability as of June 30, 1998.
C. EARNINGS (LOSS) PER SHARE
During March 1997, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." The Company adopted the provisions of SFAS No. 128 on December 31, 1997.
SFAS No. 128, which supercedes Accounting Principles Board ("APB") Opinion No.
15, requires dual presentation of basic and diluted earnings (loss) per share on
the face of the income statement.
Basic earnings (loss) per share excludes dilution and is computed by dividing
net income or loss attributable to common stockholders by the weighted-average
number of common shares outstanding for the period. During the six and three
month periods ended June 30, 1998, there were 7,075,165 and 7,108,152,
respectively, weighted-average common shares outstanding. During the six and
three month periods ended June 30, 1997, there were 6,584,567 and 6,595,317,
respectively, weighted-average common shares outstanding. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings (loss) of the entity. Diluted earnings per share is calculated
similarly to fully diluted earnings per share under APB Opinion No. 15. During
the six and three month period ended June 30, 1998, there were 7,081,861 and
7,117,444, respectively, diluted weighted-average common and common equivalent
shares outstanding. During the six and three month periods ended June 30, 1997,
diluted earnings per share is the same as basic as all common share equivalents
were antidilutive as the Company had a net loss for those periods.
Common share equivalents that could potentially dilute basic earnings (loss) per
share in the future and that were not included in the computation of diluted
earnings (loss) per share because they were
9
<PAGE>
antidilutive were 2,629,977 and 2,614,527 for the six and three month periods
ended June 30, 1998, respectively, and 1,290,039 and 1,316,163 for the six and
three month periods ended June 30, 1997.
D. BORROWINGS
On April 3, 1998, the Company signed an amendment to the Commercial Revolving
Promissory Note (the "Note") with State Street Bank and Trust ("the Bank"),
dated April 27, 1995, extending the availability of the Note until March 25,
1999. The credit available under the Note has been reduced from $3,000,000 to
$1,000,000, less $158,000 of currently outstanding letters of credit. The
interest rate on the Note is the Bank's prime rate plus one-quarter of one
percent (currently 8.75%).
The Company's Revolving and Term Promissory Notes with the Bank are secured by a
$2,000,000 letter of credit posted on March 27, 1998, by SVP S.A. ("SVP"), a
major shareholder of the Company, and all of the assets of the Company. As of
June 30, 1998, there was $1,100,000 outstanding on the term loans and zero
outstanding under the revolving credit agreement. The revolving credit agreement
is used to secure certain long-term letters of credit in the amount of $158,000.
As such, as of June 30, 1998, the availability under the revolving credit
agreement was $842,000. Under the terms of the agreement, the Company has been
required to retain the services of an outside management consultant, originally
retained in October 1997, through September 30, 1998.
E. INCOME TAXES
The $239,000 provision for income taxes as of June 30, 1998 represents 45.9% of
the income before provision for income taxes as of June 30, 1998. The provision
consists of federal, state and local income taxes. Based on the Company's
history of prior operating earnings related to its research-for-hire businesses,
management has determined that a valuation allowance of $519,000 is necessary at
June 30, 1998 and December 31, 1997, due to the uncertainty of future earnings
to realize the entire net deferred tax asset. The effective tax benefit was
42.3% as of June 30, 1997. The benefit represented 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.
F. MARKET FOR COMPANY'S COMMON EQUITY
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ recently made changes in the criteria for continued NASDAQ
eligibility. The Company's failure to meet NASDAQ's maintenance criteria in the
future may result in the discontinuance of
10
<PAGE>
the inclusion of its securities on NASDAQ. In such event, trading, if any, in
the securities may then continue to be conducted in the non-NASDAQ
over-the-counter market in what are commonly referred to as the electronic
bulletin board and the "pink sheets". As a result, an investor may find it more
difficult to dispose of or to obtain accurate quotations as to the market value
of the securities. In addition, the Company would be subject to a Rule
promulgated by the Securities and Exchange Commission (the "Commission") that,
if the Company fails to meet criteria set forth in such rule, imposes various
practice requirements on broker-dealers who sell securities governed by the Rule
to persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. Consequently, the rule may have an
adverse effect on the ability of brokers-dealers to sell the securities, which
may affect the ability of purchasers in the offering to sell the securities in
the secondary market.
On February 27, 1998, the Company received notification from the NASDAQ Stock
Market, Inc. ("NASDAQ") that the Company was not in compliance with the new
minimum bid price requirement which became effective on February 23, 1998. In
order to regain compliance with this standard the Company's common shares had to
have a closing bid price at or above the minimum for at least ten consecutive
trading days by no later than May 28, 1998. The standard requires a minimum
closing bid price of $1.00 per share. During April 1998, the Company's common
shares met the closing bid requirement for ten consecutive trading days.
Accordingly, the Company is currently in compliance with the new minimum bid
requirement.
11
<PAGE>
FIND/SVP, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Six months ended June 30, 1998 compared to six months ended June 30, 1997. Three
months ended June 30, 1998 compared to three months ended June 30, 1997.
GENERAL
FIND/SVP, Inc. provides a broad consulting and business intelligence service to
executives and other decision-making employees of client companies, primarily in
the United States. The Company operates in one business segment, providing
consulting and research services and products including (as of June 30, 1998):
the Quick Consulting and Research Service ("QCS") which provides retainer
clients with access to the expertise of the Company's staff and information
resources; the Strategic Consulting and Research Division ("SRD") which provides
more extensive, in-depth custom market research and competitive intelligence
information as well as customer satisfaction and loyalty programs; and the
Published Research Division which provides copyrighted, syndicated and
off-the-shelf studies on various industries and markets. The Company has
considered its QCS and SRD service businesses, which operate as
"research-for-hire" businesses, to be its core competency.
During the fourth quarter of 1997, the Company determined it would re-focus its
efforts on its core competency. Along with selling certain assets and ceasing
the operation of a subsidiary during the fourth quarter of 1997, the Board of
Directors voted in favor of a plan to effectuate the sale of substantially all
of its assets in the Published Research Division (including newsletters), as
reported in the Company's Form 10-K filed for the year-ended December 31, 1997.
In July 1998, the Company completed the sale of the aforementioned Published
Research Division assets. In consideration of the sale the Company received
$1,250,000 in cash ($250,000 was received on June 29, 1998 and $1,000,000 was
received on July 2, 1998), a promissory note bearing interest at 8% per annum in
the amount of $550,000 and the purchaser assumed certain liabilities in the
amount of $85,000. The Company does not anticipate recording a material gain or
loss from this transaction. The revenues from Published Research accounted for
19%, 20% and 21% of the Company's total revenues during 1997, 1996 and 1995,
respectively, and revenues from newsletters accounted for less than 1% of the
Company's revenues during those years. Revenues of $2,522,000 were generated
from the assets held for sale during the six months ended June 30, 1998. As
such, overall revenues for 1998 are expected to decline versus 1997.
12
<PAGE>
During the six months ended June 30, 1998, the Company continued its initiative
to reduce operating expenses which began during the quarter ended September 30,
1997. Primarily as a result of the initiative, there was a reduction in direct
costs as a percentage of revenues to 51.2% for the six months ended June 30,
1998, as compared to 58.2% for the six months ended June 30, 1997. Additionally,
selling, general and administrative expenses were 42.3% of revenues for the six
months ended June 30, 1998, versus 47.8% for the six months ended June 30, 1997.
On March 27, 1998, the Company reduced its full-time labor force in its core
businesses by 20 positions. As a result, the Company recorded a restructuring
charge of $321,000 during the quarter ended March 31, 1998. The Company believes
this action, coupled with the significant cost reductions in operating expenses
and non full-time labor over the past three quarters, has significantly improved
its ability to return to profitability for 1998, but there can be no assurances
in this regard.
The Company had operating income of $724,000 for the six months ended June 30,
1998, inclusive of the $321,000 restructuring charge. This compares favorably to
an operating loss of $955,000 for the six months ended June 30, 1997. The net
income for the six months ended June 30, 1998 was $282,000 versus a $687,000 net
loss for the six months ended June 30, 1997.
During the six months ended June 30, 1998, the Company's cash flow from
operating activities provided $1,732,000 versus negative cash flow from
operating activities of $327,000 for the six months ended June 30, 1997. This,
coupled with a $1,000,000 capital stock investment from SVP, a major shareholder
of the Company, received during the first quarter of 1998 ($250,000 of which was
originally issued as a convertible note), enabled the Company to pay down its
Commercial Revolving Promissory Note with State Street Bank and Trust Company
during the first quarter of 1998 to zero from $1,249,000 as of December 31,
1997. At June 30, 1998, letters of credit totaling $158,000 remain outstanding.
OPERATING REVENUES
Operating revenues increased by $330,000 or 2.1% to $16,067,000 for the
six-month period ended June 30, 1998 and decreased by $35,000 or 0.4% to
$7,870,000 for the three-month period ended June 30, 1998 as compared to the
comparable periods of the prior year.
The Company's Quick Consulting and Research Service ("QCS") revenues grew by
$544,000 or 5.4% to $10,601,000 for the six-month period ended June 30, 1998,
and by $276,000 or 5.5% to $5,337,000 for the three-
13
<PAGE>
month period ended June 30, 1998 as compared to the comparable periods of the
prior year. The increase was due primarily to an increase in the average fee
paid per client. As of June 30, 1998, the Company has experienced a 2.5% and
1.8% reduction in its monthly retainer base as compared to the retainer base at
the quarters ended March 31, 1998 and December 31, 1997. The reduction was
primarily due to rate reductions granted to clients in June 1998, based on their
recent usage history of the service. This is the first reduction in monthly
retainer base, on a quarterly comparison, in the Company's history. As such, the
Company does not anticipate QCS revenues in the last six months of 1998 to grow
versus the last six months of 1997. During July 1998, the Company made various
operating and management changes in its Business Development Department which
are expected to have a positive impact on the retainer base over the last six
months of 1998, but there can be no assurances in this regard. The changes
include a decision by the Board of Directors to eliminate the position of Vice
President of Business Development as of June 30, 1998. The Company's President
and CEO will be taking over the responsibilities on an interim basis. The
Company has recorded a charge of $80,000 for severance and related costs as a
selling, general and administrative expense as of June 30, 1998.
Revenues in the Strategic Consulting and Research ("SRD") area increased by
$408,000 or 16.7% to $2,857,000 for the six-month period ended June 30, 1998 and
by $63,000 or 5.1% to $1,290,000 for the three-month period ended June 30, 1998,
as compared to the comparable periods of the prior year. The increase reflects
increases in the number of assignments and their average size, resulting from
improved marketing. During the second quarter of 1998, SRD experienced a
reduction in its growth rate compared to the first quarter of 1998, versus the
comparable quarters of 1997 (28.2% in the first quarter versus 5.1% in the
second quarter). This trend is expected to continue through 1998, and SRD could
experience revenue declines during the final six months of 1998 compared to the
same period of 1997, due primarily to staff turnover and the high level of
revenues experienced during the last six months of 1997.
Published Research revenues decreased by $621,000 or 19.8% to $2,514,000 for the
six-month period ended June 30, 1998 and by $374,000 or 23.9% to $1,194,000 for
the three-month period ended June 30, 1998, as compared to the comparable
periods of the prior year. The decrease in revenues for the six and three month
periods was due primarily to the decline in revenues of $458,000 and $290,000,
respectively, from the Emerging Technologies Research Group ("ETRG") caused by
the sale of certain assets and the primary businesses of ETRG during the fourth
quarter of 1997. The Company did retain rights to certain published
off-the-shelf studies at the time of the sale, and did recognize revenues from
those assets in its Published Research area during the first six months of 1998.
These studies were included in the sale of assets of the Published Research
Division.
14
<PAGE>
The Company operates a small newsletter publishing operation. However, the
newsletters that are produced generated less than 1% of the Company's revenues
in 1998 and 1997. One of the Company's newsletters was not included in the sale
of assets of the Published Research Division.
Revenues of $2,522,000 were generated from Published Research and Newsletter
assets held for sale for the six months ended June 30, 1998. The sale of
substantially all of the assets of Published Research was completed on July 2,
1998. As such, ongoing revenues from the remaining assets of FIND/SVP Published
Products, Inc. are expected to be immaterial to the future results of the
Company, and overall revenues for 1998 are expected to decline versus 1997.
DIRECT COSTS
Direct costs decreased by 10.2% or $933,000 to $8,233,000 for the six-month
period ended June 30, 1998 and by $753,000 or 16.2% to $3,909,000 for the
three-month period ended June 30, 1998, as compared to the comparable periods of
1997. As a percent of revenues, direct costs decreased to 51.2% for the
six-month period ended June 30, 1998, from 58.2% for the corresponding period in
1997. As a percent of revenues, direct costs decreased to 49.7% for the
three-month period ended June 30, 1998, from 59.0% for the corresponding period
in 1997. The decrease in total direct costs and direct costs as a percentage of
revenues are due primarily to the sale of the ETRG assets in the fourth quarter
of 1997 and the cost reduction of direct operating expenses which began during
the third quarter of 1997. The further decline in direct costs during the second
quarter of 1998 is reflective of the reduction of full-time labor on March 27,
1998 which resulted in a restructuring charge during the first quarter of 1998
(see Restructuring Charge below).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses declined by 9.8% or $737,000 to
$6,789,000 for the six-month period ended June 30, 1998 and by 12.6% or $473,000
to $3,281,000 for the three-month period ended June 30, 1998, as compared to the
corresponding period of the prior year. As a percent of revenues, selling,
general and administrative expenses decreased to 42.3% for the six-month period
ended June 30, 1998, from 47.8% for the corresponding period in 1997. As a
percent of revenues, selling, general and administrative expenses decreased to
41.7% for the three-month period ended June 30, 1998, from 47.5% for the
corresponding period in 1997. The decrease in expenses in the selling, general
and administrative areas is due primarily to the reduction of labor in the
general and administrative area during the fourth quarter of 1997 (as reported
in the Company's
15
<PAGE>
Form 10-K for the year ended December 31, 1997) and the cost reduction of
general operating expenses which began during the third quarter of 1997. The
further decline in selling, general and administrative expenses during the
second quarter of 1998 is reflective of the reduction of full-time labor on
March 27, 1998, which resulted in a restructuring charge during the first
quarter of 1998 (see Restructuring Charge below).
RESTRUCTURING CHARGE
On March 27, 1998, the Company reduced its full-time labor force in its core
business by 20 positions. As a result the Company has recorded a restructuring
charge of $321,000 during the quarter ended March 31, 1998. The charge consists
mainly of severance payments, which will be fully paid by January 31, 1999,
outplacement services and legal costs associated with the elimination of the
positions.
OPERATING INCOME (LOSS)
Operating income was $724,000 for the six-month period ended June 30, 1998, as
compared to an operating loss of $955,000 for the corresponding period in 1997.
Operating income was $680,000 for the three-month period ended June 30, 1998, as
compared to an operating loss of $511,000 for the corresponding period in 1997.
The operating income for the six months ended June 30, 1998 was due primarily to
the reduction of direct costs and selling and general and administrative costs
as a percentage of revenues, partially offset by the $321,000 restructuring
charge related to the elimination of full-time positions during the period. The
operating loss for the six months ending June 30, 1997 was due primarily to an
increase in costs associated with a growth strategy implemented during the
fourth quarter of 1996. During the fourth quarter of 1997, the Company abandoned
that strategy and re-focused its efforts on its core "research-for-hire"
businesses.
INTEREST INCOME AND EXPENSE
Interest income was $15,000 for the six-month period ended June 30, 1998, and
$9,000 for the corresponding period in 1997. Interest income was $8,000 for the
three-month period ended June 30, 1998, and $4,000 for the corresponding period
in 1997. Interest expense was $267,000 for the six-month period ended June 30,
1998, as compared to $244,000 for the corresponding period in 1997. Interest
expense was $131,000 for the three-month period ended June 30, 1998, as compared
to $129,000 for the corresponding period in 1997. The increase in interest
expense for the six and three month periods ended June 30, 1998, was due to the
issuance of Subordinated Notes of the Company in the third quarter of 1997,
coupled with borrowings under the Commercial Revolving Promissory Note during
the first quarter of 1998,
16
<PAGE>
partially offset by a reduction in interest expense on outstanding term notes
during the six months ended June 30, 1998, compared to the six months ended June
30, 1997.
OTHER INCOME AND EXPENSE
On May 29, 1998, the Company signed an agreement with its landlord to terminate
its lease for approximately 10,000 square feet of space on the third floor of
641 Avenue of the Americas. The Company received $75,000 in consideration from
the landlord for this transaction, and accordingly, recorded $75,000 of other
income during the quarter ended June 30, 1998. During the fourth quarter of
1997, in connection with ceasing the operation of a subsidiary, the Company
accrued rent on this space through March 31, 1998, in anticipation of the
termination of this lease. Accordingly, the rent and related expenses after
March 31, 1998, through the date of the aforementioned agreement, of $26,000 has
been recorded as other expenses during the quarter ended March 31, 1998.
During the quarter ended March 31, 1998, the Company settled litigation which
began during the second quarter of 1997. As part of the settlement, the Company
purchased 274,400 shares of the Company's common stock from the plaintiff for
$1.25 per share, totaling $343,000. The purchase price contained a premium of
$0.50 per share over the closing trade price of the Company's common stock on
the date of settlement, or $137,000. As a result of the above, the Company
recorded treasury stock of $206,000 and expense of $137,000. The Company used
proceeds from its insurance company of $495,000 to purchase the shares and to
pay plaintiff and Company legal fees in the amount of $110,000 and $42,000,
respectively. Accordingly, the Company recorded other income of $289,000 and
other expense of $289,000 related to this matter, with the remaining balance of
$206,000 offset against the aforementioned treasury stock repurchase amount,
thus reducing the net treasury stock transaction to zero. Of the 274,400 shares
purchased by the Company, 200,000 shares were issued to SVP to convert the
convertible note issued on January 15, 1998 into common stock and 74,400 shares
were retired.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, there was a positive cash flow from
operations of $1,732,000 which resulted from net income of $282,000, an increase
in unearned retainer income of $698,000, depreciation and amortization of
$568,000, a decrease in accounts receivable of $439,000, a decrease in deferred
income taxes of $239,000, an increase in accrued interest of $175,000, a
decrease in assets held for sale of $99,000, a provision for losses on accounts
receivable of $97,000, a decrease in prepaid and refundable income taxes of
$21,000, amortization of deferred financing fees of $20,000,
17
<PAGE>
an increase in deferred compensation of $10,000 and amortization of discount on
notes payable of $3,000. This was partially offset by a decrease in trade
accounts payable and accrued expenses of $675,000, a decrease in prepaid
expenses, deferred charges and goodwill of $173,000, a decrease in accrued rent
payable of $53,000 and an increase in cash surrender value of life insurance of
$18,000.
For the six months ended June 30, 1997, there was a negative cash flow from
operating activities of $327,000 which resulted from a net loss of $687,000, an
increase in accounts receivable of $602,000, an increase in prepaid expenses,
deferred charges and goodwill of $564,000, an increase in prepaid and refundable
income taxes of $461,000, an increase in deferred income taxes of $45,000, a
decrease in accrued rent payable of $41,000 and an increase in cash surrender
value of life insurance of $27,000. This was partially offset by an increase in
unearned retainer income of $722,000, depreciation and amortization of $560,000,
an increase in trade accounts payable and accrued expenses of $387,000, an
increase in accrued interest of $138,000, a decrease in inventories of $119,000,
a provision for losses on accounts receivable of $106,000, common stock issued
for services of $38,000, amortization of deferred financing fees of $17,000, an
increase in deferred compensation of $11,000 and amortization of discount on
notes receivable of $2,000.
The Company's financing activities for the six months ended June 30, 1998
include principal payments under notes payable of $1,499,000, which includes the
pay down of $1,249,000 on the Company's credit line and $250,000 on outstanding
term debt, and $206,000 repurchase of treasury stock, partially offset by
proceeds from the issuance of common stock to SVP of $750,000, proceeds from the
issuance of convertible note of $250,000, proceeds from insurance company, net
of expenses, of $206,000 and proceeds from exercise of stock options of $10,000,
resulting in net cash used in financing activities of $489,000. This compares to
principal borrowings under notes payable of $1,722,000 and proceeds from
exercise of stock options of $25,000, partially offset by principal payments
under notes payable of $261,000 on outstanding term debt, $55,000 repurchase of
treasury stock and an increase in deferred financing fees of $11,000, resulting
in net cash provided by financing activities of $1,420,000 for the six months
ended June 30, 1997.
The Company had investing activities of $393,000 for capital expenditures,
partially offset by an increase in other liabilities of $250,000, the surrender
of life insurance of $42,000 and the repayment of notes receivable of $31,000,
resulting in net cash used in investing activities of $70,000, for the six
months ended June 30, 1998. This compares to $1,382,000 for capital expenditures
for the six months ended June 30, 1997. The major portion of the expenditures
for the six months ended June 30, 1998 was for the enhancement of Questrac
18
<PAGE>
III, the Company's internal proprietary management information system, and the
purchase of computer equipment.
The Company's working capital increased by $2,242,000 to $3,258,000 on June 30,
1998, as compared to December 31, 1997, due primarily to the $1,732,000 net cash
provided by operating activities and the $750,000 and $250,000 proceeds from the
issuance of common stock and the convertible note, respectively, to SVP,
partially offset by capital expenditures of $393,000 and principal payments
under long-term notes payable of $250,000. Cash balances were $1,312,000 and
$139,000 on June 30, 1998 and December 31, 1997, respectively.
The Company has debt agreements with State Street Bank and Trust (the "Bank")
pursuant to which there is a Commercial Revolving Promissory Note (the
"Revolving Note") and outstanding two term notes (the "Term Notes"). As amended,
the availability under the Revolving Note, originally signed on April 27, 1995,
is $1,000,000. The availability under the Revolving Note is reduced by
outstanding letters of credit in the amount of $158,000. As of June 30, 1998,
there is zero outstanding under the Revolving Note. The interest rate on the
Revolving Note is the Bank's prime rate plus one-quarter of one percent
(currently 8.75%). The Revolving Note expires on March 25, 1999.
The two outstanding Term Notes, originally signed on April 27, 1995 and May 31,
1996, for $2,000,000 and $500,000, respectively, have an aggregate outstanding
principal balance of $1,100,000 as of June 30, 1998. The $2,000,000 Term Note is
for a period of five years at an interest rate of 8.86% per annum and requires
quarterly principal payments of $100,000. As of June 30, 1998, there was
$800,000 outstanding on this Term Note. The $500,000 Term Note is for a period
of five years at an interest rate of .75 percentage points above the Bank's
prime rate (currently 9.5%) and requires quarterly principal payments of
$25,000. As of June 30, 1998, there was $300,000 outstanding on this Term Note.
The Bank has a security interest in all of the assets of the Company.
Additionally, on March 27, 1998, SVP provided credit support in the form of a
$2,000,000 letter of credit. The dollar amount of the letter of credit is
required, at a minimum, to equal $1,000,000 plus the lesser of: (a) the
aggregate principal amount of the Term Notes ($1,100,000 at June 30, 1998) or
(b) $1,000,000. The debt agreements contain numerous covenants and require the
Company to retain the services of an outside management consultant, originally
retained in October 1997, through September 30, 1998.
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
19
<PAGE>
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, at $2.25 per share.
The Agreement also provided that the Company and its subsidiaries may enter into
an agreement on similar terms with SVP or affiliates thereof, pursuant to which
SVP 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 at $2.25 per share. On November 30, 1996, the Company and SVP entered into
such a Note and Warrant Agreement as described above, for an aggregate
consideration of $475,000.
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, and 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 further provided that Furman Selz and SVP, at their option, could
purchase up to the amount of their respective initial investments, up to an
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 August 25, 1997,
SVP purchased 475,000 units, consisting of $475,000 principal amount of Notes
and Warrants to purchase 211,111 shares of Common Stock at $2.25 per share. SVP,
at June 30, 1998, are beneficial owners of 3,075,085 shares of Common Stock,
including shares issuable under outstanding Warrants, or approximately 40.8% of
the outstanding shares if the Warrants are exercised.
The Company expects to spend approximately $450,000 for capital items for the
remainder of 1998. The major portion of these expenditures will be for the
continued enhancement of internal software and computer equipment, as well as to
repair the HVAC system at one of its locations.
During the first quarter of 1998, the Company recorded a restructuring charge of
$321,000. As of June 30, 1998, $190,000 related to this charge remains accrued
but unpaid. The Company expects the remaining amount to be paid by January 31,
1999.
20
<PAGE>
The Company believes that cash flow from operations and borrowings under the
lines of credit, along with the proceeds from the sale of assets held for sale
at June 30, 1998, will be sufficient to cover its expected capital expenditures
for the next 12 months and that it will have 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.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-Q
that are not related to historical results, are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events, which may not prove to be accurate.
These forward looking statements involve risks and uncertainties, including but
not limited to the Company's future cash flows, sales, gross margins and
operating costs, the effect of conditions in the industry and the economy in
general. Other factors that might cause actual results to differ materially
include: conditions of the general economy and in the markets served by the
Company; competitive factors such as price pressures and the potential emergence
of rival technologies; timely development and market acceptance of new products;
continued acceptance of the Company's existing products; uncertainties related
to the success of the Company's cost-cutting plans; changes in product mix and
cost; uncertainties related to litigation; NASDAQ's new continued listing
criteria; and the risk factors listed from time to time in the Company's SEC
filings. Subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by cautionary statements in this paragraph and elsewhere in this Form
10-Q, and in other reports filed by the Company with the Securities and Exchange
Commission.
ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", was issued. SFAS
133 established accounting and reporting standards for derivative instruments
and for hedging activities. SFAS 133 requires that an entity recognize all
21
<PAGE>
derivatives as either assets or liabilities and measure those instruments at
fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 can not be applied retroactively to
financial statements of prior periods. At the current time the Company does not
utilize derivative instruments, and accordingly it is anticipated that the
adoption of SFAS 133 will not have a material impact on the Company's
consolidated financial position and results of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None
B. Reports on Form 8-K
None
22
<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: August 14, 1998 /s/ Andrew P. Garvin
- ---------------------- --------------------
Andrew P. Garvin, Chairman,
Chief Executive Officer and
President
Date: August 14, 1998 /s/ Peter J. Fiorillo
- ---------------------- ---------------------
Peter J. Fiorillo
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
23
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