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 September 30, 1998
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Commission file no. 0-15152
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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
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (212) 645-4500
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
Indicate 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: 7,114,169 shares as of November 6,
1998.
<PAGE>
FIND/SVP, Inc.
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CONTENTS
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PART I. FINANCIAL INFORMATION Page
Consolidated Condensed Balance Sheets 3
September 30, 1998(unaudited) and December 31, 1997
Consolidated Condensed Statements of Operations 5
Nine Months Ended September 30, 1998 and 1997(unaudited)
Consolidated Condensed Statements of Operations 6
Three Months Ended September 30, 1998 and 1997(unaudited)
Consolidated Condensed Statements of Cash Flows 7
Nine Months Ended September 30, 1998 and 1997(unaudited)
Notes to Consolidated Condensed Financial 8
Statements
Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURES 30
2
<PAGE>
FIND/SVP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
------ ------------ ------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash $ 2,558,000 $ 139,000
Accounts receivable, net 2,052,000 3,394,000
Notes receivable 200,000 62,000
Prepaid and refundable income taxes 278,000 299,000
Deferred tax assets 299,000 286,000
Prepaid expenses and other current assets 394,000 328,000
Assets held for sale -- 1,558,000
----------- -----------
Total current assets 5,781,000 6,066,000
----------- -----------
Equipment and leasehold improvements, net 4,258,000 4,546,000
Other assets:
Deferred charges 202,000 245,000
Goodwill, net 109,000 117,000
Notes receivable 428,000 63,000
Cash surrender value of life insurance 516,000 479,000
Deferred tax assets 326,000 681,000
Deferred financing fees, net 111,000 141,000
Security deposits 142,000 143,000
----------- -----------
Total assets $11,873,000 $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>
September 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 535,000 1,305,000
Accrued expenses 1,997,000 1,872,000
Accrued interest, current installments 223,000 124,000
----------- -----------
Total current liabilities 3,255,000 5,050,000
----------- -----------
Unearned retainer income 1,901,000 2,023,000
Notes payable, excluding current installments 3,431,000 3,801,000
Accrued expenses 224,000 --
Accrued interest, excluding current installments 239,000 104,000
Accrued rent payable 2,000 112,000
Deferred compensation 188,000 173,000
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;
7,114,169 and 6,575,669 shares issued
and outstanding at September 30, 1998
and December 31, 1997, respectively 1,000 1,000
Capital in excess of par value 4,886,000 3,872,000
Accumulated deficit (2,254,000) (2,655,000)
----------- -----------
Total shareholders' equity 2,633,000 1,218,000
----------- -----------
$11,873,000 $12,481,000
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Nine months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $22,489,000 $23,930,000
----------- -----------
Operating expenses:
Direct costs 11,368,000 13,810,000
Selling, general and administrative
expenses 9,782,000 11,422,000
Restructuring charge 321,000 --
----------- -----------
Operating income (loss) 1,018,000 (1,302,000)
Interest income 51,000 10,000
Other income 364,000 --
Gain on sale of assets 20,000 --
Interest expense (395,000) (426,000)
Other expense (315,000) --
----------- -----------
Income (loss) before provision (benefit)
for income taxes 743,000 (1,718,000)
Provision (benefit) for income taxes 342,000 (608,000)
----------- -----------
Net income (loss) 401,000 (1,110,000)
=========== ===========
Income (loss) per common and common stock
equivalent share:
Basic $0.06 ($0.17)
=========== ===========
Diluted 0.06 (0.17)
=========== ===========
Weighted average number of common and common stock
equivalent shares outstanding:
Basic 7,087,641 6,589,502
=========== ===========
Diluted 7,094,558 6,589,502
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Revenues $6,422,000 $8,193,000
---------- -----------
Operating expenses:
Direct costs 3,135,000 4,644,000
Selling, general and administrative
expenses 2,993,000 3,896,000
---------- ----------
Operating income (loss) 294,000 (347,000)
Interest income 36,000 1,000
Gain on sale of assets 20,000 --
Interest expense (128,000) (182,000)
---------- ----------
Income (loss) before provision (benefit)
for income taxes 222,000 (528,000)
Provision (benefit) for income taxes 103,000 (105,000)
---------- ----------
Net income (loss) 119,000 (423,000)
========== ==========
Income (loss) per common and common stock equivalent share:
Basic $0.02 ($0.06)
=========== ==========
Diluted 0.02 (0.06)
=========== ==========
Weighted average number of common and common stock equivalent
shares outstanding:
Basic 7,112,594 6,599,372
=========== ==========
Diluted 7,123,593 6,599,372
=========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 401,000 $(1,110,000)
---------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 857,000 858,000
Amortization of discount on notes payable 5,000 4,000
Amortization of deferred financing fees 30,000 25,000
Gain on sale of assets (20,000) --
Provision for losses on accounts receivable 136,000 164,000
Common stock issued for services -- 38,000
Increase in deferred compensation 15,000 16,000
Decrease in accrued rent payable (110,000) (63,000)
Increase in cash surrender value of life insurance (79,000) (58,000)
Decrease (increase) in deferred income taxes 342,000 (307,000)
Decrease in assets held for sale 99,000 --
Change in assets and liabilities, net of non-cash effect
of asset sale:
Decrease (increase) in accounts receivable 1,206,000 (955,000)
Decrease (increase) in prepaid & refundable income taxes 21,000 (303,000)
Decrease in inventories -- 219,000
Increase in prepaid expenses, deferred charges and
security deposits (152,000) (517,000)
(Decrease) increase in trade accounts payable
and accrued expenses (742,000) 469,000
Increase in accrued interest 234,000 243,000
(Decrease) increase in unearned retainer income (122,000) 548,000
---------- -----------
Total adjustments 1,720,000 381,000
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Net cash provided by (used in) operating activities 2,121,000 (729,000)
Investing Activities:
Capital expenditures (431,000) (1,628,000)
Surrender of life insurance 42,000 --
Repayment of notes receivable 47,000 --
Proceeds from sale of net assets 1,250,000 --
---------- -----------
Net cash provided by (used in) investing activities 908,000 (1,628,000)
---------- -----------
Financing Activities:
Principal borrowings under notes payable -- 2,477,000
Principal payments under notes payable (1,624,000) (390,000)
Proceeds from issuance of convertible note - related party 250,000 --
Proceeds from exercise of stock options 14,000 59,000
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 -- (18,000)
---------- -----------
Net cash (used in) provided by financing activities (610,000) 2,073,000
---------- -----------
Net increase (decrease) in cash 2,419,000 (284,000)
Cash at December 31, 1997 and 1996 139,000 634,000
---------- -----------
Cash at September 30, 1998 and 1997 $2,558,000 $ 350,000
========== ===========
Non-cash financing activities:
Conversion of note into common stock $ 250,000 --
========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE>
FIND/SVP, INC. and Subsidiary
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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 September 30, 1998, and the results of
operations for the three and nine month periods ended September 30, 1998 and
1997 and cash flows for the nine month periods ended September 30, 1998 and
1997. Operating results for the three and nine month periods ended September 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. SALE OF PUBLISHING ASSETS
On July 2, 1998, the Company completed the sale of substantially all of the
assets of the Published Research Division pursuant to an Asset Purchase
Agreement dated as of June 26, 1998. The Company recorded a $20,000 gain related
to this sale. 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 ($250,000 was received on June
29, 1998, and $1,000,000 was received on July 2, 1998), a 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.
8
<PAGE>
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. Prior to the sale, during 1998,
revenues from the assets held for sale were $2,522,000.
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 nine and three
month periods ended September 30, 1998, there were 7,087,641 and 7,112,594,
respectively, weighted-average common shares outstanding. During the nine and
three month periods ended September 30, 1997, there were 6,589,502 and
6,599,372, 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 nine and three month periods ended September 30, 1998, there were 7,094,558
and 7,123,593, respectively, diluted weighted-average common and common
equivalent shares outstanding. During the nine and three month periods ended
September 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 antidilutive were 2,601,445 and
2,474,960 for the nine and three month periods ended September 30, 1998,
respectively, and 2,645,785 and 2,734,245 for the nine and three month periods
ended September 30, 1997.
9
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D. BORROWINGS
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
September 30, 1998, there was $975,000 outstanding on the term loans and zero
outstanding under the revolving credit agreement. The revolving credit agreement
of $1,000,000 is used to secure certain long-term letters of credit in the
amount of $158,000. As such, as of September 30, 1998, the availability under
the revolving credit agreement was $842,000.
E. INCOME TAXES
The $342,000 provision for income taxes as of September 30, 1998 represents 46%
of the income before provision for income taxes as of September 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 September 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 35.4% as of September 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. STOCK OPTION PLAN
On June 30, 1998, the Company's Board of Director's approved a plan to re-price
certain outstanding options held by employees on that date. The objective of
this plan was to motivate employee option holders that, in the discretion of the
Board, were not directly responsible for the financial condition of the Company,
but were, however, key individuals in regards to the future success of the
Company.
The eligibility for this program was based on the level of employment of the
individual holding the option. Excluded from the plan were all middle and upper
level management employees, including all officers and directors of the Company.
The options were re-priced to $1.0625 per share, the fair market value on June
30, 1998. All other aspects of the outstanding options remained the same,
including vesting schedule and termination date of the option. There were a
total of 89,550 options affected by this plan, with original issue dates between
1994 and 1998, and expiration dates ranging from 1999 to 2003.
10
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The original exercise price of the affected options ranged from $1.21 to $2.25,
and the weighted average exercise price of those options were $1.78.
Additionally, on October 5, 1998, the President of the Company relinquished
75,000 options previously granted to him in connection with his employment
contract. The vesting and pricing of said options was contingent upon the
Company meeting certain earnings levels over the life of his employment
contract. To date the earnings levels were not met, and accordingly, the
exercise price of those options had not yet been set.
G. 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 currently meets the NASDAQ requirements for continued
eligibility. If, in the future, the Company fails to meet NASDAQ's maintenance
criteria it may result in the discontinuance of 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.
H. IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs which were written using
only two digits, rather than four, to represent a year. Date sensitive software
or hardware may not be able to distinguish between 1900 and 2000 and programs
that perform arithmetic operations, comparisons or sorting of date fields may
begin yielding incorrect
11
<PAGE>
results. This could potentially cause a system failure or miscalculations that
could disrupt operations.
The Company has developed a remediation plan for its Year 2000 issue that
involves three overlapping phases:
1) Inventory - This phase includes the creation of an inventory of three
functional areas:
a) Applications and information technology (IT) equipment - These
include all mainframe, network and desktop hardware and software, including
custom and packaged applications, and IT embedded systems.
b) Non-information technology (non-IT) embedded systems - These include
non-IT equipment and machinery. Non-IT embedded systems, such as security, fire
prevention and climate control systems typically include embedded technology,
such as microcontrollers.
c) Vendor relationships - These include significant third party vendors
and suppliers of goods and services, as well as vendor and supplier interfaces.
The Company has substantially completed the inventory phase and expects to be
fully completed by December 1998.
2) Analysis - This phase includes the evaluation of the inventoried items for
Year 2000 compliance, the determination of the remeditation method and resources
required and the development of an implementation plan. A significant portion of
the analysis phase is complete. The Company expects to complete the analysis
phase for non-IT embedded systems by December 1998. All other components of the
analysis phase are expected to be completed by March 1999.
3) Implementation - This phase includes executing the implementation plan for
all applicable hardware and software, interfaces and systems. This involves
testing, in a Year 2000-simulated environment, the changes, beginning to utilize
the changed procedures in actual operations, and vendor interface testing. The
implementation phase, including testing for certain critical applications, has
commenced and is expected to be completed by June 1999 for applications and IT
equipment and non-IT embedded systems. All other components of the
implementation phase are expected to be completed by September 1999.
Additionally, subsequent to final implementation, the Company will conduct live
testing on January 1 and 2, 2000, before business commences on January 3, 2000.
The Company's remediation plan for its Year 2000 issue is an ongoing process and
the estimated completion dates above are subject to change.
12
<PAGE>
THE RISK OF THE COMPANY'S YEAR 2000 ISSUE
Overall, at this time the Company believes that its systems will be Year 2000
compliant in a timely manner for several reasons. Several significant marketing
and fulfillment systems are already compliant. In addition, the Company
extensively utilizes certain shared applications that should be remediated once
and then deployed. Also, comprehensive testing of all critical systems is
planned to be conducted in a simulated Year 2000 environment.
The Company believes that the area of greatest risk to the Company surrounding
the Year 2000 issue relates to significant suppliers' failing to remediate their
Year 2000 issues in a timely manner. The Company has relationships with certain
significant suppliers. These relationships may be material in the aggregate to
the Company. The Company relies on suppliers to deliver a broad range of
services, including Internet access, online search capabilities, supplies of
promotional materials and paper, warehouse facilities, lettershops which
assemble promotional mailings, postal delivery services, banking services,
telecommunications and electricity. The Company is conducting formal
communications with its significant suppliers to determine the extent to which
it may be affected by those third parties' plans to remediate their own Year
2000 issue in a timely manner. The level of preparedness of significant
suppliers can vary greatly. If a number of significant suppliers are not Year
2000 compliant, this could have a material adverse effect on the Company's
results of operations, financial position or cash flow.
THE COMPANY'S CONTINGENCY PLANS
The Company is developing its contingency plans and expects to have them
completed by June 1999. To mitigate the effects of the Company's or significant
suppliers' potential failure to remediate the Year 2000 issue in a timely
manner, the Company would take appropriate actions. Such actions may include
having arrangements for alternate suppliers, re-running the processes if errors
occur, using manual intervention to ensure the continuation of operations where
necessary, and scheduling activity in December 1999 that would normally occur at
the beginning of January 2000. If it becomes necessary for the Company to take
these corrective actions, it is uncertain, until the contingency plans are
finalized, whether this would result in significant delays in business
operations or have a material adverse effect on the Company's results of
operations, financial position or cash flow.
13
<PAGE>
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUE
The total cost of the Company's remediation plan is estimated at approximately
$75,000 to $100,000 and is being funded through operating cash flows. Of the
total cost, approximately $35,000 to $40,000 will be attributable to new
hardware and software that will be capitalized. The remainder of the cost will
be expensed as incurred. To date, none of the total cost of the remediation plan
has been spent, as the work to date has been performed by internal staff.
14
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FIND/SVP, Inc.
--------------
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Nine months ended September 30, 1998 compared to nine months ended September 30,
1997. Three months ended September 30, 1998 compared to three months ended
September 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 including: the Quick Consulting and Research
Service ("QCS") which provides retainer clients with access to the expertise of
the Company's staff and information resources; and the Strategic Consulting and
Research Group ("SCRG") which provides more extensive, in-depth custom market
research and competitive intelligence information as well as customer
satisfaction and loyalty programs. The Company has considered its QCS and SCRG
service businesses, which operate as "research-for-hire" businesses, to be its
core competency.
As such, during July 1998, the Company completed the sale of substantially all
of the assets of its Published Research Division. 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 principal amount of $550,000 and the purchaser assumed
certain liabilities in the amount of $85,000. The Company recorded a gain of
$20,000 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. During 1998, revenues of $2,522,000 were
generated from the assets prior to the sale. As such, overall revenues for 1998
are expected to decline versus 1997.
On October 5, 1998, the Board of Directors approved changes in the makeup of the
Board and the daily management of the Company. The intention of these changes is
to facilitate the Company's global growth in partnership with SVP International,
S.A., the Company's licensor (together with SVP, S.A.) a major shareholder of
the Company ("SVP").
15
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Brigitte de Gastines, President of SVP International and SVP, S.A., was named
Chairperson of the Board. Additionally, the Board formed an Office of Managing
Directors (OMD) consisting of four members: Ms. de Gastines, Jean-Louis Bodmer,
Vice President-Finance and New Technologies for SVP Group, and Eric Cachart, SVP
Group's Vice President of Development and Client Services, each of whom are
members of the Company's Board and each was elected an officer of the Company
with the title of Managing Director, and Andrew P. Garvin, the Company's
President and Chief Executive Officer. The members of the OMD are not currently
being compensated for their role as a member of the OMD.
The OMD will be reporting to the Board and will be responsible for the conduct
of the ordinary business affairs and operations of the Company and for defining
operating policies in alignment with SVP to take advantage of know-how and
technological efficiencies.
The Board also approved the formation of an Operating Management Group (OMG).
The OMG consists of the Company's Vice President of Client Services, Vice
President of International Strategic Research, Vice President-Chief Financial
Officer and Vice President of Human Resources. The group is responsible for
applying the Company's overall policies and strategies and for proposing
initiatives and supplemental strategies.
Further, the Board of Directors approved the appointment of Stephan Sigaud as
Vice President of Client Services. The Company's President and CEO, Andrew P.
Garvin, had filled this role on an interim basis since July 1, 1998. In this
role, Mr. Sigaud will be working closely with all members of the Office of
Managing Directors and the Operating Management Group, and will oversee all
day-to-day activities of the Quick Consulting Services area. Prior to assuming
these responsibilities, Mr. Sigaud oversaw the Company's Customer Satisfaction
and Loyalty Group since its inception in 1994.
The Board also accepted the resignation of Peter J. Fiorillo as a member of the
Board and as the Company's Chief Operating Officer and Chief Financial Officer,
effective September 30, 1998. In connection with his severance agreement,
coupled with the signing of a release and agreement not to compete dated October
5, 1998, and the immediate return of his outstanding options, Mr. Fiorillo will
be receiving his then current compensation, including benefits, for the next two
years. Accordingly, the Company has accrued $475,000 for severance and related
costs to selling, general and administrative expenses at September 30, 1998.
16
<PAGE>
Additionally, the Board amended the contract of Mr. Garvin, the Company's
President and Chief Executive Officer, to provide that at any time after the end
of calendar year 1999, Mr. Garvin may elect to voluntarily leave the employ of
the Company and receive the balance of his contract for the remaining term on
his employment contract. The term of the contract runs through 2001. Mr.
Garvin's current annual salary is $262,652, and he is entitled to cost of living
increases each January 1, for the life of the contract. Additionally, on October
5, 1998, Mr. Garvin relinquished 75,000 options previously granted to him in
connection with his employment contract. The vesting and pricing of said options
was contingent upon the Company meeting certain earnings levels over the life of
his employment contract. To date the earnings levels were not met, and
accordingly, the exercise price of those options had not yet been set.
During the nine months ended September 30, 1998, the Company continued to reduce
operating expenses, which was further enhanced by the sale of the majority of
assets in its Published Research area effective June 26, 1998. Accordingly,
there was a reduction in direct costs as a percentage of revenues to 50.6% for
the nine months ended September 30, 1998, as compared to 57.7% for the nine
months ended September 30, 1997. Additionally, selling, general and
administrative expenses were 43.5% of revenues for the nine months ended
September 30, 1998, versus 47.7% for the nine months ended September 30, 1997.
Excluding the $475,000 of severance and related costs noted above, the selling,
general and administrative expenses were 41.4% of revenue for the nine months
ended September 30, 1998.
The Company had operating income of $1,018,000 for the nine months ended
September 30, 1998. This compares favorably to an operating loss of $1,302,000
for the nine months ended September 30, 1997. The net income for the nine months
ended September 30, 1998 was $401,000 versus a $1,110,000 net loss for the nine
months ended September 30, 1997.
During the nine months ended September 30, 1998, the Company's cash flow from
operating activities provided $2,121,000 versus negative cash flow from
operating activities of $729,000 for the nine months ended September 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 September 30, 1998, letters
17
<PAGE>
of credit totaling $158,000 remain outstanding. Further, the Company's cash
balance has improved to $2,558,000 as of September 30, 1998 versus $139,000 at
December 31, 1997.
OPERATING REVENUES
- ------------------
Operating revenues decreased by $1,441,000 or 6.0% to $22,489,000 for the
nine-month period ended September 30, 1998 and decreased by $1,771,000 or 21.6%
to $6,422,000 for the three-month period ended September 30, 1998 as compared to
the comparable periods of the prior year.
The Company's Quick Consulting and Research Service ("QCS") revenues grew by
$500,000 or 3.3% to $15,724,000 for the nine-month period ended September 30,
1998, and decreased by $45,000 or 0.9% to $5,122,000 for the three-month period
ended September 30, 1998, as compared to the comparable periods of the prior
year. The increase for the nine month period ended September 30, 1998, was due
primarily to an increase in the average fee paid per client partially offset by
a reduction in the number of retainer clients. As of September 30, 1998, the
Company has experienced its second consecutive quarterly reduction in its
monthly retainer base. The base as of September 30, 1998, is 0.8% lower than the
base as of June 30, 1998, and 2.6% lower than that of December 31, 1997. The
reduction in base during 1998 accounts for the overall decline in QCS revenues
during the three-month period ended September 30, 1998 as compared to the same
period in 1997.
The reduction in base was due primarily to an increase in the number of rate
reductions granted to clients based on their recent usage history of the
service, coupled with a slow-down in new retainer sales for the nine month
period ended September 30, 1998. The slow down in sales was due primarily to
staff turnover experienced during 1998 in the business development area. The
Company expects this trend to continue during the fourth quarter of 1998. The
monthly retainer base is indicative of future revenues. Accordingly, the Company
expects the trend of declining revenues in the QCS area to continue during the
fourth quarter of 1998. Additionally, the September 30, 1998 retainer base is
1.0% lower than the base at September 30, 1997. This is the first time in the
Company's history that there has been a reduction in base during a twelve month
period. Until this trend is reversed, the Company expects revenue declines on a
quarter to quarter comparison.
On October 5, 1998, the Board of Directors approved the appointment of Stephan
Sigaud as Vice President of Client Services. The Company's President and CEO,
Andrew P. Garvin, had filled this role on an
18
<PAGE>
interim basis since July 1, 1998. In this role, Mr. Sigaud will be working
closely with all members of the Office of Managing Directors and the Operating
Management Group, and will oversee all day-to-day activities of the Quick
Consulting Services area. Prior to assuming these responsibilities, Mr. Sigaud
oversaw the Company's Customer Satisfaction and Loyalty Group since its
inception in 1994.
Revenues in the Strategic Consulting and Research Group ("SCRG") increased by
$205,000 or 5.3% to $4,093,000 for the nine-month period ended September 30,
1998 and decreased by $203,000 or 14.1% to $1,236,000 for the three-month period
ended September 30, 1998, as compared to the comparable periods of the prior
year. The increase in revenues for the nine-month period reflects a very strong
first quarter of 1998 (28.2% increase in revenues versus the same period in
1997). The decrease during the recent three-month period reflects staff turnover
during 1998 and the high level of revenues during the third quarter of 1997.
During the three month period ended September 30, 1998, SCRG experienced revenue
growth of 1.5% as compared to the revenue for the three month period ended June
30, 1998. However, for the comparable period of 1997, revenues increased 17.3%
over the revenues of the prior quarter. Revenues are expected to decline in the
fourth quarter of 1998 as compared to the first quarter of 1997.
Published Research revenues decreased by $2,131,000 or 44.4% to $2,672,000 for
the nine-month period ended September 30, 1998 and by $1,509,000 or 95.9% to
$64,000 for the three-month period ended September 30, 1998, as compared to the
comparable periods of the prior year. The decrease in revenues for the nine and
three month periods was due primarily to the sale of substantially all the
assets of Published Research, effective June 26, 1998, coupled with the decline
in revenues 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 ETRG 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.
The Company continues to operate one newsletter, revenues from which are
included in the Published Research revenues above.
Prior to the sale of assets, revenues of $2,522,000 were generated from
Published Research assets held for sale during 1998. The sale of substantially
all of the assets of Published Research was effective on June 26, 1998. As such,
ongoing revenues from the remaining assets of FIND/SVP Published Products, Inc.
are expected to be immaterial to the
19
<PAGE>
future results of the Company, and overall revenues for 1998 are expected to
decline versus 1997.
During 1997, the Company operated a small on-line, consumer-oriented research
company which ceased operations on December 31, 1997. Revenues generated in 1997
were less than 1% of the Company's revenues.
DIRECT COSTS
- ------------
Direct costs decreased by 17.7% or $2,442,000 to $11,368,000 for the nine-month
period ended September 30, 1998 and by $1,509,000 or 32.5% to $3,135,000 for the
three-month period ended September 30, 1998, as compared to the comparable
periods of 1997. As a percent of revenues, direct costs decreased to 50.6% for
the nine-month period ended September 30, 1998, from 57.7% for the corresponding
period in 1997. As a percent of revenues, direct costs decreased to 48.8% for
the three-month period ended September 30, 1998, from 56.7% 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 Published
Research assets during 1998 and the ETRG assets in the fourth quarter of 1997
and general reduction of direct operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
- -------------------------------------------
Selling, general and administrative expenses declined by 14.4% or $1,640,000 to
$9,782,000 for the nine-month period ended September 30, 1998 and by 23.2% or
$903,000 to $2,993,000 for the three-month period ended September 30, 1998, as
compared to the corresponding period of the prior year. As a percent of
revenues, selling, general and administrative expenses decreased to 43.4% for
the nine-month period ended September 30, 1998, from 47.7% for the corresponding
period in 1997. As a percent of revenues, selling, general and administrative
expenses decreased to 46.1% for the three-month period ended September 30, 1998,
from 47.6% 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 Form 10-K for the year ended December 31, 1997)
and the cost reduction of general operating expenses. During the quarter ended
September 30, 1998, the Company recorded a $475,000 severance charge related to
the resignation of its Chief Operating / Chief Financial Officer, who was also a
member of the Board of Directors. Excluding this charge, selling, general and
administrative expenses
20
<PAGE>
were 41.3% and 38.8% of revenues for the nine-month and three-month periods
ended September 30, 1998.
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. As of September 30, 1998, $84,000 related to this charge remains
accrued but unpaid.
OPERATING INCOME (LOSS)
- -----------------------
Operating income was $1,018,000 for the nine-month period ended September 30,
1998, as compared to an operating loss of $1,302,000 for the corresponding
period in 1997. Operating income was $294,000 for the three-month period ended
September 30, 1998, as compared to an operating loss of $347,000 for the
corresponding period in 1997. The operating income for the nine month and three
month periods ended September 30, 1998 was due primarily to the reduction of
direct costs and selling, general and administrative costs as a percentage of
revenues, partially offset for the nine month period by the $321,000
restructuring charge related to the elimination of full-time positions during
the first quarter of 1998, and for the nine and three month period by the
$475,000 severance charge related to the resignation of the Company's Chief
Operating / Chief Financial Officer. The operating loss for the nine months
ending September 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 $51,000 for the nine-month period ended September 30, 1998,
and $10,000 for the corresponding period in 1997. Interest income was $36,000
for the three-month period ended September 30, 1998, and $1,000 for the
corresponding period in 1997. Interest expense was $395,000 for the nine-month
period ended September 30, 1998, as compared to $426,000 for the corresponding
period in 1997. Interest expense was $128,000 for the three-month period ended
September 30, 1998, as compared to $182,000 for the corresponding period in
1997. The decrease in interest expense for the nine and
21
<PAGE>
three month periods ended September 30, 1998 was due primarily to the paydown of
the line of credit to zero during the quarter ended March 31, 1998, coupled with
a decline in outstanding term debt. The increase in interest income during the
nine and three month periods ended September 30, 1998 was due to the increased
level of cash on hand, coupled with interest on notes receivable related to the
sales of assets within the Published Research area.
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 June 30, 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 a
convertible note issued on January 15, 1998 into common stock and 74,400 shares
were retired (see Liquidity and Capital Resource section).
22
<PAGE>
GAIN ON SALE OF ASSETS
- ----------------------
On July 2, 1998, the Company completed the sale of substantially all of the
assets of the Published Research Division 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 $1,885,000 in consideration of the sale: $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 in the amount of $550,000 and the purchaser assumed certain
liabilities in the amount of $85,000. Costs related to the sale were assets held
for sale of $1,459,000, legal and other fees of $145,000, severance and related
expenses of $176,000 and other expenses of $85,000. Accordingly, the Company
recorded a gain on sale of assets of $20,000 during the quarter ended September
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine months ended September 30, 1998, there was a positive cash flow
from operations of $2,121,000 which resulted from net income of $401,000, a
decrease in accounts receivable of $1,206,000, depreciation and amortization of
$857,000, a decrease in deferred income taxes of $342,000, an increase in
accrued interest of $234,000, a provision for losses on accounts receivable of
$136,000, a decrease in assets held for sale of $99,000, amortization of
deferred financing fees of $30,000, a decrease in prepaid and refundable income
taxes of $21,000, an increase in deferred compensation of $15,000 and
amortization of discount on notes payable of $5,000. This was partially offset
by a decrease in trade accounts payable and accrued expenses of $742,000, a
decrease in unearned retainer income of $122,000, an increase in prepaid
expenses, deferred charges and security deposits of $152,000, a decrease in
accrued rent payable of $110,000, an increase in cash surrender value of life
insurance of $79,000 and a gain on sale of assets of $20,000.
For the nine months ended September 30, 1997, there was a negative cash flow
from operating activities of $729,000 which resulted from a net loss of
$1,110,000, an increase in accounts receivable of $955,000, an increase in
prepaid expenses, deferred charges and security deposits of $517,000, an
increase in deferred income taxes of $307,000, an increase in prepaid and
refundable income taxes of
23
<PAGE>
$303,000, a decrease in accrued rent payable of $63,000 and an increase in cash
surrender value of life insurance of $58,000. This was partially offset by
depreciation and amortization of $858,000, an increase in unearned retainer
income of $548,000, an increase in trade accounts payable and accrued expenses
of $469,000, an increase in accrued interest of $243,000, a decrease in
inventories of $219,000, a provision for losses on accounts receivable of
$164,000, common stock issued for services of $38,000, amortization of deferred
financing fees of $25,000, an increase in deferred compensation of $16,000 and
amortization of discount on notes payable of $4,000.
The Company's financing activities for the nine months ended September 30, 1998
include principal payments under notes payable of $1,624,000, which includes the
pay down of $1,249,000 on the Company's credit line and $375,000 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 $14,000,
resulting in net cash used in financing activities of $610,000. This compares to
principal borrowings under notes payable of $2,477,000 and proceeds from
exercise of stock options of $59,000, partially offset by principal payments
under notes payable of $390,000 on outstanding term debt, $55,000 repurchase of
treasury stock and an increase in deferred financing fees of $18,000, resulting
in net cash provided by financing activities of $2,073,000 for the nine months
ended September 30, 1997.
The Company had investing activities consisting of $1,250,000 proceeds from sale
of net assets, the repayment of notes receivable of $47,000 and the surrender of
life insurance of $42,000, partially offset by capital expenditures of $431,000,
resulting in net cash provided by investing activities of $908,000, for the nine
months ended September 30, 1998. This compares to $1,628,000 for capital
expenditures for the nine months ended September 30, 1997. The major portion of
the expenditures for the nine months ended September 30, 1998 was for the
enhancement of Questrac III, the Company's internal proprietary management
information system, and the purchase of computer equipment.
The Company's working capital increased by $1,449,000 to $2,465,000 on September
30, 1998, as compared to December 31, 1997, due primarily to the increase in
cash of $2,419,000, the reduction in short-term notes payable of $1,249,000, the
reductions in the current portion of accrued expenses and trade accounts payable
of $584,000 and the increase in short-term notes receivable of $138,000,
partially offset
24
<PAGE>
by the reduction in accounts receivable of $1,342,000 and the reduction in
assets held for sale of $1,558,000.
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 two term notes (the "Term Notes") outstanding. 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 September 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
(8.50% as of September 30, 1998). 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 $975,000 as of September 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 September 30, 1998,
there was $700,000 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 (9.0% as of September 30, 1998) and requires quarterly
principal payments of $25,000. As of September 30, 1998, there was $275,000
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 ($975,000 at September 30, 1998) or
(b) $1,000,000. For the quarter ended September 30, 1998, the Company failed to
meet the net income covenant with the Bank, primarily due to the severance and
related costs during the period. The Bank has agreed to waive the covenant for
this period.
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, at $2.25 per share.
25
<PAGE>
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 September 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.
To date, deferred interest on the Notes is $162,500 plus $17,000 of interest on
the deferred amount. In accordance with the Note, on November 30, 1998, interest
of $150,000 is due and payable on the Notes, with an additional $150,000 of
interest deferred until October 31, 2001. The Company may decide to pay some or
all of the deferred interest under the Notes on November 30, 1998. The intent of
which would be to reduce future interest expense, which would otherwise accrue
on the deferred interest.
The Company expects to spend approximately $250,000 for capital items for the
remainder of 1998 and less than $750,000 for 1999. The major portion of these
expenditures will be for the continued enhancement of
26
<PAGE>
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 September 30, 1998, $84,000 related to this charge remains
accrued but unpaid. The Company expects the remaining amount to be paid by
January 31, 1999.
The Company believes that its current cash balance, cash flow from operations
and borrowings under the lines of credit, 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
27
<PAGE>
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
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.
28
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 30, 1998, at which a
quorum was present. The shareholders voted to elect directors and ratify the
selection of auditors. The shareholders also voted to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock, par value $.001 per share, from 10,000,000 to 20,000,000.
Shareholders also ratified an amendment to the Company's 1996 Stock Option Plan
to increase the number of shares of Common Stock issuable thereunder from
650,000 to 1,150,000.
With respect to the amendment of the Certificate of Incorporation, 6,123,155
shares voted for, 157,599 shares voted against and 26,602 shares abstained. With
respect to the amendment of the Stock Option Plan, 4,171,269 shares voted for,
360,466 voted against, 37,972 abstained and 1,737,649 shares did not vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
None
B. Reports on Form 8-K
--------------------
The Company filed a Form 8-K on July 17, 1998 with respect to the sale of
its Published Products division.
29
<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: November 13, 1998 /s/ Andrew P. Garvin
- ------------------------ ------------------------------------
Andrew P. Garvin, Chief
Executive Officer and President
Date: November 13, 1998 /s/ Victor L. Cisario
- ------------------------ ------------------------------------
Victor L. Cisario
Vice President and Chief Financial
Officer
(Principal Financial Officer
and Principal Accounting Officer)
30
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<PERIOD-END> SEP-30-1998 SEP-30-1997
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<SECURITIES> 0 0
<RECEIVABLES> 2,322 3,574
<ALLOWANCES> (70) (118)
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,781 6,066
<PP&E> 9,574 9,104
<DEPRECIATION> (5,316) (4,558)
<TOTAL-ASSETS> 11,873 12,481
<CURRENT-LIABILITIES> 3,255 5,050
<BONDS> 0 0
0 0
0 0
<COMMON> 4,887 3,873
<OTHER-SE> (2,254) (2,655)
<TOTAL-LIABILITY-AND-EQUITY> 11,873 12,481
<SALES> 0 0
<TOTAL-REVENUES> 22,489 23,930
<CGS> 0 0
<TOTAL-COSTS> 11,368 13,810
<OTHER-EXPENSES> 10,103 11,422
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (395) (426)
<INCOME-PRETAX> 743 (1,718)
<INCOME-TAX> 342 608
<INCOME-CONTINUING> 401 (1,110)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 401 (1,110)
<EPS-PRIMARY> 0.06 (0.17)
<EPS-DILUTED> 0.06 (0.17)
</TABLE>
