SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____to_____
Commission file no. 0-15152
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FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2670985
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 Avenue of the Americas, New York, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share
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Title of Class
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1999 the aggregate market value of the voting stock
held by non-affiliates of the registrant was $3,247,696.
As of March 15, 1999 there were 7,118,169 shares of Common Stock, par
value $.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Not applicable.
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PART I
ITEM 1
BUSINESS
GENERAL
FIND/SVP, Inc. ("FIND/SVP" or the "Company") provides broad consulting,
advisory and business intelligence services substantially by telephone primarily
to executives and other decision-making employees. The Company's strategy is to
build a base of regular clients who will utilize the Company's people and
resources for their research, business intelligence and information needs.
The Company was formed under the laws of New York in 1969. In 1971, the
Company became affiliated with SVP International S.A. ("SVP International")
through a licensing agreement which gave the Company the right to the SVP name
and provided access to the resources of what is currently 13 additional SVP
affiliated companies located around the world.
Through its Quick Consulting and Research Service ("QCS"), FIND/SVP
provides retainer clients with access to the subject and technical expertise of
its staff as well as the resources of a large information center. Within each
retainer client's organization, specific individuals receive a Membership Card
which entitles them to make requests via the telephone and the Internet for
consultation and research assistance. In response, the staff of QCS provides
customized answers in rapid turnaround time, generally within two business days
or less of the request. The QCS service is positioned to be an indispensable
daily partner for decision-makers by providing, on a retainer basis, a
cost-effective "quick consulting" service accessible by telephone or the
Internet. The service is designed to be a valuable resource to small and medium
sized corporations that do not maintain in-house information centers and as a
supplement to in-house resource centers of large corporations. At December 31,
1998, there were 2,024 QCS retainer clients and 14,865 Membership Cardholders.
The Company intends to seek to expand its base of QCS retainer clients, and to
offer these clients an expanded array of business intelligence, research and
advisory services.
In addition to QCS, the Company offers the market research services of
its Strategic Consulting and Research Group ("SCRG"), which is designed to
handle more extensive, in-depth custom market research and competitive
intelligence requests, as well as customer satisfaction and loyalty programs.
The QCS and SCRG businesses represent the core competencies of the Company,
which is to provide the expertise of its staff in an on-demand, consulting and
business advisory relationship with small, medium and large sized corporations.
The Company also produces The Information Advisor newsletter.
FIND/SVP's research resources include access to approximately 4,000
computer databases and subscription-paid web sites, approximately 8,000 of its
own files organized by subject and by company, current and back issues of
approximately 3,000 periodicals and journals and approximately 5,000 books and
reference works. Through a licensing agreement, the Company is associated with
the international SVP network of companies and correspondents providing similar
services. This enables FIND/SVP to obtain information through approximately
1,000 additional consultants in the SVP worldwide network.
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SERVICES AND PRODUCTS
The Company's services and products offer business executives fully
integrated research, business intelligence and management advisory services in a
broad range of industries and disciplines. The Company provides services to help
clients acquire, interpret and use knowledge.
FIND/SVP's research resources at December 31, 1998 include a staff of
85 consultants and researchers in its QCS and SCRG divisions, a reference center
which contains approximately 8,000 of its own subject and company files, access
to approximately 4,000 computer databases, current and back issues of
approximately 3,000 titles, and approximately 5,000 books and reference works,
and a field investigation team with entree into public and private libraries in
the New York area. Through a licensing agreement, the Company is associated with
the international SVP network of companies and correspondents, which enables it
to obtain information worldwide. See "SVP Network; Licensing Agreement With SVP
International." The materials used in the generation of the Company's services
and products are updated and checked by staff members. The Company has its own
training program in which its employees participate.
SERVICES
QUICK CONSULTING AND RESEARCH SERVICE ("QCS"). QCS provides clients
with access to the staff and resources of a large information center which seeks
to handle research inquiries and requests for business assistance in rapid
turnaround time. Through QCS, the Company is in the business of providing, on a
volume basis, customized answers to business questions on a wide variety of
topics. The service is offered only on a retainer basis. Retainer client
organizations pay in advance, either monthly, quarterly, semi-annually or
annually, a retainer fee. In return, the client organizations receive Membership
Cards for their designated executives or employees. The Membership Card entitles
each cardholder to use QCS and also offers preferential use of, and/or discounts
on, the Company's other services and products. The dollar value of each client's
question is measured based on time and complexity factors and this value is
charged against the retainer fee. The Company monitors the client's "usage" of
the service and if it proves to be substantially more (or less) than
anticipated, its future retainer may be adjusted to more accurately reflect the
client's usage of QCS. Out-of-pocket expenses incurred to answer questions are
invoiced in addition to retainer fees.
Retainer clients call FIND/SVP with their research needs, give their
card number and explain their request to consultants who are divided into the
following six practice groups and four support teams:
(a) THE CONSUMER PRODUCTS AND SERVICES GROUP is responsible for
research on retailing and apparel, home furnishings, cosmetics and
toiletries, food and beverages, media and entertainment, publishing,
sports and leisure, education, philanthropy, restaurants, food
services, household products, appliances and furniture;
(b) THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP covers
Internet and on-line services, computers, software, electronic media
and office equipment;
(c) THE HEALTHCARE AND PHARMACEUTICALS GROUP covers products and
services manufactured by and marketed to businesses in healthcare
fields, including pharmaceuticals, medical and diagnostic equipment,
biotechnology, health resources and clinical information;
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(d) THE FINANCIAL AND BUSINESS SERVICES GROUP handles requests on
specific companies (except credit reports), economic trends, corporate
finance, investment, insurance, real estate and mortgages, quality
management methods, and provides annual reports and Securities and
Exchange Commission documents on public companies;
(e) THE INDUSTRIAL PRODUCTS AND SERVICES GROUP covers manufacturing,
energy, chemicals, plastics, pulp and paper, metals and mining,
transportation, environment, construction and agriculture;
(f) THE MANAGEMENT ADVISORY GROUP handles requests on legal research,
human resources research and accounting and tax issues;
(g) THE INTERNATIONAL TEAM addresses executive's needs for
international finance and trade, global corporate competitive
intelligence and worldwide management strategies;
(h) THE DOCUMENTS TEAM locates and obtains copies of articles,
documents, patents, books, pamphlets, catalogs, conference proceedings,
government reports and product samples;
(i) THE MARKETING TEAM covers direct marketing, advertising, sales
promotions and demographics; and
(j) INTERNET ADVISORY TEAM(TM) provides expert help with Internet
research, hands-on training, on-site seminars, competitive
intelligence, Web marketing/trends and Internet user demographics.
Client cardholders discuss their research needs with the Company's
consultants and may obtain assistance in formulating their requests. After the
request has been clarified, FIND/SVP's specialists find the needed information
using a combination of the Company's available resources. After reviewing the
findings, the consultants select what appears most relevant to the client's need
and report, with commentary, as needed. Documentation of the findings can be
sent by any one or a combination of the following methods: facsimile, courier,
messenger, mail or electronic mail. QCS allows customers to benefit from a fast,
convenient and confidential way to gather knowledge and use the multitude of
research resources available today. Cardholders may ask questions on virtually
any subject.
Those requests requiring business intelligence from overseas are
answered by one or more of the information centers in 13 SVP companies worldwide
or by using special SVP correspondents in selected countries where no official
SVP company exists.
QCS is designed to handle client questions requiring less than
approximately three hours of actual staff time. These are automatically covered
by the retainer fee. Requests requiring a more extensive search or a lengthy
written report are not covered by the QCS retainer program and are referred to
the Company's Strategic Consulting and Research Group to be handled separately.
QCS activity is tracked and controlled by a proprietary management
information system called QUESTRAC, which uses recently upgraded
state-of-the-art software technology. The program is based on the know-how
provided by SVP France, the founders of the SVP concept of quick business
advisory services by telephone. Input into the QUESTRAC system provides an
exclusive and confidential database of information about each client and the
information requested and handled for clients.
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At December 31, 1998, there were 2,024 retainer clients, a 10.7%
decrease from December 31, 1997, and 14,865 holders of the Membership Card, an
11.8% decrease from December 31, 1997. The monthly fees billed to retainer
clients (the retainer base) decreased by 8.4% to $1,470,435. Approximately 50%
of the top Fortune 100 industrial companies are QCS retainer clients. Revenues
generated by QCS represented 74%, 64% and 65% of the Company's total revenues
for the years ended December 31, 1998, 1997 and 1996, respectively.
STRATEGIC CONSULTING AND RESEARCH GROUP ("SCRG"). SCRG is designed to
handle more in-depth custom market research and competitive intelligence
assignments. The service is most often used by the Company's QCS retainer
clients as a supplement to that service. Common project requests include
customized market and industry studies, telephone surveys, competitive
intelligence data-gathering and analysis assignments, acquisition studies and
large information collection projects. Additionally, through the Customer
Satisfaction and Loyalty Division, SCRG provides customer satisfaction and
loyalty programs. Through SCRG, the Company provides research as well as
interpretation and analysis. All projects are quoted in advance and billed
separately. Revenues generated by SCRG represented 17%, 17% and 15% of the
Company's total revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
NON-CONTINUING PRODUCTS AND SERVICES
On July 2, 1998, the Company completed the sale of substantially all of
the assets of FIND/SVP Published Products, Inc. ("Published Research") 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
Research relating to the following product lines: (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. 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 sold were $2,522,000.
On November 4, 1997, the Company sold certain assets held in its
Emerging Technologies Research Group ("ETRG"), a division of Published Research.
The assets consisted of the Company's Multi-client Study business, its
Continuous Advisory service and its Interactive Consumer newsletter. The Company
received a $125,000 two-year note bearing interest at an annual rate of 10%,
payable as follows: $31,250 plus accrued interest on May 4, 1998 and quarterly
principal payments of $15,625 plus accrued interest commencing on August 4, 1998
and on the fourth day of each November, February, May and August thereafter. The
final payment is due November 4, 1999. To date, all payments have been received
in a timely manner. The Company holds a security interest in the ETRG database
as collateral to the note. The purchaser also assumed various liabilities in
connection with the transaction and the Company is receiving a 5% royalty for a
two-year period on sales generated by the assets sold. Additionally, the Company
retained the rights to its then currently published off-the-shelf studies
produced from data contained within previously issued multi-client studies.
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Revenues generated from the assets sold represented 9%, 19% and 20% of
the Company's total revenues for the years ended December 31, 1998, 1997 and
1996, respectively.
During the fourth quarter of 1997, the Company ceased the
consumer-oriented operations of its FIND/SVP Internet Services, Inc. subsidiary.
Accordingly, the Company recorded a charge of $500,000 in the fourth quarter of
1997 related to the closing of the subsidiary. The charge included $35,000 of
severance, all of which was paid by March 31, 1998. The remainder of the charge
included the write-down of certain assets of $408,000, $16,000 of shut-down
costs paid in the first quarter of 1998, and rent expense of $41,000 for the
first quarter of 1998 as the Company intended to sublease the space or to be
relieved of its obligation for 10,000 square feet of office space by the
landlord during the second quarter of 1998. During the second quarter of 1998
the Company received payment of $75,000 from the landlord for giving up its
rights to this portion of the lease. The Company also had rental expenses of
$26,400 during the second quarter of 1998, prior to the agreement with the
landlord. The $75,000 was recorded as Other Income and the $26,400 was recorded
as Other Expense.
Revenues from FIND/SVP Internet Services, Inc. represented less than 1%
of the Company's revenues for 1997.
Based on the decisions to effectuate the sale and the discontinuance of
various product lines and services, the Company reduced its general and
administrative staff as of December 31, 1997. Accordingly, the Company recorded
a $155,000 restructuring charge as of December 31, 1997.
POTENTIAL RELATED SERVICES AND PRODUCTS
The Company plans to expand its services through continued internal
development during 1999. This includes various initiatives aimed at both
business-to-business and consumer users of the Internet. Additionally, the
Company will consider exploring possible acquisitions of consulting, research or
information properties and companies whose primary markets are the same as
FIND/SVP's market and which would be accretive to the Company's earnings. There
are no commitments or understandings in this regard and no assurance can be
given that the Company will in fact conclude any acquisitions or internally
develop any related services. The foregoing plans are subject to, among other
things, the availability of funds for these purposes.
SVP NETWORK; LICENSING AGREEMENT WITH SVP INTERNATIONAL
Through licensing agreements with SVP ("S'il Vous Plait")
International, 14 companies (the "SVP companies"), including FIND/SVP, form an
international network of information centers. Since each SVP company is based in
a different country, the network has provided the means by which the Company can
obtain international information requested by its clients which it may not
maintain in its library or have access to if generated by or located in another
country. When an SVP company accesses the information center of another SVP
company it is charged a fee for the services provided thereby. Each SVP company
is linked to the SVP network primarily by virtue of its licensing agreement. In
1971, the Company entered into its licensing agreement with SVP International
(formerly SVP Conseil), which was amended in 1981, and obtained the U.S. rights,
in perpetuity, to the SVP name and know-how and access to the SVP International
network. Pursuant thereto, SVP International assisted in the creation,
implementation, development and operation of the Company. The Company has
agreed, pursuant to such licensing agreement, to use its best efforts to have a
person selected by SVP International elected to the Board of Directors of the
Company; pursuant to such provision, Brigitte de
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Gastines, General Manager of SVP International, is also Chairperson of the Board
for the Company. In addition, 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, are directors of the Company. Historically, SVP
International has engaged in periodic telephonic conversations and meetings with
the Company. By virtue thereof, the Company has benefited from exchanges of
knowledge with SVP International with respect to any enhancements made to SVP
International's information retrieval or billing systems or other proprietary
know-how.
During the first quarter of 1998, SVP International (including
affiliates) increased its ownership in the Company to approximately 37% of the
then outstanding common shares, excluding outstanding warrants, from 18.7% of
the outstanding common shares, excluding outstanding warrants. Concurrent with
the increased ownership, SVP International increased their management
involvement in and physical presence at the Company during 1998, and it is
expected that this will continue into the future. (See "Directors and Executive
Officers of the Registrant - Directors and Officers")
The license agreement provides that SVP International will not compete
with the Company in the United States or enter into any agreement or arrangement
with respect to services similar to those offered by the Company with any entity
which operates or proposes to operate such services in the United States. The
Company, in return, agreed to pay SVP International royalties of $18,000 per
year, plus 2% of the amount of FIND/SVP's gross revenues for each such year,
excluding publishing revenues, derived from certain of its services in excess of
$2,000,000 but less than $4,000,000 and 1% of the amount of such non-publishing
gross revenues in excess of $4,000,000 but less than $10,000,000, and 1.2% of
the gross profit from all publications included in FIND/SVP's gross revenue less
than $10,000,000 for such year. Royalty expense to SVP International totaled
$126,000, $131,000 and $137,000 in 1998, 1997 and 1996, respectively.
MARKETS AND CUSTOMERS
The market for FIND/SVP's services and products is comprised primarily
of business executives in a variety of functions, including top management and
marketing, planning, marketing research, sales, information/library, legal,
accounting, tax and new products. FIND/SVP's primary market, in terms of client
organizations, consists of medium to small sized companies. Larger corporations
are, however, among the Company's clients. In certain cases, the service is sold
to more than one department or division of a large corporation. The Company's
appeal to medium to small sized corporations is primarily based on the fact that
these companies do not ordinarily maintain their own research staff and resource
libraries and when they do, they are generally not comprehensive. Large
corporations, on the other hand, often maintain in-house resource centers.
Consequently, these corporations may perceive the Company's QCS service as
unnecessary. The Company believes, however, that in-house corporate libraries
are generally not as comprehensive. Therefore, QCS may be perceived as a
valuable supplemental resource. In addition, in-house centers are good prospects
for the Company's other services. Overall, the factors that will affect the
growth of the Company's potential market and its ability to penetrate it
include: (1) the market's perception of the need for and value of consulting,
business intelligence and research services; (2) the trends in the use of
internal information centers and databases; and (3) the Company's ability to
extend its personal selling efforts throughout the country.
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SALES AND MARKETING
The Company's primary marketing focus is to expand its QCS retainer
client base. In addition to generating revenues from the QCS services, the
retainer client base serves as a ready-made marketplace for SCRG and other
potential services of the Company. QCS is marketed through a combination of
advertising, direct mail, exhibits, sales promotion activities and the Company's
web site. Qualified leads are followed up by FIND/SVP's sales force. These leads
are supplemented by referrals and cold-call selling efforts. The cost of the
Company's advertising and public relations efforts is modest.
COMPETITION
The Company faces competition from three distinct sources: (1) other
research and information services, (2) in-house corporate research centers, and
(3) institutions that sell information directly to end-users.
The Company is aware of several other smaller fee-based on-demand
business information services in the United States. The Company believes that of
these companies it is the largest in terms of revenues and staff size. The
Company believes that the competition may be more significant from organizations
such as Arthur D. Little, Stanford Research Institute and The Conference Board
which have research capabilities with call-in-service for reference type
questions. To date, however, the call-in-service feature has not been emphasized
by these companies. Although the Company is not aware of direct competitive
companies with larger staffs and revenues, there is no assurance that as the
information industry expands, more competitive companies will not enter the
market. In addition, there is no assurance that a competitive company will not
develop a superior product or service. The Company believes, however, that by
reason of its experience in the industry, its association with the SVP network
and its intent to closely monitor the information industry, it will be able to
compete effectively with any potential competitors.
In-house corporate information and research centers present perhaps the
most significant source of competition for the Company today. Large
corporations, in an effort to stay on top of the vast amount of information
available, began to develop in increasing numbers, in-house libraries and
information centers for their employees. While the Company believes that its own
information center serves the added functions of analysis and generation of
information and is larger and better staffed than a majority of these corporate
resource centers, there is no assurance that a significant number of these large
companies will choose to utilize the Company's services and products.
The advent of on-line databases, the Internet and CD-ROM products has
increased the ability of companies to perform information searches and other
research for themselves. Consequently, to the extent companies perceive they can
directly access information from the Internet, on-line databases and acquire
CD-ROM products, FIND/SVP competes with information producers that sell to
end-users. The Company believes, however, that its consultants deliver a
value-added service based on their technical expertise and their ability to
search more information products more quickly than most end users, thereby
delivering a more thorough and economical service. There is no assurance,
however, that companies which develop extensive resource centers will not
accordingly staff them with equally productive personnel.
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EMPLOYEES
As of December 31, 1998, the Company had 162 full-time employees,
including 5 executive officers, 25 marketing and sales employees, 85 consultants
and research employees, and 47 administrative and general personnel.
The Company's ability to develop, market and sell its services and to
establish and maintain its competitive position will depend, in part, on its
ability to attract and retain qualified personnel. While the Company believes
that it has been successful to date in attracting such personnel, there can be
no assurance that it will continue to do so in the future. The Company is not a
party to any collective bargaining agreements with its employees. It considers
its relations with its employees to be good.
ITEM 2
PROPERTIES
In December 1986, the Company entered into a fifteen and one-half year
lease agreement relating to premises at 625 Avenue of the Americas, New York,
New York, which premises became the offices of the Company on May 7, 1987.
During 1992, the lease was extended an additional three years. The annual rental
payment in 1998 was $880,000 and is subject to scheduled fluctuations in
succeeding periods. For financial statement reporting purposes, rent has been
recorded on a straight line basis. Accordingly, scheduled payments on this lease
through December 31, 1998 exceeded rent recorded through December 31, 1998 by
$230,000. Scheduled payments through December 31, 1997 exceeded rent recorded
through December 31, 1997 by $44,000. (See Note 3 of Notes to Consolidated
Financial Statements.) The lease agreement covers approximately 32,000 square
feet of space.
In August 1994, the Company entered into a five year lease agreement
relating to premises at 641 Avenue of the Americas, New York, New York, which
premises became the offices of the Company's wholly-owned subsidiary, FIND/SVP
Published Products, Inc., on September 1, 1994. The rental payments in 1998
totaled $201,000. This lease agreement covers approximately 20,000 square feet
of space, of which 10,000 square feet was occupied in September 1994 and the
additional 10,000 square feet was occupied in April 1995. In March 1995, the
Company executed a separate ten year lease covering an additional 20,000 square
feet of space at 641 Avenue of the Americas, which was occupied in August 1995
by the Strategic Consulting and Research Group. The rental payments in 1998
totaled $49,000, and is subject to scheduled increases in succeeding periods.
For financial statement reporting purposes, rent has been recorded on a straight
line basis. Accordingly, rent recorded through December 31, 1998 and 1997 on
these leases exceeded scheduled payments by $195,000 and $156,000, respectively.
(See Note 3 of Notes to Consolidated Financial Statements.) In connection with
the execution of the March 1995 lease, the August 1994 lease was extended to
June 30, 2005.
In conjunction with the closing of FIND/SVP Internet Services, Inc.
during the second quarter of 1998, the Company received from its landlord its
release from its obligation for 10,000 square feet originally occupied in April
1995 of the office space at 641 Avenue of the Americas, noted above. The Company
received $75,000 from the landlord for the return of this portion of the lease.
The additional space of approximately 10,000 square feet at 641 Avenue of the
Americas is currently being sublet at the Company's cost. Currently the sublease
is month to month, and the Company is negotiating a longer term sublease. The
Company will
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continue to maintain the 20,000 square feet of space at 641 Avenue of the
Americas, occupied in August 1995, noted above.
ITEM 3
LEGAL PROCEEDINGS
None.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
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The Company's Common Stock, par value $.0001 per share, ("Common
Stock") is traded on the NASDAQ Small Cap Market under the symbol "FSVP". The
following table sets forth the high and low closing sale prices for the Common
Stock for the periods indicated.
Price Range High Low
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1998
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Common Stock
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1st Quarter 1 3/16 11/16
2nd Quarter 1 3/8 29/32
3rd Quarter 1 7/16 13/16
4th Quarter 1 1/8 19/32
1997
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Common Stock
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1st Quarter 2 1 1/4
2nd Quarter 1 1/2 1 3/16
3rd Quarter 1 3/8 1
4th Quarter 1 9/32 3/4
On December 31, 1998, there were approximately 937 holders of record of
the Common Stock. Such numbers do not include shares held in "street name."
In the first quarter of 1998 and again by letter dated January 21,
1999, the Company received notification from the NASDAQ Stock Market, Inc.
("NASDAQ") that the Company was not in compliance with NASDAQ's $1.00 minimum
bid price requirement; the shares of the Company's Common Stock having closed
below the minimum bid price for 30 consecutive business days. To regain
compliance with this standard the Company's common shares must have a closing
bid price at or above $1.00 for ten consecutive trading days within the 90
calendar day period following the advent of non-compliance. If compliance is not
met, NASDAQ will issue a delisting letter which will identify the review
procedures. The Company may request review at that time, which will generally
stay delisting. With respect to both notifications, the Company's common shares
met the required minimum bid price for ten consecutive trading days.
Accordingly, the Company's Common Stock is currently in compliance with the
NASDAQ minimum bid requirement.
The Company's failure to meet NASDAQ's maintenance criteria in the
future may result in the discontinuance of the inclusion of its securities in
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
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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
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 shareholders to sell the securities in the
secondary market.
DIVIDEND HISTORY AND POLICY
- ---------------------------
The Company has never paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will continue to follow a
policy of retaining earnings to finance the expansion and development of its
business. The Company's debt agreements restrict the payment of dividends.
13
<PAGE>
ITEM 6
SELECTED FINANCIAL DATA
The following financial data set forth below is derived from the
consolidated financial statements of the Company.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(Amounts in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 28,175 $ 32,027 $ 30,525 $ 28,606 $ 24,357
Operating Income (Loss) 1,329 (3,136) (824) 1,050 1,144
Net Income (Loss) 756 (2,852) (719) 476 673
Net Income (Loss) Per
Common and Common Stock
Equivalent Share
Basic .11 (.43) (.11) .08 .11
Diluted .11 (.43) (.11) .07 .10
Weighted Average Number
of Common and Common Stock
Equivalent Shares
Outstanding
Basic 7,094 6,593 6,434 6,217 6,198
Diluted 7,100 6,593 6,434 6,672 6,660
Cash Dividends Declared
Per Common Share -- -- -- -- --
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31,
------------
(Amounts in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital $ 2,569 $ 1,016 $ 3,930 $ 3,854 $ 2,796
Total Assets 11,704 12,481 12,946 11,445 9,705
Long-Term Indebtedness
excluding amounts
currently payable 3,307 3,801 3,826 2,896 1,191
Shareholders' Equity 2,988 1,218 4,059 4,659 4,160
</TABLE>
14
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
FIND/SVP, Inc. provides a broad consulting, advisory and business
intelligence service to executives and other decision-making employees of client
companies, primarily in the United States. The Company currently operates
primarily in one business segment, providing consulting and business advisory
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. Prior to the third quarter of 1998, the Company had one
additional significant operating segment, Published Research Products. The
Company considers its QCS and SCRG service businesses, which operate as
"consulting and business advisory" businesses, to be its core competency.
As such, during July 1998, the Company completed the sale of
substantially all of the assets of its FIND/SVP Published Products, Inc.
subsidiary ("Published Research"). 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. During 1997, the Company recorded an impairment
loss related to the aforementioned assets of $1,047,000. Additionally, during
the fourth quarter of 1997, the Company sold the assets of its Emerging
Technologies Research Group ("ETRG"), a division of Published Research. In
consideration of the sale, the Company received a two year $125,000 note bearing
interest at 10%. The Company recorded a $28,000 loss related to this sale. The
revenues derived from the assets sold accounted for 9%, 19% and 20% of the
Company's total revenues during 1998, 1997 and 1996, respectively.
During the year ended December 31, 1998, the Company reduced operating
expenses, which was further enhanced by the sale of the majority of assets in
Published Research. Accordingly, there was a reduction in direct costs as a
percentage of revenues to 50.6% for the year ended December 31, 1998, as
compared to 57.5% for the year ended December 31, 1997. Additionally, selling,
general and administrative expenses were 43.5% of revenues for the year ended
December 31, 1998, versus 47.0% for the year ended December 31, 1997.
The Company had operating income of $1,329,000 for the year ended
December 31, 1998. This compares favorably to an operating loss of $3,136,000
for the year ended December 31, 1997. The net income for the year ended December
31, 1998 was $756,000 versus a $2,852,000 net loss for the year ended December
31, 1997.
During the year ended December 31, 1998, the Company's cash flow from
operating activities provided $2,166,000 versus cash flow from operating
activities of $236,000 for the year ended December 31,
15
<PAGE>
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. As of December 31, 1998, the balance outstanding remains at
zero. Further, the Company's cash balance has improved to $2,307,000 as of
December 31, 1998 versus $139,000 at December 31, 1997.
SEGMENT REPORTING
During 1998, 1997 and 1996 the Company operated primarily in two
business segments in accordance with Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The operating segments were: (I) Consulting and Business Advisory
("CBA") which consists of QCS and SCRG; and (II) Published Research Products
("PRP"), which consisted of Published studies, ETRG and various Newsletters.
In accordance with SFAS No. 131, the Company is disclosing the results
of the operating segments for each of the three years below.
<TABLE>
<CAPTION>
Years Ended December 31,
(Amounts in thousands)
1998 1997 1996
---------------------------- ---------------------------- ---------------------------
PERCENT PERCENT PERCENT
$ OF TOTAL $ OF TOTAL $ OF TOTAL
- -------- - -------- - --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS
- ----------
Consulting and Business Advisory 10,999 94.0% 10,594 84.9% 8,234 63.6%
Published Research Products 705 6.0% 1,887 15.1% 4,326 33.4%
All Other -- 0.0% -- 0.0% 386 3.0%
---------------------------- ---------------------------- ---------------------------
Total Net Assets 11,704 100.0% 12,481 100.0% 12,946 100.0%
---------------------------- ---------------------------- ---------------------------
REVENUES
- --------
Consulting and Business Advisory 25,456 90.3% 25,959 81.0% 24,168 79.2%
Published Research Products 2,719 9.7% 6,018 18.8% 6,327 20.7%
All Other -- 0.0% 50 0.2% 30 0.1%
---------------------------- ---------------------------- ---------------------------
Total Revenues 28,175 100.0% 32,027 100.0% 30,525 100.0%
---------------------------- ---------------------------- ---------------------------
OPERATING INCOME (LOSS)
- ----------------------
Consulting and Business Advisory 1,313 98.8% (165) 5.3% 914 (110.9)%
Published Research Products 16 1.2% (2,295) 73.2% (1,739) 211.0%
All Other -- 0.0% (676) 21.5% 1 (0.1)%
---------------------------- ---------------------------- ---------------------------
Total Operating Income (Loss) 1,329 100.0% (3,136) 100.0% (824) 100.0%
---------------------------- ---------------------------- ---------------------------
DEPRECIATION AND AMORTIZATION
INCLUDED ABOVE
Consulting and Business Advisory 1,002 91.3% 885 77.2% 764 78.4%
Published Research Products 96 8.7% 238 20.7% 210 21.6%
All Other -- 0.0% 24 2.1% -- 0.0%
---------------------------- ---------------------------- ---------------------------
Total Depreciation and Amortization 1,098 100.0% 1,147 100.0% 974 100.0%
---------------------------- ---------------------------- ---------------------------
</TABLE>
16
<PAGE>
PRODUCT AND SERVICE REVENUES
The Company's revenues decreased by $3,852,000, or 12.0%, from
$32,027,000 in 1997 to $28,175,000 in 1998 and increased by $1,502,000, or 4.9%,
from $30,525,000 in 1996 to $32,027,000 in 1997. The decrease from 1997 to 1998
was primarily due to the sale of assets from PRP completed during the third
quarter of 1998 and the fourth quarter of 1997, coupled with a decline in
revenues in SCRG. The increase from 1996 to 1997 was due to revenue increases in
QCS and SCRG, partially offset by a decline in PRP revenues.
QCS revenues grew by $197,000, or 1.0%, from $20,516,000 in 1997 to
$20,713,000 in 1998 and by $798,000, or 4.0%, from $19,718,000 in 1996 to
$20,516,000 in 1997. The increase from 1997 to 1998 was due to an increase in
the average retainer fee paid per client, partially offset by a reduction in the
number of clients. During 1998, the Company experienced a reduction in the
number of retainer clients of 10.7%, and a reduction in the retainer base
(monthly fees billed to clients) of 8.4%. The reduction in the retainer base was
primarily due to an increase in the number of rate reductions granted to clients
based on their recent usage history, coupled with a slow-down in new retainer
sales during 1998, as compared to recent years. The slow down in sales was due
primarily to staff turnover in the Business Development area which was
experienced throughout 1998. The reduction in the retainer base began during the
third quarter of 1998, and this is the first time that there has been a
reduction in the retainer base during a full calendar year period. The Company
believes it has the staff turnover in this area under control, but anticipates a
continued decline in the retainer base through at least the second quarter of
1999. Until this trend is reversed, and the retainer base is brought back to
previous levels, the Company expects revenue declines in QCS on a quarter to
quarter basis. The increase from 1996 to 1997 was due to an increase in the
average retainer fee paid per client.
SCRG revenues decreased $700,000, or 12.9%, from $5,443,000 in 1997 to
$4,743,000 in 1998 and increased by $993,000, or 22.3%, from $4,450,000 in 1996
to $5,443,000 in 1997. The decrease from 1997 to 1998 was due to a significant
fall-off in revenue in the third and fourth quarters of 1998, as compared to the
like quarters in 1997, primarily due to staff turnover, which affected the
marketing efforts of SCRG. The increase in revenues from 1996 to 1997 was
primarily due to an increase in the number of assignments and their average size
as compared to 1996.
During the fourth quarter of 1998, staff turnover in SCRG slowed and
the Company believes it has the staff turnover in this area under control.
However, the Company anticipates reduced revenues during at least the first two
quarters of 1999, as compared to the like quarters of 1998. The Customer
Satisfaction and Loyalty Division accounted for 28.9%, 15.7% and 17.8% of SCRG's
revenue for 1998, 1997 and 1996, respectively.
Revenues of PRP (excluding newsletters) decreased $3,282,000, or 56.2%,
from $5,839,000 in 1997 to $2,557,000 in 1998 and $210,000, or 3.5%, from
$6,049,000 in 1996 to $5,839,000 in 1997. The decrease from 1997 to 1998 was due
to the sale of virtually all PRP assets which was completed in the third quarter
of 1998, during the fourth quarter of 1997. The decrease from 1996 to 1997 was
primarily due to lower revenues from ETRG which was sold during the fourth
quarter of 1997, coupled with reduced print sales of published studies,
partially offset by increased revenues from third-party on-line vendors.
17
<PAGE>
The Company operates a small newsletter publishing business within
PRP. However the newsletters that are produced generated less than 1% of the
Company's revenues in 1998, 1997 and 1996. All except one newsletter was
included in the sale of assets during the second quarter of 1998.
DIRECT COSTS
Direct costs decreased by $4,139,000, or 22.5%, from $18,402,000 in
1997 to $14,263,000 in 1998 and increased by $1,053,000, or 6.1%, from
$17,349,000 in 1996 to $18,402,000 in 1997. Direct costs represented 50.6%,
57.5% and 56.8% of revenues, respectively, in 1998, 1997 and 1996. The decrease
in total direct cost and direct cost as a percentage of revenues from 1997 to
1998 was primarily due to the aforementioned sale of the Published Research
assets, coupled with a general reduction in direct operating expenses. The
general reduction in direct operating expenses was primarily due to the
restructuring during the first quarter of 1998, which eliminated certain
full-time direct labor. The increase in total direct cost and direct cost as a
percentage of revenues from 1996 to 1997 reflected direct costs from new service
offerings in PRP (the assets of which were sold during the fourth quarter of
1997), coupled with the planned expansion of the Company's core competencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $2,797,000,
or 18.6%, from $15,059,000, or 47.0% of revenues, in 1997 to $12,262,000, or
43.5% of revenues, in 1998 and increased by $1,861,000, or 14.1%, from
$13,198,000, or 43.2% of revenues, in 1996 to $15,059,000, or 47.0% of revenues,
in 1997. The decrease from 1997 to 1998 was primarily due to reduction in labor
in the general and administrative area and reduced sales labor, primarily due to
turnover, coupled with reduced sales commissions during 1998. The increase from
1996 to 1997 was due to the investment in sales and promotional efforts to
generate incremental revenues in accordance with the Company's growth plans and
to support the planned growth of the operating units.
The Company's lease for its main premises includes scheduled rent
increases over the 15-year lease term. Financial Accounting Standards Board
Statement No. 13 ("FASB No. 13") requires that rent expense under these
circumstances be recognized on a straight-line basis. Accordingly, rent expense
will exceed the amount actually paid in the first third of the lease, will be
approximately equal to the amount actually paid in the middle third of the lease
and will be less than the amount actually paid in the final third of the lease.
Partly as the result of the lease renegotiations in 1992, which extended the
lease term for three additional years with a reduced base rent for those years,
rent payable exceeded rent expense by $186,000 in 1998 for the main premises.
The Company's lease for additional premises includes scheduled rent increases
over the 10-year lease term. As a result, rent expense exceeded rent payable by
$46,000 in 1998 for the additional premises. In 1998, 1997 and 1996, total
accrued rent payable decreased by $147,000, $85,000 and $71,000, respectively.
See Note 3 of Notes to Consolidated Financial Statements.
SALE OF PUBLISHED RESEARCH AND ETRG AND ASSET DISPOSAL
On July 2, 1998, the Company completed the sale of substantially all of
the assets of FIND/SVP Published Products, Inc. ("Published Research")
subsidiary 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 Research relating to the
18
<PAGE>
following product lines: (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. 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 sold were
$2,522,000.
During the fourth quarter of 1997, the Company sold certain assets held
in ETRG, a division of Published Research. The Company recorded a $28,000 loss
related to this sale. In accordance with the terms of the Agreement, the Company
received a two-year $125,000 Note bearing interest at an annual rate of 10%
payable as follows: $31,250 plus accrued interest on May 4, 1998, and quarterly
principal payments of $15,625 plus accrued interest commencing on August 4,
1998, and on the fourth day of each November, February, May and August
thereafter. The final payment is due November 4, 1999. To date, all payments
have been received in a timely manner. The Company holds a security interest in
the ETRG database as collateral for the Note. The purchaser also assumed various
liabilities in connection with the transaction and the Company is receiving a 5%
royalty for a two-year period on sales generated by the assets sold. As a result
of this transaction, the Company no longer operates its multi-client study
business, its Continuous Advisory Service and its Interactive Consumer
Newsletter. The Company has retained the rights to its then currently published
off-the-shelf studies and will receive a 5% royalty on sales of the above
services for a two-year period.
During the fourth quarter of 1997, the Company ceased the
consumer-oriented operations of its FIND/SVP Internet Services, Inc. subsidiary.
Accordingly, the Company recorded a charge of $500,000 in the fourth quarter of
1997 related to the closing of the subsidiary. The charge included $35,000 of
severance, all of which was paid by March 31, 1998. The remainder of the charge
included the write-down of certain assets of $408,000, $16,000 of shut-down
costs paid in the first quarter of 1998, and rent expense of $41,000 for the
first quarter of 1998 as the Company intended to sublease the space or to be
relieved of its obligation for 10,000 square feet of office space by the
landlord during the second quarter of 1998. During the second quarter of 1998
the Company received payment of $75,000 from the landlord for giving up its
rights to this portion of the lease. The Company also had rental expenses of
$26,400 during the second quarter of 1998, prior to the agreement with the
landlord. The $75,000 was recorded as Other Income and the $26,400 was recorded
as Other Expense.
IMPAIRMENT LOSS
Due to continued weakness in Published Research, and a plan to re-focus
the Company's attention on its core competencies, during the fourth quarter of
1997 the Company decided to sell the majority of assets held in this Division.
As a result, the Company reported the carrying value of the assets held for sale
at the lower of cost or their estimated net realizable values. As a result of
the Company's decision, an impairment loss of $1,047,000 was recorded in
December 1997. The Company presented the assets held for sale as a separate line
item in its December 31, 1997 consolidated balance sheet. The sale of these
assets was completed during the third quarter of 1998.
19
<PAGE>
The aforementioned non-cash charge included write-downs of inventory of
$517,000, fixed assets of $405,000, goodwill of $102,000 and deferred charges of
$23,000.
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 recorded a restructuring
charge of $321,000 during the quarter ended March 31, 1998. The charge consisted
mainly of severance payments, which were fully paid by February 15, 1999,
outplacement services and legal costs associated with the elimination of the
positions. As of December 31, 1998, $16,000 related to this charge remains
accrued but unpaid.
In conjunction with the Company's decision to re-focus its efforts on
its core competencies, the Company reduced its general and administrative staff
in December, 1997. Accordingly, the Company recorded a $155,000 restructuring
charge, primarily for severance costs, during the fourth quarter of 1997, all of
which was paid in 1998.
Due to lower than expected revenues and profits in Published Research
during the third quarter of 1996, and due to the anticipation of a more
aggressive growth strategy which integrated the products and services of the
Company, the Company announced and immediately began implementing a plan to
restructure and consolidate operations, which included the re-organization of
its operating units and a change in the method of marketing and cross-selling
its various products. This plan resulted in a pre-tax charge of $802,000 during
the third quarter of 1996.
The aforementioned charge included a writedown of certain Published
Research assets of $490,000, severance and retirement charges of $167,000,
charges relating to marketing and planning materials which will not be used
after the restructuring of $117,000 and charges for the consolidation and
reduction of several small, unprofitable product groups of $28,000, of which
$13,000 and $47,000 in severance and retirement payments has been included in
accrued expenses as of December 31, 1998 and 1997.
OPERATING INCOME (LOSS)
The Company's operating income was $1,329,000 in 1998, compared to an
operating loss of $3,136,000 in 1997, an increase of $4,465,000. The increase
was due to an increase in operating income of $1,478,000 in CBA due primarily to
decreased direct costs and SG&A expenses, coupled with a $2,311,000 improvement
in PRP due primarily to the impairment loss of $1,407,000 in 1997.
The Company had an operating loss of $3,136,000 in 1997 compared to an
operating loss of $824,000 in 1996. The increase in operating loss in 1997 as
compared to 1996 was due in part to a decline in operating income of $1,079,000
in CBA from $914,000 in 1996 to an operating loss of $165,000 in 1997. The
decline was due primarily to increased costs in connection with a growth plan
implemented in late 1996. Additionally, all other experienced an operating loss
of $676,000 in 1997 due primarily to the closing of Internet services.
20
<PAGE>
The operating loss in 1996 was due primarily to an $802,000
restructuring charge in the third quarter of 1996, coupled with an increase in
direct costs and selling, general and administrative expenses as a percentage of
revenues.
INTEREST INCOME AND EXPENSE; OTHER ITEMS
In 1998, the Company earned $85,000 in interest income, which increased
from $13,000 in 1997 and $19,000 in 1996. The increase in 1998 was a result of
the increased cash balance during 1998 coupled with interest earned on Notes
Receivable.
Interest expense in 1998 was $522,000, which was a decrease from
$597,000 in 1997 which was an increase from $320,000 in 1996. The decrease in
interest expense for 1998 compared to 1997 was primarily due to the reduction in
term debt outstanding and the lower level of borrowings under the line of
credit. The increase in interest expense for 1997 compared to 1996 was primarily
due to the issuance of subordinated notes in the fourth quarter of 1996 and the
third quarter of 1997, slightly offset by a reduction in interest on term notes.
On January 20, 1998, the Company entered into a settlement agreement
regarding a shareholder lawsuit which began during 1997, pursuant to which the
suit was dismissed with prejudice. 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 and other expense
of $289,000, respectively, 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.
During May 1998, the Company gave up its rights to part of the space
covered under one of its leases. The Company received a payment of $75,000,
included in other income, from its landlord for the return of the space. The
Company incurred additional rents of $26,400, included in other expense, while
negotiating the release of its obligations.
The Company recorded a loss on sale of assets of $73,000 resulting from
the sale of certain assets during 1996.
21
<PAGE>
INCOME TAXES
The $205,000 tax provision recognized for 1998 represents 21.3% of the
1998 income before provision for income taxes. Income taxes were reduced by
$239,000 for the reduction of the valuation allowance at December 31, 1998.
The $896,000 tax benefit recognized for 1997 represents 23.9% of the
1997 loss before benefit for income taxes. The 1997 benefit includes a net
operating loss carryback for federal purposes, a deferred tax benefit from a net
operating loss carryforward for federal, state and local taxes and a net
deferred tax benefit for temporary items, partially offset by a valuation
allowance of $519,000 and expired tax credits.
Based on the Company's history of prior operating earnings relating to
its consulting and business advisory businesses, management has determined that
a valuation allowance of $280,000 and $519,000 is necessary at December 31, 1998
and 1997, respectively, due to the uncertainty of future earnings to realize the
entire net deferred tax asset. Of the deferred tax asset, $322,000 and $286,000
as of December 31, 1998 and 1997, respectively, has been classified as current.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its business primarily from operating revenues,
working capital provided by deferred revenues in the form of prepaid retainer
fees, bank debt and subordinated notes.
In 1998, there was a positive cash flow from operating activities of
$2,166,000. Positive cash flow resulted from net income of $756,000, adjusted
for depreciation and amortization of $1,098,000, a decrease in accounts
receivable of $1,042,000, a decrease in prepaid and refundable income taxes of
$299,000, an increase in deferred taxes of $205,000, an increase in accrued
interest of $186,000, a provision for losses on accounts receivable of $164,000,
a decrease in assets held for sale of $99,000, amortization of deferred
financing fees of $40,000, an increase in income taxes payable of $25,000, an
increase in deferred compensation of $20,000, and amortization of discount on
notes payable of $6,000. This was offset by a decrease in accounts payable and
accrued expenses of $1,138,000, an increase in prepaid expenses, deferred
charges and security deposits of $231,000, a decrease in accrued rent
receivable/payable of $147,000, an increase in cash surrender value of life
insurance of $132,000, a decrease in unearned retainer revenue of $106,000 an a
gain on sale of net assets of $20,000.
In 1997, there was a positive cash flow from operating activities of
$236,000. This resulted from a net loss of $2,852,000, a decrease in accrued
rent payable of $85,000, an increase in cash surrender value of life insurance
of $55,000, an increase in deferred income taxes of $668,000 and an increase in
accounts receivable of $799,000. These items were more than offset by
depreciation and amortization of $1,147,000, the non-cash portion of impairment
loss of $1,047,000, the non-cash portion of asset disposal of $408,000, a loss
on sale of net assets of $28,000, amortization of discount on notes payable of
$5,000, amortization of deferred financing fees of $39,000, a $254,000 provision
for losses on accounts receivable, an increase in deferred compensation of
$21,000, an increase in accounts payable and accrued expenses of $305,000, a
decrease in prepaid and refundable income taxes of $250,000, a decrease in
inventory of $413,000, a decrease in prepaid expenses, deferred charges and
goodwill of $75,000, an increase in accrued interest of $170,000 and an increase
in unearned retainer income of $533,000.
22
<PAGE>
In 1996, there was a positive cash flow from operating activities of
$458,000. This resulted from a net loss of $719,000, a decrease in accrued rent
payable of $71,000, an increase in cash surrender value of life insurance of
$110,000, an increase in deferred income taxes of $107,000, an increase in
accounts receivable of $180,000, an increase in inventory of $585,000, an
increase in prepaid expenses, deferred charges and security deposits of
$437,000, and an increase in prepaid and refundable income taxes of $543,000.
These items were more than offset by depreciation and amortization of $974,000,
amortization of discount on notes payable of $1,000, the non-cash portion of
restructuring charge of $610,000, a $287,000 provision for losses on accounts
receivable, a loss on sale of marketable investment securities of $8,000, a loss
on sale of assets of $73,000, Common Stock issued for services of $40,000, an
increase in deferred compensation of $25,000, an increase in accounts payable
and accrued expenses of $590,000, amortization of deferred financing fees of
$15,000, and increase in accrued interest of $34,000 and an increase in unearned
retainer income of $553,000.
Capital expenditures were $618,000, $1,939,000, and $1,509,000 in 1998,
1997 and 1996, respectively, and consisted principally of migration of the
Company's 10 year old management information systems from a Wang VS 65 to a
Windows NT based system, computer equipment to improve the consultants' ability
to communicate with clients, access the Internet and integrate the Company's
products, as well as to expand the Company's enterprise network.
In 1998, the Company received $1,250,000 proceeds from the sale of net
assets and $42,000 for the surrender of a life insurance policy.
In 1998 and 1997 the Company received $63,000 and $50,000,
respectively, for the repayment of a note receivable.
In 1996, the Company received $168,000 proceeds from the sale of
marketable investment securities.
The Company has two outstanding term notes with State Street Bank and
Trust (the "Bank"). One note, a $2,000,000 fixed rate term note, payable in
quarterly installments of $100,000 through April 2000 at an interest rate of
8.86%, was originally signed during April 1995 and has $600,000 outstanding as
of December 31, 1998. The other note, a $500,000 five-year term note, payable in
quarterly installments of $25,000 through April 2001 at an interest rate of
prime plus 0.75%, which was 8.5% and 9.25% at December 31, 1998, and 1997,
respectively, was originally signed during July 1997 and has $250,000
outstanding at December 31, 1998.
Additionally, the Company had a Commercial Revolving Promissory Note
(the "Note") with the Bank. The Note was originally signed during April 1995,
and was amended several times since. The most recent amendment was on April 3,
1998 and expired on March 25, 1999. The amount available under the Note, as
amended, was $1,000,000. At its highest, there was $3,000,000 available under
the Note. The interest rate on the Note is the Bank's prime rate plus
one-quarter of one percent and during 1997 was the Bank's prime rate plus one
and one-half percent (prime was 7.75% as of December 31, 1998 and was 8.5% as of
December 31, 1997). As of December 31, 1998, there was nothing outstanding on
the Note. However the Note is used to secure certain long-term letters of credit
in the amount of $158,000. As such, as of December 31, 1998, the availability
under the Note was $842,000.
The Company's Revolving and Term Promissory Notes with the Bank are
secured by all of the assets of the Company. Additionally, during the first
quarter of 1998, SVP provided credit support in the form of two $1,000,000
standby letters of credit. One of the letters of credit is used to secure the
Revolving Note and the
23
<PAGE>
other is used to secure the two outstanding Term Notes. The letter of credit
securing the Term Notes will at all times equal the lesser of (a) the aggregate
principal amount of the term loans, or (b) $1,000,000. During 1998, the Company
failed to meet certain net income covenants included in the debt agreements,
primarily due to severance and related costs. The Bank has agreed to waive the
covenants.
During 1996 and 1997, the Company and its subsidiaries (the "Company")
issued $2,975,000 five-year Promissory Notes ("Notes") and ten-year warrants to
purchase 1,322,222 shares of the Company's Common Stock, at $2.25 per share, for
an aggregate consideration of $2,975,000 to Furman Selz SBIC, L.P. ("Furman
Selz") and SVP, S.A. ("SVP"). Notes in the amount of $2,025,000 and 900,000
warrants were purchased by Furman Selz on October 31, 1996 for the aggregate
amount of $2,025,000, which Notes are due on October 31, 2001. Notes in the
amount of $950,000 and 422,222 warrants are held by SVP. Of the Notes held by
SVP, a $475,000 Note, together with 211,111 warrants, was purchased for the
aggregate amount of $475,000, on each of November 30, 1996 and August 25, 1997.
All of the Notes are due five years after the respective purchase dates.
All of the Notes accrue interest at an annual rate of 12% on the unpaid
principal balance. Interest payments are made periodically on Notes, and the
agreements allow for the automatic deferral of some of the interest. Any
interest deferred compounds and accrues interest at the rate of the Notes until
paid. As of December 31, 1998, there was a total of $362,650 of accrued but
unpaid interest on the Notes. Included in the total was $338,942 which was
deferred in accordance with said provisions. All the deferred interest was paid
on February 8, 1999.
The Company is currently negotiating with several financial
institutions the refinancing of a portion of its long-term debt obligations with
the intention of reducing interest expense in the future. As the Company does
not foresee the short-term need for a line of credit, the Company did not seek
to renew the Note with the Bank, which expired on March 25, 1999. This will
allow for the release of one of the two $1 million standby letters of credit
provided by SVP to secure the debt. The Company is negotiating a new line of
credit with several financial institutions. On March 29, 1999 the Company paid
the Bank the $725,000 of outstanding term debt, with the intention of reducing
interest expense in 1999, and the Bank released the other $1 million standby
letter of credit provided by SVP.
On January 15, 1998, the Company entered into an agreement with SVP,
S.A., an affiliate of SVP International, pursuant to which SVP, S.A. purchased
800,000 shares of Common Stock at $1.25 per share for an aggregate of
$1,000,000. The transaction was completed in two parts. The Company issued
600,000 shares of Common Stock and a $250,000 Convertible Note in January 15,
1998, pending the availability of shares for issuance. The Note converted into
200,000 shares of Common Stock on February 20, 1998, when those shares became
available for issuance. With this transaction, SVP International and its
affiliates own approximately 37% of then outstanding shares of Common Stock,
excluding outstanding warrants.
In connection with the Company's sale of Published Research assets
during 1998, the Company received a $550,000 four-year note.
In connection with the Company's sale of ETRG's assets during 1997, the
Company received a $125,000 two-year note.
24
<PAGE>
The Company's working capital was $2,569,000 at December 31, 1998, as
compared to $1,016,000 at December 31, 1997. Cash balances were $2,307,000 and
$139,000 on December 31, 1998 and 1997, respectively.
The Company expects to spend approximately $700,000 for capital items
in 1999, the major portion of which will be to complete the migration of the
Company's proprietary management information system to its new platform, coupled
with leasehold improvements related to the HVAC system at one of its locations.
The Company believes that its cash balance at December 31, 1998 and
cash flow from operations will be sufficient to cover its operations and
expected capital expenditures for the next 12 months and that it has sufficient
liquidity for the next 12 months.
INFLATION
The Company has in the past been able to increase the price of its
products and services sufficiently to offset the effects of inflation on wages
and other expenses, and anticipates that it will be able to do so in the future.
YEAR 2000
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 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. 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 completed the inventory phase.
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 completed the analysis phase for non-IT and IT embedded systems.
25
<PAGE>
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.
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.
26
<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. As of December 31, 1998, none of the total cost of
the remediation plan has been spent, as the work to date has been performed by
internal staff.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", was issued.
SFAS No. 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. SFAS No. 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 No. 133 will not have a material impact on
the Company's consolidated financial position and results of operations.
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-K 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 dependence on regulatory approvals, its future cash
flows, sales, gross margins and operating costs, the effect of conditions in the
industry and the economy in general, and legal proceedings. 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-K, and in other
reports filed by the Company with the Securities and Exchange Commission.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The financial position of the Company is subject to market risk
associated with interest rate movements on outstanding debt. The Company has
debt obligations with both fixed and variable terms. The carrying value of the
Company's variable rate debt obligations approximates fair value as the market
rate is based on prime. A 10 percent increase in the underlying interest rates
would result in an increase of interest expense of $3,000.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report on pages F-1 through F-31.
27
<PAGE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
DIRECTORS AND OFFICERS
On October 5, 1998, the Board of Directors of the Company established
an Office of Managing Directors ("OMD") (a) responsible for (I) the conduct of
the ordinary business affairs and operations of the Company and (II) defining
operating policies in alignment with SVP International to take advantage of its
know-how and technological efficiencies, (b) comprised of four members, three of
whom shall be elected by the Board of Directors, upon the advice of the
Chairperson of the Board of Directors, and designated Senior Officers with the
title of Managing Directors, and the Chief Executive Officer, and (c) reporting
to the Board of Directors. Each Managing Director must be a member of the Board
of Directors or hold another executive position with the Company.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- -- --------
<S> <C> <C>
Andrew P. Garvin (1) 53 President, Chief Executive Officer and Director
Brigitte de Gastines 55 Managing Director and Chairperson of the Board of Directors
Howard S. Breslow 59 Director
Frederick H. Fruitman 48 Director
Jean-Louis Bodmer 57 Managing Director and Director
Eric Cachart 42 Managing Director and Director
Victor L. Cisario (1) 37 Vice President, Chief Financial Officer, Corporate Secretary and
Treasurer
Stephan B. Sigaud (1) 42 Vice President - Client Services
Kenneth A. Ash (1) 54 Vice President - International Strategic Research
Peter Carley (1) 36 Vice President - Human Resources
</TABLE>
- -----------------------
(1) Member of an Operating Management Group responsible for applying the
Company's overall policies and strategies and for proposing initiatives and
supplemental strategies for the growth of the Company.
29
<PAGE>
Each director is elected for a period of one year at the Company's
annual meeting of shareholders and serves until his successor is duly elected by
shareholders. Officers are elected by and serve at the will of the Board of
Directors.
Mr. Garvin is a founder of the Company and has served as its Chief
Executive Officer since 1972 and as its President since 1978. Mr. Garvin has
been a director of the Company since its inception and treasurer until 1997.
From 1979 to 1982, Mr. Garvin was a member of the Board of Directors of the
Information Industry Association and served as Chairman of the 1979 National
Information Conference and Exposition. Mr. Garvin is the author of The Art of
Being Well Informed, an information resource handbook for executives. Mr. Garvin
received a B.A. degree in political science from Yale University and an M.S.
degree in journalism from the Columbia Graduate School of Journalism.
Ms. de Gastines was elected a director of the Company in accordance
with the Company's licensing agreement with SVP International. See "Item 1.
Business - SVP Network; Licensing Agreement with SVP International." She has
been a director of the Company since 1982 and Chairperson of the Board since
October, 1998. She has served as the General Manager of SVP International since
1985 and SVP S.A. since 1976.
Mr. Breslow has been a director of the Company since 1986. He has been
a practicing attorney in New York for more than 25 years and a member of the law
firm of Breslow & Walker, LLP, New York, New York for more than 20 years.
Breslow & Walker, LLP is currently the Company's general counsel. Mr. Breslow
currently serves as a director of Cryomedical Sciences, Inc., a publicly held
company engaged in the research, development and sale of products for use in low
temperature medicine, Vikonics Inc., a publicly held company engaged in the
design and sale of computer-based security systems, Lucille Farms, Inc., a
publicly held company engaged in the manufacturing and marketing of cheese
products, and Excel Technologies, Inc., a publicly held company engaged in the
development and sale of laser products.
Mr. Fruitman has been a director of the Company since 1989. Since 1990,
Mr. Fruitman has been a Managing Director of Loeb Partners Corporation, an
investment banking firm. Mr. Fruitman is a director of Micro Warehouse, Inc., a
publicly held company which markets computer products.
Mr. Bodmer has served as General Manager of SVP France since 1974.
Other positions which he currently holds are Chief Executive Director of SVP,
S.A., President and Chief Executive Officer of SVP Participation, President of
SVP Belgium, and President of SVP United Kingdom.
Mr. Cachart is the Associate General Manager of SVP, S.A. and has
served as President of SVP Multi-info since 1995. He was named President of SVP
Network in 1998. Prior to 1995 he was a journalist and news commentator for
French television networks.
Mr. Cisario has been the Company's Vice President and Chief Financial
Officer, Corporate Secretary and Treasurer since October 1998, and was Vice
President and Controller from January 1997 to October 1998, and was Controller
from March 1995 to January 1997. From 1992 to 1995, Mr. Cisario functioned as
Director of Finance and Administration for R.J. Rudden and Associates, an energy
industry consulting firm. He was employed from 1987 to 1992 in the financial
recruiting industry, including 1989 to 1992 with Robert Half, International,
where he was Vice President of the New York Region. Prior thereto he was a
senior Accountant
30
<PAGE>
with a major real estate company and a Certified Public Accountant with Peat
Marwick Mitchell and Company. Mr. Cisario received a B.B.A. degree from Hofstra
University and is a Certified Public Accountant in New York State.
Mr. Sigaud has been the Company's Vice President of Client Services
since October 1998, and was Vice President and Managing Director of the
Company's Customer Satisfaction and Loyalty Group from May 1994 to October 1998.
From 1989 to 1994 Mr. Sigaud was the owner and President of IDSI, Inc., a
consulting firm specializing in Customer Satisfaction Measurement for companies
in the industrial sector. From 1986 to 1989 he functioned as Executive Vice
President for BMES, Inc., a business-to-business marketing research firm. He was
employed from 1982 to 1986 in the Recruiting Department of Renault in France.
Prior thereto he was in International Sales and Marketing and worked as Business
Development Manager for an engineering firm in East Africa and as Trade Attache
in the French Trade Office in Madagascar. Mr. Sigaud holds a B.S. in Math and
Physics from Marseilles University and an MBA in Marketing from ESSEC, the
leading business school in France.
Mr. Ash joined FIND/SVP in March 1992 as Vice President & Managing
Director of the Strategic Consulting & Research Group and became Vice President
International Strategic Research on October 5, 1998. From 1985 to 1992, Mr. Ash
directed his own consulting firm specializing in marketing and acquisition
engagements. In 1991 and 1992, Mr. Ash served as President and CEO of CallTrack
Systems, a start-up company offering a network-based, long distance call
accounting system geared to small and medium-sized organizations. Mr. Ash served
as Vice President of Marketing of Satellite Television Corporation, a COMSAT
subsidiary and major communications start-up venture between 1983 and 1985. From
1973 to 1983, Mr. Ash held progressively senior account management positions at
J. Walter Thompson and Ogilvy & Mather advertising agencies. Mr. Ash served as a
U.S. Navy Officer from 1969 to 1972, earned an MBA from the Wharton School of
the University of Pennsylvania in 1969 and a BA from Princeton University in
1967.
Mr. Carley has been the Company's Vice President of Human Resources
since July 1998, and was Director of Human Resources from December 1997 to July
1998. He joined the company as Manager of Human Resources in September of 1997.
Prior to joining FIND/SVP, he was employed by The Washington Post Company from
February 1996 until September of 1997, where he was most recently a Director,
Human Resources for MLJ, a telecommunications engineering consulting company.
Mr. Carley also worked in training and development, recruiting, employee
relations, and other Human Resources roles at Cost Plus World Market, a
California-based retail firm. He has a Bachelor of Arts degree from San
Francisco State University.
31
<PAGE>
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers, directors and beneficial owners of more than
10% of any class of its equity securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 ("Reporting Persons") are required under
that Act to file reports of ownership and changes in beneficial ownership of the
Company's equity securities with the Securities and Exchange Commission. Copies
of those reports must also be furnished to the Company. Based solely on a review
of the copies of reports furnished to the Company pursuant to that Act, the
Company believes that during fiscal year ended December 31, 1998, all filing
requirements applicable to Reporting Persons were complied with, except that
Form 3 Initial Statements of Beneficial Ownership of Securities for Victor
Cisario, Peter Carley, Ken Ash and Stephan Sigaud, Officers of the Company,
which were due on November 10, 1998, were filed on November 19, 1998.
32
<PAGE>
ITEM 11
EXECUTIVE COMPENSATION
----------------------
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three years
to (I) the Company's Chief Executive Officer, and (II) each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the year ended December 31, 1998 (collectively the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ---------------------------- -------
SECURITIES
NAMES AND OTHER RESTRICTED UNDERLYING LTIP ALL
--------- ------ ----------- ---------- ---- ---
PRINCIPAL SALARY BONUS ANNUAL STOCK OPTIONS PAYOUT OTHER
--------- ------ ----- ------ ----- ------- ------ -----
POSITIONS YEAR ($) ($) COMP. AWARDS ($) (#) (1) ($) COMP.
--------- ---- --- --- ----- ---------- ------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANDREW P. GARVIN 1998 264,171 50,000 -- -- -- -- --
PRESIDENT, CHIEF 1997 253,867 50,000 -- -- -- -- --
EXECUTIVE OFFICER 1996 251,256 12,500 -- -- 350,000 -- --
AND DIRECTOR
VICTOR L. CISARIO 1998 118,333 8,500 -- -- 60,000 -- --
VICE PRESIDENT, 1997 109,144 7,660 -- -- 5,000 -- --
CHIEF FINANCIAL 1996 90,025 3,859 -- -- 5,000 -- --
OFFICER, SECRETARY,
TREASURER (2)
STEPHAN B. SIGAUD 1998 133,958 200 -- -- 50,000 -- --
VICE PRESIDENT - 1997 114,227 39,160 -- -- -- -- --
CLIENT SERVICES (2) 1996 100,000 21,571 -- -- -- -- --
KENNETH A. ASH 1998 143,750 83,647 -- -- 60,000 -- --
VICE PRESIDENT - 1997 125,000 50,000 -- -- -- -- --
INTERNATIONAL STRATEGIC 1996 125,000 42,000 -- -- -- -- --
RESEARCH (2)
PETER J. FIORILLO 1998 142,500 9,000 -- -- -- -- --
EXECUTIVE VICE PRESIDENT, 1997 185,671 11,500 -- -- -- -- --
CHIEF FINANCIAL OFFICER, 1996 154,476 12,000 -- -- 125,000 -- --
CHIEF INFORMATION
OFFICER, TREASURER
AND SECRETARY (3)
</TABLE>
- ------------------------
(1) Options to acquire Common Stock.
(2) Named executive officer of the Company on October 5, 1998
(3) Employment terminated on September 30, 1998.
33
<PAGE>
OPTION GRANTS DURING 1998
-------------------------
The following table provides information related to stock options
granted to the Named Executive Officers during 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM (1)
GRANTED IN FISCAL BASE PRICE --------------------------------
NAME (#) (2) YEAR ($/SHARE) EXPIR. DATE 0% 5% ($) 10% ($)
- ---- ------- ---- --------- ----------- -- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
ANDREW P. GARVIN -- -- -- -- -- -- --
VICTOR L. CISARIO 10,000 2.8% 1.21875 4/21/03 -- 3,367.18 7,440.59
50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
STEPHAN B. SIGAUD 50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
KENNETH A. ASH 7,500 2.1% 1.21875 4/21/03 -- 2,525.39 5,580.44
2,500 0.7% 1.0625 6/30/03 -- 733.87 1,621.67
50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
PETER J. FIORILLO -- -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be received upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment.
(2) Represent number of shares of Common Stock underlying stock options. The
exercise prices equal the fair market of the Common Stock on the date of
grant.
34
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
---------------------------------------------------------------
The following table provides information related to options exercised
by each of the Named Executive Officers during the year ended December 31, 1998
and the number and value of options held at fiscal year end. The Company does
not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR END (#) OPTIONS
---------------------- AT FISCAL YEAR END ($)(1)
-------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
(#) ($)
<S> <C> <C> <C> <C> <C> <C>
ANDREW P. GARVIN -- -- 150,500 255,000 -- --
VICTOR L. CISARIO -- -- 10,000 62,000 -- --
STEPHAN B. SIGAUD -- -- 27,000 48,000 -- --
KENNETH A. ASH -- -- 5,000 56,000 -- --
PETER J. FIORILLO 4,000 3,500 -- -- -- --
</TABLE>
- -------------------------
(1) The closing sale price of the Company's Common Stock as reported by NASDAQ
on December 31, 1998 was $0.75. Value is calculated on the difference
between the option exercise price of in-the-money options and $0.75
multiplied by the number of shares of Common Stock underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1998. Andrew
P. Garvin, the President and Chief Executive Officer and a director of the
Company during such period, participated in deliberations of the Company's Board
of Directors concerning executive officer compensation. There were no
interlocking relationships between the Company and other entities that might
affect the determination of the compensation of the executive officers of the
Company.
EMPLOYMENT AND RELATED AGREEMENTS
On January 1, 1996, the Company entered into an Employment Agreement
with Andrew P. Garvin commencing on January 1, 1996 and terminating on December
31, 2001 (the "Employment Agreement"). Such Employment Agreement was amended and
restated on December 12, 1996. The Employment Agreement provides for a base
salary of $250,000 which will be adjusted each January 1 for a cost of living
increase based on the Consumer Price Index for New York City for the twelve
month period immediately preceding such January 1 date. Mr. Garvin will also be
entitled to additional increases in base salary as may be determined from time
to time by the Board of Directors or any compensation committee appointed by the
Board of Directors. Mr. Garvin received a $12,500 signing bonus upon execution
of the Employment Agreement. In
35
<PAGE>
addition, Mr. Garvin will be entitled to receive performance bonuses equal to
10% per annum of the pre-tax profits of the Company in excess of $1,000,000 for
each of the years ended December 31, 1996, 1997, 1998, 1999, 2000, and 2001. The
Employment Agreement limits the bonus to $250,000 in any year, and states that
Mr. Garvin is entitled to receive a cash bonus of $50,000 in each of January
1997 and January 1998.
The Employment Agreement provides that (I) if Mr. Garvin voluntarily
leaves the employ of the Company on account of the Company being acquired and
its principal office being moved to a location which is greater than 50 miles
from New York City; and (II) if Mr. Garvin voluntarily leaves the employ of the
Company on account of a Change in Control, then, in each such case, he shall be
entitled to receive the compensation described in the immediately preceding
paragraph for the balance of the term; provided, however, that if such
termination occurs at a time when there is less than one year left in the term,
the compensation shall continue for a period of two years from the date of
termination on the same basis that the employee received compensation during the
last year of the term. Change of control is defined in the Employment Agreement
to include the acquisition by a party of 30% or more of the outstanding shares
of Common Stock of the Company or a change in the majority of the Incumbent
Board of Directors (as defined in the Employment Agreement). In the event that
the Company terminates Mr. Garvin's employment for cause, and a court of law or
other tribunal ultimately determines that such termination was without cause,
then he shall be entitled to receive double the amount of compensation described
above until the end of the term. Mr. Garvin has agreed to a non-competition
covenant for a period of two years after the term of the Employment Agreement.
During October 1998, Mr. Garvin's contract was amended to provide that
any time after 1999 Mr. Garvin may elect to voluntarily leave the employ of the
Company and receive the balance of his contract for the remaining term of his
employment contract. The term of the contract runs through 2001. Mr. Garvin's
salary for 1999 is $266,592. Additionally, concurrent with the amendment to his
contract, Mr. Garvin relinquished 75,000 options previously granted 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.
The Company has entered into a deferred compensation agreement with Mr.
Garvin, which provides for a schedule of payments to him or his designated
beneficiary(ies). The agreement entered into in 1984 provides that in the event
during the course of employment Mr. Garvin (I) dies, (II) becomes totally
disabled or (III) elects to retire after June 30, 1994 and prior to age 65, he
or, in the event of death, his designated beneficiaries, shall receive monthly
payments ranging from $1,250 to $1,800 for a period of ten years from the date
of death, disability or retirement. In the event Mr. Garvin retires at age 65 or
over, Mr. Garvin shall receive $4,750 per month for ten years from the date of
his retirement.
The Company entered into an additional Deferred Compensation Agreement
with Mr. Garvin in 1990. Pursuant thereto, in the event during the course of
employment Mr. Garvin (I) dies, (II) becomes totally disabled or (III) elects to
retire after July 25, 1992 and prior to age 65, he or, in the event of death,
his designated beneficiary(ies), shall receive monthly payments ranging from
$618.81 to $2,351. These payments are to continue for a period of ten years from
the date of death, disability or retirement. In the event he retires at age 65
or over, Mr. Garvin shall receive $2,475.24 per month for ten years from the
date of his retirement. The benefits under the two agreements are cumulative.
36
<PAGE>
Peter J. Fiorillo resigned 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.
Severance arrangements for members of the Operating Management Group
(i.e. Messrs. Sigaud, Cisario, Ash and Carley) were agreed upon by the Board of
Directors on January 25, 1999. The sense of the discussion was that severance
agreements should be entered into with each of the members of the Operating
Management Group ("OMG") providing for (a) a normal severance benefit of nine
(9) months, which would be increased to one (1) year after the employee has
served as a member of the OMG for a continuous period of two (2) years, in the
event the employee's services are terminated by the Company without cause, and
(b) a severance benefit of one (1) year in the event the separation from service
is due to (I) a change-in-control, and (II) the employee suffers, within one (1)
year thereafter, either (A) a discontinuation of duties, or (B) an office change
of at least 50 miles, or (C) a reduction in compensation, or (D) a termination
of employment other than for cause. Severance agreements are currently being
prepared.
Directors were not compensated in cash for their services during 1998.
On January 25, 1999, the Board of Directors approved the payment of $1,500 per
meeting for the outside members of the Board. The Stock Option Plan of the
Company was amended in June 1995 to provide for the automatic grant to outside
directors of five-year non-incentive options to purchase 2,500 shares of Common
Stock on the first business day of each new year beginning in 1996, the exercise
price being the fair market value on the date of the grant.
37
<PAGE>
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth, as of January 1, 1999, certain information
with respect to the beneficial ownership of the Common Stock by (I) each person
known by the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (II) each of the directors of the Company, (III) each of the Named
Executive Officers, (IV) and by all current executive officers and directors as
a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
BENEFICIAL OWNER OWNED(1) PERCENT
---------------- -------- -------
<S> <C> <C>
Andrew P. Garvin
625 Avenue of the Americas
New York, NY 10011 (2) 1,176,754 15.6%
Amalia S.A.
70, rue des Rosiers
F-93585 Saint-Ouen, Cedex
FRANCE (3) 3,075,085 40.8%
Brigitte de Gastines (4) 20,000 Less than 1%
Howard S. Breslow (4)(5) 28,820 Less than 1%
Frederick H. Fruitman (6) 55,679 Less than 1%
Jean-Louis Bodmer (4) 10,000 Less than 1%
Kenneth A. Ash (7) 86,000 1.2%
Victor L. Cisario (8) 79,400 1.1%
Stephan B. Sigaud (9) 75,000 1.0%
Furman Selz SBIC, L.P.
230 Park Avenue
New York, NY 10169 (10) 900,000 11.2%
Peter J. Fiorillo
236 East Granada Avenue
Lindenhurst, NY 11757 54,000 Less than 1%
All Current Executive Officers
and Directors as a Group
(10 persons) (11) 1,586,653 20.3%
</TABLE>
38
<PAGE>
(1) Unless otherwise indicated below, all shares are shares of Common Stock
owned beneficially and of record.
(2) Includes 405,500 shares issuable under outstanding options.
(3) Includes the 422,222 shares issuable under outstanding warrants held by
SVP, S.A., the 2,158,100 shares of Common Stock owned by SVP, S.A. and the
494,763 shares of Common Stock owned by SVP International, which are
subsidiaries of Amalia S.A. Brigitte de Gastines owns in excess of 99% of
the stock of Amalia S.A. In addition, Ms. de Gastines is President, General
Manager and a director of SVP, S.A., and General Manager of SVP
International. The shares owned by Amalia S.A. are not shown in the table
as being owned by Ms. de Gastines.
(4) Includes 10,000 shares issuable under outstanding options.
(5) Includes all of the 13,820 shares of Common Stock owned by record of
Breslow & Walker, LLP, a law firm in which Mr. Breslow is a partner.
(6) Includes 7,500 shares issuable under outstanding options.
(7) Includes 61,000 shares issuable under outstanding options.
(8) Includes 72,000 shares issuable under outstanding options.
(9) Includes 75,000 shares issuable under outstanding options.
(10) Includes all of the 900,000 shares issuable under outstanding Warrants.
(11) Includes 752,500 shares issuable under outstanding options.
39
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since 1971, the Company has been a licensee of SVP International.
Pursuant to this license agreement, the Company pays royalties to SVP
International for the use of the SVP name and participation in the SVP
International network. For a description of the relationship of Ms. de Gastines,
Mr. Bodmer and Mr. Cachart to SVP International see "Item 10. Directors and
Executive Officers of the Registrant." The accrued royalties payable as of
December 31, 1998 to SVP International were approximately $142,000.
On January 15, 1998, the Company entered into an agreement with SVP,
S.A., an affiliate of SVP International, pursuant to which SVP, S.A. purchased
800,000 shares of Common Stock at $1.25 per share for an aggregate of
$1,000,000. The transaction was completed in two parts. The Company issued
600,000 shares of Common Stock and a $250,000 Convertible Note in January 15,
1998, pending the availability of shares for issuance. The Note converted into
200,000 shares of Common Stock on February 20, 1998, when those shares became
available for issuance. With this transaction, SVP International and its
affiliates own approximately 37% of then outstanding shares of Common Stock,
excluding outstanding warrants.
Howard S. Breslow, a director of the Company, is a member of Breslow &
Walker, LLP, general counsel to the Company. During 1998, Breslow & Walker, LLP
received legal fees of $130,342.
40
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this
10-K:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended
December 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) SCHEDULE
The following Financial Statement schedule is filed as part of
this 10-K:
Schedule II - Valuation and Qualifying Accounts
Other Financial Statement schedules are omitted because they
are not applicable or because the information required is
provided in the Consolidated Financial Statements or Notes
thereto included herein.
(3) EXHIBITS
Exhibit
Number Document
------- --------
3(a) Copy of restated Certificate of Incorporation as
amended(1), and amendment thereto.
(b) Copy of By-Laws, as amended.(3)
4(a) Copy of specimen of Common Stock Certificate.(1)
41
<PAGE>
10(a) Copy of License Agreement, dated October 11, 1971,
between the Company and SVP International
(formerly SVP Conseil) and an amendment thereto,
dated March 23, 1981.(1)
(b) Copy of 1986 Stock Option Plan.(1)
(c) Copy of Deferred Compensation and Salary
Continuation Agreement, dated June 30, 1984,
between the Company and Andrew P. Garvin .(1)
(d) Copy of the lease related to premises at 625
Avenue of the Americas, NY, NY.(2) and amendment
related thereto.(6)
(e) Copy of Target Benefit Plan of the Company.(4)
(f) Copy of Deferred Compensation and Salary
Continuation Agreement, dated July 25, 1990,
between the Company and Andrew P. Garvin. (5)
(g) Copy of Lease dated July 19, 1994 related to
premises on 3rd floor at 641 Avenue of the
Americas, NY, N.Y. (8)
(h) Copy of lease dated March 15, 1995 related to
premises on 4th floor at 641 Avenue of the
Americas, NY, N.Y. (8)
(i) Copy of Commercial Revolving Loan, Term Loan and
Security Agreement dated April 27, 1995 between
State Street Bank and Trust Company and the
Company. (9)
(j) Copy of 401(k) and Profit Sharing Plan of the
Company.(10)
(k) Copy of Employment Agreement, amended and restated
as of December 12, 1996, between the Company and
Andrew P. Garvin.(13)
(l) Copy of the Note and Warrant Purchase Agreement
with Furman Selz SBIC, L.P., dated October 31,
1996. (12)
42
<PAGE>
(m) Copy of the Note and Warrant Purchase Agreement
with SVP, S.A. dated November 30, 1996. (13)
(n) FIND/SVP, Inc. 1996 Stock Option Plan. (14)
(o) Copy of ETRG Sale Agreement. (15)
(p) Copy of Commercial Revolving Loan, dated October
22, 1997, between the Bank and the Company. (15)
(q) Copy of Second Modification Agreement, as of
September 30, 1997, between the Bank and the
Company. (15)
(r) January 20, 1998 Agreement between Asset Value
Fund and the Company. (16)
(s) Copy of the Third Modification Agreement as of
December 31, 1997, between the Bank and the
Company. (16)
(t) Copy of Fourth Modification Agreement, as of
January 15, 1998, between the Bank and the
Company. (16)
(u) Copy of the Fifth Modification Agreement as of
March 27, 1998 between the Bank and the Company.
(17)
(v) Copy of the Sixth Modification Agreement as of
April 3, 1998 between the Bank and the Company.
(17)
(w) Copy of the Sale Agreement for FIND/SVP Published
Products, Inc.'s assets (18)
(x) Copy of the Stock Purchase Agreement between SVP,
S.A. and the Company dated January 15, 1998.
(y) Copy of Peter J. Fiorillo's Severance Agreement.
21 List of Subsidiaries. (11)
23 Independent Auditors' Consent.
27 Financial Data Schedule.
43
<PAGE>
(1) Incorporated by reference to the Company's
Registration Statement on Form S-18 (Reg. No.
33-8634-NY) which became effective with the
Securities and Exchange Commission on October 31,
1986.
(2) Incorporated by reference to the Company's Form
8-K filed with the Securities and Exchange
Commission on February 2, 1987.
(3) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1987.
(4) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1989.
(5) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1990.
(6) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1992.
(7) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1993.
(8) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1994.
(9) Incorporated by reference to the Company's Form
10-Q filed for the Quarter ended March 31, 1995.
(10) Incorporated by reference to the Company's Form
S-8 filed on March 29, 1996.
(11) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1995.
(12) Incorporated by reference to the Company's Form
8-K, filed on November 13, 1996, and amended by
Form 8-K/A No. 1 on November 21, 1996.
(13) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1996.
(14) Incorporated by reference to the Company's Form
S-8, filed on February 27, 1997.
(15) Incorporated by reference to the Company's Form
10-Q, filed for the quarter ended September 30,
1997.
44
<PAGE>
(16) Incorporated by reference to the Company's Form
10-K filed for the year ended December 31, 1997.
(17) Incorporated by reference to the Company's Form
10-Q filed for the quarter ended March 31, 1998.
(18) Incorporated by reference to the Company's Form
8-K, filed on July 17, 1998.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed in the last
quarter of the period covered by this Form 10-K.
45
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 30, 1999 BY: /S/ ANDREW P. GARVIN
--------------------
Andrew P. Garvin, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 30, 1999 BY: /S/ VICTOR L. CISARIO
---------------------
Victor L. Cisario, Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirement(s) of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Date: March 30, 1999 /S/ ANDREW P. GARVIN
--------------------------------------
Andrew P. Garvin, Director
Date: March 30, 1999
---------------------------
Brigitte de Gastines, Director
Date: March 30, 1999
--------------------------------------
Howard S. Breslow, Director
Date: March 30, 1999 /S/ FREDERICK H. FRUITMAN
-----------------------------------
Frederick H. Fruitman, Director
Date: March 30, 1999 /S/ ERIC CACHART
--------------------------------------
Eric Cachart, Director
Date: March 30, 1999 /S/ JEAN-LOUIS BODMER
--------------------------------------
Jean-Louis Bodmer, Director
46
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedule
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-3
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedule:
Schedule II - Valuation and Qualifying Accounts F-31
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FIND/SVP, Inc.:
We have audited the accompanying consolidated financial statements of FIND/SVP,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FIND/SVP, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/S/ KPMG LLP
KPMG LLP
New York, New York
February 22, 1999
F-2
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Balance SheetsDecember 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 2,307,000 139,000
Accounts receivable, less allowance for doubtful accounts of
$104,000 in 1998 and $118,000 in 1997 2,188,000 3,394,000
Note receivable (note 13) 200,000 62,000
Prepaid and refundable income taxes - 299,000
Deferred tax assets (note 7) 322,000 286,000
Prepaid expenses and other current assets 466,000 328,000
Assets held for sale (note 12) - 1,558,000
-------------- -------------
Total current assets 5,483,000 6,066,000
Equipment and leasehold improvements, at cost, less
accumulated depreciation and amortization (note 2) 4,250,000 4,546,000
Other assets:
Deferred charges 165,000 245,000
Goodwill, net 106,000 117,000
Note receivable (note 13) 413,000 63,000
Cash surrender value of life insurance 569,000 479,000
Deferred tax assets (note 7) 440,000 681,000
Deferred financing fees, net 101,000 141,000
Security deposits 142,000 143,000
Prepaid rent receivable, net (note 3) 35,000 -
-------------- -------------
$ 11,704,000 12,481,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current installments (note 4) 500,000 1,749,000
Trade accounts payable 497,000 1,305,000
Income taxes payable 25,000 -
Accrued expenses (notes 6, 10, 13 and 14) 1,694,000 1,872,000
Accrued interest, current installments (note 4) 198,000 124,000
-------------- -------------
Total current liabilities 2,914,000 5,050,000
-------------- -------------
Unearned retainer income 1,917,000 2,023,000
Notes payable, net, excluding current installments (note 4) 3,307,000 3,801,000
Accrued expenses (note 10) 169,000 -
Accrued interest, excluding current installments (note 4) 216,000 104,000
Accrued rent payable (note 3) - 112,000
Deferred compensation (note 8(b)) 193,000 173,000
Shareholders' equity (note 5):
Preferred stock, $.0001 par value. Authorized 2,000,000 shares;
none issued and outstanding - -
Common stock, $.0001 par value. Authorized 20,000,000 shares;
issued and outstanding 7,114,169 shares in 1998;
issued and outstanding 6,575,669 shares in 1997 1,000 1,000
Capital in excess of par value 4,886,000 3,872,000
Accumulated deficit (1,899,000) (2,655,000)
--------------- --------------
Total shareholders' equity 2,988,000 1,218,000
Commitments and contingencies (notes 3 through 6, 8, and 11)
-------------- -------------
$ 11,704,000 12,481,000
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 28,175,000 32,027,000 30,525,000
------------- ------------- ----------
Operating expenses:
Direct costs 14,263,000 18,402,000 17,349,000
Selling, general and administrative
expenses (notes 3, 6 and 8) 12,262,000 15,059,000 13,198,000
Impairment loss (note 12) - 1,047,000 -
Asset disposal (note 13) - 500,000 -
Restructuring charge (note 14) 321,000 155,000 802,000
-------------- ------------- ----------------
Operating income (loss) 1,329,000 (3,136,000) (824,000)
Interest income 85,000 13,000 19,000
Other Income (notes 11 and 13) 364,000 - -
Gain (loss) on sale of net assets (note 13) 20,000 (28,000) (73,000)
Loss on sale of marketable investment
securities - - (8,000)
Interest expense (note 4) (522,000) (597,000) (320,000)
Other expense (notes 11 and 13) (315,000) - -
-------------- ------------- ---------------
Income (loss) before provision
(benefit) for income taxes 961,000 (3,748,000) (1,206,000)
Provision (benefit) for income taxes (note 7) 205,000 (896,000) (487,000)
------------- ------------- ----------------
Net income (loss) $ 756,000 (2,852,000) (719,000)
============= ============= ================
Earnings (loss) per common and common
stock equivalent share:
Basic $ .11 (.43) (.11)
=== ===== =====
Diluted $ .11 (.43) (.11)
=== ===== =====
Weighted average number of common and
common stock equivalent shares
outstanding:
Basic 7,094,273 6,592,773 6,433,966
========= ========= =========
Diluted 7,100,070 6,592,773 6,433,966
========= ========= =========
</TABLE>
F-4
See accompanying notes to consolidated financial statements.
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Preferred stock Common stock Capital in
Comprehensive -------------------- excess of
Shares Amount Shares Amount par value
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 - $ - 6,210,848 $ 1,000 3,743,000
Comprehensive income:
Net loss - - - - -
Change in market value of available-
for-sale securities - - - - -
Total comprehensive income
Exercise of stock options and warrants - - 315,396 - 53,000
Common stock issued for services - - 21,940 - 40,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 25,000
--------- -------- ---------- --------- ----------
Balance at December 31, 1996 - - 6,548,184 1,000 3,861,000
Net loss - - - - -
Purchase of treasury stock - - - - -
Exercise of stock options and warrants - - 74,985 - 57,000
Retirement of treasury shares - - (72,500) - (88,000)
Common stock issued for services - - 25,000 - 37,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 5,000
--------- -------- ---------- --------- ----------
Balance at December 31, 1997 - - 6,575,669 1,000 3,872,000
Net income - - - - -
Purchase of treasury stock with
insurance proceeds (note 11) - - - - -
Exercise of stock options and warrants - - 12,900 - 14,000
Retirement of treasury shares - - (74,400) - -
Common stock issued - - 600,000 - 1,000,000
--------- -------- ---------- --------- ----------
Balance at December 31, 1998 - $ - 7,114,169 $ 1,000 4,886,000
========= ======== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated Treasury Stock Accumulated Other Total
earnings ---------------------- Comprehensive shareholders'
(deficit) Shares Amount Income equity
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 916,000 - - (1,000) 4,659,000
Comprehensive income:
Net loss (719,000) - - - (719,000)
Change in market value of available-
for-sale securities - - - 1,000 1,000
------------
Total comprehensive income (718,000)
Exercise of stock options and warrants - - - - 53,000
Common stock issued for services - - - - 40,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 25,000
----------- ---------- ----------- --------- ------------
Balance at December 31, 1996 197,000 - - - 4,059,000
Net loss (2,852,000) - - - (2,852,000)
Purchase of treasury stock - 72,500 (88,000) - (88,000)
Exercise of stock options and warrants - - - - 57,000
Retirement of treasury shares - (72,500) 88,000 - -
Common stock issued for services - - - - 37,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 5,000
----------- ---------- ----------- --------- ------------
Balance at December 31, 1997 (2,655,000) - - - 1,218,000
Net income 756,000 - - - 756,000
Purchase of treasury stock with
insurance proceeds (note 11) - (274,400)
Exercise of stock options and warrants - - - - 14,000
Retirement of treasury shares - 74,400 - - -
Common stock issued - 200,000 - - 1,000,000
----------- ---------- ----------- --------- ------------
Balance at December 31, 1998 $(1,899,000) - $ - $ - $ 2,988,000
=========== ========== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 756,000 (2,852,000) (719,000)
----------- ---------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,098,000 1,147,000 974,000
Amortization of discount on notes payable 6,000 5,000 1,000
Amortization of deferred financing fees 40,000 39,000 15,000
Non-cash portion of impairment loss - 1,047,000 -
Non-cash portion of asset disposal - 408,000 -
Non-cash portion of restructuring charge - - 610,000
Provision for losses on accounts receivable 164,000 254,000 287,000
Loss on sale of marketable investment
securities - - 8,000
(Gain) loss on sale of net assets (20,000) 28,000 73,000
Common stock issued for services - - 40,000
Increase in deferred compensation 20,000 21,000 25,000
Decrease in accrued rent receivable/payable (147,000) (85,000) (71,000)
Increase in cash surrender value of life insurance (132,000) (55,000) (110,000)
(Decrease) increase in deferred income taxes 205,000 (668,000) (107,000)
Decrease in assets held for sale 99,000 - -
Changes in assets and liabilities, net of non-cash effect
of asset sale:
Decrease (increase) in accounts receivable 1,042,000 (799,000) (180,000)
Decrease (increase) in prepaid and refundable
income taxes 299,000 250,000 (543,000)
Decrease (increase) in inventory - 413,000 (585,000)
(Increase) decrease in prepaid expenses, deferred
charges and security deposits (231,000) 75,000 (437,000)
(Decrease) increase in accounts payable
and accrued expenses (1,138,000) 305,000 590,000
Increase in income taxes payable 25,000 - -
Increase in accrued interest payable 186,000 170,000 34,000
(Decrease) increase in unearned retainer income (106,000) 533,000 553,000
------------ ------------ -------------
Total adjustments 1,410,000 3,088,000 1,177,000
------------ ------------ -------------
Net cash provided by operating activities 2,166,000 236,000 458,000
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (618,000) (1,939,000) (1,509,000)
Surrender of life insurance 42,000 - -
Repayment of notes receivable 63,000 50,000 -
Proceeds from sale of net assets 1,250,000 - 3,000
Proceeds from sale of marketable investment securities - - 168,000
------------ ----------- ----------
Net cash provided by (used in) investing activities 737,000 (1,889,000) (1,338,000)
------------ ----------- ----------
Cash flows from financing activities:
Principal borrowings under notes payable - 1,719,000 2,975,000
Principal payments under notes payable (1,749,000) (516,000) (1,956,000)
Proceeds from issuance of convertible note-related party 250,000 - -
Proceeds from exercise of stock options 14,000 57,000 53,000
Proceeds from sale of warrants in connection with Series A
Senior Subordinated Notes - 5,000 25,000
Proceeds from issuance of common stock 750,000 - -
Payments to acquire treasury stock (206,000) (88,000) -
Proceeds from insurance company, net of expenses 206,000 - -
Increase in deferred financing fees - (19,000) (105,000)
------------ ----------- ----------
Net cash (used in) provided by financing activities (735,000) 1,158,000 992,000
------------ ----------- ----------
Net increase (decrease) in cash 2,168,000 (495,000) 112,000
Cash at beginning of year 139,000 634,000 522,000
------------ ----------- ----------
Cash at end of year $ 2,307,000 139,000 634,000
============ =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION
Find/SVP, Inc. provides a broad consulting, advisory and business
intelligence service to executives and other decision-making
employees of client companies, primarily in the United States. The
Company currently operates primarily in one business segment,
providing consulting and business advisory 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 competetive intelligence information,
as well as customer satisfaction and loyalty programs. Prior to
the third quarter of 1998, the Company had one additional
significant operating segment, Published Research Products. The
Company considers its QCS and SCRG service businesses, which
operate as "consulting and business advisory" businesses, to be
its core competencies.
As such, during July 1998, the Company completed the sale of
substantially all of the assets of its FIND/SVP Published
Products, Inc. subsidiary ("Published Research") (see note 13). 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. During 1997, the
Company recorded an impairment loss related to the aforementioned
assets of $1,047,000 (see note 12). Additionally, during the
fourth quarter of 1997, the Company sold the assets of its
Emerging Technologies Research Group ("ETRG"), a division of
Published Research (see note 13). In consideration of the sale,
the Company received a two year $125,000 note bearing interest at
10%. The Company recorded a $28,000 loss related to this sale. The
revenues derived from the assets sold accounted for 9%, 19% and
20% of the Company's total revenues during 1998, 1997 and 1996,
respectively.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
FIND/SVP, Inc. and its wholly owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
(C) INVENTORIES
Inventories comprise costs of studies, printing and other
publication costs of research reports held for sale. They are
valued at the lower of amortized cost or market. The cost of
reports is amortized over periods not exceeding eighteen months
using the straight-line method beginning with the date of
publication. As of December 31, 1997, inventories of $1,410,000
were included in assets held for sale (see note 12).
F-7
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(D) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost.
Depreciation of equipment is computed by the straight-line method
over the estimated useful lives of the assets, which are five
years for electronic equipment and ten years for the Company's
proprietary management information system. Computer software is
depreciated over five years in general. Leasehold improvements are
amortized by the straight-line method over the shorter of the term
of the lease or the estimated life of the asset.
(E) DEFERRED CHARGES AND GOODWILL
Deferred charges primarily comprise the cost of acquired library
information files and electronic databases, which are amortized to
expense over the estimated period of benefit of three years using
the straight-line method and certain costs, offset by cash
advances relating to multi-client studies. Revenues and expenses
of multi-client studies are recognized when the studies are
published.
Goodwill arising from various acquisitions represents excess
purchase price over fair market value and is being amortized on a
straight-line basis over 15 to 40 years.
(F) DEFERRED FINANCING FEES
The deferred financing fees balances primarily relates to costs
incurred with respect to the issuance of the Senior Subordinated
Notes ("Senior Notes") (see note 4). Deferred financing fees are
being amortized on a straight-line basis over the life of the
Senior Notes which are due in 2001 and 2002. The related
amortization is included in interest expense.
(G) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating losses
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-8
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(H) EARNINGS (LOSS) PER SHARE
The Company calculates earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". 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 1998, 1997 and 1996 there were
7,094,273, 6,592,773 and 6,433,966, respectively, weighted-average
common shares outstanding. Diluted earnings 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 of the entity. During 1998, there were
7,100,070 diluted weighted-average common and common equivalent
shares outstanding. For 1997 and 1996, 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 2,530,225, 2,723,077 and 1,560,914 at
December 31, 1998, 1997 and 1996, respectively (see note 5).
(I) REVENUE RECOGNITION
Revenues from annual retainer fees are recognized ratably over the
contractual period. Other revenues are recognized as earned.
Revenues include certain out-of-pocket and other expenses billed
to clients which aggregated approximately $2,875,000, $3,191,000
and $3,376,000 in 1998, 1997 and 1996, respectively.
F-9
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(J) MARKETABLE INVESTMENT SECURITIES
The Company classifies its debt and marketable equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale. There were
no marketable investment securities held as of December 31, 1998
and 1997.
Trading and available-for-sale securities are recorded at fair
value. Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of shareholders'
equity until realized. Realized gains and losses from the sale of
available-for-sale securities are included in earnings and are
derived using the specific identification method for determining
the cost of securities sold. Transfers of securities between
categories are recorded at fair value at the date of transfer.
A decline in the market value of any available-for-sale security
below cost that is deemed other than temporary is charged to
earnings and results in the establishment of a new cost basis for
the security. Dividend and interest income is recognized when
earned.
During 1996, proceeds from the sale of marketable investment
securities available for sale were $168,000, and gross realized
losses included in income in 1996 were $8,000. The net change in
market value of securities available-for-sale for 1996 resulted in
a $1,000 unrealized gain, which was recorded as a separate
component of comprehensive income.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the
fair value of financial instruments:
The carrying values reported in the balance sheets for cash,
accounts receivable, prepaid expenses and other current assets,
accounts payable and accrued expenses approximates fair values
because of their short maturities.
The fair value of notes payable, which approximates its carrying
value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities.
F-10
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The Company recorded an
impairment loss in 1997 for certain long-lived assets to be
disposed of (see note 12 "Impairment Loss").
(M) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133 established accounting and
reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those
instruments at fair value. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
SFAS No. 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 No. 133 will not have a
material impact on the Company's consolidated financial position
and results of operations.
(N) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities and the
reported amounts of revenue and expenses to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(O) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
F-11
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
At December 31, 1998 and 1997, equipment and leasehold
improvements consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Furniture, fixtures and equipment, including
computer software $8,171,000 7,569,000
Leasehold improvements 1,551,000 1,535,000
------------ ------------
9,722,000 9,104,000
Less: accumulated depreciation and amortization 5,472,000 4,558,000
----------- ------------
$4,250,000 4,546,000
============ ============
</TABLE>
(3) LEASES
In December 1986, the Company entered into an operating lease agreement
for its principal offices. The lease agreement provided for a term of
approximately 15 years, commencing in May 1987. The initial annual rental
was $576,000 with scheduled increases in succeeding periods. During 1991,
modifications were made to the timing of certain payments. During 1992,
the lease was extended an additional three years. Rental expense under
this lease is recorded on a straight-line basis. Accordingly, scheduled
payments through December 31, 1998 exceeded rental expense recorded on
this lease through such date by $230,000 and scheduled payments through
December 31, 1997 exceeded rental expense recorded on this lease through
such date by $44,000.
In August 1994, the Company entered into a five-year operating lease
agreement for office space. The initial annual rental was $267,000 with
scheduled increases in succeeding periods. In March 1995, the Company
entered into a ten-year lease, expiring June 30, 2005, for additional
office space with an initial annual rental of $414,000 with scheduled
increases in succeeding periods. In connection with this lease, the
Company extended the August 1994 lease through June 30, 2005. Rental
expenses on these leases are recorded on a straight-line basis.
Accordingly, rent recorded through December 31, 1998 and 1997 exceeded
scheduled payments by $195,000 and $156,000, respectively. During May
1998, the Company gave up its rights to part of the space under the lease
entered into in August 1994. The Company received a payment of $75,000
from its landlord for giving up its rights to this portion of the lease.
The $75,000 is included in other income.
The Company's leases of office space include standard escalation clauses.
Rental expenses under leases for office space and certain items of
equipment accounted for as operating leases were $1,749,000, $1,903,000
and $1,794,000 in 1998, 1997 and 1996, respectively. Additionally,
$41,000 of rent expense was included in accrued expenses at December 31,
1997 related to an asset disposal (see note 13).
F-12
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3), CONTINUED
The future minimum lease payments under noncancellable operating leases as
of December 31, 1998 were as follows:
Operating
Year ending December 31 leases
----------------------- ----------
1999 $ 1,629,000
2000 1,629,000
2001 1,639,000
2002 1,399,000
2003 1,159,000
Thereafter 1,738,000
------------
Total minimum lease payments $ 9,193,000
=============
(4) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Borrowings under debt agreements with a bank:
$2,000,000 fixed rate five-year term note $ 600,000 1,000,000
$500,000 five-year term note 250,000 350,000
Borrowings under a commercial revolving
promissory note - 1,249,000
------------ ---------
850,000 2,599,000
------------ ---------
Borrowings under debt agreements with investors:
$2,025,000 Series A Senior Subordinated Note,
net of unamortized discount of $11,000 and
$16,000 as of December 31, 1998 and 1997,
respectively 2,014,000 2,009,000
$475,000 Series A Senior Subordinated Note -
SVP, S.A., issued at 99%, net of
unamortized discount of $3,000 and $4,000
as of December 31, 1998 and 1997, respectively 472,000 471,000
$475,000 Series A Senior Subordinated Note -
SVP, S.A., issued at 99%, net of unamortized
discount of $4,000 471,000 471,000
------------ ------------
Total notes payable 3,807,000 5,550,000
------------ ------------
Less current installments 500,000 1,749,000
------------ ------------
Notes payable, excluding
current installments $3,307,000 3,801,000
============ ============
</TABLE>
F-13
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4), CONTINUED
(A) DEBT AGREEMENTS WITH BANK
The Company has two outstanding term notes with State Street Bank
and Trust (the "Bank"). One note, a $2,000,000 fixed rate term
note, payable in quarterly installments of $100,000 through April
2000 at an interest rate of 8.86%, was originally signed during
April 1995 and has $600,000 outstanding as of December 31, 1998.
The other note, a $500,000 five-year term note, payable in
quarterly installments of $25,000 through April 2001 at an interest
rate of prime plus 0.75%, which was 8.5% and 9.25% at December 31,
1998 and 1997, respectively, was originally signed during July 1997
and has $250,000 outstanding at December 31, 1998.
Additionally, the Company had a Commercial Revolving Promissory
Note (the "Note") with the Bank. The Note was originally signed
during April 1995, and was amended several times since. The most
recent amendment was on April 3, 1998 and expired on March 25,
1999. The amount available under the Note, as amended, was
$1,000,000. At its highest, there was $3,000,000 available under
the Note. The interest rate on the Note during 1998 was the Bank's
prime rate plus one-quarter of one percent, and during 1997 was the
Bank's prime rate plus one and one-half percent. Prime was 7.75% as
of December 31, 1998 and was 8.5% as of December 31, 1997. As of
December 31, 1998, there was nothing outstanding on the Note.
However the Note is used to secure certain long-term letters of
credit in the amount of $158,000. As such, as of December 31, 1998,
the availability under the Note was $842,000.
The Company's Revolving and Term Promissory Notes with the Bank are
secured by all of the assets of the Company. Additionally, during
the first quarter of 1998, SVP provided credit support in the form
of two $1,000,000 standby letters of credit. One of the letters of
credit is used to secure the Revolving Note and the other is used
to secure the two outstanding Term Notes. The letter of credit
securing the Term Notes will at all times equal the lesser of (a)
the aggregate principal amount of the term loans, or (b)
$1,000,000. During 1998, the Company failed to meet certain
financial covenants included in the debt agreements, primarily due
to severance and related costs. The Bank has agreed to waive the
covenants.
F-14
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4), CONTINUED
(B) DEBT AGREEMENTS WITH INVESTORS
During 1996 and 1997, the Company and its subsidiaries (the
"Company") issued $2,975,000 five-year Promissory Notes ("Notes")
and ten-year warrants to purchase 1,322,222 shares of the Company's
common stock, at $2.25 per share, for an aggregate consideration of
$2,975,000 to Furman Selz SBIC, L.P. ("Furman Selz") and SVP, S.A.
("SVP"). Notes in the amount of $2,025,000 and 900,000 warrants
were purchased by Furman Selz on October 31, 1996 for the aggregate
amount of $2,025,000 and are due on October 31, 2001. Notes in the
amount of $950,000 and 422,222 warrants are held by SVP. Of the
Notes held by SVP, a $475,000 Note, together with 211,111 warrants,
was purchased for the aggregate amount of $475,000 on each of
November 30, 1996 and August 25, 1997. The Notes are due five years
after the respective purchase dates.
All of the Notes accrue interest at an annual rate of 12% on the
unpaid principal balance. Interest payments are made periodically
on Notes, and the agreements allowed for the automatic deferral of
some of the interest. Any interest deferred compounds and accrues
interest at the rate of the Notes until paid. As of December 31,
1998, there was a total of $362,650 of accrued but unpaid interest
on the Notes. Included in the total was $338,942 which was deferred
in accordance with said provisions. All the deferred interest was
paid on February 8, 1999.
The aggregate maturities of long-term debt, excluding borrowings under
the Commercial Revolving Promissory Note, for each of the five years
subsequent to December 31, 1998 are as follows:
Year ending December 31 Amount
---------------------- ------------
1999 $ 500,000
2000 300,000
2001 2,550,000
2002 475,000
2003 -
------------
$3,825,000
============
F-15
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) SHAREHOLDERS' EQUITY
(A) SALE OF COMMON STOCK
On January 15, 1998, the Company entered into an agreement with
SVP for SVP to purchase $1,000,000 of the Company's common stock
at $1.25 per share. The transaction was completed in two parts.
The Company issued 600,000 shares to SVP and issued a $250,000
Convertible Note on January 15, 1998, pending the availability of
shares for issuance. The Note converted into 200,000 shares on
February 20, 1998, when those shares became available in
connection with the Company's litigation settlement (see note 11).
With this transaction, SVP and its affiliates increased its
ownership to approximately 37% of the then outstanding common
shares in the Company, excluding outstanding warrants.
(B) COMMON STOCK WARRANTS
On June 22, 1993, the Company issued warrants to a vice president
of the Company under which he was entitled to purchase 4,000
shares of common stock for $1.31 per share during the five-year
period commencing from that date. These warrants expired in June
1998 without having been exercised.
On February 10, 1995, the Company issued warrants to a company
under which it is entitled to purchase 150,000 shares of the
Company's common stock at $2.25 per share, the estimated fair
market value at date of grant. The warrant becomes exercisable at
the rate of 50,000 shares each year beginning February 13, 1996
and expires ten years from the date of grant. No warrants have
been exercised to date.
On October 31, 1996, in conjunction with the issuance of the
Series A Subordinated Note (see note 4), the Company sold warrants
to Furman Selz, under which it is entitled to purchase 900,000
shares of the Company's common stock at $2.25 per share for ten
years commencing from that date. No warrants have been exercised
to date.
On November 30, 1996, in conjunction with the issuance of the
Series A Subordinated Note (see note 4), the Company sold warrants
to SVP, S.A., under which it is entitled to purchase 211,111
shares of the Company's common stock at $2.25 per share for ten
years commencing from that date. No warrants have been exercised
to date.
On August 25, 1997, in conjunction with the issuance of the Series
A Subordinated Note (see note 4), the Company sold warrants to
SVP, S.A., under which it is entitled to purchase 211,111 shares
of the Company's common stock at $2.25 per share for ten years
commencing from that date. No warrants have been exercised to
date.
F-16
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
(C) STOCK OPTION PLAN
In January 1996, the Company adopted the FIND/SVP, Inc. 1996 Stock
Option Plan (the "Plan"). The Plan, as amended in June 1998,
authorizes grants of options to purchase up to 1,150,000 shares of
common stock, issuable to employees, directors and consultants of
the Company, at prices at least equal to fair market value at the
date of grant (110% of the fair market value for holders of 10% or
more of the outstanding shares of common stock).
The options to be granted under the Plan will be designated as
incentive stock options or non-incentive stock options by the
Stock Option Committee. Options granted under the Plan are
exercisable during a period of no more than ten years from the
date of the grant (five years for options granted to holders of
10% or more of the outstanding shares of common stock). All
options outstanding at December 31, 1998 expire within the next
five years if not exercised. Options that are cancelled or expire
during the term of the Plan are eligible to be re-issued under the
Plan and, therefore, are considered available for grant.
There were 21,000 options available for grant under the FIND/SVP,
Inc. 1986 Stock Option plan (the "1986 Plan") upon its expiration
in August 1996. These options, along with an additional 361,265
options from the 1986 Plan which either expired or were cancelled
after August 1996 (including 235,000 during 1998), were no longer
available for grant at December 31, 1998.
F-17
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
Activity under the stock option plans is summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
Options exercise
Granted price
---------- ----------
<S> <C> <C>
Outstanding at December 31, 1995 966,000 $ 1.15
Granted 689,350 2.00
Exercised (366,437) 0.47
Cancelled and terminated (35,950) 1.76
---------- -------
Outstanding at December 31, 1996 1,252,963 1.74
Granted 140,000 1.32
Exercised (76,985) 0.77
Cancelled and terminated (139,265) 1.58
--------- -------
Outstanding at December 31, 1997 1,176,713 1.78
Granted 366,500 0.84
Exercised (12,900) 1.12
Cancelled and terminated (540,550) 1.46
--------- -------
Outstanding at December 31, 1998 989,763 1.31
========= ======
Exercisable at December 31, 1998 396,713
=========
Available at December 31, 1998 567,150
=========
</TABLE>
As of December 31, 1998, there were 989,763 options outstanding,
exercisable at $0.75 to $2.25, with a weighted average remaining
contractual life of 3.15 years. As of December 31, 1998, there
were 396,713 exercisable options, exercisable at $0.75 to $2.25,
with a weighted average remaining contractual life of 3.14 years.
On June 30, 1998 the Stock Option Committee of the Board of
Directors voted in favor of a plan to re-price certain outstanding
options held by employees on that date. There was a total of
89,550 options with original issue dates between 1994 and 1998
that were re-priced. The original exercise price of said options
ranged from $1.21 to $2.25 and the weighted-average exercise price
of those options was $1.78. The options were re-priced at $1.0625,
the fair market value on June 30, 1998. All other aspects of the
options were not changed. The weighted average exercise prices
noted above reflect this repricing.
F-18
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
Included in the options granted in 1996 are 300,000 options the
Company granted to the President of the Company. Contingent upon
meeting certain earnings levels over the life of his employment
agreement, these options will vest on the certification date of
the targeted earnings levels. The exercise price of these options
will be equal to the fair market value of the common stock on the
vesting date or 110% of such fair market value if the President is
a holder of 10% or more of the outstanding shares of common stock
on such date. During 1998, the President relinquished 75,000 of
these options.
At December 31, 1998, 1997 and 1996, the number of options
exercisable was 396,713, 599,746 and 589,713, respectively, and
the weighted-average exercise price of those options was $1.62,
$1.79 and $1.61, respectively.
The Company applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation costs has been recognized for
its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net (loss) income would
have been (increased) reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) As reported $ 756,000 (2,852,000) (719,000)
Proforma 697,000 (2,931,000) (781,000)
------- ----------- ---------
Earnings (loss) Basic
per share As reported .11 (.43) (.11)
Proforma .10 (.44) (.12)
--- ----- -----
Diluted
As reported .11 (.43) (.11)
Proforma .10 (.44) (.12)
--- ----- -----
</TABLE>
The per share weighted-average fair value of stock options granted
during 1998, 1997 and 1996 was $0.33, $0.57 and $1.17,
respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions: 1998 - expected dividend yield of 0%, risk-free
interest rate of 6%, volatility of 48.8% and an expected life of 3
years; 1997 - expected dividend yield of 0%, risk-free interest
rate of 6.5%, volatility of 56.4% and an expected life of 3 years;
1996 - expected dividend yield of 0%, risk-free interest rate of
6.5%, volatility of 87.8% and an expected life of 3 years.
Volatility is calculated over the five preceding years for 1998,
1997 and 1996, respectively.
F-19
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
Proforma net income (loss) reflects only options granted beginning
in 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
proforma net income amounts presented above because compensation
cost for options granted prior to January 1, 1995 is not
considered and compensation cost is reflected over the options'
vesting period of up to 5 years.
(D) COMMON STOCK ISSUED FOR SERVICES
In 1997, the Company issued 25,000 shares of common stock with a
value of $37,000 to a third party for services rendered.
In 1996, the Company issued 21,940 shares of common stock with a
value of $40,000 to a third party for services rendered.
(E) COMMON STOCK
Effective June 1998, the Company amended its Certificate of
Incorporation to increase the authorized number of common shares
from 10,000,000 to 20,000,000.
(F) PREFERRED STOCK
Effective June 1995, the Company amended its Certificate of
Incorporation to authorize an additional class of stock consisting
of 2,000,000 shares of $.0001 par value preferred stock. No shares
have been issued as of December 31, 1998.
(6) SVP INTERNATIONAL
The Company entered into an agreement in 1971, amended in 1981, with SVP
International, a Swiss company which, including its affiliated companies,
owns 37% of the outstanding stock of the Company and is the beneficial
owner (assuming the exercise of outstanding warrants) of 40.8% of the
outstanding stock of the Company as of December 31, 1998 (see notes 4 and
15). The agreement provides that SVP International will aid and advise
the Company in the operation of an information service and permit access
to other foreign SVP information centers and the use of the SVP trademark
and logo. The agreement shall continue in perpetuity, unless amended by
the parties thereto. It provides that the Company will pay to SVP
International royalties computed on an annual basis at the following
rates: $18,000 per year, plus 1.2% of the gross profit from all
publications included in the Company's gross revenues less than $10
million for such year, and 2% of the amount of the Company's
nonpublishing gross revenues for each such year derived from the
"FIND/SVP Service" in excess of $2 million but less than $4 million and
1% of the amount of such nonpublishing gross revenues in excess of $4
million but less than $10 million.
F-20
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
Royalty charges under the agreement were $126,000, $131,000 and $137,000
in 1998, 1997 and 1996, respectively. Royalties accrued but unpaid were
approximately $142,000 and $84,000 at December 31, 1998 and 1997,
respectively, and are included in accrued expenses in the consolidated
balance sheets. Additionally, SVP International charged the Company
$50,000 during 1998 for management services rendered. This amount is
included in accrued expenses as of December 31, 1998.
The Company receives and renders information services to other members of
the SVP network. Charges for such services are made at rates similar to
those used for the Company's other clients.
(7) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
---- ---- ----
Current:
Federal $ - (228,000) (342,000)
State and local - - 6,000
----------- ----------- -----------
- (228,000) (336,000)
Deferred:
Federal 342,000 (983,000) (52,000)
State and local 102,000 (204,000) (99,000)
----------- ----------- ----------
444,000 (1,187,000) (151,000)
Valuation allowance (239,000) 519,000 -
----------- ----------- -----------
205,000 (668,000) (151,000)
----------- ----------- -----------
$ 205,000 (896,000) (487,000)
=========== =========== ========
Income tax (benefit) expense differs from the amount computed by
multiplying the statutory rate of 34% to income before income taxes due
to the following:
1998 1997 1996
---- ---- ----
Income tax (benefit) expense at statutory rate $ 327,000 (1,274,000) (410,000)
Increase (reduction) in income taxes
resulting from:
State and local income taxes, net of
Federal income tax benefit 97,000 (204,000) (99,000)
Nontaxable income (30,000) (34,000) (33,000)
Nondeductible expenses 31,000 18,000 38,000
Expiring tax credits - 93,000 -
Other 19,000 (14,000) 17,000
----------- ----------- -----------
444,000 (1,415,000) (487,000)
(Decrease) Increase in
Valuation allowance (239,000) 519,000 -
----------- ----------- ----------
$ 205,000 (896,000) (487,000)
=========== =========== ==========
</TABLE>
F-21
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7), CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, net of deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 46,000 52,000
Leasehold improvements, principally
due to differences in amortization 221,000 193,000
Deferred compensation, principally due to
accrual for financial reporting purposes 85,000 76,000
Federal net operating loss carryforward 440,000 465,000
State and local net operating loss carryforward 303,000 303,000
Impairment loss - 461,000
Restructuring charge 38,000 91,000
Severance charges 158,000 -
Deferred tax liability:
Equipment, principally due to differences
in depreciation (248,000) (154,000)
Goodwill, principally due to difference
in amortization (1,000) (1,000)
----------- ----------
1,042,000 1,486,000
Valuation allowance (280,000) (519,000)
----------- ----------
Net deferred tax assets $ 762,000 967,000
=========== ==========
</TABLE>
Management of the Company has determined, based on the Company's history
of prior years' operating earnings relating to its consulting and
business advisory businesses, that a valuation allowance of $280,000 and
$519,000 as of December 31, 1998 and 1997, respectively, was necessary
due to the uncertainty of future earnings to realize the net deferred tax
asset. Of the net deferred tax asset, $322,000 and $286,000 as of
December 31, 1998 and 1997, respectively, has been classified as current.
(8) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
(A) PENSION PLANS
The Company established a 401(k) and profit sharing plan for all
eligible employees. Participants may elect to defer up to 12% of
their annual compensation which is subject to annual limitation as
provided in Internal Revenue Code Section 415(d). The Company will
contribute 20% of the employees' contributions up to 1% of their
annual compensation. Profit sharing contributions are at the
discretion of the Company. Participants vest in the employer's
contribution at 20% after three years of service increasing by 20%
for each additional year of service. The Company's
F-22
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8), Continued
contribution, accrued but unpaid, to this plan was $57,000 and
$75,000 at December 31, 1998 and 1997, respectively.
During 1997, the Company ceased funding its Target Benefit Pension
Plan, and is in the process of terminating the plan, which will
include filing for an IRS Determination Letter. As such, all
participants were declared 100% vested on January 1, 1997. The
Company had accrued $40,000 for estimated closing costs of the
plan as of December 31, 1997. During 1998, the Company paid $9,000
of such costs, and $31,000 is included in accrued expenses as of
December 31, 1998.
(B) DEFERRED COMPENSATION
The Company maintains deferred compensation agreements for two
officers, with benefits commencing upon retirement, death or
disability. Deferred compensation expense under these agreements
was approximately $20,000, $21,000 and $25,000 in 1998, 1997 and
1996, respectively.
(C) EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company entered into an employment
agreement (the "Agreement") with the President of the Company. The
Agreement terminates on December 31, 2001. The Agreement
supersedes a May 1991 agreement and provides for a base salary
with cost of living escalations. The agreement provides a
performance bonus equal to 10% per annum of the pre-tax profits of
the Company in excess of $1,000,000 for each year through the end
of the Agreement. The Agreement was amended in December 1996 to
limit the amount of bonus to a maximum of $250,000 in any year,
and to pay a $50,000 cash bonus in each of January 1997 and
January 1998. In addition, the Agreement contains certain
severance provisions, as defined in the Agreement, entitling the
President to receive compensation through the end of the Agreement
upon termination without cause, or voluntary termination upon
certain conditions, which includes the acquisition by a party of
30% or more of the outstanding shares of common stock of the
Company or a change in the majority of incumbent Board members,
and certain other occurrences. If termination occurs at a time
when there is less than one year left in the Agreement,
compensation will continue for a two-year period from the date of
termination.
During 1998, the Board amended the contract with the Company's
President, to provide that at any time after the end of calendar
year 1999, the President 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.
During February 1998, SVP, S.A. purchased additional shares of the
Company. The purchase of the shares has triggered the change of
control provisions in the above agreement. In consideration of
SVP, S.A. providing two $1,000,000 letters of credit
F-23
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8), Continued
to secure the company's debt agreements with a commercial bank
during march 1998, the president has waived his rights related to
the change of control provision in his agreement, only as it
relates to the holdings of svp, s.a. and its affiliates, in the
company.
Effective September 30, 1998, the Company accepted the resignation
of an Executive Officer. 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, the Executive Officer 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.
Severance arrangements for members of the Operating Management
Group ("OMG")were agreed upon by the Board of Directors on January
25, 1999. The sense of the discussion was that severance
agreements should be entered into with each of the members of the
OMG providing for (a) a normal severance benefit for nine (9)
months, which would be increased to one (1) year after the
employee has served as a member of the OMG for a continuous period
of two (2) years, in the event the employee's services are
terminated without cause, and (b) a severance benefit of one (1)
year in the event the separation from service is due to (i) a
change in control, and (ii) the employee suffers, within one (1)
year thereafter, either (A) a discontinuation of duties, or (B) an
office change of at least 50 miles, or (C) a reduction in
compensation, or (D) a termination of employment other than for
cause. Severance agreements are currently being prepared.
(9) SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest and income taxes during the years ended December
31, 1998, 1997 and 1996 was as follows:
1998 1997 1996
---------- ------- --------
Interest $ 292,000 383,000 270,000
========== ======= ==========
Income taxes $ - 3,000 164,000
========== ===== ==========
The Company had the following non-cash financing activities:
In connection with the Company's sale of Published Research assets during
1998, the Company received a $550,000 four-year note.
In March 1998, a $250,000 convertible note with a related party was
converted into common stock.
In connection with the Company's sale of ETRG's assets during 1997, the
Company received a $125,000 two-year note (see note 13).
F-24
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9), CONTINUED
During 1997, the Company issued 25,000 shares of common stock with a
value of $37,000 to a third party for services rendered.
During 1996, the Company issued 21,940 shares of common stock with a
value of $40,000 to a third party for services rendered.
During 1997, the Company recorded the cashless exercise of 8,000 options
at $0.63 in exchange for 2,000 shares of common stock at prices ranging
from $1.125 to $1.25. Such shares were held for a period of at least six
months before the respective exchange. The value of these transactions
was $2,000.
During 1996, the Company recorded the cashless exercise of 275,686
options at prices ranging from $0.275 to $2.1875 in exchange for 51,041
shares of common stock at prices ranging from $2.125 to $3.00. Such
shares were held for a period of at least six months before the
respective exchange. The value of these transactions was $119,000.
(10) ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1997 consisted of the
following:
1998 1997
---- ----
Accrued bonuses and
employee benefits (note 8) $ 477,000 812,000
Accrued severance and
retirement (notes 13 and 14) 694,000 233,000
Accrued expenses billed to clients 117,000 233,000
Accrued SVP royalty (note 6) 142,000 84,000
Other accrued expenses 433,000 510,000
---------- ----------
$1,863,000 1,872,000
========== ==========
F-25
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) LITIGATION
On May 30, 1997, Asset Value Fund Limited Partnership ("Asset Value"), a
shareholder in the Company, commenced an action in the United States
District Court for the Southern District of New York entitled Asset Value
Fund Limited Partnership v. FIND/SVP, Inc. and Andrew P. Garvin, Civil
Action No. 97 Civ. 3977 (LAK). The complaint alleged that between October
1995 and August 1996 the Company and its president made certain oral
misstatements to Paul Koether, the principal of Asset Value, concerning
the financial condition of the Company and that those misstatements
induced Asset Value to buy more shares of the Company and to refrain from
selling the shares it already held. The complaint alleged that those
misstatements give rise to causes of action for violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder,
and for fraud, breach of fiduciary duty and negligent misrepresentation.
The complaint demanded compensatory damages in excess of $1.5 million and
punitive damages in excess of $5 million, as well as costs and attorneys'
fees.
On August 13, 1997, the Company was served with an amended complaint
which alleged that between January 1996 and August 1996, the Company and
its president made certain misstatements concerning the financial
condition of the Company and that those misstatements induced Asset Value
to buy more shares of the Company and to refrain from selling the shares
it already held. The amended complaint alleged that those misstatements
give rise to causes of action for violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and for common
law fraud. The complaint demanded compensatory and punitive damages in an
amount to be determined at trial, as well as costs and attorneys' fees.
On September 29, 1997, the Company and Mr. Garvin moved to dismiss the
amended complaint.
On December 3, 1997, Asset Value commenced an action in the Supreme Court
of the State of New York, County of New York entitled Asset Value Fund
Limited Partnership v. Brigitte De Gastines and Jean-Louis Bodmer, Index
No. 606165/97. The defendants are two of the Company's directors. The
complaint sought to remove the defendants as directors under New York
Business Corporation Law 706(d) because of their alleged failure to
attend meetings of the board and because they considered and approved
financing transactions by the Company involving Amalia, S.A. and/or SVP,
S.A which allegedly constituted self-dealing by the defendants. On
December 30, 1997, the defendants removed this action to the United
States District Court for the Southern District of New York.
F-26
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11), CONTINUED
On January 20, 1998, Asset Value and the Company entered into a
settlement agreement pursuant to which Asset Value dismissed with
prejudice the two pending actions described above. Furthermore, Asset
Value agreed that for five years neither Asset Value nor Paul Koether
will purchase, either directly or indirectly, any shares of stock in the
Company, or own or control, either directly or indirectly, any shares of
stock in the Company. 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 and other expense of $289,000, respectively,
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 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. SVP, S.A. purchased the remaining 625,600 shares
held by Asset Value for $1.25 per share. In addition, the Company agreed
that if within two years (a) the Company sells all or substantially all
of its assets, (b) the Company is merged into or combined with another
company, (c) any person acquires a majority of the outstanding shares of
the Company pursuant to a tender offer, (d) the Company is taken private,
or (e) the Company undergoes a recapitalization or restructuring, and in
any such case the shareholders of the Company receive consideration
(whether cash, securities or otherwise) of more than $1.25 per share,
then, immediately after the consummation of such transaction, the Company
will pay to Asset Value an amount equal to 900,000 times the difference
between $1.25 and the amount paid to the shareholders up to a maximum
difference of $1.75 per share (i.e., a maximum price of $3.00 per share).
(12) IMPAIRMENT LOSS
During the fourth quarter of 1997, the Company decided to sell the
majority of assets held in the Published Research Division, and,
accordingly retained the services of an investment banking firm to
effectuate the sale. As a result, the Company reported the carrying value
of the assets held for sale at the lower of cost or their estimated net
realizable values. As a result of the Company's decision, an impairment
loss of $1,047,000 was recorded in December 1997. The Company presented
the assets held for sale as a separate line item in its December 31, 1997
consolidated balance sheet. During 1998, the Company sold the
aforementioned assets (see note 13).
The aforementioned charge included write-downs of inventory of $517,000,
fixed assets of $405,000, goodwill of $102,000 and deferred charges of
$23,000. There are no cash implications relating to this charge.
F-27
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) SALE OF ASSETS AND ASSET DISPOSAL
On July 2, 1998, the Company completed the sale of substantially all of
the assets of its Published Research subsidiary 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 Research relating to the following product lines:
(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. 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 sold were $2,522,000.
During the fourth quarter of 1997, the Company sold certain assets held
in its Emerging Technologies Research Group ("ETRG"). The Company
recorded a $28,000 loss related to this sale. In accordance with the
terms of the Agreement, the Company received a two-year $125,000 Note
bearing interest at an annual rate of 10% payable as follows: $31,250
plus accrued interest on May 4,1998, and quarterly principal payments of
$15,625 plus accrued interest commencing on August 4, 1998, and on the
fourth day of each November, February, May and August thereafter. The
final payment is due November 4, 1999. To date, all payments have been
received in a timely manner. The Company holds a security interest in the
ETRG database as collateral for the Note. The purchaser also assumed
various liabilities in connection with the transaction and the Company is
receiving a 5% royalty for a two-year period on sales generated by the
assets sold.
During the fourth quarter of 1997, the Company ceased the consumer
oriented operation of its FIND/SVP Internet Services, Inc. subsidiary.
Accordingly, the Company recorded a charge of $500,000 in the fourth
quarter of 1997 related to the closing of the subsidiary. The charge
included $35,000 of severance, all of which was paid by March 31, 1998.
The remainder of the charge included the write-down of certain assets of
$408,000, $16,000 of shut-down costs paid in the first quarter of 1998,
and rent expense of $41,000 for the first quarter of 1998 as the Company
intended to sublease the space or be relieved of its obligation for
10,000 square feet of office space by the landlord during the second
quarter of 1998. During the second quarter of 1998 the Company received
payment of $75,000 from the landlord for giving up its rights to this
portion of the lease. The Company also had rental expenses of $26,400
during the second quarter of 1998, prior to the agreement with the
landlord. The $75,000 was recorded as Other Income and the $26,400 was
recorded as other expenses.
F-28
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) RESTRUCTURING CHARGES
On March 27, 1998, the Company reduced its full-time labor force in its
core business by 20 positions. As a result the Company recorded a
restructuring charge of $321,000 during the quarter ended March 31, 1998.
The charge consisted mainly of severance payments, which will be fully
paid by February 15, 1999, outplacement services and legal costs
associated with the elimination of the positions. As of December 31,
1998, $16,000 related to this charge remains accrued but unpaid.
In conjunction with the Company's decision to re-focus its efforts on its
core competencies (see note 1(a)), the Company reduced its general and
administrative staff on December 31, 1997. Accordingly, the Company
recorded a $155,000 restructuring charge, primarily for severance costs,
during the fourth quarter of 1997, all of which was paid in 1998.
During the third quarter of 1996, the Company implemented a plan to
restructure and consolidate operations, which included the reorganization
of its operating units and a change in the method of marketing and
cross-selling its various products. As a result, the Company recorded a
pre-tax restructuring charge of $802,000 during the third quarter of
1996.
The restructuring charge included a writedown of certain assets of
$490,000, severance and retirement charges of $167,000, charges relating
to marketing and planning materials which will not be used after the
restructuring of $117,000 and charges for the consolidation and reduction
of several small and unprofitable product groups of $28,000, of which
$122,000 and $47,000 of the remaining severance and retirement payments
has been included in accrued expenses at December 31, 1996 and 1997.
F-29
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) SEGMENT REPORTING
During 1998, 1997 and 1996 the Company operated primarily in two business
segments in accordance with Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The operating segments were: (i) Consulting and Business
Advisory, which consists of QCS and SCRG; and (ii) Published Research
Products, which consisted of Published studies, ETRG and various
Newsletters.
In accordance with SFAS No. 131, the Company is disclosing the results of
the operating segments for each of the three years below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
$ $ $
NET ASSETS
Consulting and Business Advisory 10,999 10,594 8,234
Published Research Products 705 1,887 4,326
All Other - - 386
---------- ---------- ----------
Total Net Assets 11,704 12,481 12,946
---------- ---------- ----------
REVENUES
Consulting and Business Advisory 25,456 25,959 24,172
Published Research Products 2,718 6,018 6,323
All Other - 50 30
---------- ---------- ----------
Total Revenues 28,175 32,027 30,525
---------- ---------- ----------
OPERATING INCOME (LOSS)
Consulting and Business Advisory 1,313 (165) 914
Published Research Products 16 (2,295) (1,739)
All Other - (676) 1
---------- ---------- ----------
Total Operating Income (Loss) 1,329 (3,136) (824)
---------- ---------- ----------
DEPRECIATION AND AMORTIZATION
INCLUDED ABOVE
Consulting and Business Advisory 1,002 885 764
Published Research Products 96 238 210
All Other - 24 -
---------- ---------- ----------
Total Depreciation and Amortization 1,098 1,147 974
---------- ---------- ----------
</TABLE>
F-30
<PAGE>
Schedule II
FIND/SVP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
Balance at Additions
beginning charged to Deduc- Balance at
CLASSIFICATION of year earnings tions (1) end of year
------- -------- --------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $ 118 164 178 104
==== ==== ==== ====
Year ended December 31, 1997:
Allowance for doubtful accounts $ 103 254 239 118
==== ==== ==== ====
Year ended December 31, 1996:
Allowance for doubtful accounts $ 105 287 289 103
==== ==== ==== ====
</TABLE>
Note: (1) Amounts written off, net of recoveries.
F-31
FIND/SVP, INC.
625 Avenue of the Americas
New York, New York 10011
October 5, 1998
Mr. Peter Fiorillo
236 East Granada Avenue
Lindenhurst, NY 11757
Dear Peter:
You and the undersigned, FIND/SVP, Inc. (the "Company"), have discussed
your resignation as an officer, director and employee of (a) the Company, and
(b) the Company's subsidiaries ("Subsidiaries") (to the extent you serve therein
in any such capacities), for the convenience of the Company in connection with
the implementation of its business plans. We have also discussed (w) the return
to the Company of (i) any and all stock options (the "Stock Options") you were
granted to purchase securities of the Company, and (ii) memoranda, notes,
records and other documents (collectively "Documents") made or compiled by you
or made available to you during the term of your employment concerning the
business of the Company or any of the Subsidiaries (together, the Company"), (x)
your agreement, for a period of time, (i) to maintain in confidence proprietary
and confidential information of the Company, (ii) not to compete with the core
business of the Company, and (iii) not to solicit business relations or
employees of the Company to terminate their relationship with the Company, (y)
your agreement not to disparage the Company or its officers, directors or
employees, and (z) your agreement to confer with the Company on matters in which
you were involved to allow an orderly and continuing transition. When agreed to
and accepted by you, the following shall set forth our agreement with respect to
the foregoing matters.
1. RESIGNATION; CANCELLATION OF STOCK OPTIONS; RETURN OF DOCUMENTS.
Simultaneously with the execution and delivery of this Agreement, you (a) hereby
resign as an officer, director and employee of the Company and, where
applicable, the Subsidiaries, and (b) are delivering to the Company (i) the
Stock Options (for cancellation), and (ii) the Documents. With respect to the
Documents, you represent and warrant to the Company that the Documents
constitute all of the Documents in your possession or under your control and
that you have not retained any copies.
2. CONFIDENTIALITY; NON-COMPETE; NON-SOLICITATION. For a period of
two-years from the date hereof, you covenant and agree that:
(a) You shall not use for yourself or others, or divulge to others,
any proprietary or confidential information of the Company obtained by you as a
result of your employment, unless authorized by the Company. For purposes of
this Section 2(a), the term "proprietary or confidential information" shall mean
all information which is known only to you
1
<PAGE>
or to you and the employees, former employees, consultants, or others in a
confidential relationship with the Company, and relates to specific matters such
as trade secrets, customers, potential customers, vendor lists, pricing and
credit techniques, research and development activities, private processes,
business plans, technical information, books and records, and any other
information which the Company is obligated to keep confidential pursuant to the
Company's contractual obligations to third parties, as they may exist from time
to time, which you may have acquired or obtained by virtue of work heretofore
performed for or on behalf of the Company, or which you may have acquired
knowledge of during the performance of said work, and which is not known to
others or readily available to others from sources other than you or other
employees of the Company, or is not in the public domain.
(b) In light of the unique and valuable services you have rendered to
the Company, your knowledge of the business of the Company and proprietary
information relating to the business of the Company and similar knowledge
regarding the Company you have obtained during the course of your employment
with the Company, and in consideration of this Agreement, you will not compete
with the Company's Quick Consulting and Research Service business, or, directly
or indirectly, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation or control of, or be connected with as a
director, officer, employee, partner, consultant, agent, independent contractor
or otherwise, or acquiesce in the use of your name in, any other business or
organization which competes with the Company's Quick Consulting and Research
Service business in any geographical area in which the Company is then
conducting business.
(c) You will not, directly or indirectly, either individually or on
behalf of any other person or entity (i) solicit customers, suppliers, or other
business relations of the Company for the purpose of interfering with or
encouraging them to terminate their relationship with the Company, or (ii)
encourage other employees (full-time or part-time) of the Company to terminate
their employment with the Company.
It is acknowledged and agreed that the restrictions contained in this
Section 2, including without limitation, the time periods and the geographical
areas of the restrictions, are fair and reasonable for the protection of the
goodwill, the business, and the interests of the Company and its officers,
directors, and other employees. It is the desire of both of us that the
provisions of this Section 2 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this Section
2 shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 2 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 2 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and you hereby consent and agree that such scope may be judicially modified in
any proceeding brought to enforce such restriction.
2
<PAGE>
In the event of a breach or threatened breach by you of the provisions of
this Section 2, the Company shall be entitled to an injunction and such other
equitable relief as may be necessary or desirable to enforce the restrictions
contained herein without being required to post any bond. Nothing herein
contained shall be construed as prohibiting the Company from pursuing any other
remedies available for such breach or threatened breach or any other breach of
this Agreement.
3. NON-DISPARAGEMENT. You agree not to disparage the Company or any of
its current officers, directors or employees in any way whatsoever.
4. COOPERATION. On reasonable notice, you agree to confer with the
Company, at its request, on matters of importance in which you were involved
during the term of your employment with the Company for the purpose of enabling
the Company to accomplish an orderly and continuing transition. When possible
and practical such conference may be by telephone. Without your consent thereto,
the time involved shall not exceed three hours in any one week during the first
six months after the date hereof nor one hour in any one week thereafter for a
period ending two years from the date hereof.
5. CONSIDERATION TO BE PAID BY THE COMPANY. In consideration of the
covenants, agreements, representations and warranties contained in Sections 1,
2, 3 and 4 hereof, the Company agrees:
(a) For a period of two-years from the date hereof, to pay to you (or
your estate in the event of your death), in accordance with the Company's normal
payroll procedures for executives of the Company, an amount equal to two-years
worth of salary at your current rate of remuneration (an aggregate of $380,000).
(b) To pay to you, in accordance with the Company's customary
practices, a bonus of $30,000 as the pro rata portion of that which you would
have received had you been in the employ of the Company on December 31, 1998.
You acknowledge that the Company has advanced to you certain expenses for which
you have not turned in expense reports. You agree to turn in the expense reports
within the next 30 days, and that, to the extent the advances exceed such
reports, the Company may offset the advances against the payment due to you
hereunder.
(c) To reimburse you for or to pay on your behalf, to the extent
currently being paid for by the Company on your behalf, (i) for a period of up
to two-years from the date hereof, the cost of existing medical, dental and life
insurance (it being understood that (A) with respect to medical and dental
insurance, the Company's obligation shall cease upon your obtaining employment
elsewhere and having such benefits available to you and qualifying for the same,
and (B) with respect to the life insurance, (1) the cash surrender value shall
be used to pay premiums and (2) you shall have the right at any time to buy such
policy (or policies, if there is
3
<PAGE>
more than one such policy in which your designee is named as beneficiary) -
which would end the Company's obligation to pay premiums thereon - by the
payment of the cash surrender value thereof to the Company), (ii) for such
period of time as remains on the lease for the car provided to you by the
Company, the cost of such lease and insurance thereon (it being understood and
agreed that the actual lease will be transferred to you, if possible), and,
(iii) for a period of three months from the date hereof, the cost of a voice
mail box at the Company.
(d) That you may keep the personal computer that was utilized in your
office at the Company and hereby assigns and transfers to you its full right,
title and interest therein.
(e) To pay directly, within 30 days after receipt of a bill therefor,
reasonable legal fees incurred by you in connection with this letter agreement
and the predecessor termination agreement prepared by your attorney, which fees
will not exceed $7,500.
(f) To reimburse you, or pay directly, for employment consulting
services from Lee Hecht Harrison of New York City (or such other agency as you
may wish to use) for a period of one-year from the date hereof or until you find
new employment, whichever event occurs first, up to a maximum amount of $25,000.
A breach by you of any of the covenants, agreements, representations
and warranties contained in Sections 1, 2, 3 or 4 hereof, which breach is not
cured within seven days after notice thereof is given to you (10 days where
notice is given by United States mail), shall render any continuing obligation
of the Company hereunder null and void. Once notice is given with respect to a
given breach and such breach is cured, the commitment of the same breach
thereafter shall not be subject to cure.
6. INDEMNIFICATION. The Company will continue to indemnify you for your
role as an officer and director of the Company to the fullest extent available
under the laws of the State of New York consistent with the Company's
certificate of incorporation and by-laws and to the full extent offered and
provided to other directors and officers of the Company.
7. NON-DISPARAGEMENT BY THE COMPANY; REFERENCES. The Company agrees not
to disparage you in any way whatsoever. The Company agrees to provide references
for any positions of which you are a candidate, stating as follows: the dates of
your employment by the Company, your job title and responsibilities and your
participation in the Company's accomplishments during the term of your
employment.
8. PRESS RELEASE. The Company will issue a press release in a timely
manner following its Board of Directors meeting on October 5, 1998 concerning,
among other things, your resignation as an officer, director and employee of the
Company. To the extent such release makes reference to you, it shall be in form
and substance reasonably acceptable to you and the Company and may include
Company milestones in which you participated.
4
<PAGE>
9. MUTUAL RELEASES.
(a) You hereby release the Company and its subsidiaries, officers,
directors and employees from any and all claims, liabilities, promises and
agreements whatsoever ("Claims") which you or your heirs, executors,
administrators, representatives or assigns ever had, now have or hereafter can,
shall or may have for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of time to the date hereof; provided, however,
that this release shall not apply to and in no way shall affect any Claims under
this Agreement.
(b) The Company, on behalf of itself and each of its subsidiaries,
hereby releases you from any and all claims, liabilities, promises and
agreements whatsoever ("Claims") which any of them or their successors or
assigns ever had, now have or hereafter can, shall or may have for, upon, or by
reason of any matter, cause or thing whatsoever from the beginning of time to
the date hereof; provided, however, that this release shall not apply to and in
no way shall affect any Claims under this Agreement or, arising out of any
wilfully intended fraudulent or unauthorized acts on your part.
10. MISCELLANEOUS.
(A) NOTICES. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any party hereto by any other party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the party to be notified, at the address of the
Company at its principal office, as first set forth above, or to you at the
address as first set forth above. The Company or Peter Fiorillo may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective parties.
(B) AMENDMENT. This Agreement may not be modified, changed, amended,
or altered except in writing singed by you or your duly authorized
representative, and by the Company.
(C) GOVERNING LAW. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and permitted assigns, and you, and
your heirs, executors, administrators and other representatives. This letter
Agreement may not be assigned by you. This Agreement may be assigned by the
Company only in connection with the sale or other transfer of all or
substantially all of the its assets and business and the assumption of the
Agreement by the party to whom the same is sold or transferred.
5
<PAGE>
(D) ATTORNEYS' FEES. Should any litigation or arbitration be commenced
between the parties to this Agreement concerning any provision of this
Agreement, the expense of all reasonable attorneys' fees and other costs
incurred in connection therewith shall be paid by the losing party.
(e) ENTIRE AGREEMENT. This Agreement constitutes the sole and only
agreement of the parties hereto respecting the subject matter hereof. Any prior
agreements, promises, negotiations, or representations concerning its subject
matter not expressly set orth in this Agreement, are of no force and effect.
Without limiting the generality of the foregoing, this Agreement supersedes and
renders null and void that certain letter agreement, dated September 24, 1998,
by and among you, the Company and SVP SA.
(f) COUNTERPARTS. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
parties hereto notwithstanding the fact that all parties are not signatory to
the original or to the same counterpart.
(g) SECTION HEADINGS. The Section headings used in this Agreement are
for reference purposes only, and should not be used in construing this
Agreement.
Very truly yours,
FIND/SVP, INC.
By:-------------------------
Andrew P. Garvin, President
AGREED TO AND ACCEPTED:
- ---------------------------
Peter Fiorillo
To induce Peter Fiorillo to enter into this Agreement, the
undersigned, SVP, SA, hereby guarantees the obligations of the Company
hereunder, but only to the extent that the Company is financially incapable of
satisfying its obligations hereunder. In connection with the satisfaction of
this limited guarantee, SVP, SA shall not be entitled to any set-off for any
obligation which Peter Fiorillo may have to SVP, SA (but shall be entitled to
any set-off for any obligation which Peter Fiorillo may have to the Company).
This guarantee may be proceeded upon by Peter Fiorillo before taking any action
against the Company or after action against the Company has been commenced. Any
action commenced against SVP, SA under this limited guarantee must be
6
<PAGE>
commenced by appropriate service of process in France on an officer or director
of SVP, SA and venue for any legal action shall reside solely in France.
SVP SA
By:-------------------------
7
AGREEMENT
This Agreement is made as of the 15th day of January, 1998, by and
between FIND/SVP, Inc., a New York corporation (the "Company"), and SVP, S.A., a
French societe anonyme (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer desires to make an investment of $1,000,000 (the
"Investment Amount") in the Company in exchange for the consideration and upon
the terms and conditions set forth herein, and the Company desires to accept
such investment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations, warranties, conditions, and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
1. SALE AND PURCHASE OF THE SHARES; LOAN.
(a) The Company hereby sells, assigns, and delivers to the Buyer,
and the Buyer hereby purchases from the Company, 600,000 shares (the "Shares")
of the Company's common stock, par value $0.0001 per share (the "Common Stock"),
free and clear of all liens, charges, mortgages, pledges, security interests,
equities, claims, options, and encumbrances of whatever nature, for an aggregate
purchase price of $750,000.
(b) The Buyer hereby lends $250,000 to the Company, which amount
shall be evidenced by an non-interest bearing convertible subordinated
promissory note in the form attached hereto as Exhibit A (the "Note").
2. PAYMENT; DELIVERY OF THE SHARES AND THE NOTE. Concurrently herewith,
the Buyer shall deliver to the Company a certified or cashier's check (or other
form of payment reasonably acceptable to the Company) in an amount equal to the
Investment Amount, or shall transfer such sum to the Company by wire transfer,
and the Company shall deliver to the Buyer a stock certificate evidencing the
Shares, in definitive form, registered in the name of the Buyer (the
"Certificate"), and the Note. The Certificate shall bear the following
restrictive legend:
"The securities represented by this Certificate have been acquired
for investment and have not been registered pursuant to the Securities
Act of 1933 or any applicable state statutes. Such securities may not
be sold, transferred, pledged, hypothecated, or otherwise disposed of
without either an effective registration statement relating to such
disposition or an opinion of counsel satisfactory to the Company that
the securities may be so disposed of without being registered."
<PAGE>
3. MISCELLANEOUS.
(a) This Agreement shall be construed, enforced and interpreted in
accordance with the substantive laws of the State of New York applicable to
contracts made and to be performed wholly within said State.
(b) This Agreement may be executed in several counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
FIND/SVP, INC.
By:------------------------
Andrew P. Garvin, President
SVP, S.A.
By:-------------------------
2
<PAGE>
EXHIBIT A
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$250,000 As of January 15, 1998
FOR VALUE RECEIVED, FIND SVP, Inc, a New York corporation (the
"Company" or "Maker") promises to pay to the order of SVP, S.A., a French
societe anonyme ("Lender"), at 70, rue des Rosiers, 93400 Sanit-Ouen (or at such
other place as may be designated by Lender), on April 1, 2001 (unless converted
into Common Stock as set forth below), the principal sum of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000). This Note shall be non-interest bearing.
This Note and all amounts due hereunder automatically shall convert
into 200,000 shares of the Company's common stock, par value $0.0001 per share
(the "Common Stock"), when an additional 200,000 shares of Common Stock become
available for issuance by the Company (by virtue of an increase in either the
number of shares of Common Stock currently authorized or the number of shares of
Common Stock currently held in treasury). The number of shares into which this
Note shall convert shall be adjusted proportionately in the event the Company
shall declare any stock dividend, stock split, or any subdivision, combination,
reclassification, exchange, consolidation, recapitalization or reorganization of
its Common Stock.
The holder of this Note, at its option, may extend the time for payment
of this Note, postpone the enforcement hereof, or grant any other indulgences,
without affecting or diminishing the holder's right to recourse against Maker.
This Note is subordinate to all of the Maker's borrowed indebtedness to
any and all banks or lending institutions to which the Maker is or may hereafter
become indebted, including all indebtedness to State Street Bank and Trust
Company (the "Senior Lender"). This Note is subject to the Subordination
Agreement dated as of the date hereof (the "Subordination Agreement") among the
Company, the Lender, and the Senior Lender.
Maker agrees to pay all expenses of Lender in collecting this Note,
including, without limitation, reasonable attorneys' fees and expenses. The
interpretation of this instrument and the rights and remedies of the parties
hereto shall be governed by the internal laws of the State of New York subject,
however, to the choice of law and forum set forth in the Subordination
Agreement.
Subject to the Subordination Agreement, Maker may prepay, in whole or
in part, at any time and from time to time, the principal of this Note without
premium or penalty.
Maker hereby waives presentment for payment, demand, protest, notice of
protest, notice of dishonor, and all other notices to which it may be entitled.
<PAGE>
The terms and provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of Lender and Maker.
If any one or more of the provisions contained in this Note shall for
any reason be held to be invalid, illegal, or unenforceable, then such
invalidity, illegality, or unenforceability shall not affect any other
provisions of this Note and this Note shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
This Note may not be changed orally, but only by an instrument in
writing duly executed by the party against which enforcement of any waiver,
change, modification, or discharge is sought.
FIND SVP, INC.
By:-------------------------
Andrew Garvin, President
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
FIND/SVP, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-42746, 33-75828, 333-03076, 333-22439, 333-22445 and 333-68315) on Form S-8
of FIND/SVP, Inc. and subsidiaries of our report dated February 22, 1999,
relating to the consolidated balance sheets of FIND/SVP, Inc. and subsidiaries
as of December 31, 1998, and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and the related schedule, which
report appears in the December 31, 1998 annual report on Form 10-K of FIND/SVP,
Inc.
/S/KPMG LLP
-----------------
KPMG LLP
New York, New York
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> Year Year
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1997
<PERIOD-END> Dec-31-1998 Dec-31-1997
<CASH> 2,307 139
<SECURITIES> 0 0
<RECEIVABLES> 2,492 3,574
<ALLOWANCES> (104) (118)
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,483 6,066
<PP&E> 9,722 9,104
<DEPRECIATION> (5,472) (4,558)
<TOTAL-ASSETS> 11,704 12,481
<CURRENT-LIABILITIES> 2,914 5,050
<BONDS> 0 0
0 0
0 0
<COMMON> 4,887 3,873
<OTHER-SE> (1,899) (2,655)
<TOTAL-LIABILITY-AND-EQUITY> 11,704 12,481
<SALES> 0 0
<TOTAL-REVENUES> 28,175 32,027
<CGS> 0 0
<TOTAL-COSTS> 14,263 18,402
<OTHER-EXPENSES> 12,583 16,761
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (522) (597)
<INCOME-PRETAX> 961 (3,748)
<INCOME-TAX> 205 (896)
<INCOME-CONTINUING> 756 (2,852)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 756 (2,852)
<EPS-PRIMARY> 0.11 (0.43)
<EPS-DILUTED> 0.11 (0.43)
</TABLE>
