SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1999
Commission file no.0-15152
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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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
---- ----
Number of shares of Common Stock outstanding at August 9, 1999: 7,121,669
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
June 30, 1999 (unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations 4
Six Months Ended June 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months Ended June 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
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PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
FIND/SVP, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,220,000 $ 2,307,000
Accounts receivable, net 2,342,000 2,188,000
Notes receivable 169,000 200,000
Deferred tax assets 164,000 322,000
Prepaid expenses 433,000 466,000
----------- -----------
Total current assets 4,328,000 5,483,000
Equipment and leasehold improvements, at cost, less accumulated
depreciation and amortization of $5,933,000 in 1999 and
$5,472,000 in 1998 4,224,000 4,250,000
Goodwill, net 101,000 106,000
Other assets 1,964,000 1,865,000
----------- -----------
$10,617,000 $11,704,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current installments $ - $ 500,000
Accounts payable 805,000 497,000
Accrued expenses and other 1,354,000 1,917,000
----------- -----------
Total current liabilities 2,159,000 2,914,000
Unearned retainer income 2,276,000 1,917,000
Notes payable, net, excluding current installments 2,960,000 3,307,000
Other liabilities 314,000 578,000
----------- -----------
Total liabilities 7,709,000 8,716,000
----------- -----------
Shareholders' equity:
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 7,121,669 shares at June 30, 1999;
issued and outstanding 7,114,169 shares at December 31, 1998 1,000 1,000
Capital in excess of par value 4,892,000 4,886,000
Accumulated deficit (1,985,000) (1,899,000)
----------- -----------
Total shareholders' equity 2,908,000 2,988,000
----------- -----------
$10,617,000 $11,704,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Six months ended June 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $11,051,000 $ 16,067,000
----------- ------------
Operating expenses:
Direct costs 5,748,000 8,233,000
Selling, general and administrative expenses 5,194,000 6,789,000
Restructuring charge - 321,000
----------- ------------
Operating income 109,000 724,000
Interest income 55,000 15,000
Other income - 364,000
Interest expense (252,000) (267,000)
Other expense - (315,000)
----------- ------------
(Loss) income before (benefit) provision for income taxes (88,000) 521,000
(Benefit) provision for income taxes (2,000) 239,000
------------ ------------
Net (loss) income $ (86,000) $ 282,000
============ ============
(Loss) earnings per common share:
Basic $ (0.01) $ 0.04
============ ============
Diluted $ (0.01) $ 0.04
============ ============
Weighted average number of common shares:
Basic 7,119,377 7,075,165
========= ============
Diluted 7,119,377 7,081,861
========= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended June 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $5,565,000 $7,870,000
---------- ----------
Operating expenses:
Direct costs 2,972,000 3,909,000
Selling, general and administrative expenses 2,711,000 3,281,000
---------- ----------
Operating (loss) income (118,000) 680,000
Interest income 22,000 8,000
Other income - 75,000
Interest expense (113,000) (131,000)
Other expense - (26,000)
---------- -----------
(Loss) income before (benefit) provision for income taxes (209,000) 606,000
(Benefit) provision for income taxes (58,000) 278,000
----------- ----------
Net (loss) income $ (151,000) $ 328,000
=========== ==========
(Loss) earnings per common share:
Basic $ (0.02) $ 0.05
=========== =========
Diluted $ (0.02) $ 0.05
=========== =========
Weighted average number of common shares:
Basic 7,121,169 7,108,152
========== ==========
Diluted 7,121,169 7,117,444
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (86,000) $ 282,000
------------ ----------
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 563,000 591,000
Provision for losses on accounts receivable 28,000 97,000
Decrease in assets held for sale - 99,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (182,000) 439,000
Decrease in prepaid and refundable income taxes - 21,000
(Increase) decrease in deferred tax assets (34,000) 239,000
Decrease (increase) in prepaid expenses 33,000 (94,000)
Increase in other assets (139,000) (97,000)
Increase (decrease) in accounts payable 308,000 (679,000)
(Decrease) increase in accrued expenses and
other current liabilities (563,000) 330,000
Increase in unearned retainer income 359,000 698,000
Decrease in other liabilities (264,000) (194,000)
----------- ----------
Total adjustments 109,000 1,450,000
----------- ---------
Net cash provided by operating activities 23,000 1,732,000
----------- ---------
Cash flows from investing activities:
Capital expenditures (435,000) (393,000)
Other 169,000 323,000
----------- ----------
Net cash used in investing activities (266,000) (70,000)
----------- ----------
Cash flows from financing activities:
Principal payments under notes payable (850,000) (1,499,000)
Proceeds from issuance of convertible note-related party - 250,000
Proceeds from issuance of common stock 6,000 760,000
Payments to acquire treasury stock - (206,000)
Proceeds from insurance company, net of expenses - 206,000
----------- ----------
Net cash used in financing activities (844,000) (489,000)
----------- ----------
Net (decrease) increase in cash (1,087,000) 1,173,000
Cash at beginning of period 2,307,000 139,000
----------- ----------
Cash at end of period $ 1,220,000 $1,312,000
=========== ==========
Non-cash financing activities:
Conversion of note into common stock $ - $ 250,000
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. MANAGEMENT'S STATEMENT
In the opinion of Management, the accompanying condensed consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position at June 30, 1999, and the results of operations
for the six and three month periods ended June 30, 1999 and 1998 and cash flows
for the six month period ended June 30, 1999 and 1998. Operating results for the
six and three month periods ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
FIND/SVP, Inc. (the "Company") has reclassified certain prior year balances to
conform with the current presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1998
included in the Company's 1998 Annual Report on Form 10-K.
B. EARNINGS (LOSS) PER SHARE
For the six and three month periods ended June 30, 1999, there were 7,119,377
and 7,121,169 weighted average shares outstanding, respectively. For the six and
three month periods ended June 30, 1998, there were 7,075,165 and 7,108,152
weighted average common shares outstanding, respectively. For the six and three
month periods ended June 30, 1998, weighted average shares used to determine
diluted earnings per share were 7,081,861 and 7,117,444, respectively. The
dilution in such periods included the assumed conversion of stock options and
warrants whose exercise price was less than the average market price of the
common shares during the respective period, and certain additional dilutive
effects of exercised, terminated and cancelled stock options. In 1999, there
were no such dilutive effects.
Options and warrants to purchase 2,455,135 common shares during both the six and
three month periods ended June 30, 1999 were excluded from the computation of
diluted earnings per share because of their antidilutative effect caused by the
net loss during such periods. Options and warrants to purchase 2,559,735 and
2,449,385 common shares during the six and three month periods ended June 30,
1998, respectively, were excluded from the computation of diluted earnings per
share because the exercise price of such options and warrants was greater than
the average market price of common shares during the respective period.
C. BORROWINGS
During the quarter ended March 31, 1999, the Company paid in full its
outstanding borrowings under five-year Term Notes with State Street Bank and
Trust (the "Bank") in the amount of $850,000. Additionally, during March 1999,
the Company decided not to renew its line of credit with the Bank to eliminate
the expense of the stand-by letters of credit provided by SVP, S.A. ("SVP"), a
major shareholder of the Company, as security on the debt agreements. In
connection with the payment of the Term Notes and the decision to not renew its
line of credit with the Bank, the Bank released two
7
<PAGE>
$1 million standby letters of credit provided by SVP.
During the six month period ended June 30, 1999, the Company paid $442,000 of
interest related to its borrowings under debt agreements with investors, to
fully fund interest payments which, by agreement, were permitted to be deferred.
D. INCOME TAXES
The $2,000 income tax benefit for the six months ended June 30, 1999 represents
2.3% of the loss before benefit for income taxes as of June 30, 1999. The
difference between this rate and the statutory rate of 34% is primarily the
effect of expenses which are not deductible for income tax purposes. The
effective tax rate was 45.9% as of June 30, 1998 and consisted of federal, state
and local income taxes.
E. SEGMENT REPORTING
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 divestiture in the
third quarter of 1998, the Company had an additional segment, Published Research
Products. The Company considers its QCS and SCRG service activities, which
operate as a "Consulting and Business Advisory" business, to be its core
competency.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- ----------------------------
(amounts in thousands) Six months ended June 30 Three months ended June 30
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Consulting and Business Advisory $ 11,051 $ 13,529 $ 5,565 $ 6,663
Published Research Products -- 2,538 -- 1,207
-------------------------------------------------------
$ 11,051 $16,067 $ 5,565 $ 7,870
=======================================================
OPERATING INCOME (LOSS)
Consulting and Business Advisory (1) $ 109 $684 $ (118) $644
Published Research Products -- 40 -- 36
-------------------------------------------------------
Segment operating income (loss) 109 724 (118) 680
Corporate and other (2) (197) (204) (91) (74)
-------------------------------------------------------
(Loss) income before (benefit) provision
for income taxes $ (88) $521 $ (209) $606
=======================================================
(1) Operating income for the six months ended June 30, 1998 includes a $321,000 restructuring charge
for severance and related costs.
(2) Consists of interest income, other income, interest expense and other expense.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
F. 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. The Company intends to adopt SFAS No.
133 on January 1, 2001. 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 affect the
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Company's consolidated financial position and results of operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Six and three months ended June 30, 1999 compared to six and three months ended
June 30, 1998.
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 divestiture in the third quarter of 1998, the Company had an
additional segment, Published Research Products ("PRP"). The Company considers
its QCS and SCRG service activities, which operate as a "Consulting and Business
Advisory" ("CBA") business, to be its core competency.
SEGMENT REPORTING
The Company's segment data for the six and three-month periods ended June 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(amounts in thousands) Six months ended June 30 Three months ended June 30
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Consulting and Business Advisory $ 11,051 $ 13,529 $ 5,565 $ 6,663
Published Research Products -- 2,538 -- 1,207
---------------------------------------------------
$ 11,051 $ 16,067 $ 5,565 $ 7,870
===================================================
OPERATING INCOME (LOSS)
Consulting and Business Advisory (1) $ 109 $ 684 $(118) $ 644
Published Research Products -- 40 -- 36
---------------------------------------------------
Segment operating income (loss) 109 724 (118) 680
Corporate and other (2) (197) (204) (91) (74)
---------------------------------------------------
(Loss) income before (benefit) provision
for income taxes $ (88) $ 521 $(209) $ 606
===================================================
(1) Operating income for the six months ended June 30, 1998 includes a $321,000 restructuring charge for
severance and related costs.
(2) Consists of interest income, other income, interest expense and other expense.
- -------------------------------------------------------------------------------------------------------
</TABLE>
REVENUES
The Company's revenues decreased by $5,016,000 or 31.2% to $11,051,000 for the
six-month period ended June 30, 1999 from $16,067,000 for the six-month period
ended June 30, 1998, and decreased by $2,305,000 or 29.3% to $5,565,000 for
9
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the three-month period ended June 30, 1999 from $7,870,000 for the three-month
period ended June 30, 1998. The decreases were due to the divestiture of the PRP
activities completed during the third quarter of 1998, and a decline in revenues
of 18.3% in the CBA segment for the six months ended June 30, 1999 and a decline
of 16.5% in the CBA segment for the three months ended June 30, 1999, as
compared to the comparable periods in the prior year.
QCS accounted for 83.7% and 66.0%, and SCRG accounted for 15.5% and 17.8% of the
Company's revenues for the six-month periods ended June 30, 1999 and 1998,
respectively. QCS accounted for 81.9% and 67.8%, and SCRG accounted for 17.5%
and 16.4% of the Company's revenues for the three-month periods ended June 30,
1999 and 1998, respectively. QCS revenues decreased by 12.7% and SCRG revenues
decreased by 40.2% for the six-month period ended June 30, 1999, as compared to
the comparable period of the prior year. QCS revenues decreased by 14.7% and
SCRG revenues decreased by 24.4% for the three-month period ended June 30, 1999,
as compared to the comparable period of the prior year.
The decrease in QCS was due primarily to a reduction in the number of retainer
clients and a reduction in the retainer base (the recognized monthly retainer
revenue) during the six-month period ended June 30, 1999 as compared to the
comparable period of the prior year. During the six-month period ended June 30,
1999 QCS experienced a 4.8% reduction in the number of retainer clients and a
4.5% reduction in the retainer base. During the three-month period ended June
30, 1999 the Company experienced a 0.8% reduction in the number of retainer
clients and a 0.2% increase in the retainer base. The retainer base at June 30,
1999 is 10.8% below the retainer base at June 30, 1998. Until the retainer base
is brought back to previous levels, the Company expects revenues to decline in
QCS on a quarter to quarter basis. The decrease in SCRG revenues is primarily
due to staff turnover during 1998, which affected the marketing efforts of SCRG.
The Company believes the staff turnover in this area is now under control.
DIRECT COSTS
Direct costs decreased by 30.2% or $2,485,000 to $5,748,000 for the six-month
period ended June 30, 1999, from $8,233,000 for the six-month period ended June
30, 1998. Direct costs decreased by 24.0% or $937,000 to $2,972,000 for the
three-month period ended June 30, 1999, from $3,909,000 for the three-month
period ended June 30, 1998. As a percent of revenues, direct costs increased to
52.0% for the six-month period ended June 30, 1999, from 51.2% for the
corresponding period in 1998. As a percent of revenues, direct costs increased
to 53.4% for the three-month period ended June 30, 1999, from 49.7% for the
corresponding period in 1998. The decrease in total direct costs was due
primarily to the divestiture of the PRP activities, which was completed in the
third quarter of 1998, and a general reduction of direct operating expenses. The
increase in direct costs as a percent of revenues was due primarily to the
reduced level of CBA revenues during the period as compared to the same period
in the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses declined by 23.5% or $1,595,000 to
$5,194,000 for the six-month period ended June 30, 1999, from $6,789,000 for the
six-month period ended June 30, 1998. Selling, general and administrative
expenses declined by 17.4% or $570,000 to $2,711,000 for the three-month period
ended June 30, 1999, from $3,281,000 for the three-month period ended June 30,
1998. As a percent of revenues, selling, general and administrative expenses
increased to 47.0% for the six-month period ended June 30, 1999, from 42.3% for
the corresponding period in 1998. As a percent of revenues, selling, general and
administrative expenses increased to 48.7% for the three-month period ended June
30, 1999, from 41.7% for the corresponding period in 1998. The decrease in
selling, general
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and administrative expenses is due primarily to the divestiture of the PRP
activities, the reduction of the general and administrative staff and the sales
staff (primarily due to turnover), and the continued reduction of general
operating expenses. The increase in selling, general and administrative expenses
as a percent of revenues was due primarily to the reduced level of CBA revenues
during the period as compared to the same period in the prior year, coupled with
an increase in the size of the sales force in QCS, an increased marketing effort
in both QCS and SCRG and the contracting of non-recurring services to perform an
internal customer survey in the second quarter of 1999.
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.
OPERATING INCOME
The Company had operating income of $109,000 for the six months ended June 30,
1999, as compared to operating income of $724,000 for the six months ended June
30, 1998. The Company had an operating loss of $118,000 for the three months
ended June 30, 1999, as compared to operating income of $680,000 for the three
months ended June 30, 1998. The six months ended June 30, 1998 included a
pre-tax restructuring charge of $321,000 related to a reduction in its full time
labor force. During the six and three month periods ended June 30, 1999, all
operating income was derived from the CBA segment as compared to the six-month
period ended June 30, 1998 when CBA had operating income of $684,000, including
the $321,000 restructuring charge, and PRP had operating income of $40,000, and
the three-month period ended June 30, 1998 when CBA had operating income of
$644,000 and PRP had operating income of $36,000. The decline in operating
income during the six and three month periods ended June 30, 1999 is primarily
due to the decrease in CBA revenues as compared to the same periods in 1998, and
the factors discussed in the preceding paragraphs.
INTEREST INCOME AND EXPENSE
During the six months ended June 30, 1999, the Company earned $55,000 in
interest income, which increased from $15,000 in 1998. During the three months
ended June 30, 1999, the Company earned $22,000 in interest income, which
increased from $8,000 in 1998. The increase in 1999 was a result of the
increased cash balance during the first six months of 1999 as compared to the
same period of 1998, coupled with interest earned on notes receivable.
Interest expense was $252,000 for the six-month period ended June 30, 1999,
which was a decrease from $267,000 for the same period in 1998. Interest expense
was $113,000 for the three-month period ended June 30, 1999, which was a
decrease from $131,000 for the same period in 1998. The decrease in 1999 was a
result of the payment in full of outstanding Term Notes with the Bank and the
payment of deferred interest related to its debt agreements with investors (see
Liquidity and Capital Resources).
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<PAGE>
OTHER INCOME AND EXPENSE
On May 29, 1998, the Company signed an agreement with its landlord to terminate
its lease for approximately 10,000 square feet of space on the third floor of
641 Avenue of the Americas. The Company received $75,000 in consideration from
the landlord for this transaction, and accordingly, recorded $75,000 of other
income during the quarter ended June 30, 1998. During the fourth quarter of
1997, in connection with ceasing the operation of a subsidiary, the Company
accrued rent on this space through March 31, 1998, in anticipation of the
termination of this lease. Accordingly, the rent and related expenses after
March 31, 1998, through the date of the aforementioned agreement, of $26,000 has
been recorded as other expenses during the quarter ended March 31, 1998.
During the first quarter of 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased by $400,000 to $2,169,000 on June 30,
1999 from $2,569,000 on December 31, 1998. Cash balances were $1,220,000 and
$2,307,000 on June 30, 1999 and December 31, 1998, respectively.
During the six-month period ended June 30, 1999, the Company paid in full its
outstanding borrowings under five-year Term Notes with the Bank in the amount of
$850,000. In addition, the Company paid the interest related to its debt
agreements with investors which, by agreement, was permitted to be deferred, in
the amount of $442,000. During March 1999, the Company decided not to renew its
line of credit with the Bank to eliminate the expense of the stand-by letters of
credit provided by SVP as security on the debt agreements. In connection with
the payment of the Term Notes and the decision to not renew its line of credit
with the Bank, the Bank released two $1 million standby letters of credit
provided by SVP.
The Company has agreed in principal with a financial institution for a $1
million line of credit. No assurance can be given that the transaction will be
formalized.
The Company anticipates spending approximately $300,000 for capital expenditures
for the remainder of 1999. The major portion of these expenditures will be for
the continued enhancement of internal software and computer equipment.
The Company believes that its current cash balance and cash flow from operations
will be sufficient to cover its expected capital expenditures for the next 12
months and that it will have sufficient liquidity for the next 12 months.
12
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MARKET FOR COMPANY'S COMMON EQUITY
On April 27, 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 Stock needed to 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. On August 11,
1999 the Company received notification from NASDAQ that the Company's Common
Stock has been found to be in compliance with the bid price requirement
necessary for continued listing. The Company also had received non-compliance
notifications on January 21, 1999 and during the first quarter of 1998. With
respect to those notifications, the Company's Common Stock subsequently met the
required minimum bid price for ten consecutive trading days.
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 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.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs that 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.
13
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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.
3) Implementation - This phase includes executing the implementation plan
for all applicable hardware and software, interfaces and systems. This involves
testing the changes in a Year 2000-simulated environment, beginning to utilize
the changed procedures in actual operations, and vendor interface testing. The
implementation phase, including testing for certain critical applications, has
been completed 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 already are 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 communicating 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 September 1999. To mitigate the effects of the Company's or
significant suppliers' potential failure to remediate
14
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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 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.
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 June 30, 1999, $10,000 has been spent on testing
/ remediation software and $17,000 has been spent on hardware.
INFLATION
The Company has in the past been able to increase the price of its products and
services sufficiently to offset the effects of inflation on wages and other
expenses, and anticipates that it will be able to do so in the future.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-Q
that are not related to historical results are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. The 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-Q, and in other reports filed by
the Company with the Securities and Exchange Commission.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's assessment of its sensitivity
to market risk as of June 30, 1999, as compared to the information included in
Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk",
of the Company's Form 10-K for the year ended December 31, 1998, as filed with
the Securities and Exchange Commission on March 30, 1999.
15
<PAGE>
PART II.
OTHER INFORMATION
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27. Financial Data Schedule
B. REPORTS ON FORM 8-K
The Company filed a Form 8-K on April 28, 1999 with respect to the
dismissal of the Company's independent accountants.
The Company filed a Form 8-K on May 6, 1999 with respect to the
appointment of the Company's new independent accountants.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIND/SVP Inc.
-------------
(REGISTRANT)
Date: August 13, 1999 /s/ Andrew P. Garvin
- ---------------------- -------------------------------------------
Andrew P. Garvin, Chief
Executive Officer and President
Date: August 13, 1999 /s/ Victor L. Cisario
- --------------------- -------------------------------------------
Victor L. Cisario
Vice President and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
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