SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For the quarterly period ended SEPTEMBER 30, 1999
Commission file no.0-15152
FIND/SVP, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-2670985
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 AVENUE OF THE AMERICAS, NEW YORK, NY 10011
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of Common Stock outstanding at November 5, 1999: 7,121,919
<PAGE>
FIND/SVP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
September 30, 1999 (unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations 4
Nine Months Ended September 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months Ended September 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
Nine Months Ended September 30, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
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PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 973,000 $ 2,307,000
Accounts receivable, net 2,316,000 2,188,000
Notes receivable 138,000 200,000
Deferred tax assets 135,000 322,000
Prepaid expenses 368,000 466,000
----------- -----------
Total current assets 3,930,000 5,483,000
Equipment and leasehold improvements, at cost, less accumulated
depreciation and amortization of $6,168,000 in 1999 and
$5,472,000 in 1998 4,110,000 4,250,000
Goodwill, net 99,000 106,000
Other assets 2,034,000 1,865,000
----------- -----------
$10,173,000 $11,704,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current installments $ -- $ 500,000
Accounts payable 528,000 497,000
Accrued expenses and other 1,440,000 1,917,000
----------- -----------
Total current liabilities 1,968,000 2,914,000
Unearned retainer income 1,960,000 1,917,000
Notes payable, net, excluding current installments 2,962,000 3,307,000
Other liabilities 288,000 578,000
----------- -----------
Total liabilities 7,178,000 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 7,121,919 shares at September 30, 1999;
issued and outstanding 7,114,169 shares at December 31, 1998 1,000 1,000
Capital in excess of par value 4,893,000 4,886,000
Accumulated deficit (1,899,000) (1,899,000)
----------- -----------
Total shareholders' equity 2,995,000 2,988,000
----------- -----------
$10,173,000 $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)
Nine months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $16,815,000 $22,489,000
----------- -----------
Operating expenses:
Direct costs 8,564,000 11,368,000
Selling, general and administrative expenses 7,956,000 9,782,000
Restructuring charge -- 321,000
----------- -----------
Operating income 295,000 1,018,000
Interest income 72,000 51,000
Other income -- 364,000
Gain on sale of assets -- 20,000
Interest expense (357,000) (395,000)
Other expense -- (315,000)
----------- -----------
Income before provision for income taxes 10,000 743,000
Provision for income taxes 10,000 342,000
----------- -----------
Net income $ -- $ 401,000
=========== ===========
Earnings per common share:
Basic $ 0.00 $ 0.06
=========== ===========
Diluted $ 0.00 $ 0.06
=========== ===========
Weighted average number of common shares:
Basic 7,120,183 7,087,641
=========== ===========
Diluted 7,194,694 7,094,558
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $5,764,000 $6,422,000
---------- ----------
Operating expenses:
Direct costs 2,816,000 3,135,000
Selling, general and administrative expenses 2,762,000 2,993,000
---------- ----------
Operating income 186,000 294,000
Interest income 17,000 36,000
Gain on sale of assets -- 20,000
Interest expense (105,000) (128,000)
---------- ----------
Income before provision for income taxes 98,000 222,000
Provision for income taxes 12,000 103,000
---------- ----------
Net income $ 86,000 $ 119,000
========== ==========
Earnings per common share:
Basic $ 0.01 $ 0.02
========== ==========
Diluted $ 0.01 $ 0.02
========== ==========
Weighted average number of common shares:
Basic 7,121,794 7,112,594
========== ==========
Diluted 7,221,851 7,123,593
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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FIND/SVP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ -- $ 401,000
----------- ----------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 834,000 892,000
Gain on sale of assets -- (20,000)
Provision for losses on accounts receivable 60,000 136,000
Decrease in assets held for sale -- 99,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (188,000) 1,206,000
Decrease in prepaid and refundable income taxes -- 21,000
(Increase) decrease in deferred tax assets (21,000) 342,000
Decrease (increase) in prepaid expenses 98,000 (66,000)
Increase in other assets (225,000) (165,000)
Increase (decrease) in accounts payable 31,000 (770,000)
(Decrease) increase in accrued expenses and
other current liabilities (477,000) 224,000
Increase (decrease) in unearned retainer income 43,000 (122,000)
Decrease in other liabilities (290,000) (57,000)
----------- ----------
Total adjustments (135,000) 1,720,000
----------- ----------
Net cash (used in) provided by operating activities (135,000) 2,121,000
----------- ----------
Cash flows from investing activities:
Capital expenditures (556,000) (431,000)
Proceeds from sale of net assets -- 1,250,000
Other 200,000 89,000
----------- ----------
Net cash (used in) provided by investing activities (356,000) 908,000
----------- ----------
Cash flows from financing activities:
Principal payments under notes payable (850,000) (1,624,000)
Proceeds from issuance of convertible note-related party -- 250,000
Proceeds from issuance of common stock 7,000 764,000
Payments to acquire treasury stock -- (206,000)
Proceeds from insurance company, net of expenses -- 206,000
----------- ----------
Net cash used in financing activities (843,000) (610,000)
----------- ----------
Net (decrease) increase in cash (1,334,000) 2,419,000
Cash at beginning of period 2,307,000 139,000
----------- ----------
Cash at end of period $ 973,000 $2,558,000
=========== ==========
Non-cash financing activities:
Conversion of note into common stock $ -- $ 250,000
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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 September 30, 1999, and the results of
operations for the nine and three month periods ended September 30, 1999 and
1998 and cash flows for the nine month period ended September 30, 1999 and 1998.
Operating results for the nine and three month periods ended September 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 nine and three month periods ended September 30, 1999, there were
7,120,183 and 7,121,794 weighted average shares outstanding, respectively. For
the nine and three month periods ended September 30, 1998, there were 7,087,641
and 7,112,594 weighted average common shares outstanding, respectively. For the
nine and three month periods ended September 30, 1999, weighted average shares
used to determine diluted earnings per share were 7,194,694 and 7,221,851,
respectively. For the nine and three month periods ended September 30, 1998,
weighted average shares used to determine diluted earnings per share were
7,094,558 and 7,123,593, 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.
Options and warrants to purchase 2,018,635 and 1,995,635 common shares during
the nine and three month periods ended September 30, 1999, respectively, and
options and warrants to purchase 2,601,445 and 2,474,960 common shares during
the nine and three month periods ended September 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
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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.
During the nine month period ended September 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 $10,000 provision for income taxes for the nine months ended September 30,
1999 represents 100% of income before provision for income taxes as of September
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 46% as of September 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) NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Consulting and Business Advisory $16,815 $19,951 $5,764 $6,422
Published Research Products -- 2,538 -- --
======================================================
$16,815 $22,489 $5,764 $6,422
======================================================
OPERATING INCOME (LOSS)
Consulting and Business Advisory (1) $ 295 $ 978 $ 186 $ 294
Published Research Products -- 40 -- --
------------------------------------------------------
Segment operating income 295 1,018 186 294
Corporate and other (2) (285) (275) (88) (72)
======================================================
Income before provision for
income taxes $ 10 $ 743 $ 98 $ 222
======================================================
(1) Operating income for the nine months ended September 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>
8
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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 Company's consolidated financial position and
results of operations.
9
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Nine and three months ended September 30, 1999 compared to nine and three months
ended September 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 nine and three-month periods ended September
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------- ------------------------------ -------------------------
(amounts in thousands) NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Consulting and Business Advisory $16,815 $19,951 $5,764 $6,422
Published Research Products -- 2,538 -- --
========================================================
$16,815 $22,489 $5,764 $6,422
========================================================
OPERATING INCOME (LOSS)
Consulting and Business Advisory (1) $ 295 $ 978 $ 186 $ 294
Published Research Products -- 40 -- --
--------------------------------------------------------
Segment operating income 295 1,018 186 294
Corporate and other (2) (285) (275) (88) (72)
========================================================
Income before provision for
income taxes $ 10 $ 743 $ 98 $ 222
========================================================
(1) Operating income for the nine months ended September 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 $5,674,000 or 25.2% to $16,815,000 for the
nine-month period ended September 30, 1999 from $22,489,000 for the nine-month
period ended September 30, 1998, and decreased by $658,000 or 10.3% to
$5,764,000 for the three-month period ended September 30, 1999 from $6,422,000
for the three-month period ended September 30, 1998. The decrease for the
nine-month period ended September 30, 1999 was due to the divestiture of the PRP
activities completed
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during the third quarter of 1998 and a decline in revenues of 15.7% in the CBA
segment. See discussion below regarding the decline in CBA revenues for the nine
and three-month periods ended September 30, 1999.
QCS accounted for 82.2% and 69.9%, and SCRG accounted for 16.7% and 18.2% of the
Company's revenues for the nine-month periods ended September 30, 1999 and 1998,
respectively. QCS accounted for 79.2% and 79.8%, and SCRG accounted for 19.2% of
the Company's revenues for the three-month periods ended September 30, 1999 and
1998, respectively. QCS revenues decreased by 12.1% and SCRG revenues decreased
by 31.2% for the nine-month period ended September 30, 1999, as compared to the
comparable period of the prior year. QCS revenues decreased by 10.9% and SCRG
revenues decreased by 10.6% for the three-month period ended September 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 nine-month period ended September 30, 1999 as compared to
the comparable period of the prior year. During the nine-month period ended
September 30, 1999 QCS experienced a 2.8% reduction in the number of retainer
clients and a 1.9% reduction in the retainer base. During the three-month period
ended September 30, 1999 the Company experienced a 2.1% increase in the number
of retainer clients and a 2.7% increase in the retainer base. The retainer base
at September 30, 1999 is 7.7% below the retainer base at September 30, 1998.
Until the retainer base is brought back to previous levels, the Company expects
revenues to decline in QCS on a current year quarter to prior year quarter
comparative 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, and the decline
in revenue of 10.6% for the quarter ended September 30, 1999, as compared to the
same period in the prior year, is an improvement over the revenue declines for
the quarters ended June 30, 1999, of 24.4%, and March 31, 1999, of 53.1%.
DIRECT COSTS
Direct costs decreased by 24.7% or $2,804,000 to $8,564,000 for the nine-month
period ended September 30, 1999, from $11,368,000 for the nine-month period
ended September 30, 1998. Direct costs decreased by 10.2% or $319,000 to
$2,816,000 for the three-month period ended September 30, 1999, from $3,135,000
for the three-month period ended September 30, 1998. As a percent of revenues,
direct costs increased to 50.9% for the nine-month period ended September 30,
1999, from 50.6% for the corresponding period in 1998. As a percent of revenues,
direct costs increased to 48.9% for the three-month period ended September 30,
1999, from 48.8% 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 relating to the decreased revenues in CBA. 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 18.7% or $1,826,000 to
$7,956,000 for the nine-month period ended September 30, 1999, from $9,782,000
for the nine-month period ended September 30, 1998. Selling, general and
administrative expenses declined by 7.7% or $231,000 to $2,762,000 for the
three-month period ended September 30, 1999, from $2,993,000 for the three-month
period ended September 30, 1998. As a percent of revenues, selling, general and
administrative
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expenses increased to 47.3% for the nine-month period ended September 30, 1999,
from 43.5% for the corresponding period in 1998. As a percent of revenues,
selling, general and administrative expenses increased to 47.9% for the
three-month period ended September 30, 1999, from 46.6% for the corresponding
period in 1998. The decrease in selling, general and administrative expenses is
due primarily to the divestiture of the PRP activities, the reduction of the
general and administrative staff 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 and an increased marketing
effort in both QCS and SCRG.
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 $295,000 for the nine months ended September
30, 1999, as compared to operating income of $1,018,000 for the nine months
ended September 30, 1998. The Company had operating income of $186,000 for the
three months ended September 30, 1999, as compared to operating income of
$294,000 for the three months ended September 30, 1998. The nine months ended
September 30, 1998 included a pre-tax restructuring charge of $321,000 related
to a reduction in its full time labor force. During the nine month period ended
September 30, 1999, all operating income was derived from the CBA segment as
compared to the nine-month period ended September 30, 1998 when CBA had
operating income of $978,000, including the $321,000 restructuring charge, and
PRP had operating income of $40,000. During the three-month periods ended
September 30, 1999 and 1998 all operating income was derived from the CBA
segment. The decline in operating income during the nine and three month periods
ended September 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 nine months ended September 30, 1999, the Company earned $72,000 in
interest income, which increased from $51,000 in 1998. During the three months
ended September 30, 1999, the Company earned $17,000 in interest income, which
decreased from $36,000 in 1998. The increase during the nine-month period ended
September 30, 1999, as compared to the comparable period of 1998, 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. The
decrease during the three-month period ended September 30, 1999, as compared to
the comparable period of 1998, was a result of lower cash balances and lower
notes receivable balances during the third quarter of 1999 as compared to the
third quarter of 1998.
Interest expense was $357,000 for the nine-month period ended September 30,
1999, which was a decrease from $395,000 for the same period in 1998. Interest
expense was $105,000 for the three-month period ended September 30, 1999, which
was a decrease from $128,000 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
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the payment of deferred interest related to its debt agreements with investors
during 1999 (see Liquidity and Capital Resources).
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 September 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 was
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 $607,000 to $1,962,000 on September
30, 1999 from $2,569,000 on December 31, 1998. Cash balances were $973,000 and
$2,307,000 on September 30, 1999 and December 31, 1998, respectively.
During the nine-month period ended September 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. It is anticipated that the agreement will be completed
in the fourth quarter of 1999. However, no assurance can be given that the
transaction will be formalized.
The Company anticipates spending approximately $150,000 for capital expenditures
for the remainder of 1999 and less than $750,000 for 2000. The major portion of
these expenditures will be for the continued enhancement of internal software
and computer equipment.
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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.
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.
YEAR 2000 COMPLIANCE
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.
FIND/SVP's management has conducted a review of FIND/SVP's exposure to the Year
2000 problem, and believes that its systems are currently Year 2000 compliant.
Comprehensive testing of all critical internal systems has been conducted in a
simulated Year 2000 environment, with no apparent critical problems.
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,
14
<PAGE>
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 has communicated 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 and
FIND/SVP does not have any control over third parties' compliance. 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 has developed contingency plans, and continues to review those
plans, to mitigate the effects of the Company's or significant suppliers'
potential failure to remediate the Year 2000 issue in a timely manner. If this
occurs the Company would take appropriate actions. Such actions 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.
The total cost of the Company's remediation plan is estimated at approximately
$50,000, excluding internal costs, and is being funded through operating cash
flows. As of September 30, 1999, $40,000 has been spent on testing, and on
remediation software and 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.
15
<PAGE>
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 September 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.
16
<PAGE>
PART II.
OTHER INFORMATION
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on July 9, 1999, at which a
quorum was present. The shareholders voted to elect directors and ratify the
selection of auditors. The shareholders also voted to amend the Company's
Certificate of Incorporation to effect a one for two, one for three, one for
four or one for five reverse stock split of the issued and outstanding shares of
common stock, par value $0.0001 per share, with one, if any, of such
alternatives to be approved by the Board of Directors of the Company.
With respect to the amendment of the Certificate of Incorporation, 5,748,404
shares voted for, 80,973 shares voted against, 8,043 shares abstained and
1,284,249 shares did not vote.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27. Financial Data Schedule
B. REPORTS ON FORM 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIND/SVP INC.
(REGISTRANT)
Date: November 10, 1999 /S/ ANDREW P. GARVIN
- ------------------------- ---------------------------------------------
Andrew P. Garvin
Chief Executive Officer and President
Date: November 10, 1999 /S/ VICTOR L. CISARIO
- ----------------------- ---------------------------------------------
Victor L. Cisario
Vice President and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
18
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