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www.findsvp.com
CLIENTS ONLY
FIND/SVP's more than 14,000 cardholders can gain instant access to a range of
services and special offers in this exclusive client module.
BECOME A CLIENT
With a constant flow of traffic to our site, this section allows visitors to
connect with a knowledgeable sales rep who can explain the benefits of our
retainer programs.
REQUEST RESEARCH
Expert advice on any topic is available with one click. From fast answers to
market briefs and analysis, our worldwide consultants are ready.
KEEP ME POSTED
Indicate topics that interest you and FIND/SVP will notify you when a new
service becomes available. It's free to our visitors.
SEARCH
Find anything you need on our site in a second by using this simple keyword
search.
ABOUT FIND/SVP
Learn about our services, industries we serve, our international research
capabilities, employment opportunities and much more!
SVP NETWORK
Our 30-year affiliation with this global network enables visitors to benefit
from our wealth of expertise and resources in the U.S or U.K. and from
Switzerland to South Korea.
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FIND/SVP'S OFFICE OF MANAGING DIRECTORS
Eric Cachart, Andrew P. Garvin,
Brigitte de Gastines and Jean-Louis Bodmer
ABOUT THE COVER:
Our Web site is a find for busy executives who need help now. Custom modules
provide solutions to clients and prospects alike.
PORTIONS COPYRIGHT NETSCAPE COMMUNICATIONS CORPORATION, 1999. ALL RIGHTS
RESERVED. NETSCAPE, NETSCAPE NAVIGATOR AND THE NETSCAPE N LOGO, ARE REGISTERED
TRADEMARKS OF NETSCAPE IN THE UNITED STATES AND OTHER COUNTRIES.
<PAGE>
TO OUR SHAREHOLDERS:
Focus. Teamwork. Service.
This is the promise we make to our clients, our shareholders as well as
ourselves, every day. With every member of management and each employee
dedicated to this combination, we returned the Company to profitability and laid
the groundwork for the years ahead.
During 1998, we focused on the Company's financial health by diligently
managing costs and by completing the sale of our Publishing assets, which had
not measured up to our expectations. This allowed us to focus squarely on the
core business. Working closely with SVP International, our licensor, and SVP,
S.A., its affiliate, (SVP Group), we set a new standard for teamwork within the
global system. By sharing talents and know-how amongst the entire SVP Network we
provide intelligent advice and guidance on business issues to busy executives.
To ensure we are meeting our clients' expectations, we continually assess
and address market developments. The technological changes and resulting
evolution of the consulting, business advisory and market intelligence
industries have forever changed the operational landscape for executives
worldwide. There is an exponential increase in the "need to know."
However, we knew to truly capitalize on these new trends, we first had to
focus on profits. So last year, we worked hard to realign our cost structure
with our revenues. The work paid off. In 1998, FIND/SVP's pre-tax income rose to
$961,000 as compared to a pre-tax loss of $3,748,000 in 1997. In addition to the
return to profitability, FIND/SVP increased its financial strength and
durability. We reported significant increases in cash, working capital and
shareholder equity while reducing our debt.
The management of FIND/SVP continues to focus on building a stronger,
growing organization, as we believe this is the most effective way to increase
shareholder value.
A more detailed discussion of the financial results and financial position
of the Company as reported in the Form 10K follows this letter.
INTERNATIONAL GROWTH
The bond with the SVP Group was reflected in the Company's recent progress. The
additional equity investment by SVP, S.A., which increased the Group's ownership
to 37 percent of the outstanding common shares from 18.7 percent, reinforced its
confidence in FIND/SVP and the U.S. market.
More importantly, we have created a highly skilled team consisting of the
management of FIND/SVP and the SVP Group. During 1998, Brigitte de Gastines,
President of SVP International, was elected as Chairperson of the Board of
Directors of FIND/SVP. In addition, a new Office of Managing Directors (OMD) of
the Company was created which includes Brigitte and I, as well as Jean Louis
Bodmer, Vice President Finance and New Technologies of SVP, S.A. and Eric
Cachart, Vice President Development and Client Services of SVP, S.A.
With an alliance that spans three decades as a background, we now work side
by side with the SVP Group to share market experiences, service and staffing
models as well as product development and positioning strategies. The common
goal is to provide a global service that helps executives make decisions and
improve performance by providing them with quick, expert consultations, research
and advice. Our relationship with the SVP Group will enable us to truly
internationalize our business.
FIND/SVP's Strategic Consulting and Research Group and the SVP network are
working to develop ways to provide in-depth intelligence on the U.S. market
potential of foreign entities' products and services. In the not so distant
future, we expect to see significant growth in FIND/SVP revenues as a result of
this effort.
Teamwork has also been a focal point internally at FIND/SVP. We are working
together to ensure that we offer the best service -- one that delivers
efficiency, accuracy, and relevance. At a time when executives are expected to
respond to market changes in seconds, a quick
1
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custom service is more vital now than ever before. The ability to discuss an
issue with a knowledgeable expert is what busy executives need.
CAPITALIZING ON THE INTERNET
FIND/SVP has two major initiatives for 1999 that will enable us to meet this
market challenge.
The first, which is currently being test-marketed, is to change our
retainer service offer. Successfully launched by SVP in France at the end of
1998, the new program encourages greater use of the Company's services on a
global basis and is more tailored to the needs of different client groups. The
sales and marketing efforts are going through a worldwide coordination during
1999 to address the impacts on the prospecting, consulting and after-sales
activities.
An additional aspect of our focus on improving the service includes
developing ways in which current clients can more easily interact with our
experts. The enhanced "Clients Only" module on our Web site, which is shown on
the cover of this report, allows our 14,865 cardholders representing 2,024
corporations (as of December 31, 1998) to ask us questions and sign up for new
services in an instant. FIND/SVP has also licensed the real-time chat technology
provided by LivePerson to enable all visitors to our Web site to receive an
immediate reception and dialogue with our staff.
The second corporate initiative for 1999 involves bringing the power of
human assistance to the Internet for businesses and consumers. By placing "Help"
icons and banners on business and research-oriented Web sites, we will increase
the traffic at our site. Plans are underway to enable visitors to be introduced
to our service by enabling them to pose any question and receive a customized
answer for a fixed price. Through our experience in answering 100,000 questions
a year combined with the power of the Internet, FIND/SVP can introduce its
services to a larger business audience than through its current personal sales
methods.
FIND/SVP also believes the Internet will enable us to reach the consumer
market with our services at an unprecedented level. In recent weeks, serious
discussions have been held with a number of high profile organizations, who, in
order to stimulate further use of their sites and build brand loyalty, would
have an "Ask Us" icon on their homepage. Users of these sites would then be
able, through this custom FIND/SVP helpdesk service, to get answers to
questions. The operator of the site would be FIND/SVP's customer paying for the
service on an exclusive category basis. The service can be rendered through
e-mail, live chat or telephone.
When you think of the number of sites there are serving the consumer
markets and how the addition of the ability for the visitor to access expert
help might increase site loyalty, the opportunity for FIND/SVP becomes very
dramatic. SVP has been providing similar "Ask Us" services via a phone helpline
for years.
With our continued focus on the core business and global teamwork to ensure
we provide a quality service that meets the market demands of the new
millennium, we believe FIND/SVP is positioned to grow well beyond 1998 levels
and is now poised for an exciting future.
Sincerely,
/s/ Andrew P. Garvin
Andrew P. Garvin
Chief Executive Officer
2
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FINANCIAL TABLE OF CONTENTS
SELECTED FINANCIAL DATA ................................................. 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 5
CONSOLIDATED BALANCE SHEETS .............................................14
CONSOLIDATED STATEMENTS OF OPERATIONS ...................................15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY .........................16
CONSOLIDATED STATEMENTS OF CASH FLOWS ...................................17
NOTES TO CONSOLIDATED STATEMENTS ........................................18
INDEPENDENT AUDITORS' REPORT ............................................30
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS .........................................31
3
<PAGE>
SELECTED FINANCIAL DATA
The following financial data set forth below is derived from the consolidated
financial statements of the Company.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
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 -- -- -- -- --
============================================================================================================================
December 31,
--------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
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>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT 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, 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.
5
<PAGE>
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>
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
primarily due 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
6
<PAGE>
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. 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.
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
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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 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.
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.
8
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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.
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.
9
<PAGE>
The Company recorded a loss on sale of assets of $73,000 resulting from the sale
of certain assets during 1996.
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.
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.
10
<PAGE>
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 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.
11
<PAGE>
On January 15, 1998, the Company entered into an agreement with SVP, S.A.,
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, S.A. 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.
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 t echnology, 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 remediation 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, in a Year 2000-simulated environment, the changes, beginning to utilize
the changed procedures in actual operations, and vendor interface testing. The
implementation phase, including testing for certain critical applications, has
commenced and is expected to be completed by June 1999 for applications and IT
equipment and non-IT embedded systems. All other components of the
implementation phase are expected to be completed by September 1999.
Additionally, subsequent to final implementation, the Company will conduct live
testing on January 1 and 2, 2000, before business commences on January 3, 2000.
The Company's remediation plan for its Year 2000 issue is an ongoing
process and the estimated completion dates above are subject to change.
12
<PAGE>
THE RISK OF THE COMPANY'S YEAR 2000 ISSUE
Overall, at this time the Company believes that its systems will be Year 2000
compliant in a timely manner for several reasons. Several significant marketing
and fulfillment systems are already compliant. In addition, the Company
extensively utilizes certain shared applications that should be remediated once
and then deployed. Also, comprehensive testing of all critical systems is
planned to be conducted in a simulated Year 2000 environment.
The Company believes that the area of greatest risk to the Company
surrounding the Year 2000 issue relates to significant suppliers' failing to
remediate their Year 2000 issues in a timely manner. The Company has
relationships with certain significant suppliers. These relationships may be
material in the aggregate to the Company. The Company relies on suppliers to
deliver a broad range of services, including Internet access, online search
capabilities, supplies of promotional materials and paper, warehouse facilities,
lettershops which assemble promotional mailings, postal delivery services,
banking services, telecommunications and electricity. The Company is conducting
formal communications with its significant suppliers to determine the extent to
which it may be affected by those third parties' plans to remediate their own
Year 2000 issue in a timely manner. The level of preparedness of significant
suppliers can vary greatly. If a number of significant suppliers are not Year
2000 compliant, this could have a material adverse effect on the Company's
results of operations, financial position or cash flow.
THE COMPANY'S CONTINGENCY PLANS
The Company is developing its contingency plans and expects to have them
completed by June 1999. To mitigate the effects of the Company's or significant
suppliers' potential failure to remediate the Year 2000 issue in a timely
manner, the Company would take appropriate actions. Such actions may include
having arrangements for alternate suppliers, re-running the processes if errors
occur, using manual intervention to ensure the continuation of operations where
necessary, and scheduling activity in December 1999 that would normally occur at
the beginning of January 2000. If it becomes necessary for the Company to take
these corrective actions, it is uncertain, until the contingency plans are
finalized, whether this would result in significant delays in business
operations or have a material adverse effect on the Company's results of
operations, financial position or cash flow.
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.
13
<PAGE>
CONSOLIDATED BALANCE SHEETS
FIND/SVP, INC. AND SUBSIDIARIES
DECEMBER 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.
14
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FIND/SVP, INC. AND SUBSIDIARIES
CONSOLIDATED 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>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FIND/SVP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Other Total
Preferred stock Common stock Capital in Accumulated Treasury stock Compre- share-
---------------- -------------- excess of earnings ---------------- hensive holders'
Shares Amount Shares Amount par value (deficit) Shares Amount Income equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 - $- 6,210,848 $1,000 3,743,000 916,000 - $- (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 - - 315,396 - 53,000 - - - - 53,000
Common stock issued for services - - 21,940 - 40,000 - - - - 40,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 25,000 - - - - 25,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - - 6,548,184 1,000 3,861,000 197,000 - - - 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 - - 74,985 - 57,000 - - - - 57,000
Retirement of treasury shares - - (72,500) - (88,000) - (72,500) 88,000 - -
Common stock issued for services - - 25,000 - 37,000 - - - - 37,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 5,000 - - - - 5,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 - - 6,575,669 1,000 3,872,000 (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 - - 12,900 - 14,000 - - - - 14,000
Retirement of treasury shares - - (74,400) - - - 74,400 - - -
Common stock issued - - 600,000 - 1,000,000 - 200,000 - - 1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - $- 7,114,169 $1,000 4,886,000 $(1,899,000) - $- $- $2,988,000
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIND/SVP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 756,000 (2,852,000) (719,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
<S> <C> <C> <C>
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.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIND/SVP, INC. AND SUBSIDIARIES
YEARS ENDED 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 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
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).
(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.
18
<PAGE>
(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.
(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.
(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.
19
<PAGE>
(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.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
At December 31, 1998 and 1997, equipment and leasehold improvements consist of
the following:
1998 1997
- -------------------------------------------------------------------------------
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
================================================================================
(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.
20
<PAGE>
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).
The future minimum lease payments under noncancellable operating leases as of
December 31, 1998 were as follows:
Operating leases
- -------------------------------------------------------------------------------
Year ending December 31
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:
1998 1997
- -------------------------------------------------------------------------------
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
================================================================================
(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.
21
<PAGE>
(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
================================================================================
(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.
(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).
22
<PAGE>
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.
Activity under the stock option plans is summarized as follows:
Weighted
average
Options exercise
Granted price
- -------------------------------------------------------------------------------
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
===============================================================================
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.
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:
1998 1997 1996
- -------------------------------------------------------------------------------
Net income As reported $756,000 (2,852,000) (719,000)
(loss) 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)
- -------------------------------------------------------------------------------
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.
23
<PAGE>
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.
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:
1998 1997 1996
- -------------------------------------------------------------------------------
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)
===============================================================================
24
<PAGE>
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:
1998 1997
- -------------------------------------------------------------------------------
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
================================================================================
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 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.
25
<PAGE>
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 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).
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
===============================================================================
26
<PAGE>
(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.
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).
27
<PAGE>
(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.
(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.
(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.
28
<PAGE>
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.
(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.
Years Ended December 31,
(Amounts in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
$ $ $
- -------------------------------------------------------------------------------
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
================================================================================
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FIND/SVP, Inc.:
We have audited the accompanying 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. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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.
KPMG LLP
New York, New York
February 22, 1999
30
<PAGE>
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
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
- -------------------------------------------------------------------------------
1998
Common Stock
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
Common Stock
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."
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 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 a review at that time, which will generally
stay delisting. The Company had also been notified on January 21, 1999 and
during the first quarter of 1998 for the same reason. However with respect to
those notifications, the Company's common shares 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.
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.
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THERE IS ALWAYS SOMEONE
WHO KNOWS AT FIND/SVP
Founded in 1969, FIND/SVP provides fully integrated research, advisory and
business intelligence services in a broad range of disciplines and industries.
FIND/SVP -- one resource, all the answers.
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GET FAST, FOCUSED ANSWERS WITH
ONE CALL
Quick Consulting
and Research Service
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STRENGTHEN YOUR POSITION WITH
IN-DEPTH ANALYSIS
Strategic Consulting and Research Group
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LISTEN TO THE VOICE
OF YOUR CUSTOMERS
Customer Satisfaction and Loyalty Group
CORPORATE DATA
OFFICERS:
KENNETH A. ASH
Vice President--International Strategic Research
JEAN-LOUIS BODMER
Managing Director
ERIC CACHART
Managing Director
PETER M. CARLEY
Vice President --
Human Resources
VICTOR L. CISARIO
Vice President,
Chief Financial Officer, Secretary and Treasurer
BRIGITTE DE GASTINES
Chairperson of the Board and Managing Director
ANDREW P. GARVIN
President and Chief Executive Officer
STEPHAN B. SIGAUD
Vice President --
Client Services
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DIRECTORS:
JEAN-LOUIS BODMER
Vice President -- Finance and New Technologies, SVP S.A., an
information and consulting service firm
HOWARD S. BRESLOW, ESQ.
Breslow & Walker LLP, a New York-based law firm
ERIC CACHART
Vice President -- Development and Client Services, SVP S.A., an information and
consulting service firm
FREDERICK H. FRUITMAN
Managing Director, Loeb Partners Corporation, an investment banking firm
ANDREW P. GARVIN
President and
Chief Executive Officer
BRIGITTE DE GASTINES
Chairperson of the
Board, President, SVP International and SVP, S.A., an information and
consulting service firm
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TRANSFER AGENT & WARRANT AGENT:
AMERICAN SECURITIES
TRANSFER, INCORPORATED
1825 Lawrence Street
Denver, CO 80202
AUDITORS:
DELOITTE & TOUCHE LLP
Two World Financial Center
New York, NY 10281-1414
LEGAL COUNSEL:
BRESLOW & WALKER LLP
767 Third Avenue
New York, NY 10017
REPORTS TO SEC:
Reports to the S.E.C. on forms 10-K and 10-Q are available at no charge upon
written request to the Chief Financial Officer.
COMMON STOCK:
The Company's common shares are traded on NASDAQ, ticker symbol FSVP.
THIS ANNUAL REPORT CONTAINS FORWARD- LOOKING STATEMENTS ABOUT THE RESULTS
FIND/SVP IS STRIVING TO ACHIEVE. REALIZATION OF THESE GOALS INVOLVES RISKS AND
UNCERTAINTIES, INCLUDING THE SUCCESS OF THE COMPANY'S GROWTH STRATEGIES AND
OBJECTIVES. ACTUAL RESULTS MAY BE DIFFERENT FROM THOSE DISCUSSED HEREIN.
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THE SVP NETWORK
FIND/SVP
SVP BELGIQUE
SVP DEUTSCHLAND
SVP ESPAGNA
SVP FRANCE
SVP ITALIA
SVP JAPAN
SVP NEDERLAND
SVP NORDIC
SVP PORTUGAL
SVP SWITZERLAND
SVP UNITED KINGDOM
SVP CORRESPONDENTS
Argentina
Austria
Australia
Brazil
Canada
China
Czech Republic
Egypt
Greece
Hong Kong
Hungary
India
Israel
Mexico
Poland
Romania
Russia
South Korea
Taiwan
Thailand
Turkey
Vietnam
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THE BEST PEOPLE
TO FIND THE ANSWERS
625 Avenue of the Americas
New York, NY 10011-2002
(212) 645-4500
(212) 645-7681 fax
http://www.findsvp.com
NASDAQ: FSVP
