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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended DECEMBER 31, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file no.0-15152
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FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
NEW YORK 13-2670985
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(State or other juris- (I.R.S. employer
diction of incorporation identification no.)
or organization)
625 AVENUE OF THE AMERICAS, NEW YORK, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
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Title of Class
******************************
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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1
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. []
As of March 16, 1998 the aggregate market value of the voting
stock held by non-affiliates of the registrant was $3,506,928.
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As of March 16, 1998 there were 7,107,269 shares of Common
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Stock (par value $.0001 per share) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
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PART I
ITEM 1
BUSINESS
GENERAL
FIND/SVP, Inc. ("FIND/SVP" or the "Company") provides a broad
consulting and business intelligence service substantially by telephone
primarily to executives and other decision-making employees. The Company's
strategy is to build a base of regular clients who will utilize the Company's
resources for their research, business intelligence and information needs.
The Company was formed under the laws of New York in 1969. In 1971, the
Company became affiliated with SVP International S.A. ("SVP International")
through a licensing agreement which gave the Company the right to the SVP name
and provided access to the resources of 13 additional SVP affiliated companies
located around the world.
Through its Quick Consulting and Research Service Division ("QCS"),
FIND/SVP provides retainer clients with access to the subject and technical
expertise of its staff as well as the resources of a large information center.
Within each retainer client's organization, specific individuals receive a
Membership Card which entitles them to make telephone requests for consultation
and research assistance. In response, the staff of QCS provides customized
answers in rapid turnaround time, generally within two business days or less of
the request. The QCS service is positioned to be an indispensable daily partner
for decision-makers by providing, on a retainer basis, a cost-effective "quick
consulting" service accessible by telephone. The service is designed to be a
valuable resource to small and medium sized corporations that do not maintain
in-house information centers and as a supplement to in-house resource centers of
large corporations. At December 31, 1997, there were 2,266 QCS retainer clients
and 16,859 Membership Cardholders. The Company intends to seek to expand its
base of QCS retainer clients, and to offer these clients an expanded array of
business intelligence research and information services.
In addition to QCS, the Company offers the market research services of
its Strategic Consulting and Research Division ("SRD"), which is designed to
handle more extensive, in-depth custom market research and competitive
intelligence requests, as well as customer satisfaction and loyalty programs.
The QCS and SRD businesses represent the core competencies of the Company, which
is to provide the expertise of its staff in an on-demand, research-for-hire,
consulting relationship with small, medium and large sized corporations. The
Company also produces several information products and publications through its
Published Research Division.
FIND/SVP's research resources include access to approximately 4,000
computer databases, approximately 9,000 of its own files organized by subject
and by company, current and back issues of approximately 3,000 periodicals and
journals and several thousand books and reference works. Through a licensing
agreement, the Company is associated with the international SVP network of
companies and correspondents providing similar services. This enables FIND/SVP
to obtain information through approximately 1,000 additional consultants in the
SVP worldwide network.
3
During the fourth quarter of 1997, the Company determined it would
re-focus its efforts on its core competencies. As such, the Company retained an
investment banking firm to assist in effectuating the sale of various product
lines included in its Published Research Division. It is the intention of
management to maximize the profitability of its QCS and SRD units through the
availability of management resources formerly utilized on the non-core business.
As a result, the Company has recorded an impairment loss of $1,047,000 related
to these assets. Additionally, as of December 31, 1997, as a result of this
re-focus onto the core businesses, the Company reduced its general and
administrative staffing and recorded a $155,000 restructuring charge related to
this reduction. See "Non-Continuing Products and Services" for further
discussion regarding the divestiture of the Company's Published Research
Division.
In order to further maximize the profitability of the QCS and SRD
businesses, during March 1998, the Company instituted a formal cost cutting plan
in its core businesses. The plan includes labor cuts of approximately 20
full-time employees along with reductions in part-time and independent
contractor costs. The Company estimates the savings to be in excess of
$1,000,000 annually prior to severance and related charges. The Company
anticipates recording a charge for severance and related costs of approximately
$325,000 in the first quarter of 1998. It is the expectation of management, but
there can be no assurance, that these cost savings, combined with the sale of
its Published Research Division assets and the vigorous cost cutting in
non-labor areas during the latter part of 1997, will restore the Company to
profitability from its ongoing operations during 1998.
SERVICES AND PRODUCTS
The Company's services and products offer business executives fully
integrated research, business intelligence and management advisory services in a
broad range of industries and disciplines. The Company provides services to help
clients acquire and use knowledge.
FIND/SVP's research resources at December 31, 1997 include a staff of
130 consultants and researchers, a reference center which contains approximately
9,000 of its own subject and company files, access to approximately 4,000
computer databases, current and back issues of approximately 3,000 titles, and
several thousand books and reference works, and a field investigation team with
entree into public and private libraries in the New York area. Through a
licensing agreement, the Company is associated with the international SVP
network of companies and correspondents, which enables it to obtain information
worldwide. See "SVP Network; Licensing Agreement With SVP International." The
materials used in the generation of the Company's services and products are
updated and checked by staff members. The Company has its own training program
in which its employees participate.
SERVICES
QUICK CONSULTING AND RESEARCH SERVICE ("QCS"). QCS provides clients
with access to the staff and resources of a large information center which
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seeks to handle research requests in rapid turnaround time. Through QCS, the
Company is in the business of providing, on a volume basis, customized answers
to business questions on a wide variety of topics. The average cost to the
client of each response is slightly more than $200. The service is offered only
on a retainer basis. Retainer client organizations pay in advance, either
monthly, quarterly, semi-annually or annually, a retainer fee. In return, the
client organizations receive Membership Cards for their designated executives or
employees. The Membership Card entitles each cardholder to use QCS and also
offers preferential use of, and/or discounts on, the Company's other services
and products. The dollar value of each client's question is measured based on
time and complexity factors and this value is charged against the retainer fee.
The Company monitors the client's "usage" of the service and if it proves to be
substantially more (or less) than anticipated its future retainer may be
adjusted to more accurately reflect the client's usage of QCS. Out-of-pocket
expenses incurred to answer questions are invoiced in addition to retainer fees.
Retainer clients call FIND/SVP with their research needs, give their
card number and explain their request to consultants who are divided into the
following six practice groups and four support teams:
(a) THE CONSUMER PRODUCTS & SERVICES GROUP is responsible for research
on retailing and apparel, home furnishings, cosmetics and toiletries,
food and beverages, media and entertainment, publishing, sports and
leisure, education, philanthropy, restaurants, food services, household
products, appliances and furniture;
(b) THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP covers
Internet and on-line services, computers, software, electronic media
and office equipment;
(c) THE HEALTHCARE AND PHARMACEUTICALS GROUP covers products and
services manufactured by and marketed to businesses in healthcare
fields, including pharmaceuticals, medical and diagnostic equipment,
biotechnology, health resources and clinical information;
(d) THE FINANCIAL AND BUSINESS SERVICES GROUP handles requests on
specific companies (except credit reports), economic trends, corporate
finance, investment, insurance, real estate and mortgages, quality
management methods, and provides annual reports and Securities and
Exchange Commission documents on public companies;
(e) THE INDUSTRIAL PRODUCTS AND SERVICES GROUP covers manufacturing,
energy, chemicals, plastics, pulp and paper, metals and mining,
transportation, environment, construction and agriculture;
(f) THE MANAGEMENT ADVISORY GROUP handles requests on legal research,
human resources research and accounting and tax issues;
(g) THE INTERNATIONAL TEAM addresses executive's needs for
international finance and trade, global corporate competitive
intelligence and worldwide management strategies;
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(h) THE DOCUMENTS TEAM locates and obtains copies of articles,
documents, patents, books, pamphlets, catalogs, conference proceedings,
government reports and product samples;
(i) THE MARKETING TEAM covers direct marketing, advertising, sales
promotions and demographics; and
(j) INTERNET ADVISORY TEAM(TM) provides expert help with Internet
research, hands-on training, on-site seminars, competitive
intelligence, Web Site development assistance, Web marketing/trends and
Internet user demographics.
Client cardholders discuss their research needs with the Company's
consultants and may obtain assistance in formulating their requests. After the
request has been clarified, FIND/SVP's specialists find the needed information
using a combination of the Company's available resources. After sifting through
the findings, the consultants select what appears most relevant to the client's
need and report, with commentary, as needed. Answers are delivered generally
within two business days. Documentation of the findings can be sent by any one
or a combination of the following methods: facsimile, courier, messenger, mail
or electronic mail. QCS allows customers to benefit from a fast, convenient and
confidential way to gather knowledge and use the multitude of research resources
available today. Cardholders may ask questions on virtually any subject.
Those requests requiring business intelligence from overseas are answered
by one or more of the information centers in 13 SVP companies worldwide or by
using special SVP correspondents in selected countries where no official SVP
company exists.
QCS is designed to handle client questions requiring less than
approximately three hours of actual staff time. These are automatically covered
by the retainer fee. Requests requiring a more extensive search or a lengthy
written report are not covered by the QCS retainer program and are referred to
the Company's Strategic Consulting and Research Division to be handled
separately.
QCS activity is tracked and controlled by a proprietary management
information system called QUESTRAC, which uses recently upgraded
state-of-the-art software technology. The program is based on the know-how
provided by SVP France, the founders of the SVP concept of information by
telephone. Input into the QUESTRAC system provides an exclusive and confidential
database of information about each client and the information requested and
handled for clients.
At December 31, 1997, there were 2,266 retainer clients, a 0.7% decrease
from December 31, 1996, and 16,859 holders of the Membership Card, a 4.5%
decrease from December 31, 1996. However, the monthly fees billed to retainer
clients (the retainer base) grew by 8.8% to $1,604,429. Approximately 50% of the
top Fortune 100 industrial companies are QCS retainer clients. Revenues
generated by QCS represented 64%, 65% and 65% of the Company's total revenues
for the years ended December 31, 1997, 1996 and 1995, respectively.
STRATEGIC CONSULTING AND RESEARCH DIVISION ("SRD"). SRD is designed to
handle more in-depth custom market research and competitive intelligence
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assignments. The service is most often used by the Company's QCS retainer
clients as a supplement to that service. Common project requests include
customized market and industry studies, telephone surveys, competitive
intelligence data-gathering and analysis assignments, acquisition studies and
large information collection projects. Additionally, through the Customer
Satisfaction and Loyalty Division, SRD provides customer satisfaction and
loyalty programs. Through SRD, the Company provides research as well as
interpretation and analysis. All projects are quoted in advance and billed
separately. Revenues generated by SRD represented 17%, 15% and 14% of the
Company's total revenues for the years ended December 31, 1997, 1996 and 1995,
respectively.
NON-CONTINUING PRODUCTS AND SERVICES
On December 9, 1997, the Board of Directors voted in favor of a plan to
effectuate the sale of the Company's Published Research assets with the
intention of removing the related product lines from the Company's business. The
Company intends to sell virtually all assets held within its FIND/SVP Published
Products, Inc. subsidiary. These include Published Research Studies, The
Information Catalog and various newsletters, with the exception of a newsletter
which is directed towards its Quick Consulting and Research client base. The
Company has retained an investment banking firm to provide assistance to the
Company in connection with the transaction. As of March 30, 1998, the Company
has received several preliminary offers to purchase the assets held for sale.
The Company expects the due diligence process to begin in April 1998.
As a result, the Company has 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 has presented the assets held for sale as a
separate line item on its consolidated balance sheet.
On November 4, 1997, pursuant to an Asset Purchase and Sale Agreement (the
"ETRG Sale Agreement") between FIND/SVP Published Products, Inc., a wholly owned
subsidiary of the Company, and Cyber Dialogue Inc., FIND/SVP Published Products,
Inc. sold certain assets held in its Emerging Technologies Research Group to
Cyber Dialogue Inc. In accordance with the ETRG Sale Agreement, the Company will
no longer operate its Multi-client Study business, its Continuous Advisory
service and its Interactive Consumer newsletter. The Company received a $125,000
two-year note bearing interest at an annual rate of 10%. A principal payment of
$31,250 plus accrued interest is due on May 4, 1998. Commencing on August 4,
1998 and on the fourth day of each November, February, May and August
thereafter, quarterly principal payments of $15,625 plus accrued interest is
due. The final payment is due November 4, 1999. The Company holds a security
interest in the Emerging Technologies Research Group database as collateral on
the note. The purchaser also assumed various liabilities in connection with the
delivery of the above services and the Company will receive a 5% royalty for a
two-year period on sales of the above services. Additionally, the Company
retains the rights to its currently published off-the-shelf studies produced
from data contained within previously issued multi-client studies.
7
Revenues generated by FIND/SVP Published Products, Inc. represented 19%,
20% and 21% of the Company's total revenues for the years ended December 31,
1997, 1996 and 1995, respectively.
On December 9, 1997, the Board of Directors voted in favor of a plan to
cease operations of its FIND/SVP Internet Services, Inc. subsidiary as of
December 31, 1997. 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 will be paid by March 31, 1998. The
remainder of the charge included deferred charges of $408,000, $16,000 of
shut-down costs payable in the first quarter of 1998, and rent expense of
$41,000 for the first quarter of 1998 as the Company intends 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. The Company does not expect
additional charges in connection with this transaction.
Revenues from FIND/SVP Internet Services, Inc. represented less than 1% of
the Company's revenues for 1997.
Based on the decisions to effectuate the sale and discontinuance of various
product lines and services, the Company reduced its general and administrative
staff as of December 31, 1997. Accordingly, the Company recorded a $155,000
restructuring charge as of December 31, 1997.
POTENTIAL RELATED SERVICES AND PRODUCTS
The Company plans to expand its services through continued internal
development during 1998. Upon completion of the sale of the majority of the
assets held in FIND/SVP Published Products, Inc., the Company will consider
exploring possible acquisitions of consulting, research or information
properties and companies whose primary markets are the same as FIND/SVP's market
and which would be accretive to the Company's earnings. There are no commitments
or understandings in this regard and no assurance can be given that the Company
will in fact conclude any acquisitions or internally develop any related
services. The foregoing plans are subject to, among other things, the
availability of funds for these purposes.
SVP NETWORK; LICENSING AGREEMENT WITH SVP INTERNATIONAL
Through licensing agreements with SVP ("S'il Vous Plait") International, 14
companies (the "SVP companies"), including FIND/SVP, form an international
network of information centers. Since each SVP company is based in a different
country, the network has provided the means by which the Company can obtain
international information requested by its clients which it may not maintain in
its library or have access to if generated by or located in another country.
When an SVP company accesses the information center of another SVP company it is
charged a fee for the services provided thereby. Each SVP company is linked to
the SVP network primarily by virtue of its licensing agreement. In 1971, the
Company entered into its licensing agreement with SVP International (formerly
SVP Conseil), which was amended in 1981, and obtained the U.S. rights, in
perpetuity, to the SVP name and know-how and access to the SVP International
network. Pursuant thereto, SVP International assisted in the creation,
implementation, development and operation of the Company. The Company has
agreed, pursuant to such licensing agreement, to use its best
8
efforts to have a person selected by SVP International elected to the Board of
Directors of the Company; pursuant to such provision, Brigitte de Gastines,
General Manager of SVP International, is also a director of the Company. In
addition, Jean-Louis Bodmer, Chief Executive Director, SVP, S.A., is a director
of the Company. Historically, SVP International has engaged in periodic
telephonic conversations and meetings with the Company. By virtue thereof, the
Company has benefited from exchanges of knowledge with SVP International with
respect to any enhancements made to SVP International's information retrieval or
billing systems or other proprietary know-how.
During the first quarter of 1998, SVP (including affiliates) increased its
ownership in the Company to approximately 37% of the then outstanding common
shares, excluding outstanding warrants, from 18.7% of the outstanding common
shares, excluding outstanding warrants, at December 31, 1997. Concurrent with
the increased ownership, SVP has increased their management involvement in and
physical presence at the Company during the first quarter of 1998, and it is
expected that this will continue into the future. SVP's management involvement
currently includes participation in management meetings and the key decision
making process as it relates to implementing the 1998 management plan.
The license agreement provides that SVP International will not compete with
the Company in the United States or enter into any agreement or arrangement with
respect to services similar to those offered by the Company with any entity
which operates or proposes to operate such services in the United States. The
Company, in return, agreed to pay SVP International royalties of $18,000 per
year, plus 1.2% of the gross profit from all publications included in FIND/SVP's
gross revenue less than $10,000,000 for such year, and 2% of the amount of
FIND/SVP's non-publishing gross revenues for each such year, derived from
certain of its services in excess of $2,000,000 but less than $4,000,000 and 1%
of the amount of such non-publishing gross revenues in excess of $4,000,000 but
less than $10,000,000. Royalty expense to SVP International totaled $131,000,
$137,000 and $139,000 in 1997, 1996 and 1995, respectively.
MARKETS AND CUSTOMERS
The market for FIND/SVP's services and products is comprised primarily of
business executives in a variety of functions, including top management and
marketing, planning, marketing research, sales, information/library, legal,
accounting, tax and new products. FIND/SVP's primary market, in terms of client
organizations, consists of medium to small sized companies. Larger corporations
are, however, among the Company's clients. In certain cases, the service is sold
to more than one department or division of a large corporation. The Company's
appeal to medium to small sized corporations is primarily based on the fact that
these companies do not ordinarily maintain their own resource libraries and when
they do, they are generally not comprehensive. Large corporations, on the other
hand, often maintain in-house resource centers. Consequently, these corporations
may perceive the Company's QCS service as unnecessary. The Company believes,
however, that in-house corporate libraries are generally not as comprehensive.
Therefore, QCS may be perceived as a valuable supplemental resource. In
addition, in-house centers are good prospects for the Company's other services.
Overall, the factors that will affect the growth of the Company's potential
market and its ability to penetrate it include:
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(1) the market's perception of the need for and value of consulting, business
intelligence and research services; (2) the trends in the use of internal
information centers and databases; and (3) the Company's ability to extend its
personal selling efforts throughout the country.
SALES AND MARKETING
The Company's primary marketing focus is to expand its QCS retainer client
base. In addition to generating revenues from the QCS services, the retainer
client base serves as a ready-made marketplace for SRD and other potential
services of the Company. QCS is marketed through a combination of advertising,
direct mail, exhibits and sales promotion activities. Qualified leads are
followed up by FIND/SVP's sales force. These leads are supplemented by referrals
and cold-call selling efforts. The Company's other services are promoted through
flyers, newsletters and personal sales efforts. The cost of the Company's
advertising and public relations efforts are modest.
The Company currently signs 75 to 100 new retainer clients annually which
are generated from leads within the Published Research area. The Company intends
to negotiate with potential buyers of the Published Research assets the right to
continue to receive leads into the future. There can be no assurance that the
lead flow from these assets will continue.
COMPETITION
The Company faces competition from three distinct sources: (1) other
research and information services, (2) in-house corporate research centers, and
(3) institutions that sell information directly to end-users.
The Company is aware of several other smaller fee-based on-demand business
information services in the United States. The Company believes that of these
companies it is the largest in terms of revenues and staff size. The Company
believes that the competition may be more significant from organizations such as
Arthur D. Little, Stanford Research Institute and The Conference Board which
have research capabilities with call-in-service for reference type questions. To
date, however, the call-in-service feature has not been emphasized by these
companies. Although the Company is not aware of direct competitive companies
with larger staffs and revenues, there is no assurance that as the information
industry expands, more competitive companies will not enter the market. In
addition, there is no assurance that a competitive company will not develop a
superior product or service. The Company believes, however, that by reason of
its experience in the industry, its association with the SVP network and its
intent to closely monitor the information industry, it will be able to compete
effectively with any potential competitors.
In-house corporate information and research centers present perhaps the
most significant source of competition for the Company today. Large
corporations, in an effort to stay on top of the vast amount of information
available, began to develop in increasing numbers, in-house libraries and
information centers for their employees. While the Company believes that its own
information center serves the added functions of analysis and generation of
information and is larger and better staffed than a majority of these corporate
resource centers, there is no assurance that a
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significant number of these large companies will choose to utilize the Company's
services and products.
The advent of on-line databases, the Internet and CD-ROM products has
increased the ability of companies to perform information searches and other
research for themselves. Consequently, to the extent companies perceive they can
directly access on-line databases and CD-ROM products, FIND/SVP competes with
information producers that sell to end-users. The Company believes, however,
that its consultants deliver a value-added service based on their technical
expertise and their ability to search more information products more quickly
than most end users, thereby delivering a more thorough and economical service.
There is no assurance, however, that companies which develop extensive resource
centers will not accordingly staff them with equally productive personnel.
EMPLOYEES
As of December 31, 1997, the Company had 228 full-time employees, including
3 executive officers, 38 marketing and sales employees, 130 consultants and
research employees, 18 publishing employees, and 39 administrative and general
personnel. During March 1998, the Company instituted a formal cost cutting plan
which eliminated approximately 20 full time positions.
The Company's ability to develop, market and sell its services and to
establish and maintain its competitive position will depend, in part, on its
ability to attract and retain qualified personnel. While the Company believes
that it has been successful to date in attracting such personnel, there can be
no assurance that it will continue to do so in the future. The Company is not a
party to any collective bargaining agreements with its employees. It considers
its relations with its employees to be good.
ITEM 2
PROPERTIES
In December 1986, the Company entered into a fifteen and one-half year
lease agreement relating to premises at 625 Avenue of the Americas, New York,
New York, which premises became the offices of the Company on May 7, 1987.
During 1992, the lease was extended an additional three years. The annual rental
payment in 1997 was $864,000 and is subject to scheduled fluctuations in
succeeding periods. For financial statement reporting purposes, rent has been
recorded on a straight line basis. Accordingly, scheduled payments on this lease
through December 31, 1997 exceeded rent recorded through December 31, 1997 by
$44,000. As of December 31, 1996 rent recorded on this lease exceeded scheduled
payments by $126,000. (See Note 3 of Notes to Consolidated Financial
Statements.) The lease agreement covers approximately 32,000 square feet of
space.
In August 1994, the Company entered into a five year lease agreement
relating to premises at 641 Avenue of the Americas, New York, New York, which
premises became the offices of the Company's wholly-owned subsidiary, FIND/SVP
Published Products, Inc., on September 1, 1994. The rental payments in 1997
totaled $267,000. This lease agreement covers approximately 20,000 square feet
of space, of which 10,000 square feet was
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occupied in September 1994 and the additional 10,000 square feet was occupied in
April 1995. In March 1995, the Company executed a separate ten year lease
covering an additional 20,000 square feet of space at 641 Avenue of the
Americas, which was occupied in August 1995 by the Strategic Consulting and
Research Division. The rental payments in 1997 totaled $436,000, and is subject
to scheduled increases in succeeding periods. For financial statement reporting
purposes, rent has been recorded on a straight line basis. Accordingly, rent
recorded through December 31, 1997 and 1996 on these leases exceeded scheduled
payments by $156,000 and $71,000, respectively. (See Note 3 of Notes to
Consolidated Financial Statements.) In connection with the execution of the
March 1995 lease, the August 1994 lease was extended to a ten year term.
In conjunction with the closing of FIND/SVP Internet Services, Inc., the
Company is currently negotiating with its landlord for its release from its
obligation for 10,000 square feet originally occupied in April 1995 of the
office space at 641 Avenue of the Americas, noted above. The Company believes
that if it is granted a release, it would be at no cost to the Company. Further,
the Company intends to sublease the space if it is not granted a release, and it
expects this can be done at terms similar to its existing lease. The outcome of
these discussions should occur early in the second quarter of 1998. As of
December 31, 1997 the Company has accrued $41,000 for rent expense on this space
through March 31, 1998 in connection with the closing of FIND/SVP Internet
Services, Inc. Additionally, the Company has begun discussions with the landlord
regarding an additional 10,000 square feet of space, noted above, at 641 Avenue
of the Americas originally occupied in September 1994, pending the sale of
assets in its FIND/SVP Published Products, Inc. subsidiary. The Company believes
a similar outcome will occur in regards to this 10,000 square feet as occurs in
regards to the previously mentioned discussions. Any rent expense incurred
during the negotiating period will be expensed when incurred. The Company will
continue to maintain the 20,000 square feet of space at 641 Avenue of the
Americas, occupied in August 1995, noted above.
ITEM 3
LEGAL PROCEEDINGS
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
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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
Section 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. In return, the
Company, through proceeds from its insurance company, paid Asset Value legal
fees and disbursements in the amount of $110,000 and together with SVP, S.A.
bought Asset Value's 900,000 shares of stock in the Company at a price of $1.25
per share on February 20, 1998. As such, there will be no financial statement
impact from this transaction. (The Company bought 274,400 of those shares, and
SVP, S.A. bought 625,600 of those shares.) 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).
13
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders
during the quarter ended December 31, 1997.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock, par value $.0001 per share, of the Company ("Common
Stock") is traded on the over-the-counter market with quotations reported on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
under the symbol "FSVP". The following table sets forth the high and low closing
trade prices for the Common Stock for the periods indicated.
PRICE RANGE HIGH LOW
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
1996
COMMON STOCK
1st Quarter 2 3/8 1 13/16
2nd Quarter 3 1/16 2 1/8
3rd Quarter 3 1/4 2
4th Quarter 2 1/4 1 13/16
On December 31, 1997, there were approximately 994 holders of record of the
Common Stock. Such numbers do not include shares held in "street name."
On February 27, 1998, the Company received notification from the NASDAQ
Stock Market, Inc. ("NASDAQ") that the Company is not in compliance with the new
minimum bid price requirement which became effective on February 23, 1998. In
order to regain compliance with this standard the Company's common shares must
have a closing bid price at or above the minimum for at least ten consecutive
trading days by no later than May 28, 1998. The standard requires a minimum
closing bid price of $1.00 per share. If compliance is not met, NASDAQ will
issue a delisting letter which will identify the review procedures. The Company
may request review at that time, which will generally stay delisting. As of
March 30, 1998, the Company has not met such requirement.
14
As of December 31, 1997, the Company is not in compliance with the NASDAQ
net tangible asset requirement. Per discussions with NASDAQ, the Company is
including a pro-forma net tangible asset statement including the $1,000,000
capital contribution from SVP, S.A. received in 1998. NASDAQ has informed the
Company that since this statement shows pro-forma net tangible assets which are
in compliance with the NASDAQ requirement, it will consider the Company to be in
compliance.
Pro-Forma Net Tangible Assets
Total assets at December 31,
1997 $12,481,000
Less: Goodwill, net (117,000)
Less: Liabilities (11,263,000)
-----------
1,101,000
Capital received from SVP,
S.A. during first quarter
of 1998 1,000,000
------------
Pro-Forma Net Tangible Assets $2,101,000
============
The National Association of Securities Dealers, Inc. (the NASD), which
administers NASDAQ recently made changes in the criteria for continued NASDAQ
eligibility. 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
(the "Commission") that, if the Company fails to meet criteria set forth in such
rule, imposes various practice requirements on broker-dealers who sell
securities governed by the Rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
securities, which may affect the ability of purchasers in the offering 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.
RECENT FINANCING
In connection with the sale of notes and warrants to SVP, S.A. in
August 1997, as described in Item 7, the Company relied on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, and utilized
the net proceeds of the financing for working capital purposes.
15
ITEM 6
SELECTED FINANCIAL DATA
The following financial data set forth below is derived from the
consolidated financial statements of the Company.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(Amounts in thousands)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues $32,027 $30,525 $28,606 $24,357 $20,257
Operating (Loss) Income (3,136) (824) 1,050 1,144 726
Cumulative effect of
change in Accounting for
income taxes - - - - 157
Net (Loss) Income (2,852) (719) 476 673 726
(Loss) Earnings per Common
and Common Stock Equivalent Share
(Loss) Income before
cumulative effect of
change in accounting
Basic (.43) (.11) .08 .11 .09
Diluted (.43) (.11) .07 .10 .09
Cumulative effect of
change in accounting for
income taxes
Basic - - - - .03
Diluted - - - - .02
Net (Loss) Income Per
Common and Common Stock
Equivalent Share
Basic (.43) (.11) .08 .11 .12
Diluted (.43) (.11) .07 .10 .11
Weighted Average Number
of Common and Common Stock
Equivalent Shares
Outstanding
Basic 6,593 6,434 6,217 6,198 6,175
Diluted 6,593 6,434 6,672 6,660 6,537
Cash Dividends Declared
Per Common Share - - - - -
BALANCE SHEET DATA
DECEMBER 31,
(Amounts in thousands)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Working Capital $1,016 $3,930 $3,854 $2,796 $2,713
Total Assets 12,481 12,946 11,445 9,705 7,050
Long-Term indebtedness
excluding amounts
currently payable 3,801 3,826 2,896 1,191 207
Shareholders' Equity 1,218 4,059 4,659 4,160 3,495
16
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The growth strategy implemented by the Company during the fourth
quarter of 1996 when the Company closed a $2.5 million financing arrangement
(12% subordinated notes, and warrants to purchase common stock, of the Company)
has resulted in a significant increase in operating expenses during 1997.
However, revenues, which grew by 4.9% to $32,027,000 for 1997, were
significantly below expectation for the year. The Company reported in its
Quarterly Report on Form 10-Q for the three months ended September 30, 1997,
that it began slowing the growth of operating expenses, and reported a decline
in its direct costs as a percentage of revenues to 56.7% for the third quarter
of 1997 compared to 58.2% for the first six months of 1997. The trend remained
steady during the fourth quarter of 1997 as direct costs were 56.7% of fourth
quarter 1997 revenues. Additionally, during the fourth quarter of 1997, selling,
general and administrative expenses were reduced to 44.9% of revenues, compared
to 47.7% of revenues for the first nine months of 1997.
During the fourth quarter of 1997, the Company decided to abandon the
growth strategy implemented during the fourth quarter of 1996 and to re-focus
its efforts on its core competencies. The Company's remaining services will come
from the Quick Consulting and Research Service ("QCS") and the Strategic
Consulting and Research Division ("SRD"), its research-for-hire businesses. As
such, during the fourth quarter of 1997 the Company sold virtually all the
assets of its Emerging Technologies Research Group ("ETRG"), and retained an
investment banking firm to effectuate the sale of virtually all the remaining
assets of its Published Research Division. During the fourth quarter of 1997,
the Company recognized a loss on the sale of the ETRG assets of $28,000 and
recorded an impairment loss of $1,047,000 on the remaining assets of the
Published Research Division held for sale. The Company anticipates the sale to
occur during the second quarter of 1998, but there can be no assurances in this
regard. The revenues from Published Research accounted 19%, 20% and 21% of the
Company's total revenues during 1997, 1996 and 1995, respectively. As such,
overall revenues for 1998 are expected to decline versus 1997.
Additionally, the Company ceased operation of its FIND/SVP Internet
Services, Inc. subsidiary as of December 31, 1997. The original intention of
this subsidiary was to provide services to the consumer oriented market via the
Internet. The Company decided not to make any additional investments in this
service. Accordingly, the Company has written down the assets in this subsidiary
by $408,000, to zero. Additionally, the Company has accrued $35,000 of severance
cost, all of which will be paid by March 31, 1998, $16,000 of shut-down costs to
be paid in the first quarter of 1998 and rent expense of $41,000 to cover rents
payable in the first quarter of 1998 while the Company negotiates the
17
release of its obligations with the landlord. If any additional rents are
incurred, they will be expensed in 1998.
On January 15, 1998, the Company entered into an agreement with SVP, S.A.
("SVP") pursuant to which SVP purchased $1,000,000 of the common stock, par
value $.0001 per share, of the Company ("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. The Note converted
into 200,000 shares on February 20, 1998 when those shares became available to
issue in connection with the Company's litigation settlement. See Item 3, Legal
Proceedings.
With this transaction, coupled with additional shares purchased by SVP in
conjunction with the settlement of a lawsuit (See Item 3, Legal Proceedings),
SVP and its affiliates currently own approximately 37% of the then outstanding
shares in the Company, excluding outstanding warrants. This ownership percentage
has triggered clauses in the employment contract of the President of the Company
and in the severance agreements for two executive officers which would allow
them to resign due to a defined change in control and receive severance in
accordance with their respective agreements. In consideration of SVP providing
two $1,000,000 letters of credit, in March 1998, to secure the Company's debt
agreements with a commercial bank, on March 29, 1998, the President waived his
rights related to the change of control provision in his contract, only as it
relates to the holdings of SVP, S.A. and its affiliates, in the Company. To date
the two executive officers have not expressed intent on exercising such clause
in their respective agreements. If the two executive officers were to tender
their resignation based on this event, the liability would be approximately
$340,000, payable over a one year period, plus the vesting of 77,000 currently
non-exercisable options.
During 1997, the Company had net borrowings of $1,249,000 under its
Commercial Revolving Promissory Notes (the "Note") with State Street Bank and
Trust Company (the "Bank"). The original note with the Bank was scheduled to
expire in April 1997, but was extended in April and October 1997. The Company
signed an additional $1,000,000 line of credit with the Bank in October 1997
secured by SVP, S.A. The second extension of the Note included terms which
expired on December 31, 1997, but which would be automatically renewed through
March 26, 1998, if the Company received a capital contribution of no less than
$1,000,000. The Company had a letter of intent as of December 31, 1997 for the
required capital contribution. The capital was received during the first quarter
of 1998 and the extension was granted through March 26, 1998.
On March 30, 1998, the Company signed a term sheet with the Bank to extend
the terms of the Note until March 25, 1999. The amount available under the Note
will be reduced to $1,000,000, less outstanding letters of credit, which were
$148,000 as of March 30, 1998. On March 27, 1998, SVP provided credit support
for the Note in the form of a $1,000,000 letter of credit. Additionally, SVP
provided a second letter of credit to secure the two five-year term notes. The
dollar amount of the second letter of credit will at all times equal the lesser
of (a) the aggregate principal amount of the term loans or (b) $1,000,000. The
interest rate on the Note will be the Bank's prime rate plus one-quarter of one
percent (currently 8.75%).
18
Based on the financial circumstances of the Company, and the decision to
sell or shut down various product lines and services, as of December 31, 1997
the Company reduced its general and administrative staffing. Accordingly, a
restructuring charge of $155,000 was recorded at December 31, 1997.
On March 27, 1998, the Company implemented a cost cutting plan which
includes the reduction of approximately 20 full-time positions in its core
businesses. As such, the Company expects to record a charge for severance and
related costs of approximately $325,000 during the quarter ended March 31, 1998.
The Company believes this action, coupled with the reduction in general and
administrative staff at the end of 1997 and significant cost reductions in non
full-time labor during the second half of 1997, will significantly improve its
ability to return to profitability in 1998, but there can be no assurances in
this regard.
REVENUES
The Company's revenues increased by $1,502,000 or 4.9% to $32,027,000 in
1997 and by $1,919,000 or 6.7% to $30,525,000 in 1996 from $28,606,000 in 1995.
The increase in 1997 was due to revenue increases in the Company's Quick
Consulting and Research Service area and the Strategic Consulting and Research
area, partially offset by a decline in Published Research revenues. The increase
in 1996 was due to revenue increases in all facets of the Company.
The Company's Quick Consulting and Research Service revenues grew by
$798,000 or 4.1% to $20,516,000 in 1997 and by $1,086,000 or 5.8% to $19,718,000
in 1996. The increases in 1997 and 1996 were due to an increase in the average
retainer fee paid per client, due primarily to an increase in fees.
Revenues in the Strategic Consulting and Research area of the Company
increased $993,000 or 22.3% to $5,443,000 in 1997 and $496,000 or 12.5% to
$4,450,000 in 1996. The increases were due primarily to an increase in the
number of assignments and their average size, resulting from improved marketing.
The increase in 1997 versus 1996 as a percentage of revenue was stronger than
that of 1996 versus 1995 as this unit experienced weakness during the third
quarter of 1996 which reduced the overall increase compared to 1995. The
Customer Satisfaction and Loyalty Division accounted for 15.7%, 17.8% and 18.5%
of the Strategic Consulting and Research area's revenue for 1997, 1996 and 1995,
respectively.
Revenues of Published Research decreased $210,000 or 3.5% to $5,839,000 in
1997 and increased $872,000 or 16.8% to $6,049,000 in 1996. The decrease in 1997
was primarily due to lower revenues from the Emerging Technologies Research
Group 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 increase in 1996 was due primarily to increased
sales of published studies both in print and electronic format and the sales of
the Emerging Technologies Research Group's multi-client studies and the
Continuous Advisory Service (which began in June 1996).
19
The Company operates a small newsletter publishing operation. However the
newsletters that are produced generated less than 1% of the Company's revenues
in 1997, 1996 and 1995.
DIRECT COSTS
Direct costs increased by $1,053,000 or 6.1% to $18,402,000 in 1997 and by
$1,684,000 or 10.8% to $17,349,000 in 1996 from $15,665,000 in 1995. Direct
costs represented 57.5%, 56.8% and 54.8% of revenues, respectively, in those
years. The increase in total direct costs is due to new service offerings, such
as the Continuous Advisory Service in the Emerging Technologies Research Group,
a part of Published Research, which began in June 1996, and the planned
expansion of current services. The changes in the percentage of revenue is due
mainly to the timing of costs related to the expansion of services versus the
timing of the incremental revenue. Virtually all of the assets of the Emerging
Technologies Research Group were sold during the fourth quarter of 1997. During
the fourth quarter of 1997, direct costs were $4,592,000 or 56.7% of the fourth
quarter 1997 revenues. This compares to 1996 fourth quarter direct costs of
4,661,000 or 62.6% of fourth quarter 1996 revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $1,861,000 or
14.1% to $15,059,000 or 47.0% of revenues in 1997 and by $1,307,000 or 11.0% to
$13,198,000 or 43.2% of revenues in 1996 from $11,891,000 or 41.6% of revenues
in 1995. The increase in expenses in the selling, general and administrative
areas is 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. During the fourth quarter of
1997, the Company began slowing down the rate of growth in these areas. As such,
as a percentage of revenues in the fourth quarter of 1997, selling, general and
administrative expenses were 44.9% of fourth quarter revenues versus 47.7%
through the first nine months of 1997.
Additionally, on December 31, 1997, the Company reduced its general and
administrative staff, and accordingly, the Company recorded a severance charge
of $155,000 in the fourth quarter of 1997.
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 $170,000 in 1997 for the main premises. The Company's
lease for additional premises includes scheduled rent increases over the 10-year
lease term. FASB No. 13 requires that rent expense be recognized on a
straight-line basis. As a result, rent expense exceeded rent payable by
20
$85,000 in 1997 for the additional premises. In 1997, 1996 and 1995, total
accrued rent payable decreased by $85,000, $71,000 and $182,000, respectively.
See Note 3 of Notes to Consolidated Financial Statements.
IMPAIRMENT LOSS
Due to continued weakness in the Published Research Division, 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, and, accordingly has retained the services of an investment banking
firm to effectuate the sale. As a result, the Company has 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 has presented the assets
held for sale as a separate line item in its December 31, 1997 consolidated
balance sheet. Discussions with potential buyers are in the early stages, and,
accordingly, the Company will review its estimated net realizable values as
additional information becomes available.
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.
SALE OF ETRG ASSETS AND ASSET DISPOSAL
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% and has retained a security interest in the ETRG database. A
principal payment of $31,250 plus accrued interest is due on May 4, 1998.
Commencing on August 4, 1998, and on the fourth day of each November, February,
May and August thereafter, quarterly principal payments of $15,625 plus accrued
interest is due. The final payment is due November 4, 1999. As a result of this
transaction, the Company will no longer operate its multi-client study business,
its Continuous Advisory Service and its Interactive Consumer Newsletter. The
Company has retained the rights to its 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 operations of its
FIND/SVP Internet Services, Inc. subsidiary. Accordingly, the Company has
written down the assets in this subsidiary by $408,000, to zero. Additionally,
the Company has accrued $35,000 of severance cost, all of which will be paid by
March 31, 1998; $16,000 of shut-down costs to be paid in the first quarter of
1998; and, rent expense of $41,000 to cover rents payable in the first quarter
of 1998 while the Company negotiates the release of its obligations with the
landlord. If any additional rents are incurred, they will be expensed in 1998.
21
RESTRUCTURING CHARGE
In conjunction with the Company's decision to re-focus its efforts on
its core competencies, the Company reduced its general and administrative staff
on December 31, 1997. Accordingly, the Company recorded a $155,000 restructuring
charge during the fourth quarter of 1997, all of which will be paid in 1998.
Due to lower than expected revenues and profits in the Published
Research Division 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 charge included a writedown of certain Published Research products
and deferred charges 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
$47,000 and $122,000 in severance and retirement payments has been included in
accrued expenses as of December 31, 1997 and 1996.
OPERATING (LOSS) INCOME
The Company's operating losses were $3,136,000 in 1997 and $824,000 in
1996 as compared to operating income of $1,050,000 in 1995. The operating loss
in 1997 was primarily due to increased operating expenses during 1997 without
the commensurate level of increased revenues resulting in a loss from operations
of $1,434,000, coupled with the recording of an impairment loss on assets held
for sale of $1,047,000, a charge of $500,000 for an asset disposal and
restructuring charges of $155,000. 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 1997, the Company earned $13,000 in interest income, which
decreased from $19,000 in 1996 and $49,000 in 1995. The decrease was a result of
a lower level of cash invested.
Interest expense in 1997 was $597,000, which was an increase from
$320,000 in 1996 and $255,000 in 1995. The increase in interest expense for 1997
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. The increase in interest expense in 1996 was primarily due to
additional bank borrowings during the second quarter of 1996 for equipment,
additional borrowings under the Company's revolving credit line during the first
ten months of 1996 and the issuance of subordinated notes during the fourth
quarter of 1996.
22
In 1996, the Company recorded a loss on sale of marketable investment
securities of $8,000, resulting from the sale of certain securities classified
as available for sale for $168,000. The Company also recorded a loss on sale of
assets of $73,000 resulting from the sale of certain assets.
In 1995, the Company recorded a gain on sale of marketable investment
securities of $10,000, resulting from the sale of certain securities classified
as available for sale for $209,000.
INCOME TAXES
The provision for income taxes consists of federal, state and local
income taxes. The $896,000 tax benefit recognized for 1997 represents 24% 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, a net deferred
tax benefit for temporary items, partially offset by a valuation allowance and
expired tax credits. Based on the Company's history of prior operating earnings
relating to its research-for-hire businesses, management has determined that a
valuation allowance of $519,000 is necessary due to the uncertainty of future
earnings to realize the entire net deferred tax asset.
The $487,000 tax benefit recognized for 1996 represents 40% of the
1996 loss before benefit for income taxes. The 1996 benefit represents a net
operating loss carryback for federal purposes, a deferred tax benefit from a net
operating loss carryforward for state and local taxes, and a net deferred tax
benefit for temporary items, partially offset by a prior period under accrual.
The effective tax rate was 44% in 1995.
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 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.
23
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 goodwill of $430,000, an
increase in security deposits of $7,000, 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.
In 1995, there was a negative cash flow from operating activities of
$504,000. Positive cash flow resulted from net income of $476,000 adjusted for
depreciation and amortization of $865,000, a $179,000 provision for losses on
accounts receivable, an increase in accounts payable and accrued expenses of
$71,000, an increase in unearned income of $35,000, an increase in deferred
compensation of $21,000, a decrease in security deposits of $1,000, amortization
of deferred financing fees of $7,000, an increase in accrued interest of $24,000
and a write-down of investment in joint venture of $1,000. These items were more
than offset by a $479,000 increase in accounts receivable, a $488,000 increase
in prepaid expenses, deferred charges and goodwill, a $716,000 increase in
inventory, a $216,000 decrease in taxes payable, a $182,000 decrease in accrued
rent, a $10,000 gain on the sale of marketable investment securities, a $54,000
increase in cash surrender value of life insurance, a $33,000 increase in
deferred income taxes and a $6,000 increase in prepaid and refundable income
taxes.
Capital expenditures were $1,939,000, $1,509,000, and $1,246,000 in
1997, 1996 and 1995, respectively, and consisted principally of migration of the
Company's 10 year old management information systems from a Wang VS 65 to a
Windows NT based system, computer equipment to improve the consultants' ability
to communicate with clients, access the Internet and integrate the Company's
products, as well as to expand the Company's enterprise network.
In 1997 the Company received $50,000 for the repayment of a note
receivable.
On March 30, 1998 the Company signed a term sheet with State Street
Bank and Trust (the "Bank") to extend, until March 25, 1999, the terms of the
existing Commercial Revolving Promissory Note (the "Note") dated April 27, 1995.
The amount available under the Note will be reduced to $1,000,000, less
outstanding letters of credit, which were $148,000 as of March 30, 1998. On
March 27, 1998, SVP provided credit support for the Note in the form of a
$1,000,000 letter of credit. Additionally, SVP provided a second letter of
credit to secure the two five-year term notes. The dollar amount of the second
letter of credit will at all times equal the lesser of (a) the aggregate
principal amount of the term loans or (b) $1,000,000. The interest rate on the
Note will be the Bank's prime rate plus one-quarter of one percent (currently
8.75%). The Company must
24
continue to retain the services of an outside management consultant, originally
retained in October 1997, through September 30, 1998.
On January 15, 1998, the Company signed an amendment to the Note with
the Bank. This amendment was in accordance with terms agreed to in an October,
1997 amendment which modified the terms of the existing Note. The Bank had
extended the terms of the Note from September 30, 1997 to December 31, 1997 and
amended the financial convenants and certain terms of the Note. The interest
rate, as amended, is one and one-half percent above the Bank's prime rate. The
agreement included an automatic extension of the term of the Note to March 26,
1998 provided the Company is in compliance with the terms and conditions of the
agreement and either the Company has entered into an agreement with a third
party to sell assets in an amount sufficient to pay off the outstanding term
loans or the Company has received a capital contribution of no less than
$1,000,000. The Company received a $1,000,000 capital contribution from SVP
during the first quarter of 1998. The Bank required the Company to hire an
outside management consulting firm during October 1997 to assist the Company in
formulating its 1998 management plan. The plan was approved by the Board of
Directors on December 9, 1997, and the Board required the Company to retain the
services of this firm to assist the management of the Company with the
implementation of the 1998 plan.
Additionally, in October 1997 the Company signed a Commercial
Revolving Promissory Note for up to an additional $1,000,000 with the Bank. The
terms are similar to those of the amended $2,500,000 Note dated July 24, 1997
(see below). The $1,000,000 facility is secured by a standby letter of credit
provided by SVP. This facility was renewed on January 15, 1998. The $1,000,000
standby letter of credit remained in place.
On July 24, 1997, the Company signed an amendment to the Note with the
Bank increasing the available credit to $2,500,000 from $2,000,000. The $500,000
additional credit was secured by the anticipated tax refund related to the
Company's 1996 loss. During the fourth quarter of 1997, the Company received the
refund and the available credit was reduced accordingly.
The Company's Revolving and Term Promissory Notes with the Bank are
secured by all of the assets of the Company. As of December 31, 1997, there was
$1,350,000 outstanding on the term loans and $1,249,000 outstanding under the
revolving credit agreements. The revolving credit agreement is used to secure
certain long-term letters of credit in the amount of $148,000. As such, as of
December 31, 1997, the availability under the revolving credit agreements was
$1,603,000.
On October 31, 1996, the Company and its subsidiaries entered into a
Note and Warrant Purchase Agreement (the "Agreement") with Furman Selz SBIC,
L.P. ("Furman Selz"). Pursuant to the Agreement, Furman Selz purchased from the
Company and its subsidiaries, for an aggregate consideration of $2,025,000,
five-year promissory notes ("Notes") in the principal amount of $2,025,000, and
ten-year warrants ("Warrants") to purchase 900,000 shares of the Company's
common stock, at $2.25 per share.
The Agreement also provided that the Company and its subsidiaries may
enter into an agreement on similar terms with SVP, S.A. or affiliates thereof
("SVP"), pursuant to which SVP may purchase Notes from the
25
Company and its subsidiaries up to the principal amount of $475,000, and
Warrants to purchase up to 211,111 shares of Common Stock at $2.25 per share. On
November 30, 1996, the Company and SVP entered into such a Note and Warrant
Agreement as described above, for an aggregate consideration of $475,000.
The Notes accrue interest at an annual rate of 12% on the unpaid principal
balance. Accrued but unpaid interest is due and payable on November 30, 1997,
November 30, 1998 and on May 30 and November 30 of each year thereafter,
commencing on May 30, 1999, except that final payment of interest shall be due
and payable on October 31, 2001, and one-half of the interest due and payable on
November 30, 1997 shall be deferred and payable on November 30, 2000 and
one-half of the interest due and payable on November 30, 1998, May 30, 1999 and
November 30, 1999 shall be deferred and payable on October 31, 2001. Any
interest deferred shall compound and accrue interest at the rate of the Notes
until paid.
The Agreement further provided that Furman Selz and SVP, at their option,
can purchase up to the amount of their respective initial investments, up to an
additional $2,500,000 in Notes and Warrants on the same terms and conditions as
the first $2,500,000, at any time before December 31, 1997. On August 25, 1997,
SVP purchased 475,000 units, consisting of $475,000 principal amount of Option
Notes and Option Warrants to purchase 211,111 shares of Common Stock at $2.25
per share. SVP, at December 31, 1997, were beneficial owners of 1,649,485 shares
of Common Stock, including shares issuable under outstanding Warrants, or
approximately 23.6% of the outstanding shares if the Warrants are exercised.
During the first quarter of 1998, SVP increased its ownership in the Company to
approximately 37% of the then outstanding shares, excluding outstanding
warrants.
On September 19, 1996, the Company signed a thirty-day Commercial Revolving
Promissory Note with the Bank for $500,000 at .25 percentage points above the
prime rate. The Note expired on October 18, 1996 and was accordingly paid in
full and cancelled on that date. The Note was in addition to the $2,000,000
Commercial Revolving Promissory Note with State Street Bank signed on April 27,
1995.
On May 31, 1996, the Company signed a Commercial Term Loan and Security
Agreement with the Bank for $500,000. The Term Loan is for a period of five
years at .75 percentage points above the prime rate and requires quarterly
principal payments of $25,000. As of December 31, 1997, the balance outstanding
was $350,000.
On April 27, 1995, in conjunction with a refinancing of the Company's prior
banking arrangements, the Company signed a Commercial Revolving Loan, Term Loan
and Security Agreement with State Street Bank and Trust Company for a $2,000,000
Commercial Revolving Promissory Note and a $2,000,000 Commercial Term Promissory
Note. The Commercial Revolving Promissory Note is for a period of two years at
.25 percentage points above the prime rate, and the Commercial Term Note is for
a period of five years at an interest rate of 8.86% per annum. The Revolving and
Term Promissory Notes are secured by all of the assets of the Company. The
principal payment schedule for the Term Promissory Note is $100,000 per quarter.
As of December 31, 1997, the balance outstanding was $1,000,000. Additionally,
there was $1,249,000 outstanding under the $2,000,000 revolving credit agreement
with State Street Bank at December 31, 1997.
26
During the fourth quarter of 1997, the Company recorded an impairment loss
on assets held for sale of $1,047,000. None of this charge required a cash
outlay.
During the fourth quarter of 1997, the Company ceased operations of its
FIND/SVP Internet Services, Inc. subsidiary and recorded a charge for the asset
disposal of $500,000, which will include $92,000 of cash expenditures in 1998.
The Company recorded a restructuring charge of $155,000 in the fourth
quarter of 1997, requiring cash expenditures of $155,000 in 1998.
During 1997, the Company issued 25,000 shares of common stock with a value
of $37,000 to a third party for services rendered.
In connection with the Company's sale of ETRG's assets during 1997, the
Company received a $125,000 two-year note.
The Company recorded an $802,000 restructuring charge to operations in the
third quarter of 1996, which included $70,000 of cash expenditures in 1996 and
future cash expenditures of $122,000.
During 1996, the Company issued 21,940 shares of common stock with a value
of $40,000 to a third party for services rendered.
The Company's working capital was $1,016,000 at December 31, 1997, as
compared to $3,930,000 at December 31, 1996. Cash balances were $139,000 and
$634,000 on December 31, 1997 and 1996, respectively.
The Company expects to spend approximately $750,000 for capital items in
1998, the major portion of which will be to complete the migration of the
Company's proprietary management information system to its new platform.
The Company believes that cash flow from operations and borrowings under
the line of credit, along with the potential proceeds from the sale of assets
held for sale at December 31, 1997, 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.
The Company had non-cash financing activities relating to the cashless
exercise of stock options. In the 12-month period ended December 31, 1997, 8,000
options were exercised at $0.63, in exchange for 2,000 shares of common stock of
the Company 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.
In the 12-month period ended December 31, 1996, 275,686 options were
exercised at prices ranging from $0.275 to $2.1875, in exchange for 51,041
shares of common stock of the Company 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.
27
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 Company has initiated a comprehensive review of all computer
systems to determine any Year 2000 ("Y2K") issues. Included in the review are
all operating systems, application systems and computer BIOS. All application
programs in place are packages from software vendors. The Company is utilizing
in house staff familiar with the operating systems and application systems to
complete the review. Application vendors have been contacted to determine the
readiness of their packages for Y2K. The Company presently believes that, with
modifications to existing software and converting to new software, the Y2K
problem should not pose significant operational problems for the Company's
computer systems as so modified and converted.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Form
10-K that are not related to historical results, are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events, which may not prove to be accurate.
These forward looking statements involve risks and uncertainties, including but
not limited to the Company's dependence on regulatory approvals, its future cash
flows, sales, gross margins and operating costs, the effect of conditions in the
industry and the economy in general, and legal proceedings. Subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by cautionary
statements in this paragraph and elsewhere in this Form 10-K, and in other
reports filed by the Company with the Securities and Exchange Commission.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedule of the Company are
set forth on pages F-1 through F-32 of this report.
28
FIND/SVP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 F-3
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Schedule:
Schedule II - Valuation and Qualifying Accounts F-32
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
FIND/SVP, Inc.:
We have audited the consolidated financial statements of FIND/SVP, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FIND/SVP, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/S/ KPMG PEAT MARWICK LLP
New York, New York
March 30, 1998
F-2
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
---- ----
Current assets:
Cash $ 139,000 $ 634,000
Accounts receivable, less allowance for doubtful accounts of
$118,000 in 1997 and $103,000 in 1996 3,394,000 2,837,000
Note receivable (note 13) 62,000 50,000
Inventories - 2,281,000
Prepaid and refundable income taxes (note 7) 299,000 549,000
Deferred tax assets (note 7) 286,000 99,000
Prepaid expenses and other current assets 328,000 495,000
Assets held for sale (note 12) 1,558,000 -
---------- -----------
Total current assets 6,066,000 6,945,000
Equipment and leasehold improvements, at cost, less
accumulated depreciation and amortization (note 2) 4,546,000 3,935,000
Other assets:
Deferred charges 245,000 900,000
Goodwill, net 117,000 276,000
Note receivable (note 13) 63,000 -
Cash surrender value of life insurance 479,000 424,000
Deferred tax assets (note 7) 681,000 200,000
Deferred financing fees, net 141,000 123,000
Security deposits 143,000 143,000
----------- -----------
$12,481,000 12,946,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current installments (note 4) 1,749,000 516,000
Trade accounts payable 1,305,000 1,082,000
Accrued expenses (notes 10, 13 and 14) 1,872,000 1,381,000
Accrued interest, current installments (note 4) 124,000 36,000
----------- -----------
Total current liabilities 5,050,000 3,015,000
----------- -----------
Unearned retainer income 2,023,000 1,675,000
Notes payable, net, excluding current installments (note 4) 3,801,000 3,826,000
Accrued interest, excluding current installments (note 4) 104,000 22,000
Accrued rent payable (note 3) 112,000 197,000
Deferred compensation (note 8(b)) 173,000 152,000
Shareholders' equity (note 5):
Preferred stock, $.0001 par value. Authorized 2,000,000 shares;
none issued and outstanding - -
Common stock, $.0001 par value. Authorized 10,000,000 shares;
issued and outstanding 6,575,669 shares in 1997;
issued and outstanding 6,548,184 shares in 1996 1,000 1,000
Capital in excess of par value 3,872,000 3,861,000
Accumulated (deficit) earnings (2,655,000) 197,000
------------ -----------
Total shareholders' equity 1,218,000 4,059,000
------------ -----------
Commitments and contingencies (notes 3 through 8, 11, 15 and 16)
$12,481,000 $12,946,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenues $32,027,000 $30,525,000 $28,606,000
----------- ----------- -----------
Operating expenses:
Direct costs 18,402,000 17,349,000 15,665,000
Selling, general and administrative
expenses (notes 3, 6 and 8) 15,059,000 13,198,000 11,891,000
Impairment loss (note 12) 1,047,000 - -
Asset disposal (note 13) 500,000 - -
Restructuring charge (note 14) 155,000 802,000 -
------------ ----------- -----------
Operating (loss) income (3,136,000) (824,000) 1,050,000
Interest income 13,000 19,000 49,000
Loss on sale of net assets (note 13) (28,000) (73,000) -
(Loss) gain on sale of marketable investment
securities - (8,000) 10,000
Interest expense (note 4) (597,000) (320,000) (255,000)
------------ ------------ ----------
(Loss) income before (benefit)
provision for income taxes (3,748,000) (1,206,000) 854,000
(Benefit) provision for income taxes (note 7) (896,000) (487,000) 378,000
------------ ----------- ----------
Net (loss) income $(2,852,000) (719,000) 476,000
============ =========== ==========
(Loss) earnings per common and common stock equivalent share:
Basic $ (.43) (.11) .08
===== ===== ===
Diluted (.43) (.11) .07
===== ===== ===
Weighted average number of common and common stock
equivalent shares outstanding:
Basic 6,592,773 6,433,966 6,216,756
========= ========= =========
Diluted 6,592,773 6,433,966 6,672,480
========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
PREFERRED STOCK COMMON STOCK CAPITAL IN
-------------------- --------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------ ------ ------ ------ ---------
Balance at December 31, 1994 - $ - 6,204,648 $ 1,000 3,748,000
Net income - - - - -
Purchase of treasury stock - - - - -
Exercise of stock options and warrants - - 21,200 - 24,000
Retirement of common stock - - (15,000) - (30,000)
Change in market value of available-
for-sale securities (net of tax
effect of $14,000) - - - - -
Investment in joint venture - - - - 1,000
---------- ------- ------------- ------- ------------
Balance at December 31, 1995 - - 6,210,848 1,000 3,743,000
---------- ------- ------------- ------- ------------
Net loss - - - - -
Exercise of stock options and warrants - - 315,396 - 53,000
Common stock issued for services - - 21,940 - 40,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 25,000
Change in market value of available-
for-sale securities (net of tax effect of $0) - - - - -
---------- ------- ------------- ------- ------------
Balance at December 31, 1996 - - 6,548,184 1,000 3,861,000
---------- ------- ------------- ------- ------------
Net loss - - - - -
Purchase of treasury stock - - - - -
Exercise of stock options and warrants - - 74,985 - 57,000
Retirement of treasury shares - - (72,500) - (88,000)
Common stock issued for services - - 25,000 - 37,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 5,000
---------- ------- ------------- ------- ------------
Balance at December 31, 1997 - $ - 6,575,669 $ 1,000 3,872,000
========== ========= ============= ======= ============
ACCUMULATED TREASURY STOCK GAINS (LOSSES) TOTAL
EARNINGS ----------------------- ON MARKETABLE SHAREHOLDERS'
(DEFICIT) SHARES AMOUNT EQUITY SECURITIES EQUITY
--------- ------ ------ ----------------- ------
Balance at December 31, 1994 440,000 - $ - (29,000) 4,160,000
Net income 476,000 - - - 476,000
Purchase of treasury stock - 15,000 (30,000) - (30,000)
Exercise of stock options and warrants - - - - 24,000
Retirement of common stock - (15,000) 30,000 - -
Change in market value of available-
for-sale securities (net of tax
effect of $14,000) - - - 28,000 28,000
Investment in joint venture - - - - 1,000
---------- ---------- ----------- ---------- ------------
Balance at December 31, 1995 916,000 - - (1,000) 4,659,000
---------- ---------- ----------- ------------ ------------
Net loss (719,000) - - - (719,000)
Exercise of stock options and warrants - - - - 53,000
Common stock issued for services - - - - 40,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 25,000
Change in market value of available-
for-sale securities (net of tax effect of $0) - - - 1,000 1,000
---------- ---------- ----------- ---------- ------------
Balance at December 31, 1996 197,000 - - - 4,059,000
---------- ---------- ----------- ---------- ------------
Net loss (2,852,000) - - - (2,852,000)
Purchase of treasury stock 72,500 (88,000) - (88,000)
Exercise of stock options and warrants - - - - 57,000
Retirement of treasury shares - (72,500) 88,000 - -
Common stock issued for services - - - - 37,000
Sale of warrants in connection with
Series A Senior Subordinated Notes - - - - 5,000
---------- ---------- ----------- ---------- ------------
Balance at December 31, 1997 (2,655,000) - $ - - 1,218,000
========== ========== =========== ========== ============
See accompanying notes to consolidated financial statements.
F-5
FIND/SVP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net (loss) income $(2,852,000) (719,000) 476,000
----------- --------- -------
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,147,000 974,000 865,000
Amortization of discount on notes payable 5,000 1,000 -
Amortization of deferred financing fees 39,000 15,000 7,000
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 254,000 287,000 179,000
Loss (gain) on sale of marketable investment
securities - 8,000 (10,000)
Loss on sale of net assets 28,000 73,000 -
Common stock issued for services - 40,000 -
Writedown of investment in joint venture - - 1,000
Increase in deferred compensation 21,000 25,000 21,000
Decrease in accrued rent payable (85,000) (71,000) (182,000)
Increase in cash surrender value of life insurance (55,000) (110,000) (54,000)
Increase in deferred income taxes (668,000) (107,000) (33,000)
Changes in assets and liabilities, net of non-cash
effect of asset disposal, impairment loss
and restructuring charges:
Increase in accounts receivable (799,000) (180,000) (479,000)
Decrease (increase) in prepaid and refundable
income taxes 250,000 (543,000) (6,000)
Decrease (increase) in inventory 413,000 (585,000) (716,000)
Decrease (increase) in prepaid expenses, deferred
charges and goodwill 75,000 (430,000) (488,000)
(Increase) decrease in security deposits - (7,000) 1,000
Increase in accounts payable
and accrued expenses 305,000 590,000 71,000
Decrease in taxes payable - - (216,000)
Increase in accrued interest payable 170,000 34,000 24,000
Increase in unearned retainer income 533,000 553,000 35,000
------------ ------------ -------------
Total adjustments 3,088,000 1,177,000 (980,000)
------------ ------------ -------------
Net cash provided by (used in) operating activities 236,000 458,000 (504,000)
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (1,939,000) (1,509,000) (1,246,000)
Repayment of notes receivable 50,000 - -
Proceeds from sale of net assets - 3,000 -
Proceeds from sale of marketable investment securities - 168,000 209,000
------------ ------------- -------------
Net cash used in investing activities (1,889,000) (1,338,000) (1,037,000)
------------- ------------ -------------
Cash flows from financing activities:
Principal borrowings under notes payable 1,719,000 2,975,000 3,381,000
Principal payments under notes payable (516,000) (1,956,000) (1,893,000)
Proceeds from exercise of stock options 57,000 53,000 24,000
Proceeds from sale of warrants in connection with Series A
Senior Subordinated Notes 5,000 25,000 -
Payments to acquire treasury stock (88,000) - (30,000)
Increase in deferred financing fees (19,000) (105,000) (41,000)
------------- ------------- --------------
Net cash provided by financing activities 1,158,000 992,000 1,441,000
------------ ------------ -------------
Net (decrease) increase in cash and
cash equivalents