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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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____to_____
Commission file no. 0-15152
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FIND/SVP, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2670985
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 Avenue of the Americas, New York, NY 10011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 645-4500
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share
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Title of Class
******************************
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 15, 1999 the aggregate market value of the voting stock
held by non-affiliates of the registrant was $3,247,696.
As of March 15, 1999 there were 7,118,169 shares of Common Stock, par
value $.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Not applicable.
2
PART I
ITEM 1
BUSINESS
GENERAL
FIND/SVP, Inc. ("FIND/SVP" or the "Company") provides broad consulting,
advisory and business intelligence services substantially by telephone primarily
to executives and other decision-making employees. The Company's strategy is to
build a base of regular clients who will utilize the Company's people and
resources for their research, business intelligence and information needs.
The Company was formed under the laws of New York in 1969. In 1971, the
Company became affiliated with SVP International S.A. ("SVP International")
through a licensing agreement which gave the Company the right to the SVP name
and provided access to the resources of what is currently 13 additional SVP
affiliated companies located around the world.
Through its Quick Consulting and Research Service ("QCS"), FIND/SVP
provides retainer clients with access to the subject and technical expertise of
its staff as well as the resources of a large information center. Within each
retainer client's organization, specific individuals receive a Membership Card
which entitles them to make requests via the telephone and the Internet for
consultation and research assistance. In response, the staff of QCS provides
customized answers in rapid turnaround time, generally within two business days
or less of the request. The QCS service is positioned to be an indispensable
daily partner for decision-makers by providing, on a retainer basis, a
cost-effective "quick consulting" service accessible by telephone or the
Internet. The service is designed to be a valuable resource to small and medium
sized corporations that do not maintain in-house information centers and as a
supplement to in-house resource centers of large corporations. At December 31,
1998, there were 2,024 QCS retainer clients and 14,865 Membership Cardholders.
The Company intends to seek to expand its base of QCS retainer clients, and to
offer these clients an expanded array of business intelligence, research and
advisory services.
In addition to QCS, the Company offers the market research services of
its Strategic Consulting and Research Group ("SCRG"), which is designed to
handle more extensive, in-depth custom market research and competitive
intelligence requests, as well as customer satisfaction and loyalty programs.
The QCS and SCRG businesses represent the core competencies of the Company,
which is to provide the expertise of its staff in an on-demand, consulting and
business advisory relationship with small, medium and large sized corporations.
The Company also produces The Information Advisor newsletter.
FIND/SVP's research resources include access to approximately 4,000
computer databases and subscription-paid web sites, approximately 8,000 of its
own files organized by subject and by company, current and back issues of
approximately 3,000 periodicals and journals and approximately 5,000 books and
reference works. Through a licensing agreement, the Company is associated with
the international SVP network of companies and correspondents providing similar
services. This enables FIND/SVP to obtain information through approximately
1,000 additional consultants in the SVP worldwide network.
3
SERVICES AND PRODUCTS
The Company's services and products offer business executives fully
integrated research, business intelligence and management advisory services in a
broad range of industries and disciplines. The Company provides services to help
clients acquire, interpret and use knowledge.
FIND/SVP's research resources at December 31, 1998 include a staff of
85 consultants and researchers in its QCS and SCRG divisions, a reference center
which contains approximately 8,000 of its own subject and company files, access
to approximately 4,000 computer databases, current and back issues of
approximately 3,000 titles, and approximately 5,000 books and reference works,
and a field investigation team with entree into public and private libraries in
the New York area. Through a licensing agreement, the Company is associated with
the international SVP network of companies and correspondents, which enables it
to obtain information worldwide. See "SVP Network; Licensing Agreement With SVP
International." The materials used in the generation of the Company's services
and products are updated and checked by staff members. The Company has its own
training program in which its employees participate.
SERVICES
QUICK CONSULTING AND RESEARCH SERVICE ("QCS"). QCS provides clients
with access to the staff and resources of a large information center which seeks
to handle research inquiries and requests for business assistance in rapid
turnaround time. Through QCS, the Company is in the business of providing, on a
volume basis, customized answers to business questions on a wide variety of
topics. The service is offered only on a retainer basis. Retainer client
organizations pay in advance, either monthly, quarterly, semi-annually or
annually, a retainer fee. In return, the client organizations receive Membership
Cards for their designated executives or employees. The Membership Card entitles
each cardholder to use QCS and also offers preferential use of, and/or discounts
on, the Company's other services and products. The dollar value of each client's
question is measured based on time and complexity factors and this value is
charged against the retainer fee. The Company monitors the client's "usage" of
the service and if it proves to be substantially more (or less) than
anticipated, its future retainer may be adjusted to more accurately reflect the
client's usage of QCS. Out-of-pocket expenses incurred to answer questions are
invoiced in addition to retainer fees.
Retainer clients call FIND/SVP with their research needs, give their
card number and explain their request to consultants who are divided into the
following six practice groups and four support teams:
(a) THE CONSUMER PRODUCTS AND SERVICES GROUP is responsible for
research on retailing and apparel, home furnishings, cosmetics and
toiletries, food and beverages, media and entertainment, publishing,
sports and leisure, education, philanthropy, restaurants, food
services, household products, appliances and furniture;
(b) THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP covers
Internet and on-line services, computers, software, electronic media
and office equipment;
(c) THE HEALTHCARE AND PHARMACEUTICALS GROUP covers products and
services manufactured by and marketed to businesses in healthcare
fields, including pharmaceuticals, medical and diagnostic equipment,
biotechnology, health resources and clinical information;
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(d) THE FINANCIAL AND BUSINESS SERVICES GROUP handles requests on
specific companies (except credit reports), economic trends, corporate
finance, investment, insurance, real estate and mortgages, quality
management methods, and provides annual reports and Securities and
Exchange Commission documents on public companies;
(e) THE INDUSTRIAL PRODUCTS AND SERVICES GROUP covers manufacturing,
energy, chemicals, plastics, pulp and paper, metals and mining,
transportation, environment, construction and agriculture;
(f) THE MANAGEMENT ADVISORY GROUP handles requests on legal research,
human resources research and accounting and tax issues;
(g) THE INTERNATIONAL TEAM addresses executive's needs for
international finance and trade, global corporate competitive
intelligence and worldwide management strategies;
(h) THE DOCUMENTS TEAM locates and obtains copies of articles,
documents, patents, books, pamphlets, catalogs, conference proceedings,
government reports and product samples;
(i) THE MARKETING TEAM covers direct marketing, advertising, sales
promotions and demographics; and
(j) INTERNET ADVISORY TEAM(TM) provides expert help with Internet
research, hands-on training, on-site seminars, competitive
intelligence, Web marketing/trends and Internet user demographics.
Client cardholders discuss their research needs with the Company's
consultants and may obtain assistance in formulating their requests. After the
request has been clarified, FIND/SVP's specialists find the needed information
using a combination of the Company's available resources. After reviewing the
findings, the consultants select what appears most relevant to the client's need
and report, with commentary, as needed. Documentation of the findings can be
sent by any one or a combination of the following methods: facsimile, courier,
messenger, mail or electronic mail. QCS allows customers to benefit from a fast,
convenient and confidential way to gather knowledge and use the multitude of
research resources available today. Cardholders may ask questions on virtually
any subject.
Those requests requiring business intelligence from overseas are
answered by one or more of the information centers in 13 SVP companies worldwide
or by using special SVP correspondents in selected countries where no official
SVP company exists.
QCS is designed to handle client questions requiring less than
approximately three hours of actual staff time. These are automatically covered
by the retainer fee. Requests requiring a more extensive search or a lengthy
written report are not covered by the QCS retainer program and are referred to
the Company's Strategic Consulting and Research Group to be handled separately.
QCS activity is tracked and controlled by a proprietary management
information system called QUESTRAC, which uses recently upgraded
state-of-the-art software technology. The program is based on the know-how
provided by SVP France, the founders of the SVP concept of quick business
advisory services by telephone. Input into the QUESTRAC system provides an
exclusive and confidential database of information about each client and the
information requested and handled for clients.
5
At December 31, 1998, there were 2,024 retainer clients, a 10.7%
decrease from December 31, 1997, and 14,865 holders of the Membership Card, an
11.8% decrease from December 31, 1997. The monthly fees billed to retainer
clients (the retainer base) decreased by 8.4% to $1,470,435. Approximately 50%
of the top Fortune 100 industrial companies are QCS retainer clients. Revenues
generated by QCS represented 74%, 64% and 65% of the Company's total revenues
for the years ended December 31, 1998, 1997 and 1996, respectively.
STRATEGIC CONSULTING AND RESEARCH GROUP ("SCRG"). SCRG is designed to
handle more in-depth custom market research and competitive intelligence
assignments. The service is most often used by the Company's QCS retainer
clients as a supplement to that service. Common project requests include
customized market and industry studies, telephone surveys, competitive
intelligence data-gathering and analysis assignments, acquisition studies and
large information collection projects. Additionally, through the Customer
Satisfaction and Loyalty Division, SCRG provides customer satisfaction and
loyalty programs. Through SCRG, the Company provides research as well as
interpretation and analysis. All projects are quoted in advance and billed
separately. Revenues generated by SCRG represented 17%, 17% and 15% of the
Company's total revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
NON-CONTINUING PRODUCTS AND SERVICES
On July 2, 1998, the Company completed the sale of substantially all of
the assets of FIND/SVP Published Products, Inc. ("Published Research") pursuant
to an Asset Purchase Agreement dated as of June 26, 1998. The Company recorded a
$20,000 gain related to this sale. The assets included, among other things, the
tangible and intangible assets, properties, rights and business of Published
Research relating to the following product lines: (I) FIND/SVP Market
Intelligence Reports; (II) Packaged Facts Market Intelligence Reports; (III)
Specialists in Business Information Market Intelligence Reports; (IV)
MarketLinks; (V) Ice Cream Report: The Newsletter for Ice Cream Executives; (VI)
How to Find Market Research Online; (VII) Analyzing Your Competition; (VIII)
Finding Business Research on the Web; and (IX) ShareFacts. The Company received,
in consideration of the sale, $1,250,000 in cash ($250,000 was received on June
29, 1998, and $1,000,000 was received on July 2, 1998), a Promissory Note (the
"Note") in the amount of $550,000 and the purchaser assumed certain liabilities
in the amount of $85,000. The Note bears interest at a rate of 8% per annum and
is payable in four equal annual installments commencing June 26, 1999. Interest
is payable annually with each installment of principal. The Company was granted
a purchase money security interest in the assets, which is subordinate to a
security interest in assets held by a lender of the purchaser. The Note is
guaranteed by a principal of the purchaser. Prior to the sale, during 1998,
revenues from the assets sold were $2,522,000.
On November 4, 1997, the Company sold certain assets held in its
Emerging Technologies Research Group ("ETRG"), a division of Published Research.
The assets consisted of the Company's Multi-client Study business, its
Continuous Advisory service and its Interactive Consumer newsletter. The Company
received a $125,000 two-year note bearing interest at an annual rate of 10%,
payable as follows: $31,250 plus accrued interest on May 4, 1998 and quarterly
principal payments of $15,625 plus accrued interest commencing on August 4, 1998
and on the fourth day of each November, February, May and August thereafter. The
final payment is due November 4, 1999. To date, all payments have been received
in a timely manner. The Company holds a security interest in the ETRG database
as collateral to the note. The purchaser also assumed various liabilities in
connection with the transaction and the Company is receiving a 5% royalty for a
two-year period on sales generated by the assets sold. Additionally, the Company
retained the rights to its then currently published off-the-shelf studies
produced from data contained within previously issued multi-client studies.
6
Revenues generated from the assets sold represented 9%, 19% and 20% of
the Company's total revenues for the years ended December 31, 1998, 1997 and
1996, respectively.
During the fourth quarter of 1997, the Company ceased the
consumer-oriented operations of its FIND/SVP Internet Services, Inc. subsidiary.
Accordingly, the Company recorded a charge of $500,000 in the fourth quarter of
1997 related to the closing of the subsidiary. The charge included $35,000 of
severance, all of which was paid by March 31, 1998. The remainder of the charge
included the write-down of certain assets of $408,000, $16,000 of shut-down
costs paid in the first quarter of 1998, and rent expense of $41,000 for the
first quarter of 1998 as the Company intended to sublease the space or to be
relieved of its obligation for 10,000 square feet of office space by the
landlord during the second quarter of 1998. During the second quarter of 1998
the Company received payment of $75,000 from the landlord for giving up its
rights to this portion of the lease. The Company also had rental expenses of
$26,400 during the second quarter of 1998, prior to the agreement with the
landlord. The $75,000 was recorded as Other Income and the $26,400 was recorded
as Other Expense.
Revenues from FIND/SVP Internet Services, Inc. represented less than 1%
of the Company's revenues for 1997.
Based on the decisions to effectuate the sale and the discontinuance of
various product lines and services, the Company reduced its general and
administrative staff as of December 31, 1997. Accordingly, the Company recorded
a $155,000 restructuring charge as of December 31, 1997.
POTENTIAL RELATED SERVICES AND PRODUCTS
The Company plans to expand its services through continued internal
development during 1999. This includes various initiatives aimed at both
business-to-business and consumer users of the Internet. Additionally, the
Company will consider exploring possible acquisitions of consulting, research or
information properties and companies whose primary markets are the same as
FIND/SVP's market and which would be accretive to the Company's earnings. There
are no commitments or understandings in this regard and no assurance can be
given that the Company will in fact conclude any acquisitions or internally
develop any related services. The foregoing plans are subject to, among other
things, the availability of funds for these purposes.
SVP NETWORK; LICENSING AGREEMENT WITH SVP INTERNATIONAL
Through licensing agreements with SVP ("S'il Vous Plait")
International, 14 companies (the "SVP companies"), including FIND/SVP, form an
international network of information centers. Since each SVP company is based in
a different country, the network has provided the means by which the Company can
obtain international information requested by its clients which it may not
maintain in its library or have access to if generated by or located in another
country. When an SVP company accesses the information center of another SVP
company it is charged a fee for the services provided thereby. Each SVP company
is linked to the SVP network primarily by virtue of its licensing agreement. In
1971, the Company entered into its licensing agreement with SVP International
(formerly SVP Conseil), which was amended in 1981, and obtained the U.S. rights,
in perpetuity, to the SVP name and know-how and access to the SVP International
network. Pursuant thereto, SVP International assisted in the creation,
implementation, development and operation of the Company. The Company has
agreed, pursuant to such licensing agreement, to use its best efforts to have a
person selected by SVP International elected to the Board of Directors of the
Company; pursuant to such provision, Brigitte de
7
Gastines, General Manager of SVP International, is also Chairperson of the Board
for the Company. In addition, Jean-Louis Bodmer, Vice President-Finance and New
Technologies for SVP Group and Eric Cachart, SVP Group's Vice President of
Development and Client Services, are directors of the Company. Historically, SVP
International has engaged in periodic telephonic conversations and meetings with
the Company. By virtue thereof, the Company has benefited from exchanges of
knowledge with SVP International with respect to any enhancements made to SVP
International's information retrieval or billing systems or other proprietary
know-how.
During the first quarter of 1998, SVP International (including
affiliates) increased its ownership in the Company to approximately 37% of the
then outstanding common shares, excluding outstanding warrants, from 18.7% of
the outstanding common shares, excluding outstanding warrants. Concurrent with
the increased ownership, SVP International increased their management
involvement in and physical presence at the Company during 1998, and it is
expected that this will continue into the future. (See "Directors and Executive
Officers of the Registrant - Directors and Officers")
The license agreement provides that SVP International will not compete
with the Company in the United States or enter into any agreement or arrangement
with respect to services similar to those offered by the Company with any entity
which operates or proposes to operate such services in the United States. The
Company, in return, agreed to pay SVP International royalties of $18,000 per
year, plus 2% of the amount of FIND/SVP's gross revenues for each such year,
excluding publishing revenues, derived from certain of its services in excess of
$2,000,000 but less than $4,000,000 and 1% of the amount of such non-publishing
gross revenues in excess of $4,000,000 but less than $10,000,000, and 1.2% of
the gross profit from all publications included in FIND/SVP's gross revenue less
than $10,000,000 for such year. Royalty expense to SVP International totaled
$126,000, $131,000 and $137,000 in 1998, 1997 and 1996, respectively.
MARKETS AND CUSTOMERS
The market for FIND/SVP's services and products is comprised primarily
of business executives in a variety of functions, including top management and
marketing, planning, marketing research, sales, information/library, legal,
accounting, tax and new products. FIND/SVP's primary market, in terms of client
organizations, consists of medium to small sized companies. Larger corporations
are, however, among the Company's clients. In certain cases, the service is sold
to more than one department or division of a large corporation. The Company's
appeal to medium to small sized corporations is primarily based on the fact that
these companies do not ordinarily maintain their own research staff and resource
libraries and when they do, they are generally not comprehensive. Large
corporations, on the other hand, often maintain in-house resource centers.
Consequently, these corporations may perceive the Company's QCS service as
unnecessary. The Company believes, however, that in-house corporate libraries
are generally not as comprehensive. Therefore, QCS may be perceived as a
valuable supplemental resource. In addition, in-house centers are good prospects
for the Company's other services. Overall, the factors that will affect the
growth of the Company's potential market and its ability to penetrate it
include: (1) the market's perception of the need for and value of consulting,
business intelligence and research services; (2) the trends in the use of
internal information centers and databases; and (3) the Company's ability to
extend its personal selling efforts throughout the country.
8
SALES AND MARKETING
The Company's primary marketing focus is to expand its QCS retainer
client base. In addition to generating revenues from the QCS services, the
retainer client base serves as a ready-made marketplace for SCRG and other
potential services of the Company. QCS is marketed through a combination of
advertising, direct mail, exhibits, sales promotion activities and the Company's
web site. Qualified leads are followed up by FIND/SVP's sales force. These leads
are supplemented by referrals and cold-call selling efforts. The cost of the
Company's advertising and public relations efforts is modest.
COMPETITION
The Company faces competition from three distinct sources: (1) other
research and information services, (2) in-house corporate research centers, and
(3) institutions that sell information directly to end-users.
The Company is aware of several other smaller fee-based on-demand
business information services in the United States. The Company believes that of
these companies it is the largest in terms of revenues and staff size. The
Company believes that the competition may be more significant from organizations
such as Arthur D. Little, Stanford Research Institute and The Conference Board
which have research capabilities with call-in-service for reference type
questions. To date, however, the call-in-service feature has not been emphasized
by these companies. Although the Company is not aware of direct competitive
companies with larger staffs and revenues, there is no assurance that as the
information industry expands, more competitive companies will not enter the
market. In addition, there is no assurance that a competitive company will not
develop a superior product or service. The Company believes, however, that by
reason of its experience in the industry, its association with the SVP network
and its intent to closely monitor the information industry, it will be able to
compete effectively with any potential competitors.
In-house corporate information and research centers present perhaps the
most significant source of competition for the Company today. Large
corporations, in an effort to stay on top of the vast amount of information
available, began to develop in increasing numbers, in-house libraries and
information centers for their employees. While the Company believes that its own
information center serves the added functions of analysis and generation of
information and is larger and better staffed than a majority of these corporate
resource centers, there is no assurance that a significant number of these large
companies will choose to utilize the Company's services and products.
The advent of on-line databases, the Internet and CD-ROM products has
increased the ability of companies to perform information searches and other
research for themselves. Consequently, to the extent companies perceive they can
directly access information from the Internet, on-line databases and acquire
CD-ROM products, FIND/SVP competes with information producers that sell to
end-users. The Company believes, however, that its consultants deliver a
value-added service based on their technical expertise and their ability to
search more information products more quickly than most end users, thereby
delivering a more thorough and economical service. There is no assurance,
however, that companies which develop extensive resource centers will not
accordingly staff them with equally productive personnel.
9
EMPLOYEES
As of December 31, 1998, the Company had 162 full-time employees,
including 5 executive officers, 25 marketing and sales employees, 85 consultants
and research employees, and 47 administrative and general personnel.
The Company's ability to develop, market and sell its services and to
establish and maintain its competitive position will depend, in part, on its
ability to attract and retain qualified personnel. While the Company believes
that it has been successful to date in attracting such personnel, there can be
no assurance that it will continue to do so in the future. The Company is not a
party to any collective bargaining agreements with its employees. It considers
its relations with its employees to be good.
ITEM 2
PROPERTIES
In December 1986, the Company entered into a fifteen and one-half year
lease agreement relating to premises at 625 Avenue of the Americas, New York,
New York, which premises became the offices of the Company on May 7, 1987.
During 1992, the lease was extended an additional three years. The annual rental
payment in 1998 was $880,000 and is subject to scheduled fluctuations in
succeeding periods. For financial statement reporting purposes, rent has been
recorded on a straight line basis. Accordingly, scheduled payments on this lease
through December 31, 1998 exceeded rent recorded through December 31, 1998 by
$230,000. Scheduled payments through December 31, 1997 exceeded rent recorded
through December 31, 1997 by $44,000. (See Note 3 of Notes to Consolidated
Financial Statements.) The lease agreement covers approximately 32,000 square
feet of space.
In August 1994, the Company entered into a five year lease agreement
relating to premises at 641 Avenue of the Americas, New York, New York, which
premises became the offices of the Company's wholly-owned subsidiary, FIND/SVP
Published Products, Inc., on September 1, 1994. The rental payments in 1998
totaled $201,000. This lease agreement covers approximately 20,000 square feet
of space, of which 10,000 square feet was occupied in September 1994 and the
additional 10,000 square feet was occupied in April 1995. In March 1995, the
Company executed a separate ten year lease covering an additional 20,000 square
feet of space at 641 Avenue of the Americas, which was occupied in August 1995
by the Strategic Consulting and Research Group. The rental payments in 1998
totaled $49,000, and is subject to scheduled increases in succeeding periods.
For financial statement reporting purposes, rent has been recorded on a straight
line basis. Accordingly, rent recorded through December 31, 1998 and 1997 on
these leases exceeded scheduled payments by $195,000 and $156,000, respectively.
(See Note 3 of Notes to Consolidated Financial Statements.) In connection with
the execution of the March 1995 lease, the August 1994 lease was extended to
June 30, 2005.
In conjunction with the closing of FIND/SVP Internet Services, Inc.
during the second quarter of 1998, the Company received from its landlord its
release from its obligation for 10,000 square feet originally occupied in April
1995 of the office space at 641 Avenue of the Americas, noted above. The Company
received $75,000 from the landlord for the return of this portion of the lease.
The additional space of approximately 10,000 square feet at 641 Avenue of the
Americas is currently being sublet at the Company's cost. Currently the sublease
is month to month, and the Company is negotiating a longer term sublease. The
Company will
10
continue to maintain the 20,000 square feet of space at 641 Avenue of the
Americas, occupied in August 1995, noted above.
ITEM 3
LEGAL PROCEEDINGS
None.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
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The Company's Common Stock, par value $.0001 per share, ("Common
Stock") is traded on the NASDAQ Small Cap Market under the symbol "FSVP". The
following table sets forth the high and low closing sale prices for the Common
Stock for the periods indicated.
Price Range High Low
- ----------- ---- ---
1998
- ----
Common Stock
- ------------
1st Quarter 1 3/16 11/16
2nd Quarter 1 3/8 29/32
3rd Quarter 1 7/16 13/16
4th Quarter 1 1/8 19/32
1997
- ----
Common Stock
- ------------
1st Quarter 2 1 1/4
2nd Quarter 1 1/2 1 3/16
3rd Quarter 1 3/8 1
4th Quarter 1 9/32 3/4
On December 31, 1998, there were approximately 937 holders of record of
the Common Stock. Such numbers do not include shares held in "street name."
In the first quarter of 1998 and again by letter dated January 21,
1999, the Company received notification from the NASDAQ Stock Market, Inc.
("NASDAQ") that the Company was not in compliance with NASDAQ's $1.00 minimum
bid price requirement; the shares of the Company's Common Stock having closed
below the minimum bid price for 30 consecutive business days. To regain
compliance with this standard the Company's common shares must have a closing
bid price at or above $1.00 for ten consecutive trading days within the 90
calendar day period following the advent of non-compliance. If compliance is not
met, NASDAQ will issue a delisting letter which will identify the review
procedures. The Company may request review at that time, which will generally
stay delisting. With respect to both notifications, the Company's common shares
met the required minimum bid price for ten consecutive trading days.
Accordingly, the Company's Common Stock is currently in compliance with the
NASDAQ minimum bid requirement.
The Company's failure to meet NASDAQ's maintenance criteria in the
future may result in the discontinuance of the inclusion of its securities in
NASDAQ. In such event, trading, if any, in the securities may then continue to
be conducted in the non-NASDAQ over-the-counter market in what are commonly
12
referred to as the electronic bulletin board and the "pink sheets". As a result,
an investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the securities. In addition, the Company
would be subject to a Rule promulgated by the Securities and Exchange Commission
that, if the Company fails to meet criteria set forth in such Rule, imposes
various practice requirements on broker-dealers who sell securities governed by
the Rule to persons other than established customers and accredited investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transactions prior to sale. Consequently, the Rule may
have an adverse effect on the ability of brokers-dealers to sell the securities,
which may affect the ability of shareholders to sell the securities in the
secondary market.
DIVIDEND HISTORY AND POLICY
- ---------------------------
The Company has never paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will continue to follow a
policy of retaining earnings to finance the expansion and development of its
business. The Company's debt agreements restrict the payment of dividends.
13
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)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Revenues $ 28,175 $ 32,027 $ 30,525 $ 28,606 $ 24,357
Operating Income (Loss) 1,329 (3,136) (824) 1,050 1,144
Net Income (Loss) 756 (2,852) (719) 476 673
Net Income (Loss) Per
Common and Common Stock
Equivalent Share
Basic .11 (.43) (.11) .08 .11
Diluted .11 (.43) (.11) .07 .10
Weighted Average Number
of Common and Common Stock
Equivalent Shares
Outstanding
Basic 7,094 6,593 6,434 6,217 6,198
Diluted 7,100 6,593 6,434 6,672 6,660
Cash Dividends Declared
Per Common Share -- -- -- -- --
BALANCE SHEET DATA
December 31,
------------
(Amounts in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Working Capital $ 2,569 $ 1,016 $ 3,930 $ 3,854 $ 2,796
Total Assets 11,704 12,481 12,946 11,445 9,705
Long-Term Indebtedness
excluding amounts
currently payable 3,307 3,801 3,826 2,896 1,191
Shareholders' Equity 2,988 1,218 4,059 4,659 4,160
14
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
FIND/SVP, Inc. provides a broad consulting, advisory and business
intelligence service to executives and other decision-making employees of client
companies, primarily in the United States. The Company currently operates
primarily in one business segment, providing consulting and business advisory
services including: the Quick Consulting and Research Service ("QCS") which
provides retainer clients with access to the expertise of the Company's staff
and information resources; and the Strategic Consulting and Research Group
("SCRG") which provides more extensive, in-depth custom market research and
competitive intelligence information, as well as customer satisfaction and
loyalty programs. Prior to the third quarter of 1998, the Company had one
additional significant operating segment, Published Research Products. The
Company considers its QCS and SCRG service businesses, which operate as
"consulting and business advisory" businesses, to be its core competency.
As such, during July 1998, the Company completed the sale of
substantially all of the assets of its FIND/SVP Published Products, Inc.
subsidiary ("Published Research"). In consideration of the sale the Company
received $1,250,000 in cash ($250,000 was received on June 29, 1998 and
$1,000,000 was received on July 2, 1998), a promissory note bearing interest at
8% per annum in the principal amount of $550,000 and the purchaser assumed
certain liabilities in the amount of $85,000. The Company recorded a gain of
$20,000 from this transaction. During 1997, the Company recorded an impairment
loss related to the aforementioned assets of $1,047,000. Additionally, during
the fourth quarter of 1997, the Company sold the assets of its Emerging
Technologies Research Group ("ETRG"), a division of Published Research. In
consideration of the sale, the Company received a two year $125,000 note bearing
interest at 10%. The Company recorded a $28,000 loss related to this sale. The
revenues derived from the assets sold accounted for 9%, 19% and 20% of the
Company's total revenues during 1998, 1997 and 1996, respectively.
During the year ended December 31, 1998, the Company reduced operating
expenses, which was further enhanced by the sale of the majority of assets in
Published Research. Accordingly, there was a reduction in direct costs as a
percentage of revenues to 50.6% for the year ended December 31, 1998, as
compared to 57.5% for the year ended December 31, 1997. Additionally, selling,
general and administrative expenses were 43.5% of revenues for the year ended
December 31, 1998, versus 47.0% for the year ended December 31, 1997.
The Company had operating income of $1,329,000 for the year ended
December 31, 1998. This compares favorably to an operating loss of $3,136,000
for the year ended December 31, 1997. The net income for the year ended December
31, 1998 was $756,000 versus a $2,852,000 net loss for the year ended December
31, 1997.
During the year ended December 31, 1998, the Company's cash flow from
operating activities provided $2,166,000 versus cash flow from operating
activities of $236,000 for the year ended December 31,
15
1997. This, coupled with a $1,000,000 capital stock investment from SVP, a major
shareholder of the Company, received during the first quarter of 1998 ($250,000
of which was originally issued as a convertible note), enabled the Company to
pay down its Commercial Revolving Promissory Note with State Street Bank and
Trust Company during the first quarter of 1998 to zero from $1,249,000 as of
December 31, 1997. As of December 31, 1998, the balance outstanding remains at
zero. Further, the Company's cash balance has improved to $2,307,000 as of
December 31, 1998 versus $139,000 at December 31, 1997.
SEGMENT REPORTING
During 1998, 1997 and 1996 the Company operated primarily in two
business segments in accordance with Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The operating segments were: (I) Consulting and Business Advisory
("CBA") which consists of QCS and SCRG; and (II) Published Research Products
("PRP"), which consisted of Published studies, ETRG and various Newsletters.
In accordance with SFAS No. 131, the Company is disclosing the results
of the operating segments for each of the three years below.
Years Ended December 31,
(Amounts in thousands)
1998 1997 1996
---------------------------- ---------------------------- ---------------------------
PERCENT PERCENT PERCENT
$ OF TOTAL $ OF TOTAL $ OF TOTAL
- -------- - -------- - --------
NET ASSETS
- ----------
Consulting and Business Advisory 10,999 94.0% 10,594 84.9% 8,234 63.6%
Published Research Products 705 6.0% 1,887 15.1% 4,326 33.4%
All Other -- 0.0% -- 0.0% 386 3.0%
---------------------------- ---------------------------- ---------------------------
Total Net Assets 11,704 100.0% 12,481 100.0% 12,946 100.0%
---------------------------- ---------------------------- ---------------------------
REVENUES
- --------
Consulting and Business Advisory 25,456 90.3% 25,959 81.0% 24,168 79.2%
Published Research Products 2,719 9.7% 6,018 18.8% 6,327 20.7%
All Other -- 0.0% 50 0.2% 30 0.1%
---------------------------- ---------------------------- ---------------------------
Total Revenues 28,175 100.0% 32,027 100.0% 30,525 100.0%
---------------------------- ---------------------------- ---------------------------
OPERATING INCOME (LOSS)
- ----------------------
Consulting and Business Advisory 1,313 98.8% (165) 5.3% 914 (110.9)%
Published Research Products 16 1.2% (2,295) 73.2% (1,739) 211.0%
All Other -- 0.0% (676) 21.5% 1 (0.1)%
---------------------------- ---------------------------- ---------------------------
Total Operating Income (Loss) 1,329 100.0% (3,136) 100.0% (824) 100.0%
---------------------------- ---------------------------- ---------------------------
DEPRECIATION AND AMORTIZATION
INCLUDED ABOVE
Consulting and Business Advisory 1,002 91.3% 885 77.2% 764 78.4%
Published Research Products 96 8.7% 238 20.7% 210 21.6%
All Other -- 0.0% 24 2.1% -- 0.0%
---------------------------- ---------------------------- ---------------------------
Total Depreciation and Amortization 1,098 100.0% 1,147 100.0% 974 100.0%
---------------------------- ---------------------------- ---------------------------
16
PRODUCT AND SERVICE REVENUES
The Company's revenues decreased by $3,852,000, or 12.0%, from
$32,027,000 in 1997 to $28,175,000 in 1998 and increased by $1,502,000, or 4.9%,
from $30,525,000 in 1996 to $32,027,000 in 1997. The decrease from 1997 to 1998
was primarily due to the sale of assets from PRP completed during the third
quarter of 1998 and the fourth quarter of 1997, coupled with a decline in
revenues in SCRG. The increase from 1996 to 1997 was due to revenue increases in
QCS and SCRG, partially offset by a decline in PRP revenues.
QCS revenues grew by $197,000, or 1.0%, from $20,516,000 in 1997 to
$20,713,000 in 1998 and by $798,000, or 4.0%, from $19,718,000 in 1996 to
$20,516,000 in 1997. The increase from 1997 to 1998 was due to an increase in
the average retainer fee paid per client, partially offset by a reduction in the
number of clients. During 1998, the Company experienced a reduction in the
number of retainer clients of 10.7%, and a reduction in the retainer base
(monthly fees billed to clients) of 8.4%. The reduction in the retainer base was
primarily due to an increase in the number of rate reductions granted to clients
based on their recent usage history, coupled with a slow-down in new retainer
sales during 1998, as compared to recent years. The slow down in sales was due
primarily to staff turnover in the Business Development area which was
experienced throughout 1998. The reduction in the retainer base began during the
third quarter of 1998, and this is the first time that there has been a
reduction in the retainer base during a full calendar year period. The Company
believes it has the staff turnover in this area under control, but anticipates a
continued decline in the retainer base through at least the second quarter of
1999. Until this trend is reversed, and the retainer base is brought back to
previous levels, the Company expects revenue declines in QCS on a quarter to
quarter basis. The increase from 1996 to 1997 was due to an increase in the
average retainer fee paid per client.
SCRG revenues decreased $700,000, or 12.9%, from $5,443,000 in 1997 to
$4,743,000 in 1998 and increased by $993,000, or 22.3%, from $4,450,000 in 1996
to $5,443,000 in 1997. The decrease from 1997 to 1998 was due to a significant
fall-off in revenue in the third and fourth quarters of 1998, as compared to the
like quarters in 1997, primarily due to staff turnover, which affected the
marketing efforts of SCRG. The increase in revenues from 1996 to 1997 was
primarily due to an increase in the number of assignments and their average size
as compared to 1996.
During the fourth quarter of 1998, staff turnover in SCRG slowed and
the Company believes it has the staff turnover in this area under control.
However, the Company anticipates reduced revenues during at least the first two
quarters of 1999, as compared to the like quarters of 1998. The Customer
Satisfaction and Loyalty Division accounted for 28.9%, 15.7% and 17.8% of SCRG's
revenue for 1998, 1997 and 1996, respectively.
Revenues of PRP (excluding newsletters) decreased $3,282,000, or 56.2%,
from $5,839,000 in 1997 to $2,557,000 in 1998 and $210,000, or 3.5%, from
$6,049,000 in 1996 to $5,839,000 in 1997. The decrease from 1997 to 1998 was due
to the sale of virtually all PRP assets which was completed in the third quarter
of 1998, during the fourth quarter of 1997. The decrease from 1996 to 1997 was
primarily due to lower revenues from ETRG which was sold during the fourth
quarter of 1997, coupled with reduced print sales of published studies,
partially offset by increased revenues from third-party on-line vendors.
17
The Company operates a small newsletter publishing business within
PRP. However the newsletters that are produced generated less than 1% of the
Company's revenues in 1998, 1997 and 1996. All except one newsletter was
included in the sale of assets during the second quarter of 1998.
DIRECT COSTS
Direct costs decreased by $4,139,000, or 22.5%, from $18,402,000 in
1997 to $14,263,000 in 1998 and increased by $1,053,000, or 6.1%, from
$17,349,000 in 1996 to $18,402,000 in 1997. Direct costs represented 50.6%,
57.5% and 56.8% of revenues, respectively, in 1998, 1997 and 1996. The decrease
in total direct cost and direct cost as a percentage of revenues from 1997 to
1998 was primarily due to the aforementioned sale of the Published Research
assets, coupled with a general reduction in direct operating expenses. The
general reduction in direct operating expenses was primarily due to the
restructuring during the first quarter of 1998, which eliminated certain
full-time direct labor. The increase in total direct cost and direct cost as a
percentage of revenues from 1996 to 1997 reflected direct costs from new service
offerings in PRP (the assets of which were sold during the fourth quarter of
1997), coupled with the planned expansion of the Company's core competencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $2,797,000,
or 18.6%, from $15,059,000, or 47.0% of revenues, in 1997 to $12,262,000, or
43.5% of revenues, in 1998 and increased by $1,861,000, or 14.1%, from
$13,198,000, or 43.2% of revenues, in 1996 to $15,059,000, or 47.0% of revenues,
in 1997. The decrease from 1997 to 1998 was primarily due to reduction in labor
in the general and administrative area and reduced sales labor, primarily due to
turnover, coupled with reduced sales commissions during 1998. The increase from
1996 to 1997 was due to the investment in sales and promotional efforts to
generate incremental revenues in accordance with the Company's growth plans and
to support the planned growth of the operating units.
The Company's lease for its main premises includes scheduled rent
increases over the 15-year lease term. Financial Accounting Standards Board
Statement No. 13 ("FASB No. 13") requires that rent expense under these
circumstances be recognized on a straight-line basis. Accordingly, rent expense
will exceed the amount actually paid in the first third of the lease, will be
approximately equal to the amount actually paid in the middle third of the lease
and will be less than the amount actually paid in the final third of the lease.
Partly as the result of the lease renegotiations in 1992, which extended the
lease term for three additional years with a reduced base rent for those years,
rent payable exceeded rent expense by $186,000 in 1998 for the main premises.
The Company's lease for additional premises includes scheduled rent increases
over the 10-year lease term. As a result, rent expense exceeded rent payable by
$46,000 in 1998 for the additional premises. In 1998, 1997 and 1996, total
accrued rent payable decreased by $147,000, $85,000 and $71,000, respectively.
See Note 3 of Notes to Consolidated Financial Statements.
SALE OF PUBLISHED RESEARCH AND ETRG AND ASSET DISPOSAL
On July 2, 1998, the Company completed the sale of substantially all of
the assets of FIND/SVP Published Products, Inc. ("Published Research")
subsidiary pursuant to an Asset Purchase Agreement dated as of June 26, 1998.
The Company recorded a $20,000 gain related to this sale. The assets included,
among other things, the tangible and intangible assets, properties, rights and
business of Published Research relating to the
18
following product lines: (I) FIND/SVP Market Intelligence Reports; (II) Packaged
Facts Market Intelligence Reports; (III) Specialists in Business Information
Market Intelligence Reports; (IV) MarketLinks; (V) Ice Cream Report: The
Newsletter for Ice Cream Executives; (VI) How to Find Market Research Online;
(VII) Analyzing Your Competition; (VIII) Finding Business Research on the Web;
and (IX) ShareFacts. The Company received, in consideration of the sale,
$1,250,000 in cash ($250,000 was received on June 29, 1998, and $1,000,000 was
received on July 2, 1998), a Promissory Note (the "Note") in the amount of
$550,000 and the purchaser assumed certain liabilities in the amount of $85,000.
The Note bears interest at a rate of 8% per annum and is payable in four equal
annual installments commencing June 26, 1999. Interest is payable annually with
each installment of principal. The Company was granted a purchase money security
interest in the assets, which is subordinate to a security interest in assets
held by a lender of the purchaser. The Note is guaranteed by a principal of the
purchaser. Prior to the sale, during 1998, revenues from the assets sold were
$2,522,000.
During the fourth quarter of 1997, the Company sold certain assets held
in ETRG, a division of Published Research. The Company recorded a $28,000 loss
related to this sale. In accordance with the terms of the Agreement, the Company
received a two-year $125,000 Note bearing interest at an annual rate of 10%
payable as follows: $31,250 plus accrued interest on May 4, 1998, and quarterly
principal payments of $15,625 plus accrued interest commencing on August 4,
1998, and on the fourth day of each November, February, May and August
thereafter. The final payment is due November 4, 1999. To date, all payments
have been received in a timely manner. The Company holds a security interest in
the ETRG database as collateral for the Note. The purchaser also assumed various
liabilities in connection with the transaction and the Company is receiving a 5%
royalty for a two-year period on sales generated by the assets sold. As a result
of this transaction, the Company no longer operates its multi-client study
business, its Continuous Advisory Service and its Interactive Consumer
Newsletter. The Company has retained the rights to its then currently published
off-the-shelf studies and will receive a 5% royalty on sales of the above
services for a two-year period.
During the fourth quarter of 1997, the Company ceased the
consumer-oriented operations of its FIND/SVP Internet Services, Inc. subsidiary.
Accordingly, the Company recorded a charge of $500,000 in the fourth quarter of
1997 related to the closing of the subsidiary. The charge included $35,000 of
severance, all of which was paid by March 31, 1998. The remainder of the charge
included the write-down of certain assets of $408,000, $16,000 of shut-down
costs paid in the first quarter of 1998, and rent expense of $41,000 for the
first quarter of 1998 as the Company intended to sublease the space or to be
relieved of its obligation for 10,000 square feet of office space by the
landlord during the second quarter of 1998. During the second quarter of 1998
the Company received payment of $75,000 from the landlord for giving up its
rights to this portion of the lease. The Company also had rental expenses of
$26,400 during the second quarter of 1998, prior to the agreement with the
landlord. The $75,000 was recorded as Other Income and the $26,400 was recorded
as Other Expense.
IMPAIRMENT LOSS
Due to continued weakness in Published Research, and a plan to re-focus
the Company's attention on its core competencies, during the fourth quarter of
1997 the Company decided to sell the majority of assets held in this Division.
As a result, the Company reported the carrying value of the assets held for sale
at the lower of cost or their estimated net realizable values. As a result of
the Company's decision, an impairment loss of $1,047,000 was recorded in
December 1997. The Company presented the assets held for sale as a separate line
item in its December 31, 1997 consolidated balance sheet. The sale of these
assets was completed during the third quarter of 1998.
19
The aforementioned non-cash charge included write-downs of inventory of
$517,000, fixed assets of $405,000, goodwill of $102,000 and deferred charges of
$23,000.
RESTRUCTURING CHARGE
On March 27, 1998, the Company reduced its full-time labor force in its
core business by 20 positions. As a result, the Company recorded a restructuring
charge of $321,000 during the quarter ended March 31, 1998. The charge consisted
mainly of severance payments, which were fully paid by February 15, 1999,
outplacement services and legal costs associated with the elimination of the
positions. As of December 31, 1998, $16,000 related to this charge remains
accrued but unpaid.
In conjunction with the Company's decision to re-focus its efforts on
its core competencies, the Company reduced its general and administrative staff
in December, 1997. Accordingly, the Company recorded a $155,000 restructuring
charge, primarily for severance costs, during the fourth quarter of 1997, all of
which was paid in 1998.
Due to lower than expected revenues and profits in Published Research
during the third quarter of 1996, and due to the anticipation of a more
aggressive growth strategy which integrated the products and services of the
Company, the Company announced and immediately began implementing a plan to
restructure and consolidate operations, which included the re-organization of
its operating units and a change in the method of marketing and cross-selling
its various products. This plan resulted in a pre-tax charge of $802,000 during
the third quarter of 1996.
The aforementioned charge included a writedown of certain Published
Research assets of $490,000, severance and retirement charges of $167,000,
charges relating to marketing and planning materials which will not be used
after the restructuring of $117,000 and charges for the consolidation and
reduction of several small, unprofitable product groups of $28,000, of which
$13,000 and $47,000 in severance and retirement payments has been included in
accrued expenses as of December 31, 1998 and 1997.
OPERATING INCOME (LOSS)
The Company's operating income was $1,329,000 in 1998, compared to an
operating loss of $3,136,000 in 1997, an increase of $4,465,000. The increase
was due to an increase in operating income of $1,478,000 in CBA due primarily to
decreased direct costs and SG&A expenses, coupled with a $2,311,000 improvement
in PRP due primarily to the impairment loss of $1,407,000 in 1997.
The Company had an operating loss of $3,136,000 in 1997 compared to an
operating loss of $824,000 in 1996. The increase in operating loss in 1997 as
compared to 1996 was due in part to a decline in operating income of $1,079,000
in CBA from $914,000 in 1996 to an operating loss of $165,000 in 1997. The
decline was due primarily to increased costs in connection with a growth plan
implemented in late 1996. Additionally, all other experienced an operating loss
of $676,000 in 1997 due primarily to the closing of Internet services.
20
The operating loss in 1996 was due primarily to an $802,000
restructuring charge in the third quarter of 1996, coupled with an increase in
direct costs and selling, general and administrative expenses as a percentage of
revenues.
INTEREST INCOME AND EXPENSE; OTHER ITEMS
In 1998, the Company earned $85,000 in interest income, which increased
from $13,000 in 1997 and $19,000 in 1996. The increase in 1998 was a result of
the increased cash balance during 1998 coupled with interest earned on Notes
Receivable.
Interest expense in 1998 was $522,000, which was a decrease from
$597,000 in 1997 which was an increase from $320,000 in 1996. The decrease in
interest expense for 1998 compared to 1997 was primarily due to the reduction in
term debt outstanding and the lower level of borrowings under the line of
credit. The increase in interest expense for 1997 compared to 1996 was primarily
due to the issuance of subordinated notes in the fourth quarter of 1996 and the
third quarter of 1997, slightly offset by a reduction in interest on term notes.
On January 20, 1998, the Company entered into a settlement agreement
regarding a shareholder lawsuit which began during 1997, pursuant to which the
suit was dismissed with prejudice. As part of the settlement, the Company
purchased 274,400 shares of the Company's Common Stock from the plaintiff for
$1.25 per share, totaling $343,000. The purchase price contained a premium of
$0.50 per share over the closing trade price of the Company's Common Stock on
the date of settlement, or $137,000. As a result of the above, the Company
recorded treasury stock of $206,000 and expense of $137,000. The Company used
proceeds from its insurance company of $495,000 to purchase the shares and to
pay plaintiff and Company legal fees in the amount of $110,000 and $42,000,
respectively. Accordingly, the Company recorded other income and other expense
of $289,000, respectively, related to this matter, with the remaining balance of
$206,000 offset against the aforementioned treasury stock repurchase amount,
thus reducing the net treasury stock transaction to zero.
During May 1998, the Company gave up its rights to part of the space
covered under one of its leases. The Company received a payment of $75,000,
included in other income, from its landlord for the return of the space. The
Company incurred additional rents of $26,400, included in other expense, while
negotiating the release of its obligations.
The Company recorded a loss on sale of assets of $73,000 resulting from
the sale of certain assets during 1996.
21
INCOME TAXES
The $205,000 tax provision recognized for 1998 represents 21.3% of the
1998 income before provision for income taxes. Income taxes were reduced by
$239,000 for the reduction of the valuation allowance at December 31, 1998.
The $896,000 tax benefit recognized for 1997 represents 23.9% of the
1997 loss before benefit for income taxes. The 1997 benefit includes a net
operating loss carryback for federal purposes, a deferred tax benefit from a net
operating loss carryforward for federal, state and local taxes and a net
deferred tax benefit for temporary items, partially offset by a valuation
allowance of $519,000 and expired tax credits.
Based on the Company's history of prior operating earnings relating to
its consulting and business advisory businesses, management has determined that
a valuation allowance of $280,000 and $519,000 is necessary at December 31, 1998
and 1997, respectively, due to the uncertainty of future earnings to realize the
entire net deferred tax asset. Of the deferred tax asset, $322,000 and $286,000
as of December 31, 1998 and 1997, respectively, has been classified as current.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its business primarily from operating revenues,
working capital provided by deferred revenues in the form of prepaid retainer
fees, bank debt and subordinated notes.
In 1998, there was a positive cash flow from operating activities of
$2,166,000. Positive cash flow resulted from net income of $756,000, adjusted
for depreciation and amortization of $1,098,000, a decrease in accounts
receivable of $1,042,000, a decrease in prepaid and refundable income taxes of
$299,000, an increase in deferred taxes of $205,000, an increase in accrued
interest of $186,000, a provision for losses on accounts receivable of $164,000,
a decrease in assets held for sale of $99,000, amortization of deferred
financing fees of $40,000, an increase in income taxes payable of $25,000, an
increase in deferred compensation of $20,000, and amortization of discount on
notes payable of $6,000. This was offset by a decrease in accounts payable and
accrued expenses of $1,138,000, an increase in prepaid expenses, deferred
charges and security deposits of $231,000, a decrease in accrued rent
receivable/payable of $147,000, an increase in cash surrender value of life
insurance of $132,000, a decrease in unearned retainer revenue of $106,000 an a
gain on sale of net assets of $20,000.
In 1997, there was a positive cash flow from operating activities of
$236,000. This resulted from a net loss of $2,852,000, a decrease in accrued
rent payable of $85,000, an increase in cash surrender value of life insurance
of $55,000, an increase in deferred income taxes of $668,000 and an increase in
accounts receivable of $799,000. These items were more than offset by
depreciation and amortization of $1,147,000, the non-cash portion of impairment
loss of $1,047,000, the non-cash portion of asset disposal of $408,000, a loss
on sale of net assets of $28,000, amortization of discount on notes payable of
$5,000, amortization of deferred financing fees of $39,000, a $254,000 provision
for losses on accounts receivable, an increase in deferred compensation of
$21,000, an increase in accounts payable and accrued expenses of $305,000, a
decrease in prepaid and refundable income taxes of $250,000, a decrease in
inventory of $413,000, a decrease in prepaid expenses, deferred charges and
goodwill of $75,000, an increase in accrued interest of $170,000 and an increase
in unearned retainer income of $533,000.
22
In 1996, there was a positive cash flow from operating activities of
$458,000. This resulted from a net loss of $719,000, a decrease in accrued rent
payable of $71,000, an increase in cash surrender value of life insurance of
$110,000, an increase in deferred income taxes of $107,000, an increase in
accounts receivable of $180,000, an increase in inventory of $585,000, an
increase in prepaid expenses, deferred charges and security deposits of
$437,000, and an increase in prepaid and refundable income taxes of $543,000.
These items were more than offset by depreciation and amortization of $974,000,
amortization of discount on notes payable of $1,000, the non-cash portion of
restructuring charge of $610,000, a $287,000 provision for losses on accounts
receivable, a loss on sale of marketable investment securities of $8,000, a loss
on sale of assets of $73,000, Common Stock issued for services of $40,000, an
increase in deferred compensation of $25,000, an increase in accounts payable
and accrued expenses of $590,000, amortization of deferred financing fees of
$15,000, and increase in accrued interest of $34,000 and an increase in unearned
retainer income of $553,000.
Capital expenditures were $618,000, $1,939,000, and $1,509,000 in 1998,
1997 and 1996, respectively, and consisted principally of migration of the
Company's 10 year old management information systems from a Wang VS 65 to a
Windows NT based system, computer equipment to improve the consultants' ability
to communicate with clients, access the Internet and integrate the Company's
products, as well as to expand the Company's enterprise network.
In 1998, the Company received $1,250,000 proceeds from the sale of net
assets and $42,000 for the surrender of a life insurance policy.
In 1998 and 1997 the Company received $63,000 and $50,000,
respectively, for the repayment of a note receivable.
In 1996, the Company received $168,000 proceeds from the sale of
marketable investment securities.
The Company has two outstanding term notes with State Street Bank and
Trust (the "Bank"). One note, a $2,000,000 fixed rate term note, payable in
quarterly installments of $100,000 through April 2000 at an interest rate of
8.86%, was originally signed during April 1995 and has $600,000 outstanding as
of December 31, 1998. The other note, a $500,000 five-year term note, payable in
quarterly installments of $25,000 through April 2001 at an interest rate of
prime plus 0.75%, which was 8.5% and 9.25% at December 31, 1998, and 1997,
respectively, was originally signed during July 1997 and has $250,000
outstanding at December 31, 1998.
Additionally, the Company had a Commercial Revolving Promissory Note
(the "Note") with the Bank. The Note was originally signed during April 1995,
and was amended several times since. The most recent amendment was on April 3,
1998 and expired on March 25, 1999. The amount available under the Note, as
amended, was $1,000,000. At its highest, there was $3,000,000 available under
the Note. The interest rate on the Note is the Bank's prime rate plus
one-quarter of one percent and during 1997 was the Bank's prime rate plus one
and one-half percent (prime was 7.75% as of December 31, 1998 and was 8.5% as of
December 31, 1997). As of December 31, 1998, there was nothing outstanding on
the Note. However the Note is used to secure certain long-term letters of credit
in the amount of $158,000. As such, as of December 31, 1998, the availability
under the Note was $842,000.
The Company's Revolving and Term Promissory Notes with the Bank are
secured by all of the assets of the Company. Additionally, during the first
quarter of 1998, SVP provided credit support in the form of two $1,000,000
standby letters of credit. One of the letters of credit is used to secure the
Revolving Note and the
23
other is used to secure the two outstanding Term Notes. The letter of credit
securing the Term Notes will at all times equal the lesser of (a) the aggregate
principal amount of the term loans, or (b) $1,000,000. During 1998, the Company
failed to meet certain net income covenants included in the debt agreements,
primarily due to severance and related costs. The Bank has agreed to waive the
covenants.
During 1996 and 1997, the Company and its subsidiaries (the "Company")
issued $2,975,000 five-year Promissory Notes ("Notes") and ten-year warrants to
purchase 1,322,222 shares of the Company's Common Stock, at $2.25 per share, for
an aggregate consideration of $2,975,000 to Furman Selz SBIC, L.P. ("Furman
Selz") and SVP, S.A. ("SVP"). Notes in the amount of $2,025,000 and 900,000
warrants were purchased by Furman Selz on October 31, 1996 for the aggregate
amount of $2,025,000, which Notes are due on October 31, 2001. Notes in the
amount of $950,000 and 422,222 warrants are held by SVP. Of the Notes held by
SVP, a $475,000 Note, together with 211,111 warrants, was purchased for the
aggregate amount of $475,000, on each of November 30, 1996 and August 25, 1997.
All of the Notes are due five years after the respective purchase dates.
All of the Notes accrue interest at an annual rate of 12% on the unpaid
principal balance. Interest payments are made periodically on Notes, and the
agreements allow for the automatic deferral of some of the interest. Any
interest deferred compounds and accrues interest at the rate of the Notes until
paid. As of December 31, 1998, there was a total of $362,650 of accrued but
unpaid interest on the Notes. Included in the total was $338,942 which was
deferred in accordance with said provisions. All the deferred interest was paid
on February 8, 1999.
The Company is currently negotiating with several financial
institutions the refinancing of a portion of its long-term debt obligations with
the intention of reducing interest expense in the future. As the Company does
not foresee the short-term need for a line of credit, the Company did not seek
to renew the Note with the Bank, which expired on March 25, 1999. This will
allow for the release of one of the two $1 million standby letters of credit
provided by SVP to secure the debt. The Company is negotiating a new line of
credit with several financial institutions. On March 29, 1999 the Company paid
the Bank the $725,000 of outstanding term debt, with the intention of reducing
interest expense in 1999, and the Bank released the other $1 million standby
letter of credit provided by SVP.
On January 15, 1998, the Company entered into an agreement with SVP,
S.A., an affiliate of SVP International, pursuant to which SVP, S.A. purchased
800,000 shares of Common Stock at $1.25 per share for an aggregate of
$1,000,000. The transaction was completed in two parts. The Company issued
600,000 shares of Common Stock and a $250,000 Convertible Note in January 15,
1998, pending the availability of shares for issuance. The Note converted into
200,000 shares of Common Stock on February 20, 1998, when those shares became
available for issuance. With this transaction, SVP International and its
affiliates own approximately 37% of then outstanding shares of Common Stock,
excluding outstanding warrants.
In connection with the Company's sale of Published Research assets
during 1998, the Company received a $550,000 four-year note.
In connection with the Company's sale of ETRG's assets during 1997, the
Company received a $125,000 two-year note.
24
The Company's working capital was $2,569,000 at December 31, 1998, as
compared to $1,016,000 at December 31, 1997. Cash balances were $2,307,000 and
$139,000 on December 31, 1998 and 1997, respectively.
The Company expects to spend approximately $700,000 for capital items
in 1999, the major portion of which will be to complete the migration of the
Company's proprietary management information system to its new platform, coupled
with leasehold improvements related to the HVAC system at one of its locations.
The Company believes that its cash balance at December 31, 1998 and
cash flow from operations will be sufficient to cover its operations and
expected capital expenditures for the next 12 months and that it has sufficient
liquidity for the next 12 months.
INFLATION
The Company has in the past been able to increase the price of its
products and services sufficiently to offset the effects of inflation on wages
and other expenses, and anticipates that it will be able to do so in the future.
YEAR 2000
The Year 2000 issue is the result of computer programs which were
written using only two digits, rather than four, to represent a year. Date
sensitive software or hardware may not be able to distinguish between 1900 and
2000 and programs that perform arithmetic operations, comparisons or sorting of
date fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations.
The Company has developed a remediation plan for its Year 2000 issue
that involves three overlapping phases:
1) Inventory - This phase includes the creation of an inventory
of three functional areas:
a) Applications and information technology (IT) equipment
- - These include all mainframe, network and desktop hardware and software,
including custom and packaged applications, and IT embedded systems.
b) Non-information technology (non-IT) embedded systems -
These include non-IT equipment. Non-IT embedded systems, such as security, fire
prevention and climate control systems typically include embedded technology,
such as microcontrollers.
c) Vendor relationships - These include significant third
party vendors and suppliers of goods and services, as well as vendor and
supplier interfaces.
The Company has completed the inventory phase.
2) Analysis - This phase includes the evaluation of the
inventoried items for Year 2000 compliance, the determination of the
remeditation method and resources required and the development of an
implementation plan. A significant portion of the analysis phase is complete.
The Company completed the analysis phase for non-IT and IT embedded systems.
25
3) Implementation - This phase includes executing the
implementation plan for all applicable hardware and software, interfaces and
systems. This involves testing, in a Year 2000-simulated environment, the
changes, beginning to utilize the changed procedures in actual operations, and
vendor interface testing. The implementation phase, including testing for
certain critical applications, has commenced and is expected to be completed by
June 1999 for applications and IT equipment and non-IT embedded systems. All
other components of the implementation phase are expected to be completed by
September 1999. Additionally, subsequent to final implementation, the Company
will conduct live testing on January 1 and 2, 2000, before business commences on
January 3, 2000.
The Company's remediation plan for its Year 2000 issue is an ongoing
process and the estimated completion dates above are subject to change.
THE RISK OF THE COMPANY'S YEAR 2000 ISSUE
Overall, at this time the Company believes that its systems will be
Year 2000 compliant in a timely manner for several reasons. Several significant
marketing and fulfillment systems are already compliant. In addition, the
Company extensively utilizes certain shared applications that should be
remediated once and then deployed. Also, comprehensive testing of all critical
systems is planned to be conducted in a simulated Year 2000 environment.
The Company believes that the area of greatest risk to the Company
surrounding the Year 2000 issue relates to significant suppliers' failing to
remediate their Year 2000 issues in a timely manner. The Company has
relationships with certain significant suppliers. These relationships may be
material in the aggregate to the Company. The Company relies on suppliers to
deliver a broad range of services, including Internet access, online search
capabilities, supplies of promotional materials and paper, warehouse facilities,
lettershops which assemble promotional mailings, postal delivery services,
banking services, telecommunications and electricity. The Company is conducting
formal communications with its significant suppliers to determine the extent to
which it may be affected by those third parties' plans to remediate their own
Year 2000 issue in a timely manner. The level of preparedness of significant
suppliers can vary greatly. If a number of significant suppliers are not Year
2000 compliant, this could have a material adverse effect on the Company's
results of operations, financial position or cash flow.
THE COMPANY'S CONTINGENCY PLANS
The Company is developing its contingency plans and expects to have
them completed by June 1999. To mitigate the effects of the Company's or
significant suppliers' potential failure to remediate the Year 2000 issue in a
timely manner, the Company would take appropriate actions. Such actions may
include having arrangements for alternate suppliers, re-running the processes if
errors occur, using manual intervention to ensure the continuation of operations
where necessary, and scheduling activity in December 1999 that would normally
occur at the beginning of January 2000. If it becomes necessary for the Company
to take these corrective actions, it is uncertain, until the contingency plans
are finalized, whether this would result in significant delays in business
operations or have a material adverse effect on the Company's results of
operations, financial position or cash flow.
26
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUE
The total cost of the Company's remediation plan is estimated at
approximately $75,000 to $100,000 and is being funded through operating cash
flows. Of the total cost, approximately $35,000 to $40,000 will be attributable
to new hardware and software that will be capitalized. The remainder of the cost
will be expensed as incurred. As of December 31, 1998, none of the total cost of
the remediation plan has been spent, as the work to date has been performed by
internal staff.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", was issued.
SFAS No. 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. SFAS No. 133 can not be applied
retroactively to financial statements of prior periods. At the current time the
Company does not utilize derivative instruments, and accordingly it is
anticipated that the adoption of SFAS No. 133 will not have a material impact on
the Company's consolidated financial position and results of operations.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Form 10-K that are not related to historical results, are forward looking
statements. Actual results may differ materially from those projected or implied
in the forward looking statements. Further, certain forward looking statements
are based upon assumptions of future events, which may not prove to be accurate.
These forward looking statements involve risks and uncertainties, including but
not limited to the Company's dependence on regulatory approvals, its future cash
flows, sales, gross margins and operating costs, the effect of conditions in the
industry and the economy in general, and legal proceedings. Subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by cautionary
statements in this paragraph and elsewhere in this Form 10-K, and in other
reports filed by the Company with the Securities and Exchange Commission.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The financial position of the Company is subject to market risk
associated with interest rate movements on outstanding debt. The Company has
debt obligations with both fixed and variable terms. The carrying value of the
Company's variable rate debt obligations approximates fair value as the market
rate is based on prime. A 10 percent increase in the underlying interest rates
would result in an increase of interest expense of $3,000.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report on pages F-1 through F-31.
27
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
DIRECTORS AND OFFICERS
On October 5, 1998, the Board of Directors of the Company established
an Office of Managing Directors ("OMD") (a) responsible for (I) the conduct of
the ordinary business affairs and operations of the Company and (II) defining
operating policies in alignment with SVP International to take advantage of its
know-how and technological efficiencies, (b) comprised of four members, three of
whom shall be elected by the Board of Directors, upon the advice of the
Chairperson of the Board of Directors, and designated Senior Officers with the
title of Managing Directors, and the Chief Executive Officer, and (c) reporting
to the Board of Directors. Each Managing Director must be a member of the Board
of Directors or hold another executive position with the Company.
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- -- --------
Andrew P. Garvin (1) 53 President, Chief Executive Officer and Director
Brigitte de Gastines 55 Managing Director and Chairperson of the Board of Directors
Howard S. Breslow 59 Director
Frederick H. Fruitman 48 Director
Jean-Louis Bodmer 57 Managing Director and Director
Eric Cachart 42 Managing Director and Director
Victor L. Cisario (1) 37 Vice President, Chief Financial Officer, Corporate Secretary and
Treasurer
Stephan B. Sigaud (1) 42 Vice President - Client Services
Kenneth A. Ash (1) 54 Vice President - International Strategic Research
Peter Carley (1) 36 Vice President - Human Resources
- -----------------------
(1) Member of an Operating Management Group responsible for applying the
Company's overall policies and strategies and for proposing initiatives and
supplemental strategies for the growth of the Company.
29
Each director is elected for a period of one year at the Company's
annual meeting of shareholders and serves until his successor is duly elected by
shareholders. Officers are elected by and serve at the will of the Board of
Directors.
Mr. Garvin is a founder of the Company and has served as its Chief
Executive Officer since 1972 and as its President since 1978. Mr. Garvin has
been a director of the Company since its inception and treasurer until 1997.
From 1979 to 1982, Mr. Garvin was a member of the Board of Directors of the
Information Industry Association and served as Chairman of the 1979 National
Information Conference and Exposition. Mr. Garvin is the author of The Art of
Being Well Informed, an information resource handbook for executives. Mr. Garvin
received a B.A. degree in political science from Yale University and an M.S.
degree in journalism from the Columbia Graduate School of Journalism.
Ms. de Gastines was elected a director of the Company in accordance
with the Company's licensing agreement with SVP International. See "Item 1.
Business - SVP Network; Licensing Agreement with SVP International." She has
been a director of the Company since 1982 and Chairperson of the Board since
October, 1998. She has served as the General Manager of SVP International since
1985 and SVP S.A. since 1976.
Mr. Breslow has been a director of the Company since 1986. He has been
a practicing attorney in New York for more than 25 years and a member of the law
firm of Breslow & Walker, LLP, New York, New York for more than 20 years.
Breslow & Walker, LLP is currently the Company's general counsel. Mr. Breslow
currently serves as a director of Cryomedical Sciences, Inc., a publicly held
company engaged in the research, development and sale of products for use in low
temperature medicine, Vikonics Inc., a publicly held company engaged in the
design and sale of computer-based security systems, Lucille Farms, Inc., a
publicly held company engaged in the manufacturing and marketing of cheese
products, and Excel Technologies, Inc., a publicly held company engaged in the
development and sale of laser products.
Mr. Fruitman has been a director of the Company since 1989. Since 1990,
Mr. Fruitman has been a Managing Director of Loeb Partners Corporation, an
investment banking firm. Mr. Fruitman is a director of Micro Warehouse, Inc., a
publicly held company which markets computer products.
Mr. Bodmer has served as General Manager of SVP France since 1974.
Other positions which he currently holds are Chief Executive Director of SVP,
S.A., President and Chief Executive Officer of SVP Participation, President of
SVP Belgium, and President of SVP United Kingdom.
Mr. Cachart is the Associate General Manager of SVP, S.A. and has
served as President of SVP Multi-info since 1995. He was named President of SVP
Network in 1998. Prior to 1995 he was a journalist and news commentator for
French television networks.
Mr. Cisario has been the Company's Vice President and Chief Financial
Officer, Corporate Secretary and Treasurer since October 1998, and was Vice
President and Controller from January 1997 to October 1998, and was Controller
from March 1995 to January 1997. From 1992 to 1995, Mr. Cisario functioned as
Director of Finance and Administration for R.J. Rudden and Associates, an energy
industry consulting firm. He was employed from 1987 to 1992 in the financial
recruiting industry, including 1989 to 1992 with Robert Half, International,
where he was Vice President of the New York Region. Prior thereto he was a
senior Accountant
30
with a major real estate company and a Certified Public Accountant with Peat
Marwick Mitchell and Company. Mr. Cisario received a B.B.A. degree from Hofstra
University and is a Certified Public Accountant in New York State.
Mr. Sigaud has been the Company's Vice President of Client Services
since October 1998, and was Vice President and Managing Director of the
Company's Customer Satisfaction and Loyalty Group from May 1994 to October 1998.
From 1989 to 1994 Mr. Sigaud was the owner and President of IDSI, Inc., a
consulting firm specializing in Customer Satisfaction Measurement for companies
in the industrial sector. From 1986 to 1989 he functioned as Executive Vice
President for BMES, Inc., a business-to-business marketing research firm. He was
employed from 1982 to 1986 in the Recruiting Department of Renault in France.
Prior thereto he was in International Sales and Marketing and worked as Business
Development Manager for an engineering firm in East Africa and as Trade Attache
in the French Trade Office in Madagascar. Mr. Sigaud holds a B.S. in Math and
Physics from Marseilles University and an MBA in Marketing from ESSEC, the
leading business school in France.
Mr. Ash joined FIND/SVP in March 1992 as Vice President & Managing
Director of the Strategic Consulting & Research Group and became Vice President
International Strategic Research on October 5, 1998. From 1985 to 1992, Mr. Ash
directed his own consulting firm specializing in marketing and acquisition
engagements. In 1991 and 1992, Mr. Ash served as President and CEO of CallTrack
Systems, a start-up company offering a network-based, long distance call
accounting system geared to small and medium-sized organizations. Mr. Ash served
as Vice President of Marketing of Satellite Television Corporation, a COMSAT
subsidiary and major communications start-up venture between 1983 and 1985. From
1973 to 1983, Mr. Ash held progressively senior account management positions at
J. Walter Thompson and Ogilvy & Mather advertising agencies. Mr. Ash served as a
U.S. Navy Officer from 1969 to 1972, earned an MBA from the Wharton School of
the University of Pennsylvania in 1969 and a BA from Princeton University in
1967.
Mr. Carley has been the Company's Vice President of Human Resources
since July 1998, and was Director of Human Resources from December 1997 to July
1998. He joined the company as Manager of Human Resources in September of 1997.
Prior to joining FIND/SVP, he was employed by The Washington Post Company from
February 1996 until September of 1997, where he was most recently a Director,
Human Resources for MLJ, a telecommunications engineering consulting company.
Mr. Carley also worked in training and development, recruiting, employee
relations, and other Human Resources roles at Cost Plus World Market, a
California-based retail firm. He has a Bachelor of Arts degree from San
Francisco State University.
31
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers, directors and beneficial owners of more than
10% of any class of its equity securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 ("Reporting Persons") are required under
that Act to file reports of ownership and changes in beneficial ownership of the
Company's equity securities with the Securities and Exchange Commission. Copies
of those reports must also be furnished to the Company. Based solely on a review
of the copies of reports furnished to the Company pursuant to that Act, the
Company believes that during fiscal year ended December 31, 1998, all filing
requirements applicable to Reporting Persons were complied with, except that
Form 3 Initial Statements of Beneficial Ownership of Securities for Victor
Cisario, Peter Carley, Ken Ash and Stephan Sigaud, Officers of the Company,
which were due on November 10, 1998, were filed on November 19, 1998.
32
ITEM 11
EXECUTIVE COMPENSATION
----------------------
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three years
to (I) the Company's Chief Executive Officer, and (II) each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the year ended December 31, 1998 (collectively the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ---------------------------- -------
SECURITIES
NAMES AND OTHER RESTRICTED UNDERLYING LTIP ALL
--------- ------ ----------- ---------- ---- ---
PRINCIPAL SALARY BONUS ANNUAL STOCK OPTIONS PAYOUT OTHER
--------- ------ ----- ------ ----- ------- ------ -----
POSITIONS YEAR ($) ($) COMP. AWARDS ($) (#) (1) ($) COMP.
--------- ---- --- --- ----- ---------- ------- --- -----
ANDREW P. GARVIN 1998 264,171 50,000 -- -- -- -- --
PRESIDENT, CHIEF 1997 253,867 50,000 -- -- -- -- --
EXECUTIVE OFFICER 1996 251,256 12,500 -- -- 350,000 -- --
AND DIRECTOR
VICTOR L. CISARIO 1998 118,333 8,500 -- -- 60,000 -- --
VICE PRESIDENT, 1997 109,144 7,660 -- -- 5,000 -- --
CHIEF FINANCIAL 1996 90,025 3,859 -- -- 5,000 -- --
OFFICER, SECRETARY,
TREASURER (2)
STEPHAN B. SIGAUD 1998 133,958 200 -- -- 50,000 -- --
VICE PRESIDENT - 1997 114,227 39,160 -- -- -- -- --
CLIENT SERVICES (2) 1996 100,000 21,571 -- -- -- -- --
KENNETH A. ASH 1998 143,750 83,647 -- -- 60,000 -- --
VICE PRESIDENT - 1997 125,000 50,000 -- -- -- -- --
INTERNATIONAL STRATEGIC 1996 125,000 42,000 -- -- -- -- --
RESEARCH (2)
PETER J. FIORILLO 1998 142,500 9,000 -- -- -- -- --
EXECUTIVE VICE PRESIDENT, 1997 185,671 11,500 -- -- -- -- --
CHIEF FINANCIAL OFFICER, 1996 154,476 12,000 -- -- 125,000 -- --
CHIEF INFORMATION
OFFICER, TREASURER
AND SECRETARY (3)
- ------------------------
(1) Options to acquire Common Stock.
(2) Named executive officer of the Company on October 5, 1998
(3) Employment terminated on September 30, 1998.
33
OPTION GRANTS DURING 1998
-------------------------
The following table provides information related to stock options
granted to the Named Executive Officers during 1998:
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM (1)
GRANTED IN FISCAL BASE PRICE --------------------------------
NAME (#) (2) YEAR ($/SHARE) EXPIR. DATE 0% 5% ($) 10% ($)
- ---- ------- ---- --------- ----------- -- ------ -------
ANDREW P. GARVIN -- -- -- -- -- -- --
VICTOR L. CISARIO 10,000 2.8% 1.21875 4/21/03 -- 3,367.18 7,440.59
50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
STEPHAN B. SIGAUD 50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
KENNETH A. ASH 7,500 2.1% 1.21875 4/21/03 -- 2,525.39 5,580.44
2,500 0.7% 1.0625 6/30/03 -- 733.87 1,621.67
50,000 14.2% 0.75 10/5/03 -- 10,360.56 22,894.13
PETER J. FIORILLO -- -- -- -- -- -- --
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be received upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment.
(2) Represent number of shares of Common Stock underlying stock options. The
exercise prices equal the fair market of the Common Stock on the date of
grant.
34
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
---------------------------------------------------------------
The following table provides information related to options exercised
by each of the Named Executive Officers during the year ended December 31, 1998
and the number and value of options held at fiscal year end. The Company does
not have any outstanding stock appreciation rights.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR END (#) OPTIONS
---------------------- AT FISCAL YEAR END ($)(1)
-------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
(#) ($)
ANDREW P. GARVIN -- -- 150,500 255,000 -- --
VICTOR L. CISARIO -- -- 10,000 62,000 -- --
STEPHAN B. SIGAUD -- -- 27,000 48,000 -- --
KENNETH A. ASH -- -- 5,000 56,000 -- --
PETER J. FIORILLO 4,000 3,500 -- -- -- --
- -------------------------
(1) The closing sale price of the Company's Common Stock as reported by NASDAQ
on December 31, 1998 was $0.75. Value is calculated on the difference
between the option exercise price of in-the-money options and $0.75
multiplied by the number of shares of Common Stock underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1998. Andrew
P. Garvin, the President and Chief Executive Officer and a director of the
Company during such period, participated in deliberations of the Company's Board
of Directors concerning executive officer compensation. There were no
interlocking relationships between the Company and other entities that might
affect the determination of the compensation of the executive officers of the
Company.
EMPLOYMENT AND RELATED AGREEMENTS
On January 1, 1996, the Company entered into an Employment Agreement
with Andrew P. Garvin commencing on January 1, 1996 and terminating on December
31, 2001 (the "Employment Agreement"). Such Employment Agreement was amended and
restated on December 12, 1996. The Employment Agreement provides for a base
salary of $250,000 which will be adjusted each January 1 for a cost of living
increase based on the Consumer Price Index for New York City for the twelve
month period immediately preceding such January 1 date. Mr. Garvin will also be
entitled to additional increases in base salary as may be determined from time
to time by the Board of Directors or any compensation committee appointed by the
Board of Directors. Mr. Garvin received a $12,500 signing bonus upon execution
of the Employment Agreement. In
35
addition, Mr. Garvin will be entitled to receive performance bonuses equal to
10% per annum of the pre-tax profits of the Company in excess of $1,000,000 for
each of the years ended December 31, 1996, 1997, 1998, 1999, 2000, and 2001. The
Employment Agreement limits the bonus to $250,000 in any year, and states that
Mr. Garvin is entitled to receive a cash bonus of $50,000 in each of January
1997 and January 1998.
The Employment Agreement provides that (I) if Mr. Garvin voluntarily
leaves the employ of the Company on account of the Company being acquired and
its principal office being moved to a location which is greater than 50 miles
from New York City; and (II) if Mr. Garvin voluntarily leaves the employ of the
Company on account of a Change in Control, then, in each such case, he shall be
entitled to receive the compensation described in the immediately preceding
paragraph for the balance of the term; provided, however, that if such
termination occurs at a time when there is less than one year left in the term,
the compensation shall continue for a period of two years from the date of
termination on the same basis that the employee received compensation during the
last year of the term. Change of control is defined in the Employment Agreement
to include the acquisition by a party of 30% or more of the outstanding shares
of Common Stock of the Company or a change in the majority of the Incumbent
Board of Directors (as defined in the Employment Agreement). In the event that
the Company terminates Mr. Garvin's employment for cause, and a court of law or
other tribunal ultimately determines that such termination was without cause,
then he shall be entitled to receive double the amount of compensation described
above until the end of the term. Mr. Garvin has agreed to a non-competition
covenant for a period of two years after the term of the Employment Agreement.
During October 1998, Mr. Garvin's contract was amended to provide that
any time after 1999 Mr. Garvin may elect to voluntarily leave the employ of the
Company and receive the balance of his contract for the remaining term of his
employment contract. The term of the contract runs through 2001. Mr. Garvin's
salary for 1999 is $266,592. Additionally, concurrent with the amendment to his
contract, Mr. Garvin relinquished 75,000 options previously granted him in
connection with his employment contract. The vesting and pricing of said options
was contingent upon the Company meeting certain earnings levels over the life of
his employment contract. To date the earnings levels were not met, and
accordingly, the exercise price of those options had not yet been set.
The Company has entered into a deferred compensation agreement with Mr.
Garvin, which provides for a schedule of payments to him or his designated
beneficiary(ies). The agreement entered into in 1984 provides that in the event
during the course of employment Mr. Garvin (I) dies, (II) becomes totally
disabled or (III) elects to retire after June 30, 1994 and prior to age 65, he
or, in the event of death, his designated beneficiaries, shall receive monthly
payments ranging from $1,250 to $1,800 for a period of ten years from the date
of death, disability or retirement. In the event Mr. Garvin retires at age 65 or
over, Mr. Garvin shall receive $4,750 per month for ten years from the date of
his retirement.
The Company entered into an additional Deferred Compensation Agreement
with Mr. Garvin in 1990. Pursuant thereto, in the event during the course of
employment Mr. Garvin (I) dies, (II) becomes totally disabled or (III) elects to
retire after July 25, 1992 and prior to age 65, he or, in the event of death,
his designated beneficiary(ies), shall receive monthly payments ranging from
$618.81 to $2,351. These payments are to continue for a period of ten years from
the date of death, disability or retirement. In the event he retires at age 65
or over, Mr. Garvin shall receive $2,475.24 per month for ten years from the
date of his retirement. The benefits under the two agreements are cumulative.
36
Peter J. Fiorillo resigned as a member of the Board and as the
Company's Chief Operating Officer and Chief Financial Officer, effective
September 30, 1998. In connection with his severance agreement, coupled with the
signing of a release and agreement not to compete dated October 5, 1998, and the
immediate return of his outstanding options, Mr. Fiorillo will be receiving his
then current compensation, including benefits, for the next two years.
Accordingly, the Company has accrued $475,000 for severance and related costs to
selling, general and administrative expenses at September 30, 1998.
Severance arrangements for members of the Operating Management Group
(i.e. Messrs. Sigaud, Cisario, Ash and Carley) were agreed upon by the Board of
Directors on January 25, 1999. The sense of the discussion was that severance
agreements should be entered into with each of the members of the Operating
Management Group ("OMG") providing for (a) a normal severance benefit of nine
(9) months, which would be increased to one (1) year after the employee has
served as a member of the OMG for a continuous period of two (2) years, in the
event the employee's services are terminated by the Company without cause, and
(b) a severance benefit of one (1) year in the event the separation from service
is due to (I) a change-in-control, and (II) the employee suffers, within one (1)
year thereafter, either (A) a discontinuation of duties, or (B) an office change
of at least 50 miles, or (C) a reduction in compensation, or (D) a termination
of employment other than for cause. Severance agreements are currently being
prepared.
Directors were not compensated in cash for their services during 1998.
On January 25, 1999, the Board of Directors approved the payment of $1,500 per
meeting for the outside members of the Board. The Stock Option Plan of the
Company was amended in June 1995 to provide for the automatic grant to outside<