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 15 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, 2001, there were 1,710 QCS retainer clients and 10,590 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. The Company's Live AnswerDesk offers immediate, on-demand, question answering and personal search assistance from live experts. It is designed as a way to enhance the loyalty of the members of various consumer groups. The Company also produces The Information Advisor newsletter.
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.
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 1,500 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.
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, 2001 include a staff of 89 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 1,500 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 Company has several fixed and adjustable fee retainer programs in effect. Out-of-pocket expenses incurred to answer questions are invoiced in addition to retainer fees.
Retainer clients call FIND/SVP with their business issues and research needs, give their card number and explain their request to consultants who are divided into the following six practice groups and three support teams:
PRACTICE GROUPS:
(1) 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;
(2) THE TECHNOLOGY, INFORMATION AND COMMUNICATIONS GROUP covers computers, software, electronic media and office equipment, and provides expert help with Internet research, hands-on training, on-site seminars, competitive intelligence, Web marketing/trends and Internet user demographics.
(3) 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;
(4) THE FINANCIAL AND BUSINESS SERVICES GROUP handles requests on banking, insurance, mergers and acquisitions, real estate and mortgages, the securities and investment industries, customer satisfaction and corporate management theory, and provides credit reports on specific companies and Securities and Exchange Commission documents on public companies;
(5) THE INDUSTRIAL PRODUCTS AND SERVICES GROUP covers manufacturing, energy, chemicals, plastics, pulp and paper, metals and mining, transportation, environment, construction and agriculture; and
(6) THE MANAGEMENT ADVISORY GROUP handles requests on legal research, human resources research and accounting and tax issues;
SUPPORT TEAMS:
(1) THE INTERNATIONAL TEAM addresses executive's needs for international finance and trade, global corporate competitive intelligence and worldwide management strategies;
(2) THE DOCUMENTS TEAM locates and obtains copies of articles, documents, patents, books, pamphlets, catalogs, conference proceedings, government reports and product samples; and
(3) THE MARKETING TEAM covers direct marketing, advertising, sales promotions and 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 the findings, 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 15 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.
At December 31, 2001, there were 1,710 retainer clients, a 10.3% decrease from December 31, 2000, and 10,590 holders of the Membership Card, a 7.6% decrease from December 31, 2000. During 2001, monthly fees billed to retainer clients (the retainer base) decreased by 7.1% to $1,470,659. Approximately 50% of the top Fortune 100 industrial companies are QCS retainer clients. Revenues generated by QCS represented 85%, 82% and 82% of the Company's total revenues for the years ended December 31, 2001, 2000 and 1999, respectively.
LIVE ANSWERDESK ("LAD"). LAD provides immediate, on-demand, question answering and personal search assistance from live experts. It is designed as a way to enhance the loyalty of the members of various consumer groups. Revenues generated by LAD represented 2% and 1% of the Company's total revenues for the year ended December 31, 2001 and 2000, respectively, and less than 1% for the year ended December 31, 1999.
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 Group, 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 13%, 16% and 17% of the Company's total revenues for each of the years ended December 31, 2001, 2000 and 1999.
POTENTIAL RELATED SERVICES AND PRODUCTS
The Company plans to expand its services through continued internal development during 2002. This includes various initiatives aimed at both business-to-business and consumer users of the Internet. Additionally, the Company will consider exploring possible alliances with and/or 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, 16 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 again in 2001, 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. 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.
Until November 2001, SVP International (including affiliates) owned approximately 37% of the outstanding common shares of the Company, excluding outstanding warrants. In November 2001, SVP International and its affiliates sold their entire interest (stock and warrants) in the Company to Marlin Equities, LLC and Walke Associates, Inc., and terminated their management involvement.
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 $118,000, $118,000 and $119,000 for the years ended December 31, 2001, 2000 and 1999, 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. Approximately 50% of the top Fortune 100 industrial companies are QCS retainer clients. 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.
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 consulting 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.
EMPLOYEES
As of December 31, 2001, the Company had 169 full-time employees, including 5 executive officers, 41 marketing and sales employees, 89 consultants and research employees, and 34 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
ITEM 2
PROPERTIES
At December 31, 2001, the Company has a lease on approximately 32,000 square feet of office space at 625 Avenue of the Americas, New York, New York, which became the main offices of the Company in 1987. The lease is subject to standard escalation clauses, and expires in June 2005. Basic annual rent expense, determined on the straight-line basis over the term of the lease, is approximately $694,000.
The Company has additional leased office space for approximately 20,000 square feet at 641 Avenue of the Americas, New York, New York. Such lease arrangements are subject to standard escalation clauses, and expire in June 2005. Basic annual rent expense, determined on the straight-line basis over the term of the lease, is approximately $497,000.
ITEM 3
ITEM 3
LEGAL PROCEEDINGS
None.
ITEM 4
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II ITEM 5
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock, par value $.0001 per share ("Common Stock"), is traded on the over-the-counter bulletin board 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 - ----------- ---- ---
- ---- 1st Quarter 0.8100 0.5000 2nd Quarter 0.7700 0.3300 3rd Quarter 0.7500 0.4800 4th Quarter 1.0000 0.3400
- ---- 1st Quarter 4.0310 2.1880 2nd Quarter 2.6250 1.0000 3rd Quarter 1.2500 0.9380 4th Quarter 1.0000 0.5310
On March 1, 2002, there were approximately 850 holders of record of the Common Stock. Such numbers do not include shares held in "street name."
In April 2001, due to its failure to comply with NASDAQ's $1.00 minimum bid price requirement, the company's shares of Common Stock were delisted. Trading has continued to be conducted on the non-NASDAQ over-the-counter bulletin board.
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.
ITEM 6
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
BALANCE SHEET DATA
ITEM 7
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 two business segments, 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 as well as Live AnswerDesk ("LAD") services ("Quick Consulting"); 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 ("Strategic Consulting"). The Company considers its QCS and SCRG service businesses, which operate as "consulting and business advisory" businesses, to be its core competency.
The Company had an operating loss of $1,148,000 for the year ended December 31, 2001 versus an operating loss of $753,000 for the year ended December 31, 2000 and operating income of $348,000 for the year ended December 31, 1999. The net loss for the year ended December 31, 2001 was $945,000 versus net loss of $535,000 for the year ended December 31, 2000 and operating income of $883,000 for the year ended December 31, 1999.
Revenues for 2001 were $22,215,000 and revenues for 2000 were $23,800,000. The decrease in revenues was a result of a decrease in the Company's retainer base (recurring monthly income) in 2001, coupled with a decline in SCRG revenues for the year. Revenues for 1999 were $22,738,000. On a comparable basis, 1999 revenues were $22,647,000 after deducting revenues of $91,000 related to the sale of the Published Research business unit. The increase in comparable revenues from 1999 to 2000 was a result of an increase in the Company's retainer base (recurring monthly income) in 2000, coupled with a significant increase in LAD revenue. This was partially offset by a decline in SCRG revenues for the year.
Net income in 1999 was positively affected by a pretax gain of $1,200,000 (approximately $672,000 after tax) resulting from a collaboration agreement between FIND/SVP and idealab!, a leading creator and operator of Internet businesses, to develop find.com, a new Internet site.
Selling, general and administrative expenses were $12,397,000, or 56% of revenue, in 2001, a decrease of $29,000 from $12,426,000, or 52.2% of revenue, in 2000. Direct costs (those costs directly related to generating revenue, such as direct labor, expenses incurred on behalf of clients and the costs of electronic resources and databases) were $10,966,000 in 2001, or 49.2% of revenue as compared to $12,127,000, or 51.0% of revenue, for the year ended December 31, 2000. Both total selling, general and administrative expenses and total direct costs, decreased in terms of dollars primarily due to cost containment measures that were put into place during the second quarter of 2001. These measures continued throughout 2001 in response to the weakened economy.
SEGMENT REPORTING
The Company operated in two segments during 2001, 2000 and 1999. Segment data, which is useful in understanding results, is as follows:
(1) Includes interest income, other income, gain on sale of net assets, interest expense and other expense.
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PRODUCT AND SERVICE REVENUES
The Company's revenues decreased by $1,585,000, or 6.7%, from $23,800,000 in 2000 to $22,215,000 in 2001 and increased by $1,062,000, or 4.7%, from $22,738,000 in 1999 to $23,800,000 in 2000. The decrease in 2001 was caused by a decrease in the number and size of retainer clients and a decrease in the number and size of SCRG projects, caused by the weakened economy, as described below. The increase in 2000 was due to an increase in QCS and LAD revenues, partially offset by a decrease in SCRG revenues, as described below.
QCS revenues decreased by $731,000, or 3.7%, from $19,709,000 in 2000 to $18,978,000 in 2001, and increased by $900,000, or 4.8%, from $18,809,000 in 1999 to $19,709,000 in 2000. The decrease from 2000 to 2001 was due to the weakened economy which caused cancellations and a decrease in new sales. In addition, certain accounts cancelled when they ceased operation due to the events of September 11, 2001. Also, the monthly fees billed to retainer clients (the retainer base) decreased from the beginning of 2001 to the end of 2001 by 7.1% from $1,583,308 to $1,470,659. The increase from 1999 to 2000 was due to an increase in the average monthly fee paid by retainer clients, partially offset by the decline in the number of retainer clients. The monthly fees billed to retainer clients (the retainer base) increased from the beginning of 2000 to the end of 2000 by 5.0% from $1,507,782 to $1,583,308.
LAD revenues increased by $215,000, or 97.3%, from $221,000 in 2000 to $436,000 in 2001, and increased by $179,000, or 426.2%, from $42,000 in 1999 (the year the service began) to $221,000 in 2000.
SCRG revenues decreased by $1,069,000, or 27.6%, from $3,870,000 in 2000 to $2,801,000 in 2001, and by $17,000, or 0.4%, from $3,887,000 in 1999 to $3,870,000 in 2000. The decrease from 2000 to 2001 was due to a decline in new projects booked, caused by the weakened economy. The decrease from 1999 to 2000 was a result of a decrease in sales leads due to employee turnover. The number of new projects begun in the last half of 2000 decreased as compared to those begun in the last half of 1999. The Customer Satisfaction and Loyalty Division accounted for 16.7%, 13.6% and 22.7% of SCRG's revenue for 2001, 2000 and 1999, respectively.
The Company earned $91,000 in royalties in 1999 from the sold Published Research unit.
DIRECT COSTS
Direct costs (those costs directly related to generating revenue, such as direct labor, expenses incurred on behalf of clients and the costs of electronic resources and databases) decreased by $1,161,000, or 9.6%, from $12,127,000 in 2000 to $10,966,000 in 2001 and increased by $584,000, or 5.1%, from $11,543,000 in 1999 to $12,127,000 in 2000. Direct costs represented 49.2%, 51.0% and 50.8% of revenues, respectively, in 2001, 2000 and 1999. The decrease in total direct costs from 2000 to 2001 was due primarily to a decrease in expenses incurred on behalf of clients, in addition to a reduction in direct labor costs. The increase in total direct costs from 1999 to 2000 was due primarily to an increase in direct labor costs over the previous year, partially offset by a decrease in all other direct costs as compared to the previous year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $29,000, or less than 1%, from $12,426,000, or 52.2% of revenue, in 2000 to $12,397,000, or 55.8% of revenue, in 2001 and increased by $1,579,000, or 14.6%, from $10,847,000, or 47.7% of revenues in 1999 to $12,426,000, or 52.2% of revenues in 2000. In 2001, selling, general and administrative expenses included approximately $169,000 in negative effects related to the World Trade Center attack (described below). The decrease in selling, general and administrative expenses in terms of dollars from 2000 to 2001 was due primarily to reductions in general expenses in response to cost containment measures that began in the second quarter of 2001. The increase in total selling, general and administrative expenses in terms of dollars from 1999 to 2000 was due primarily to an increase in labor costs over the previous year, coupled with an increase in selling expenses.
EFFECTS OF WORLD TRADE CENTER ATTACK
As a result of the World Trade Center Attack, the Company has incurred certain negative effects that it estimates to be $169,000. As a result of the sudden economic shift among clients, staff was reduced, resulting in $13,000 in severance costs. Subsequent to September 11, 2001, the Company reviewed receivables on those clients directly affected by the tragedy, including attempted communication with those accounts. As a result, the Company recorded additional write offs of receivables of $125,000 attributed to the events of September 11, 2001. The Company also incurred incremental costs related to staffing and maintaining its ability to service clients during the week of September 11, 2001 totaling $31,000.
OPERATING (LOSS) INCOME
The Company's operating loss was $1,148,000 in 2001, compared to $753,000 in 2000, an increase in loss of $395,000. The increased loss was primarily related to the effects of the weakened economy and the effects of the attack on the World Trade Center.
The Company's operating loss was $753,000 in 2000, compared to operating income of $348,000 in 1999, an increase in loss of $1,101,000. The increase in loss was primarily related to the Company's emphasis on increasing its retainer base through the use of increased marketing expense and the hiring of a larger sales force.
INTEREST INCOME AND EXPENSE; OTHER ITEMS
In 2001, the Company earned $49,000 in interest income, which decreased from $119,000 in 2000 and $88,000 in 1999. The decrease in 2001 was a result of lower cash balances throughout 2001, coupled with interest rates reduced from the previous years.
Interest expense in 2001 was $246,000, which was a decrease from $336,000 in 2000, and from $464,000 in 1999. The decrease was a result of the reduction in outstanding debt in 2001 as compared to previous years. In the third quarter of 2000, the Company reduced its interest expense by replacing a portion of its Senior Subordinated Notes with a Term Note bearing a lower interest rate.
During the third quarter of 2000, the Company received payment of $100,000 from a landlord in consideration for giving up its rights under a lease agreement. This payment was classified as other income.
On December 30, 1999, the Company entered into an agreement with idealab! and Find.com, Inc. whereby the Company assigned the domain name "find.com" and licensed the use of certain rights to the trademarks "find.com" and "find" to Find.com, Inc. idealab! and Find.com, Inc. are not otherwise related to the Company. Under the terms of the agreement, the Company received consideration in the form of cash and preferred shares amounting to approximately $1,200,000, net of related expenses. The Company is also entitled to certain future royalties. No royalty income was earned in the years ended December 31, 2001 and 2000. The carrying value of the preferred shares is the lower of historical cost or estimated net realizable value. The non-marketable preferred share securities carry various rights including the ability to convert into common shares of Find.com and a repurchase (put) option that becomes exercisable in December 2002. The put option for the preferred shares is $1,500,000. If the Company exercises its put option and idealab! does not repurchase the preferred shares, the Company is entitled to keep the preferred shares and get back the licensed rights. Since the preferred share securities are an investment in a start-up enterprise,
it is reasonably possible in the near term that the Company's estimate of the net realizable value of the preferred shares will be less than the $500,000 carrying value of the preferred shares.
INCOME TAXES
The $400,000 income tax benefit for the year ended December 31, 2001 represents 29.7% of pre-tax loss. The income tax benefit was lower than the statutory rate due primarily to expenses that are not deductible for tax purposes.
The $323,000 income tax benefit for the year ended December 31, 2000 represents 38.9% of pre-tax loss.
The $289,000 tax provision recognized for 1999 represents 24.7% of the 1999 pre-tax income. Income tax expense for 1999 was favorably reduced due to the reversal of a $280,000 valuation reserve placed upon deferred tax assets prior years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Our preparation of our financial statements requires us to make estimates and judgments that affect reported amounts of assets, liabilities and revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts, restructuring, useful lives of property, plant and equipment and intangible assets, income tax valuation allowances, other accrued expenses. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
NON-MARKETABLE EQUITY SECURITIES: The preferred share securities in idealab! are an investment in a start-up enterprise. It is reasonably possible in the near term that the Company's estimate of the net realizable value of the preferred shares will be less than the carrying value of the preferred shares.
INCOME TAXES: The Company has tax loss carryforwards that have been recognized as assets in its financial statements. These assets are subject to expiration from 2012 to 2021, and the Company's ability to realize these assets is dependent upon its ability to generate taxable income of sufficient magnitude prior to the expiration of the tax loss carryforward. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital resources have been cash flow from operations, borrowings, and prepaid retainer fees provided by clients. Cash balances were $1,951,000 and $901,000 at December 31, 2001 and 2000, respectively. The Company's working capital position (current assets, less current liabilities) at December 31, 2001 was $1,352,000, as compared to $1,587,000 at December 31, 2000.
The Company believes that its cash generated from operations, together with its existing cash balances, will be sufficient to meet its operating cash needs and expected capital expenditures for the near term. To supplement possible short-term cash needs, the Company has a $1,000,000 line of credit at the prime commercial lending rate plus one-half percent. The line is renewable annually, and was put in place on December 30, 1999. As of December 31, 2001, $200,000 was outstanding under this line of credit.
Cash provided by (used in) operating activities was $299,000, ($690,000) and $1,093,000 in the years ended December 31, 2001, 2000 and 1999, respectively.
Cash used in investing activities was $167,000, $433,000 and $472,000 in the years ended December 31, 2001, 2000 and 1999, respectively. Capital expenditures during 2001 were mainly for computer hardware upgrades and leasehold improvements. Capital expenditures for the migration of the Company's 10-year-old management information system to a new computer system platform were a significant component of the amounts invested in 2000 and 1999. This new system improves the consultants' ability to communicate with clients, access the internet, and to integrate the Company's products, as well as to expand the Company's enterprise network. Total capital expenditures were $304,000, $570,000 and $672,000 in the years ended December 31, 2001, 2000 and 1999, respectively. During the year ending December 31, 2002, the Company expects to spend approximately $600,000 for capital items, the major portions of which will be used for computer hardware upgrades and for leasehold improvements.
Cash provided by (used in) financing activities was $918,000, ($72,000) and ($832,000) in the years ended December 31, 2001, 2000 and 1999, respectively. In 2001, the most significant item was the net proceeds obtained from the issuance of common shares of $1,443,000. The share proceeds related to equity purchases by a group of investors. In 2000 and 1999, the most significant items related to the early repayment of debt, which were otherwise due in installments in the years 2001 and 2002. In connection with the repayment of such bank borrowings, the bank released two $1,000,000 standby letters of credit that had been provided by a shareholder, SVP, S.A.
In the first quarter of 2000, warrants to acquire 266,945 common shares were exercised and $601,000 of face value of the Senior Subordinated Note due October 31, 2001 were surrendered as payment in a non-cash transaction.
On August 1, 2000, the Company entered into a financing agreement with a commercial bank for a $1,400,000 Term Note, due June 30, 2005. The Note bears interest at prime plus 1.25% and is payable in quarterly installments beginning September 30, 2000. In early August 2000, the proceeds of the Note were used to pay down a portion of the Company's Senior Subordinated Notes. In November 2000, the Company also exchanged 150,000 shares of its common stock for 633,000 outstanding warrants to purchase common stock.
In February 2002, the Company entered into a financing agreement with a commercial bank for a $2,000,000 Term Note, due December 31, 2006. The Term Note bears interest at prime plus 1.25%, and is payable in quarterly installments beginning March 31, 2002. The proceeds from this Term Note were used to repay the $1,100,000 balance of the existing term note, and to repay the remaining portion of the Company's Senior Subordinated Notes.
After this financing, the following summarizes the Company's financial obligations and their expected maturities and the effect such obligations are expected to have on liquidity and cash flow in the periods indicated.
- --------------------------------------------------------------------------------
(in thousands)
As of December 31, 2001 ------------------------------------------------ Less than 1 Total year 1-3 years After 3 years ------------------------------------------------- Long term debt $2,520 $ 875 $ 845 $ 800 Long term lease commitment 3,225 1,093 1,706 426 Deferred compensation 380 -- -- 380 ------------------------------------------------- $6,125 $1,968 $2,551 $1,606 =================================================
- --------------------------------------------------------------------------------
In accordance with the terms of the Senior Subordinated Notes, the payment of portions of accrued interest may be deferred. Accrued deferred interest of $70,000 and $62,000 at December 31, 2001 and 2000, respectively, was accrued and deferred under such terms. Such amounts compound and accrue interest at the rate of 12%.
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 direct costs, and anticipates that it will be able to do so in the future.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and in June 2000 issued SFAS No. 138, which amended certain provisions of SFAS No. 133. These statements require companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether it qualifies for hedge accounting. The Company adopted both pronouncements as of January 1, 2001. The Company does not have derivatives or hedging activities as contemplated by these pronouncements, and there was no effect of adoption.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, "Business Combinations" effective July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), effective for fiscal years beginning after December 15, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules of accounting for goodwill and other intangible assets as of January 1, 2002. On an annual basis, the Company's amortization of goodwill has been approximately $10,000. The Company has concluded that the adoption of SFAS Nos. 141 and 142 will not have a material effect on its consolidated financial position or results of operations.
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which will be adopted by the Company as of January 1, 2003. This standard addresses issues associated with the retirement of tangible long-lived assets. The Company has not completed its process of evaluating the impact, if any, on its consolidated financial position and results of operations that will result from the adoption of this standard.
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which will be adopted by the Company as of January 1, 2002. This standard also addresses issues associated with the disposal of a segment of a business. The Company has concluded that there is no effect of adoption of this standard on its consolidated financial position or results of operations as of January 1, 2002.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
This Annual Report on Form 10-K (and any other reports issued by the Company from time to time) contains certain forward-looking statements made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including statements regarding the Company's future cash flows, sales, gross margins and operating costs, the effect of conditions in the industry and the economy in general, and legal proceedings, are based on current expectations that involve numerous risks and uncertainties. Actual results could differ materially from those anticipated in such forward-looking statements as a result of various known and unknown factors, including, without limitation, future economic, competitive, regulatory, and market conditions, future business decisions, and those factors discussed under Management's Discussion and Analysis of Financial Condition and Results of Operations. Words such as "believes", "anticipates", "expects", "intends", "may", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company undertakes no obligation to revise any of these forward-looking statements. 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
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. An increase in the underlying interest rates would result in a corresponding increase in interest expense, based on the then outstanding borrowings.
ITEM 8
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are submitted in a separate section of this report on pages through.
Quarterly financial data is as follows.
(in thousands, except per share data)
ITEM 9
ITEM 9
Not applicable.
PART III
ITEM 10
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the information to be provided in the Company's definitive proxy statement, which statement is anticipated to be filed within 120 days of the end of the fiscal year to which this report relates.
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 the fiscal year ended December 31, 2001, all filing requirements applicable to Reporting Persons were complied with, except that Form 4's were filed late for Howard S. Breslow and Frederick Fruitman, former directors of the Company.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the information to be provided in the Company's definitive proxy statement, which statement is anticipated to be filed within 120 days of the end of the fiscal year to which this report relates.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the information to be provided in the Company's definitive proxy statement, which statement is anticipated to be filed within 120 days of the end of the fiscal year to which this report relates.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this 10-K:
Independent Auditors' Reports.
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
(2) SCHEDULE
The following Financial Statement schedule is filed as part of this 10-K:
Schedule II - Valuation and Qualifying Accounts
Other Financial Statement schedules are omitted because they are not applicable or because the information required is provided in the Consolidated Financial Statements or Notes thereto included herein.
(3) EXHIBITS
EXHIBIT NUMBER DOCUMENT ------- --------
3(a) Copy of restated Certificate of Incorporation as amended (1), and amendment thereto.
(b) Copy of By-Laws, as amended.(3)
4(a) Copy of specimen of Common Stock Certificate.(1)
10(a) Copy of License Agreement, dated October 11, 1971, between the Company and SVP International (formerly SVP Conseil) and an amendment thereto, dated March 23, 1981.(1)
(b) Copy of Deferred Compensation and Salary Continuation Agreement, dated June 30, 1984, between the Company and Andrew P. Garvin .(1)
(c) Copy of the lease related to premises at 625 Avenue of the Americas, NY, NY.(2) and amendment related thereto.(5)
(d) Copy of Target Benefit Plan of the Company.(4)
(e) Copy of lease dated March 15, 1995 related to premises on 4th floor at 641 Avenue of the Americas, NY, N.Y. (6)
(f) Copy of 401(k) and Profit Sharing Plan of the Company.(7)
(g) Copy of the Note and Warrant Purchase Agreement with SVP, S.A. dated November 30, 1996. (9)
(h) FIND/SVP, Inc. 1996 Stock Option Plan. (10)
(i) Copy of the Stock Purchase Agreement between SVP, S.A. and the Company dated January 15, 1998. (11)
(j) Copy of Peter J. Fiorillo's Severance Agreement. (12)
(k) Copy of the idealab! Agreement dated December 30, 1999. (13)
(l) Copy of the Chase Manhattan Bank Loan Agreement dated December 30, 1999. (13)
(m) Copy of Employment Agreement, amended and restated as of November 21, 2001, between the Company and Andrew P. Garvin.
(n) Copy of Employment Agreement, dated November 21, 2001, between the Company and David Walke.
(o) Copy of Employment Agreement, amended as of February 6, 2002, between the Company and Martin E. Franklin.
(p) Copy of the JPMorgan Chase Bank Loan Agreement dated February 20, 2002.
21 List of Subsidiaries. (8)
23 Independent Auditors' Consents.
(1) Incorporated by reference to the Company's Registration Statement on Form S-18 (Reg. No. 33-8634-NY) which became effective with the Securities and Exchange Commission on October 31, 1986.
(2) Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on February 2, 1987.
(3) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1987.
(4) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1989.
(5) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1992.
(6) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Form S-8 filed on March 29, 1996.
(8) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1995.
(9) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1996.
(10) Incorporated by reference to the Company's Form S-8, filed on February 27, 1997.
(11) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1998.
(12) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1998.
(13) Incorporated by reference to the Company's Form 10-K filed for the year ended December 31, 1999.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed in the last quarter of the period covered by this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIND/SVP, INC.
Date: April 1, 2002 BY: /s/ David Walke --------------------------------------- David Walke, Chief Executive Officer (Principal Executive Officer)
Date: April 1, 2002 BY: /s/ Fred S. Golden --------------------------------------- Fred S. Golden (Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirement(s) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: April 1, 2002 /s/ Andrew P. Garvin --------------------------------------- Andrew P. Garvin, President and Director
Date: April 1, 2002 /s/ Martin E. Franklin --------------------------------------- Martin E. Franklin, Director
Date: April 1, 2002 /s/ David Walke --------------------------------------- David Walke, Director
Date: April 1, 2002 /s/ Marc L. Reisch --------------------------------------- Marc L. Reisch, Director
Date: April 1, 2002 /s/ Robert J. Sobel --------------------------------------- Robert J. Sobel, Director
Date: April 1, 2002 /s/ Warren Struhl --------------------------------------- Warren Struhl, Director
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIND/SVP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
PAGE ----
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Schedule: Independent Auditors' Report on Supplemental Schedule
Schedule II - Valuation and Qualifying Accounts
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Find/SVP, Inc.
We have audited the accompanying consolidated balance sheets of Find/SVP, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Stamford, Connecticut March 27, 2002
FIND/SVP, INC. AND SUBSIDIARIES Consolidated Balance SheetsDecember 31 (in thousands, except share and per share data)
See accompanying notes to consolidated financial statements
FIND/SVP, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31 (in thousands, except share and per share data)
See accompanying notes to consolidated financial statements.
FIND/SVP, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended December 31 (in thousands, except share amounts)
See accompanying notes to consolidated financial statements
FIND/SVP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31 (in thousands)
See accompanying notes to consolidated financial statements.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2001, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION
Find/SVP, Inc. and its wholly owned subsidiaries (the "Company") provide 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 in two business segments, 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 as well as a Live AnswerDesk service ("Quick Consulting"); 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 ("Strategic Consulting").
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.
(C) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost.
Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Electronic equipment and computer software is primarily depreciated over five years, and the Company's proprietary management information software system is depreciated over ten years. Leasehold improvements are amortized by the straight-line method over the shorter of the term of the lease or the estimated life of the asset.
(D) DEFERRED CHARGES AND GOODWILL
Deferred charges primarily comprise the cost of acquired library information files and electronic databases, which are amortized to expense over the estimated period of benefit of three years using the straight-line method.
Goodwill arising from various acquisitions represents the excess of purchase price over the fair value of assets and liabilities acquired and is being amortized on a straight-line basis over 15 years.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(E) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized.
(F) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share are computed by dividing net income (loss) by a diluted weighted average number of common shares outstanding during the year. Such dilution is computed using the treasury stock method for the assumed conversion of stock options and warrants whose exercise price was less than the average market price of the common shares during the respective period, and certain additional dilutive effects of exercised, terminated and cancelled stock options. In the years ended December 31, 2001 and 2000 there was no such dilutive effect.
Options and warrants to purchase 3,460,472, 1,847,872 and 1,883,789 common shares during the years ended December 31, 2001, 2000 and 1999, respectively, were antidilutive and were therefore excluded from the computation of diluted earnings per share.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(G) REVENUE RECOGNITION
Revenues from annual retainer fees are recognized ratably over the contractual period. Other revenues are recognized as earned. Revenues include certain out-of-pocket and other expenses billed to clients which aggregated approximately $1,111,000, $1,770,000 and $2,186,000 in 2001, 2000 and 1999, respectively.
(H) CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all highly liquid investments with original maturities of three months or less.
(I) NON-MARKETABLE EQUITY SECURITIES
Non-marketable equity securities are valued at the lower of historical cost or estimated net realizable value.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair value of financial instruments:
The carrying values reported in the balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair values.
The fair value of notes payable, which approximates its carrying value, is estimated based on the current rates offered to the Company for debt of the same remaining maturities.
(K) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(L) NEW ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) and in June 2000 issued SFAS No. 138, which amended certain provisions of SFAS No. 133. These statements require companies to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether it qualifies for hedge accounting. The Company adopted both pronouncements as of January 1, 2001. The Company does not have derivatives or hedging activities as contemplated by these pronouncements, and there was no effect of adoption.
In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, "Business Combinations" effective July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), effective for fiscal years beginning after December 15, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.
The Company will adopt SFAS No. 142 as of January 1, 2002. On an annual basis, the Company's amortization of goodwill has been approximately $10,000. The Company has concluded that the adoption of SFAS Nos. 141 and 142 will not have a material effect on its consolidated financial position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which will be adopted by the Company as of January 1, 2003. This standard addresses issues associated with the retirement of tangible long-lived assets. The Company has not completed its process of evaluating the impact, if any, on its consolidated financial position and results of operations that will result from the adoption of this standard.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which will be adopted by the Company as of January 1, 2002. This standard also addresses issues associated with the disposal of a segment of a business. The Company has concluded that there is no effect of adoption of this standard on its consolidated financial position or results of operations as of January 1, 2002.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(1), CONTINUED
(M) USE OF ESTIMATES
Management makes estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(N) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with current year presentation.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
At December 31, 2001 and 2000, equipment and leasehold improvements consist of the following:
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(3) OTHER ASSETS
At December 31, 2001 and 2000, other assets consist of the following:
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FIND/SVP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LEASES
The Company has an operating lease agreement for its principal offices, which expires in 2005. As a result of certain lease renegotiations, rental expense is scheduled to decline over the term of the lease. Rental expense under this lease is recorded on a straight-line basis. Scheduled payments through December 31, 2001 and 2000 exceeded rental expense recorded on this lease through such dates by $788,000 and $602,000, respectively.
The Company has two operating leases for additional office space that expire in 2005. Rental expense is scheduled to increase over the term of the lease. Rental expenses on these leases are recorded on a straight-line basis. Accordingly, rent recorded through December 31, 2001 and 2000 exceeded scheduled payments by $207,000 and $228,000, respectively. In September 2000, the Company gave up its rights to a portion of this space for which the Company received $100,000 from its landlord, which is included in other income in 2000.
The Company's leases of office space include standard escalation clauses. Rental expenses under leases for office space and certain equipment accounted for as operating leases were $1,729,000, $1,573,000 and $1,676,000 in 2001, 2000 and 1999, respectively.
The future minimum lease payments under noncancellable operating leases as of December 31, 2001 were as follows:
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YEAR ENDING DECEMBER 31 OPERATING LEASES - ----------------------- ---------------- 2002 $ 1,093,000 2003 853,000 2004 853,000 2005 426,000 2006 -- Thereafter -- --------------- Total minimum lease payments $ 3,225,000 =============== - --------------------------------------------------------------------------------
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(5) NOTES PAYABLE
Notes payable as of December 31, 2001 and 2000 consist of the following:
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(A) DEBT AGREEMENTS WITH BANK
On August 1, 2000, the Company entered into a financing agreement with a commercial bank for a $1,400,000 Term Note (the "Note"), due June 30, 2005. The Note bears interest at prime plus 1.25% and is payable in quarterly installments beginning September 30, 2000. As of December 31, 2001, there was $1,100,000 outstanding on this Note.
The Company has a $1,000,000 line of credit at the prime commercial lending rate plus 0.5%. The line is renewable annually, and was put in place on December 30, 1999. As of December 31, 2001, $200,000 was outstanding under this line.
The Company's debt agreements with the bank are secured by a general security agreement covering all of the Company's assets.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(5), CONTINUED
(B) AGREEMENTS WITH INVESTORS
Borrowings under the debt agreements with investors accrue interest at an annual rate of 12% on the unpaid principal balance. Interest payments are made periodically, and the agreements allow for the automatic deferral of some of the interest. Any interest that is deferred, compounds and accrues interest at 12%. As of December 31, 2001, there was approximately $89,000 of accrued but unpaid interest of which $14,000 was deferred in accordance with said provisions. As of December 31, 2000, there was approximately $102,000 of accrued but unpaid interest, of which $62,000 was deferred.
In early August 2000, the proceeds of the Term Note due June 30, 2005 were used to pay down a portion of the Company's Senior Subordinated Notes, resulting in an after tax extraordinary loss of $27,000.
The aggregate principal maturities of long-term debt for the next five years, including deferred interest and after full amortization of discounts, are as follows:
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YEAR ENDING DECEMBER 31,
2002 $ 925,000 2003 345,000 2004 350,000 2005 200,000 2006 -- Thereafter -- ------------ $ 1,820,000 ============
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(6) SHAREHOLDERS' EQUITY
(A) SALE OF COMMON STOCK
In November 2001, the Company issued 2,437,500 shares for net cash proceeds of $1,443,000, after transaction costs. This transaction resulted in a triggering of the change in control provisions of certain employment and severance agreements (See Note 9).
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
(B) COMMON STOCK WARRANTS
On January 1, 2000 warrants to purchase 1,472,000 of the Company's common shares at $2.25 per share were outstanding. During the first quarter of 2000, 266,945 of such warrants were exercised. Under the terms of such warrants, $600,626 of face value of the Senior Subordinated Note due October 31, 2001 was surrendered as payment. In August 2000 as part of the early retirement of the Senior Subordinated Note due October 31, 2001, 633,055 warrants were converted into 150,000 shares of the Company's common stock.
At December 31, 2001 and 2000, warrants to purchase 572,222 of the Company's common shares remained outstanding.
(C) STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan"), as amended in 1998, 2000 and 2001, authorizes grants of options to purchase up to 3,500,000 shares of common stock, issuable to employees, directors and consultants of the Company.
The options to be granted under the Plan will be designated as incentive stock options or non-incentive stock options by the Stock Option Committee. Options granted under the Plan are exercisable during a period of no more than ten years from the date of the grant (five years for options granted to holders of 10% or more of the outstanding shares of common stock). All options outstanding at December 31, 2001 expire within the next ten years if not exercised. Options that are cancelled or expire during the term of the Plan are eligible to be re-issued under the Plan and, therefore, are considered available for grant.
There were no options outstanding under the 1986 Stock Option Plan as of December 31, 2001, and there were no options available for grant under this plan at December 31, 2001
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
Activity under the stock option plans is summarized as follows:
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During 2001 options to purchase 1,872,050 shares of common stock were granted under the Company's Stock Option Plan, at prices ranging from $0.41 to $0.80.
As of December 31, 2001, there were 2,888,250 options outstanding, exercisable at $0.41 to $3.6875, with an average remaining contractual life of 6.69 years. As of December 31, 2001, there were 863,779 exercisable options, exercisable at $0.50 to $3.6875, with an average remaining contractual life of 6.69 years.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
The Company applies APB Opinion No. 25 when accounting for stock options, and no compensation cost is recognized for grants made to employees or directors when the grant price is greater than or equal to the market price of a common share on the date of grant. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income (loss) would have been reduced (increased) to the pro forma amounts indicated below:
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The per share weighted-average fair value of stock options granted during 2001, 2000 and 1999 was $0.30, $1.21 and $0.43, respectively. Such amounts were determined using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2001 - expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 93.0% and an expected life of 3 years; 2000 - expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 82.1% and an expected life of 3 years; 1999 - expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 75.6% and an expected life of 3 years. Volatility is calculated over the five preceding years.
(D) PREFERRED STOCK
The Company has authorized and unissued preferred stock consisting of 2,000,000 shares at $.0001 par value.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(7) SVP INTERNATIONAL
The Company has an agreement with SVP International, a subsidiary of Amalia S.A. Prior to November 2001, SVP International and its affiliates owned 37% of the common shares of the Company. The agreement provides that SVP International will aid and advise the Company in the operation of an information service and permit access to other global SVP information centers, and the use of the SVP trademark and logo. The agreement shall continue in perpetuity, unless amended by the parties. The Company pays royalties to SVP International computed using a formula based on percentages of service and product revenues, subject to certain limitations.
Royalty expense under the agreement was $118,000, $118,000 and $119,000 in the years ended December 31, 2001, 2000 and 1999, respectively. Amounts due to SVP International, included in accrued expenses, were approximately $338,000 and $278,000 at December 31, 2001 and 2000, respectively.
The Company receives and renders information services to other members of the SVP network. Charges for such services are made at rates similar to those used for the Company's other clients.
(8) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
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FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(8), CONTINUED
Income tax (benefit) expense differs from the amount computed by multiplying the statutory rate of 34% to income before income taxes due to the following:
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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets, net of deferred tax liabilities at December 31, 2001 and 2000 are presented below:
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2001 2000 Deferred tax assets: Federal tax loss carryforwards $ 445,000 $ 226,000 State and local tax loss carryforwards 348,000 317,000 Deferred compensation 159,000 142,000 Royalty expenses 141,000 115,000 Depreciation and amortization 136,000 17,000 Other, net 28,000 42,000 ----------------------------- Net deferred tax asset $1,257,000 $ 859,000 =============================
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Of the net deferred tax asset, $194,000 and $70,000 as of December 31, 2001 and December 31, 2000, respectively, are classified as current.
Federal tax loss carryforward assets expire in 2020 and 2021. Of the state and local tax loss carryforward assets, approximately $167,000 expire in 2012, with the remainder expiring in 2020 and 2021.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(9) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
(A) EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) and profit sharing plan under which eligible participants may elect to defer eligible compensation up to governmental limitations. The Company contributes 20% of the employees' contributions up to 1% of their annual compensation and may contribute additional profit sharing amounts at the discretion of the Company. Expense was $88,000, $86,000 and $61,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
During 2000 the Company terminated its Target Benefit Pension Plan. All funds were distributed to participants as of December 31, 2000.
(B) DEFERRED COMPENSATION
The Company has deferred compensation agreements with two individuals, with benefits commencing upon retirement, death or disability. Deferred compensation expense under these agreements was approximately $56,000, $56,000 and $74,000 in 2001, 2000 and 1999, respectively.
(C) EMPLOYMENT AGREEMENTS
The Company has an employment agreement with the President of the Company, which expires in December 2005. The employment agreement contains certain severance provisions entitling the President to receive compensation for various lengths of time upon termination without cause, or voluntary termination upon certain conditions, which includes the acquisition by a party of 30% or more of the outstanding shares of common stock of the Company or a change in the majority of incumbent Board members, and certain other occurrences.
The Company has an employment agreement with the CEO of the Company, which expires in November 2004. The employment agreement provides for the issuance of options to purchase shares of the Company's common stock. The options are to vest ratably over the first three years of the term of the employment agreement, and such vesting shall accelerate and vest immediately upon certain conditions. The employment agreement also contains certain severance provisions entitling the CEO to receive compensation and certain benefits for various lengths of time upon termination without cause, or voluntary termination upon certain conditions, which includes the acquisition by a party of 30% or more of the outstanding shares of common stock of the Company or a change in the majority of incumbent Board members, and certain other occurrences.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(9), CONTINUED
The Company has an employment agreement with the Chairman of the Board of Directors of the Company, which expires in November 2004. The employment agreement provides for the issuance of options to purchase shares of the Company's common stock. The options are to vest ratably over the term of the employment agreement, and such vesting shall accelerate and vest immediately upon certain conditions, which includes the acquisition by a party of 30% or more of the outstanding shares of common stock of the Company or a change in the majority of incumbent Board members, or upon his termination of employment without cause or upon his death or disability.
Severance arrangements for three members of the Operating Management Group ("OMG") were authorized by the Board of Directors on January 25, 1999. In the event of certain changes of control, severance agreements with such members of the OMG would be triggered. Such agreements provide for (a) a normal severance benefit for nine (9) months, which would be increased to one (1) year after the employee has served as a member of the OMG for a continuous period of two (2) years, in the event the employee's services are terminated without cause, and (b) a severance benefit of one (1) year in the event the separation from service is due to (i) a change in control, and (ii) the employee suffers, within one (1) year thereafter, either (A) a discontinuation of duties, or (B) an office change of at least 50 miles, or (C) a reduction in compensation, or (D) a termination of employment other than for cause. Following the change in control in November 2001, the Company recorded its estimate of the amounts that will become payable under these provisions.
Following the change in control in November 2001, the Company recorded a liability of $134,000, its estimate of the amounts that will become payable under these provisions.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the years ended December 31, 2001, 2000 and 1999 was as follows:
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2001 2000 1999 Interest $ 236,000 $ 235,000 $644,000 ======================================== Income taxes $ 12,000 $ 10,000 $ 60,000 ========================================
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FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(10), CONTINUED
The Company had the following non-cash financing activities:
During the first quarter of 2000, the Company issued 266,945 common shares upon the exercise of warrants in exchange for the retirement of $600,626 of the Company's Senior Subordinated Note due October 31, 2001.
In August 2000, the Company issued 150,000 shares of common stock in exchange for the cancellation of 633,055 warrants to purchase common stock.
During 2000, the Company recorded the cashless exercise of 47,860 options at prices ranging from $0.75 to $2.25, in exchange for 28,831 shares of common stock at prices ranging from $3.3125 to $4.01325. Such shares were held for a period of at least six months before the respective exchange. The value of these transactions was $97,000.
(11) ACCRUED EXPENSES
Accrued expenses at December 31, 2001 and 2000 consisted of the following:
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2001 2000 Accrued bonuses and employee benefits $ 372,000 $ 403,000 Accrued restructuring charges 94,000 -- Accrued expenses incurred on behalf of clients 27,000 41,000 Accrued SVP royalty 338,000 278,000 Other accrued expenses 344,000 257,000 ---------------------------- $1,175,000 $ 979,000 ============================
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In 2001, the Company recorded an accrual for restructuring under a severance plan approved by the Board of Directors and communicated to employees.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(12) OTHER INCOME
Other income consists of the following:
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2001 2000 1999 Early termination of lease $ -- $ 139,000 $ -- Domain name assignment and trademark license agreement -- -- 1,200,000 ------------------------------------- $ -- $ 139,000 $1,200,000 =====================================
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On December 30, 1999, the Company entered into an agreement with idealab! and Find.com, Inc. whereby the Company assigned the domain name "find.com" and licensed the use of certain rights to the trademarks "find.com" and "find" to Find.com, Inc. idealab! and Find.com, Inc. are not otherwise related to the Company. Under the terms of the agreement, the Company received consideration in the form of cash and preferred shares amounting to approximately $1,200,000, net of related expenses. The Company is also entitled to certain future royalties. No royalty income was earned in the years ended December 31, 2001 and 2000. The carrying value of the preferred shares is the lower of historical cost or estimated net realizable value. The non-marketable preferred share securities carry various rights including the ability to convert into common shares of Find.com and a repurchase (put) option that becomes exercisable in December 2002. Since the preferred share securities are an investment in a start-up enterprise, it is reasonably possible in the near term that the Company's estimate of the net realizable value of the preferred shares will be less than the $500,000 carrying value of the preferred shares.
FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(13) SEGMENT REPORTING
The Company manages its consulting and business advisory services in two business segments: Quick Consulting and Strategic Consulting. The Company operates primarily in the United States. The Company considers its quick consulting and strategic consulting services to be its core competency. Corporate and other relates to assets and activities that are not allocated to a segment.
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(1) Includes interest income, other income, gain on sale of net assets, interest expense and other expense.
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FIND/SVP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(14) SUBSEQUENT EVENT
In February 2002, the Company entered into a financing agreement with a commercial bank for a $2,000,000 Term Note, due December 31, 2006. The Term Note bears interest at prime plus 1.25%, and is payable in quarterly installments beginning March 31, 2002.
The proceeds from this Term Note were used to repay the $1,100,000 balance of the existing term note, and to repay the remaining portion of the Company's Senior Subordinated Notes.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders of Find/SVP, Inc.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in the table of contents on page is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This schedule is the responsibility of the Company's management. Such schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
Deloitte & Touche LLP
Stamford, Connecticut March 27, 2002
SCHEDULE II
FIND/SVP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000 and 1999 (in thousands of dollars)
Note: (1) Amounts written off, net of recoveries.