10-Q 1 c28264_10q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------------------- For the quarterly period ended March 31, 2003 -------------- Commission file no. 0-15152 ------- FIND/SVP, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) New York 13-2670985 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 625 Avenue of the Americas, New York, NY 10011 --------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (212) 645-4500 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO _____ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES _____ NO __X__ Number of shares of Common Stock, $.0001 par value per share, outstanding at May 12, 2003: 10,791,464 FIND/SVP, INC. AND SUBSIDIARIES Index Page PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets 3 March 31, 2003 (unaudited) and December 31, 2002 Condensed Consolidated Statements of Operations (unaudited) 4 Three Months Ended March 31, 2003 and 2002 Condensed Consolidated Statements of Cash Flows (unaudited) 5 Three Months Ended March 31, 2003 and 2002 Notes to Condensed Consolidated Financial Statements (unaudited) 6 ITEM 2. Management's Discussion and Analysis of Financial Condition 12 and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18 ITEM 4. Disclosure Controls and Procedures 18 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds 19 ITEM 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 CERTIFICATIONS 21 INDEX TO EXHIBITS 23 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIND/SVP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands, except share and per share data)
March 31, December 31, 2003 2002 -------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,294 $ 968 Accounts receivable, net 2,263 1,953 Deferred tax assets 252 272 Prepaid expenses and other current assets 978 948 -------- -------- Total current assets 4,787 4,141 Equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $8,816 in 2003 and $8,626 in 2002 2,170 2,334 Other assets: Deferred tax assets 1,324 1,324 Rental asset 515 575 Cash surrender value of life insurance 424 418 Non-marketable equity securities 185 185 Other assets, including $75 of goodwill for both periods 730 561 -------- -------- $ 10,135 $ 9,538 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of notes payable $ 576 $ 606 Trade accounts payable 256 353 Accrued expenses and other 1,463 1,749 -------- -------- Total current liabilities 2,295 2,708 -------- -------- Unearned retainer income 2,498 1,476 Notes payable 1,100 1,200 Deferred compensation 455 441 Commitments and contingencies Shareholders' equity: Preferred stock, $.0001 par value. Authorized 2,000,000 shares; zero issued and outstanding in both 2003 and 2002 -- -- Common stock, $.0001 par value. Authorized 100,000,000 shares; issued and outstanding 10,219,410 at March 31, 2003 and 10,214,102 at December 31, 2002 1 1 Capital in excess of par value 7,362 7,332 Accumulated deficit (3,576) (3,620) -------- -------- Total shareholders' equity 3,787 3,713 -------- -------- $ 10,135 $ 9,538 ======== ========
See accompanying notes to condensed consolidated financial statements 3 FIND/SVP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (unaudited) Three months ended March 31 (in thousands, except share and per share data)
2003 2002 ---- ---- Revenues $ 5,102 $ 5,044 ----------- ----------- Operating expenses: Direct costs 2,367 2,638 Selling, general and administrative expenses 2,730 3,080 ----------- ----------- Operating income (loss) 5 (674) Other income 87 34 Interest expense (27) (34) ----------- ----------- Income (loss) before (provision) benefit for income taxes 65 (674) (Provision) benefit for income taxes (20) 201 ----------- ----------- Net income (loss) $ 45 $ (473) =========== =========== Earnings (loss) per common share: Basic $ 0.00 $ (0.05) =========== =========== Diluted $ 0.00 $ (0.05) =========== =========== Weighted average number of common shares: Basic 10,215,730 10,061,371 =========== =========== Diluted 11,635,280 10,061,371 =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 FIND/SVP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited) Three months ended March 31 (in thousands)
2003 2002 ---- ---- Cash flows from operating activities: Net income (loss) $ 45 $ (473) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 248 262 Allowance for doubtful accounts (9) 38 Unearned retainer income 1,022 829 Deferred income taxes 20 (202) Compensation from option grants 28 55 Increase in marketable securities -- (34) Deferred compensation 14 7 Changes in assets and liabilities: Increase in accounts receivable (301) (144) Increase in prepaid expenses and other current assets (30) (141) Decrease (increase) in rental asset 60 (47) (Increase) decrease in cash surrender value of life insurance (6) 76 Increase in other assets (164) (20) Decrease in accounts payable and accrued expenses (383) (331) ------- ------- Net cash provided by (used in) operating activities 544 (125) ------- ------- Cash flows from investing activities: Capital expenditures (90) (99) ------- ------- Net cash used in investing activities (90) (99) ------- ------- Cash flows from financing activities: Principal borrowings under notes payable -- 2,030 Principal payments under notes payable (130) (1,775) Proceeds from exercise of stock options 2 24 ------- ------- Net cash (used in) provided by financing activities (128) 279 ------- ------- Net increase in cash and cash equivalents 326 55 Cash and cash equivalents at beginning of period 968 1,951 ------- ------- Cash and cash equivalents at end of period $ 1,294 $ 2,006 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 24 $ 122 ======= ======= Taxes paid $ -- $ -- ======= =======
See accompanying notes to condensed consolidated financial statements. 5 FIND/SVP, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) A. MANAGEMENT'S STATEMENT In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position at March 31, 2003, and the results of operations and cash flows for the three month periods ended March 31, 2003 and 2002. All such adjustments are of a normal and recurring nature. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. FIND/SVP, Inc. and its subsidiaries (the "Company") have reclassified certain prior year balances to conform with the current year presentation. References in this report to "we," "us," or "our" refer to FIND/SVP, Inc. and its subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2002 included in the Company's 2002 Annual Report on Form 10-K. B. (LOSS) EARNINGS PER SHARE Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income (loss) by a diluted weighted average number of common shares outstanding. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock, unless they are anti-dilutive. In computing basic earnings per share for the three-month periods ended March 31, 2003 and 2002, the Company used a weighted average number of common shares of 10,215,730, and 10,061,371, respectively. In computing diluted earnings per share for the three-month periods ended March 31, 2003 and 2002, the Company used a weighted average number of common shares of 11,635,280, and 10,061,371, respectively. For the three months ended March 31, 2003, diluted weighted average number of common shares exceeded that of basic by 1,419,550, which represented the dilutive effect of 3,088,072 options and warrants after applying the treasury stock method. Options and warrants to purchase 389,500 and 3,495,122 common shares during the three-month periods ended March 31, 2003 and 2002, respectively, were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive. C. INVESTMENTS PARTNERSHIP INTEREST The Company has a 9.1% interest in a limited partnership, and in March 2003, received an $87,000 distribution. This is the first distribution that the Company has received from this partnership interest, and the distribution was recognized as other income during the quarter ended March 31, 2003. 6 MARKETABLE SECURITIES In January 2002, the Company received shares of common stock of a mutual company that had converted to a stock company. As a result, the Company recognized $33,000 as other revenue. D. DEBT As of March 31, 2003, there was $1,500,000 outstanding on a term note with JP MorganChase Bank (the "Term Note"), of which $400,000 is classified as current. Interest expense related to the Term Note amounted to $21,000 for the three months ended March 31, 2003. The Term Note contains certain restrictions on the conduct of our business, including, among other things, restrictions, generally, on incurring debt, making investments, creating or suffering liens, tangible net worth, cash flow coverage, or completing mergers. The Company maintains a $1,000,000 line of credit with JP Morgan Chase Bank (the "Line of Credit"). As of March 31, 2003, $176,000 remains outstanding. The Line of Credit contains certain restrictions on the conduct of our business, including, among other things, restrictions, generally, on incurring debt, and creating or suffering liens. The Company's Term Note and Line of Credit are secured by a general security interest in substantially all of the Company's assets. On April 1, 2003, the Company amended and restated: (i) its Term Note with JP Morgan Chase Bank, in the principal amount of $1,500,000 and (ii) its Line of Credit with JP Morgan Chase Bank in the principal amount of $1,000,000. These amended and restated agreements had the effect of reducing the Term Note principal amount from $2,000,000 to $1,500,000, reflecting the current outstanding balance. The final repayment date of the Term Note has been moved up from December 31, 2006 to December 31, 2005. As a result, the Company will have a $500,000 balloon payment due at December 31, 2005 instead of making payments of $100,000 each quarter in 2006. In addition, JP Morgan Chase Bank consented to the Company's acquisition of Guideline Research Corp. ("Guideline") and the related financing transactions with Petra Mezzanine Fund, L.P. ("Petra"), and amended various financial covenants of both the Term Note and Line of Credit as follows: 1) The previous debt to consolidated tangible net worth covenant of 2.00 was replaced with a senior debt to consolidated tangible net worth plus subordinated debt covenant of 0.75; and 2) The previous consolidated tangible net worth covenant of $3,500,000 was replaced with a consolidated tangible net worth plus subordinated debt covenant of $3,300,000. In connection with the above, on April 1, 2003, the Company and JPMorgan Chase Bank entered into amendment no. 1 to their existing security agreement (the "Security Agreement Amendment"). Also on April 1, 2003, Guideline together with its subsidiaries executed and delivered in favor JPMorgan Chase Bank: (i) a security agreement (the "Subsidiary Security Agreement"), granting a first lien and security interest on substantially all of their assets; and (ii) a guaranty agreement (the "Guaranty Agreement"), guaranteeing the Company's payment and performance obligations under the Term Note and the Line of Credit. The Company believes it was in compliance with all of its loan agreements with JP Morgan Chase as of March 31, 2003. E. INCOME TAXES The $20,000 income tax provision for the three months ended March 31, 2003 represents 30% of the income before provision for income taxes. The $201,000 income tax benefit as of March 31, 2002 represents 30% of the loss before benefit for income taxes. The difference between these rates and the statutory rate primarily relates to expenses that are not deductible for income tax purposes. 7 Of the net deferred tax asset, $252,000 and $272,000 are classified as current as of March 31, 2003 and December 31, 2002, respectively. F. NEW ACCOUNTING PRINCIPLES In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123." This statement amends SFAS No. 123 by providing alternative methods of adopting the fair-value method of accounting for stock-based compensation, if an entity elects to discontinue using the intrinsic-value method of accounting permitted in Accounting Principles Board (APB) Opinion No. 25. One of these adoption methods, under which a prospective adoption of the fair-value method would be permitted without the need for a cumulative restatement of prior periods, is only available to the Company if adopted in 2003. Management continues to study whether it will continue to account for stock-based compensation under APB No. 25 or whether it will adopt SFAS No. 123 as amended. 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", as amended by SFAS No. 148, the Company's net income (loss) would have been reduced (increased) to the pro forma amounts indicated below: -------------------------------------------------------------------------------- QUARTER ENDED QUARTER ENDED MARCH 31, 2003 MARCH 31, 2002 Net income (loss), as reported $ 45,000 $(473,000) Add: Stock based employee compensation expense included in reported net income (loss), net of tax related effects 20,000 38,500 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (107,000) (109,000) --------- --------- Pro forma net loss $ (42,000) $(543,500) ========= ========= Earnings (loss) per share: Basic and Diluted As reported $ 0.00 $(0.05) ====== ====== Pro forma $(0.00) $(0.05) ====== ====== -------------------------------------------------------------------------------- Such amounts were determined using the Black-Scholes option pricing model with the following weighted-average assumptions: 2003 - expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 110% and an expected life of 5 years; 2002 - expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 111% and an expected life of 5 years. 8 In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and is effective for contracts entered into or modified after June 30, 2003. The Company is currently evaluating the impact that this Statement may have on its financial position and results of operations. G. STOCK OPTIONS During the three month period ended March 31, 2003, options to purchase 218,500 shares of common stock were granted under the Company's Stock Option Plan, at a price of $1.25. During the three month period ended March 31, 2002, options to purchase 149,250 shares of common stock were granted under the Company's Stock Option Plan, at prices ranging from $0.63 to $1.429. Stock options were granted in November 2001 for future services to be rendered to the Company by the Chief Executive Officer, the Chairman and a consultant. Compensation expense related to such grants is amortized over the vesting period of the options and was $28,000 and $55,000 for the three-month periods ended March 31, 2003 and 2002, respectively. H. SEGMENT REPORTING The Company manages its consulting and business advisory services in the following two business segments: Quick Consulting ("QCS") and Strategic Consulting ("SCRG"). The Company operates primarily in the United States. References to "Corporate" and "Other" in our financial statements refer to the portion of assets and activities that are not allocated to a segment. Prior year segment amounts have been revised as a result of a realignment of certain activities, including the association of certain QCS expenses with Corporate and Other. -------------------------------------------------------------------------------- (in thousands) THREE MONTHS ENDED MARCH 31, ------------------- 2003 2002 ------- ------- REVENUES QCS $ 4,516 $ 4,358 SCRG 586 686 ------- ------- Revenues $ 5,102 $ 5,044 ======= ======= INCOME (LOSS) BEFORE INCOME TAXES QCS $ 816 $ 934 SCRG (157) (157) ------- ------- Total segment income before income taxes 659 777 ------- ------- Corporate & other (1) (594) (1,451) ------- ------- Income (Loss) before (provision) benefit for income taxes $ 65 $ (674) ======= ======= (1) Includes certain direct costs and selling, general, and administrative expenses not attributable to a single segment -------------------------------------------------------------------------------- 9 I. ACCRUED EXPENSES As of December 31, 2002, a balance of $212,000 remained accrued for restructuring charges under a severance plan approved by our Board of Directors. Payments totaling $119,000 were made to 12 individuals during the three months ended March 31, 2003. The remainder of the balance will be paid through October 2003. J. COMMITMENTS AND CONTINGENCIES In March 2003, the Company became aware of a lease modification agreement from 1992 related to its primary offices at 625 Avenue of the Americas that differed from a second lease modification agreement signed by the same parties also in 1992, raising questions as to which set of terms properly applied to the lease. In May 2003, the landlord provided a written acknowledgement that the version of the lease which had been relied upon by the Company since 1992 was the correct version, thereby resolving this contingency in favor of the Company's position. No adjustments to recorded amounts in the financial statements resulted from the resolution of this matter. K. SUBSEQUENT EVENT On April 1, 2003, the Company purchased all of the issued and outstanding stock of Guideline. Guideline, together with its wholly owned subsidiaries Guideline/Chicago, Inc., Advanced Analytics, Inc., Guideline Consulting Corp., and Tabline Data Services, Inc. is a provider of custom market research. Simultaneously with the acquisition, Guideline entered into employment agreements with, among others, the former shareholders of Guideline, Robert La Terra and Jay L. Friedland. Also, 150,000 stock options were granted to one of the former shareholders after the close of this transaction pursuant to the terms of an employment agreement entered into with Guideline at the closing. The purchase price consisted of approximately $4,454,000 in cash (including $525,000 of estimated transaction costs), and 571,237 unregistered shares of the Company's common stock, of which 295,043 shares were placed in escrow. The shares placed in escrow will be distributed to the Sellers on or about May 31, 2004, subject to reduction for the resolution of purchase price adjustments, if any. The Guideline purchase price was financed by the Company's cash resources, the assumption of certain liabilities of Guideline, and by the receipt of $3,400,000 (net of financing costs) obtained from the issuance of: (i) a promissory note with a $3,000,000 face value, with stated interest at 13.5%, due April 1, 2008 (the "Note") to Petra, which is secured by a second lien and security interest on substantially all of the Company's assets; (ii) 333,333 shares of convertible, redeemable, cumulative preferred stock, designated as Series A Preferred Stock, to Petra, which are redeemable at Petra's option beginning April 1, 2009 at an initial redemption price of $1.50 per share, or $500,000, plus all accrued but unpaid dividends; and (iii) warrants to Petra to purchase 675,000 shares of the Company's common stock at an exercise price of $.01 per share. The preferred shares are entitled to receive either cash or "payment-in- 10 kind" dividends at a rate of 8.0% annually, and the future redemption price is subject to adjustment for anti-dilution. The warrants are immediately exercisable, and, beginning April 1, 2009, and for a period of four years thereafter, Petra shall have the right to cause the Company to use commercially reasonable efforts to complete a private placement to sell Petra's shares of the Company's common stock issuable upon exercise of the Warrant (the "Warrant Shares") to one or more third parties at a price equal to the market value of the Warrant Shares based on the closing bid price of the Company's common shares as of the date Petra so notifies the Company. In the event a change in control takes place during the period in which the put may be exercised, Petra would have the right to cause the Company to fulfill its repurchase obligations in the same form of consideration as that received by the other selling shareholders. On April 1, 2003, the Company also amended and restated its Term Note and Line of Credit with JP Morgan Chase Bank. See Note D. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2003 compared to three months ended March 31, 2002. GENERAL FIND/SVP, Inc. and its wholly owned subsidiaries 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 manages its consulting and business advisory services in two business segments: Quick Consulting ("QCS"), which provides retainer clients with access to the expertise of the Company's staff and information resources; and Strategic Consulting ("SCRG"), which provides more extensive, in-depth custom market research and competitive intelligence information, as well as customer satisfaction and loyalty programs. References to "Corporate" and "Other" in our financial statements refer to the portion of assets and activities that are not allocated to a segment. On April 1, 2003, the Company acquired Guideline Research Corp. ("Guideline") and its wholly owned subsidiaries (see the heading SUBSEQUENT EVENT in this Item below). The Company believes that Guideline will immediately contribute to earnings. RESULTS OF OPERATIONS FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002 REVENUES Revenues for the three-month period ended March 31, 2003 were $5,102,000 and revenues for the three-month period ended March 31, 2002 were $5,044,000. QCS QCS revenues, which result from annual retainer contracts paid by clients on a monthly, quarterly, semi-annual or annual basis, increased by $158,000, or 3.6%, from $4,358,000 for the three months ended March 31, 2002 to $4,516,000 for the three months ended March 31, 2003. The increase was the result of the implementation of a pricing program whereby the Company is reimbursed for certain operating expenses necessary to provide retainer services. SCRG SCRG revenues, which result from consulting engagements addressing clients' business issues, decreased by $100,000, or 14.6%, from $686,000 for the three months ended March 31, 2002 to $586,000 for the three months ended March 31, 2003. The decrease was due to the continued decline in new projects booked. COSTS OF PRODUCTS AND SERVICES SOLD 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 $271,000, or 10.3%, from $2,638,000 for the three months ended March 31, 2002 to $2,367,000 for the three months ended March 31, 2003. Direct costs represented 46.4% and 52.3% of revenues, respectively, for the three- 12 month periods ended March 31, 2003 and 2002. The decrease in total direct costs was due primarily to a decrease in expenses incurred on behalf of clients, specifically a reduction in the use of subcontracted services to fulfill various projects, in addition to a reduction in direct labor costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by $350,000, or 11.4%, from $3,080,000, or 61.1% of revenue, for the three months ended March 31, 2002 to $2,730,000, or 53.5% of revenue, for the three months ended March 31, 2003. The decrease in selling, general and administrative was due primarily to a restructuring charge of $209,000, which was recorded during the quarter ended March 31, 2002. In addition, cost containment measures continually have been in place during the quarter ended March 31, 2003. Primarily, the Company experienced decreases in bad debt expense, as the level of uncollectible accounts decreased; travel and entertainment decreased as a result of reduced staff levels and the use of video and teleconferencing. Telecommunications expense decreased as a result of more favorable rates with carriers. We experienced a decrease in public relations expense as we brought this function in-house during the quarter ended March 31, 2003. OPERATING INCOME (LOSS) The Company's operating income was $5,000 for the three months ended March 31, 2003, compared to an operating loss of $674,000 for the three months ended March 31, 2002, an improvement of $679,000. This is primarily the result of increased revenues, offset by decreases in direct costs and selling, general and administrative expenses. OTHER INCOME The Company has a 9.1% interest in a limited partnership, and in March 2003, received an $87,000 distribution. This is the first distribution that the Company has received from this partnership interest, and the distribution was recognized as other income during the quarter ended March 31, 2003. In January 2002, the Company received shares of common stock of a mutual company that had converted to a stock company. As a result, the Company recognized $33,000 as other revenue. INTEREST EXPENSE Interest expense for the three months ended March 31, 2003 was $27,000, which was a decrease from $34,000 for the three months ended March 31, 2002. The decrease was a result of lower outstanding balances on existing debt during 2003 as compared with 2002. INCOME TAXES The $20,000 income tax provision for the three months ended March 31, 2003 and the $201,000 income tax benefit for the three months ended March 31, 2002, represents 30% of the income/loss before provision/ benefit for income taxes. The difference between these rates and the statutory rate primarily relates to expenses that are not deductible for income tax purposes. OTHER ITEMS Stock options were granted in November 2001 for future services to be rendered to the Company by the Chief Executive Officer, the Chairman and a consultant. Compensation expense related to such grants is amortized over the vesting period of the options and was $28,000 and $55,000 for the three- 13 month periods ended March 31, 2003 and 2002, respectively. 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 generally accepted accounting principles in the United States. 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, deferred tax asset valuation allowances, valuation of non-marketable equity securities and 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. 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. The Company has tax loss carryforwards that have been recognized as assets on its balance sheet. These assets are subject to expiration from 2012 to 2022. 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. In 2002, after the Company performed an analysis of its deferred tax assets and projected future taxable income, a valuation allowance was provided for certain state and local carryforward tax operating loss assets, as the Company determined that it was no longer more likely than not that such assets would be realized during the carryforward period. It is reasonably possible that future valuation allowances will need to be recorded if the Company is unable to generate sufficient future taxable income to realize such deferred tax assets during the carryforward period. Although realization is not assured, management believes that it is more likely than not that the deferred tax assets will be realized. 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. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary sources of liquidity and capital resources have been cash flow from retainer accounts (including prepaid retainer fees from clients) and borrowings. Cash balances were $1,294,000 and $968,000 at March 31, 2003 and December 31, 2002, respectively. The Company's working capital position (current assets, less current liabilities) at March 31, 2003 was $2,492,000 as compared to $1,433,000 at December 31, 2002. 14 Cash of $544,000 was provided by and $125,000 was used in operating activities in the quarters ended March 31, 2003 and 2002, respectively. Cash used in investing activities was $90,000 and $99,000 in the quarters ended March 31, 2003 and 2002, respectively. Capital expenditures were mainly for computer hardware upgrades and leasehold improvements. During the year ending December 31, 2003, the Company expects to spend approximately $500,000 for capital items, the major portions of which will be used for computer hardware and software upgrades and for leasehold improvements. Cash of $128,000 was used in and $279,000 was provided by financing activities in the quarters ended March 31, 2003 and 2002, respectively. In 2003, the most significant item was the repayment of $130,000 of outstanding debt. In 2002, the most significant item was the net proceeds obtained from the borrowings under notes payable. In February 2002, the Company entered into a financing arrangement with JP Morgan Chase Bank providing for a term note (the "Term Note") in the principal amount of $2,000,000 with interest at prime plus 1.25% (5.5% at March 31, 2003). As of March 31, 2003, there was $1,500,000 outstanding on this Term Note, of which $400,000 is classified as current. Interest expense related to this Term Note amounted to $21,000 and $10,000 for the quarters ended March 31, 2003 and 2002, respectively. The Term Note contains certain restrictions on the conduct of our business, including, among other things, restrictions, generally, on incurring debt, making investments, creating or suffering liens, tangible net worth, cash flow coverage, or completing mergers. The proceeds from the February 2002 Term Note were used to repay the $1,100,000 balance on its $1,400,000 Term Note, due June 30, 2005, and to repay the remaining balance of $475,000 on certain outstanding senior subordinated notes. The Company maintains a $1,000,000 line of credit with JP Morgan Chase Bank (the "Line of Credit"). Interest on the unpaid balance of the Line of Credit is at JP Morgan Chase Bank's prime commercial lending rate plus one-half percent (4.75% at March 31, 2003). The Line of Credit is renewable annually. As of March 31, 2003, $176,000 is outstanding. The Line of Credit contains certain restrictions on the conduct of our business, including, among other things, restrictions, generally, on incurring debt, and creating or suffering liens. The Company's Term Note and Line of Credit are secured by a general security interest in substantially all of the Company's assets. In May 2002, JP Morgan Chase agreed to lower the minimum tangible net worth covenant in the Term Note agreement to $3,500,000, and the waived the prior covenant at the March 31, 2002 report date. In March 2003, JP Morgan Chase agreed to waive the prior cash flow coverage covenant for the twelve-month period ended December 31, 2002. On April 1, 2003, the Company amended and restated: (i) its Term Note with JP Morgan Chase Bank, in the principal amount of $1,500,000 and (ii) its Line of Credit with JP Morgan Chase Bank in the principal amount of $1,000,000. These amended and restated agreements had the effect of reducing the Term Note principal amount from $2,000,000 to $1,500,000, reflecting the current outstanding balance. The final repayment date of the Term Note has been moved up from December 31, 2006 to December 31, 2005. As a result, the Company will have a $500,000 balloon payment due at December 31, 2005 instead of making payments of $100,000 each quarter in 2006. In addition, JP Morgan Chase Bank consented to the Company's acquisition of Guideline and the related financing transactions with Petra, and amended various financial covenants of both the Term Note and Line of Credit as follows: 1) The previous debt to consolidated tangible net worth covenant of 2.00 was replaced with 15 a senior debt to consolidated tangible net worth plus subordinated debt covenant of 0.75; and 2) The previous consolidated tangible net worth covenant of $3,500,000 was replaced with a consolidated tangible net worth plus subordinated debt covenant of $3,300,000. In connection with the above, on April 1, 2003, the Company and JPMorgan Chase Bank entered into amendment no. 1 to their existing security agreement (the "Security Agreement Amendment"). Also on April 1, 2003, Guideline together with its subsidiaries executed and delivered in favor JPMorgan Chase Bank: (i) a security agreement (the "Subsidiary Security Agreement"), granting a first lien and security interest on substantially all of their assets; and (ii) a guaranty agreement (the "Guaranty Agreement"), guaranteeing the Company's payment and performance obligations under the Term Note and the Line of Credit. The Company believes it was in compliance with all of its loan agreements with JP Morgan Chase as of March 31, 2003. The Company believes that cash generated from operations, the proceeds from its Term Note and Line of Credit with JP Morgan Chase and its cash and cash equivalents will be sufficient to fund our operations for the foreseeable future. MARKET FOR COMPANY'S COMMON EQUITY Trading of our shares of common stock is conducted on the Over-The-Counter Bulletin Board. 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. FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS In this report, and from time to time, we may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, and similar matters. Such statements are necessarily estimates reflecting management's best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phrases such as "believes," "anticipates," "expects," "estimates," "planned," "outlook," and "goal." Because forward-looking statements involve risks and uncertainties, our actual results could differ materially. In order to comply with the terms of the safe harbor, we note that a variety of risks and uncertainties could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in forward-looking statements. While it is impossible to identify all such factors, the risks and uncertainties that may affect the operations, performance and results of our business include the risks and uncertainties set forth in the section headed "Factors That May Affect Our Future Results" of Part 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and those risks and uncertainties described in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. COMMITMENTS AND CONTINGENCIES In March 2003, the Company became aware of a lease modification agreement from 1992 related to its primary offices at 625 Avenue of the Americas that differed from a second lease modification agreement signed by the same parties also in 1992, raising questions as to which set of terms properly applied to the lease. In May 2003, the landlord provided a written acknowledgement that the version of the lease which had been relied upon by the Company since 1992 was the correct version, thereby resolving this contingency in favor of the Company's position. No adjustments to recorded amounts in the financial statements resulted from the resolution of this matter. 16 SUBSEQUENT EVENT On April 1, 2003, the Company purchased all of the issued and outstanding stock of Guideline. Guideline, together with its wholly owned subsidiaries Guideline/Chicago, Inc., Advanced Analytics, Inc., Guideline Consulting Corp., and Tabline Data Services, Inc. is a provider of custom market research. Simultaneously with the acquisition, Guideline entered into employment agreements with, among others, the former shareholders of Guideline, Robert La Terra and Jay L. Friedland. Also, 150,000 stock options were granted to one of the former shareholders after the close of this transaction pursuant to the terms of an employment agreement entered into with Guideline at the closing. The purchase price consisted of approximately $4,454,000 in cash (including $525,000 of estimated transaction costs), and 571,237 unregistered shares of the Company's common stock, of which 295,043 shares were placed in escrow. The shares placed in escrow will be distributed to the Sellers on or about May 31, 2004, subject to reduction for the resolution of purchase price adjustments, if any. The Guideline purchase price was financed by the Company's cash resources, the assumption of certain liabilities of Guideline, and by the receipt of $3,400,000 (net of financing costs) obtained from the issuance of: (i) a promissory note with a $3,000,000 face value, with stated interest at 13.5%, due April 1, 2008 (the "Note") to Petra, which is secured by a second lien and security interest on substantially all of the Company's assets; (ii) 333,333 shares of convertible, redeemable, cumulative preferred stock, designated as Series A Preferred Stock, to Petra, which are redeemable at Petra's option beginning April 1, 2009 at an initial redemption price of $1.50 per share, or $500,000, plus all accrued but unpaid dividends; and (iii) warrants to Petra to purchase 675,000 shares of the Company's common stock at an exercise price of $.01 per share. The preferred shares are entitled to receive either cash or "payment-in-kind" dividends at a rate of 8.0% annually, and the future redemption price is subject to adjustment for anti-dilution. The warrants are immediately exercisable, and, beginning April 1, 2009, and for a period of four years thereafter, Petra shall have the right to cause the Company to use commercially reasonable efforts to complete a private placement to sell Petra's shares of the Company's common stock issuable upon exercise of the Warrant (the "Warrant Shares") to one or more third parties at a price equal to the market value of the Warrant Shares based on the closing bid price of the Company's common shares as of the date Petra so notifies the Company. In the event a change in control takes place during the period in which the put may be exercised, Petra would have the right to cause the Company to fulfill its repurchase obligations in the same form of consideration as that received by the other selling shareholders. On April 1, 2003, the Company also amended and restated its Term Note and Line of Credit with JP Morgan Chase Bank. See the heading "Liquidity and Capital Resources" in this Item above. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change to our exposure to market risk since December 31, 2002. ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES Within 90 days prior to the filing of this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. 18 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS At March 31, 2003, options to purchase 218,500 shares of common stock were granted under the Company's Stock Option Plan, at a price of $1.25, to various employees and non-employee directors. These were private transactions not involving a public offering that were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. At the time of issuance, the foregoing securities were deemed to be restricted securities for purposes of the Securities Act. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit Description ------- ----------- 3.1 Certificate of Amendment to Certificate of Incorporation of Find/SVP, Inc. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.1 Stock Purchase Agreement, dated as of April 1, 2003, by and among Jay L. Friedland, Robert La Terra, Guideline Research Corp. and Find/SVP, Inc. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.2 Escrow Agreement, dated as of April 1, 2003, by and among Jay L. Friedland, Robert La Terra, Morris Whitcup, Find/SVP, Inc. and Kane Kessler, P.C. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.3 Employment Agreement, dated as of April 1, 2003, by and between Jay L. Friedland and Guideline Research Corp. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.4 Employment Agreement, dated as of April 1, 2003, by and between Robert La Terra and Guideline Research Corp. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.5 Stock Option Agreement, dated April 1, 2003, by and between Find/SVP, Inc. and Robert La Terra (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.6 Promissory Note, dated as of April 1, 2003, made by Find/SVP, Inc. in favor of Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.7 Loan Agreement, dated as of April 1, 2003, by and between Petra Mezzanine Fund, L.P. and Find/SVP, Inc. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.8 Security Agreement, dated as of April 1, 2003, made by Find/SVP, Inc. in favor of Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.9 Trademark and Patent Security Agreement, dated as of April 1, 2003, made by Find/SVP, Inc. in favor of Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.10 Security Agreement, dated as of April 1, 2003, made by Guideline Research Corp., Tabline Data Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in favor of Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.11 Guaranty Agreement, dated as of April 1, 2003, made by Guideline Research Corp., Tabline Data Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in favor of Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.12 Series A Preferred Stock Purchase Agreement, dated as of April 1, 2003, by and between Petra Mezzanine Fund, L.P. and Find/SVP, Inc. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.13 Stock Purchase Warrant issued as of April 1, 2003, by Find/SVP, Inc. to Petra Mezzanine Fund, L.P. (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.14 Investor Rights Agreement, dated as of April 1, 2003, by and among Find/SVP, Inc., Petra Mezzanine Fund, L.P., Martin E. Franklin and David Walke (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.15 Amended and Restated Term Promissory Note, dated as of April 1, 2003, made by Find/SVP, Inc. in favor of JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.16 Amended and Restated Senior Grid Promissory Note, dated as of April 1, 2003, made by Find/SVP, Inc. in favor of JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.17 Amendment No. 1 to Security Agreement, dated as of April 1, 2003, made by Find/SVP, Inc. and JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.18 Subordination Agreement, dated as of April 1, 2003, Petra Mezzanine Fund, L.P., Find/SVP, Inc., Guideline Research Corp., Tabline Data Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc., Guideline Consulting Corp., and JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.19 Subsidiary Security Agreement, dated as of April 1, 2003, made by Guideline Research Corp., Tabline Data Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in favor of JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 10.20 Subsidiary Guaranty Agreement , dated as of April 1, 2003, made by Guideline Research Corp., Tabline Data Services, Inc., Guideline/Chicago, Inc., Advanced Analytics, Inc. and Guideline Consulting Corp. in favor of JPMorgan Chase Bank (incorporated by reference from the Company's Form 8-K filed on April 16, 2003). 99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* *Filed herewith (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 2003. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIND/SVP, Inc. ------------- (REGISTRANT) Date: May 15, 2003 /S/ DAVID WALKE ------------------- ------------------------------------ David Walke Chief Executive Officer Date: May 15, 2003 ------------------- /S/ PETER M. STONE ------------------------------------ Peter M. Stone Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 20 CERTIFICATIONS I, David Walke, certify that: 1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /S/ DAVID WALKE ------------------------ David Walke Chief Executive Officer 21 CERTIFICATIONS (CONTINUED) I, Peter Stone, certify that: 1. I have reviewed this quarterly report on Form 10-Q of FIND/SVP, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /S/ PETER M. STONE ----------------------- Peter M. Stone Chief Financial Officer 22 EXHIBIT INDEX Number Exhibit ------ ------- 99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23