SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24928
THE SOLOMON-PAGE GROUP LTD.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0353012
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
1140 Avenue of the Americas, New York, New York 10036
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 764-9200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value $.001
Common Stock Purchase Warrants
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. / /
State the issuer's revenues for its most recent fiscal year:
The issuer's revenues for the fiscal year ended September 30, 1996 were
$17,165,836.
The aggregate market value of the voting stock held by
non-affiliates of the Registrant computed by reference to the price at which the
stock was sold on December 20, 1996 was approximately: $6,459,100. Solely for
the purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At December
20, 1996, there were outstanding 5,139,285 shares of the Registrant's Common
Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy
statement to be filed not later than January 28, 1997 pursuant to Regulation 14A
are incorporated by reference in Items 9 through 12 of Part III of this Annual
Report on Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company is primarily engaged in the business of providing personnel
placement services in three sectors: executive search, contingency recruitment
and professional temporary staffing. Executive search services are furnished in
three industry-specific categories to clients in the publishing, capital markets
and managed health care industries. The contingency recruitment sector of the
Company's business consists of four functional practices and one
industry-specific practice. The functional practices provide contingency
recruitment services to all industries seeking personnel in the legal, human
resources, information systems and technology and accounting areas. The
industry-specific practice provides contingency recruitment services to the
fashion services industry. Professional temporary staffing services are provided
to the information systems and technology marketplace by Information Technology
Partners, Inc. ("ITP"), a Delaware corporation and wholly-owned subsidiary of
the Company organized during 1994.
The Company's revenues are derived primarily from fees paid by its
clients in connection with placements conducted by the Company on behalf of its
clients. In the executive search and contingency recruitment sectors of the
Company's business, fees usually range between 20% and 33% of the guaranteed
first year's compensation payable to a placed employee. In the executive search
sector, the Company usually obtains a non-refundable retainer of approximately
one-third of the estimated fee at the inception of an engagement with the
balance of the fee payable on terms negotiated with the client. A substantial
portion of the deferred payment is usually contingent on the successful
completion of the placement and, in certain circumstances, no retainer is
obtained and the entire fee is contingent on a successful placement. In the
contingency recruitment sector, the entire fee is usually contingent upon
successful completion of the placement, although under certain circumstances a
non-refundable retainer payment of a portion of the fee may be received at the
outset. In the professional temporary staffing sector, the Company is
compensated by its clients for services provided by temporary employees assigned
by the Company, based on the number of hours or days worked by each assigned
employee at a dollar rate negotiated with the client. The Company's primary
costs, in addition to its fixed costs such as rental expense, salaries of
administrative personnel and advertising, are the variable costs attributable to
its employee compensation. The Company's placement counselors receive either a
base salary or a draw against commission, plus a commission generally ranging
between 30% and 65% of the fees generated by each placement they effectuate,
which percentage varies depending upon the counselors' seniority and/or
historical productivity.
The Solomon-Page Group Ltd. is a Delaware corporation formed in June
1993 that succeeded to the business of a predecessor New York corporation with
the same name through a merger that was effected in May 1994. The predecessor
commenced operations in 1990.
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References herein to the "Company" are references to The Solomon-Page Group Ltd.
and its subsidiary, ITP.
STAFFING INDUSTRY
The staffing industry consists of four segments, temporary help, search
and recruitment, professional employer organization (PEO) and outplacement.
According to the Staffing Industry Report, revenues for the staffing industry
are estimated to be $72.6 billion for 1996. The temporary help segment will
generate approximately 62%, or $45.1 billion, of the $72.6 billion in revenues.
Search and recruitment, PEOs and outplacement will account for 12%, 24% and 1%
respectively, of the estimated $72.6 billion.
According to the UNITED STATES CENSUS BUREAU 1992 ANNUAL SURVEY, this
industry is expected to grow to over $100 billion annually by the year 2000. The
Company believes that the staffing industry is characterized by a large number
of small providers of recruitment and placement services, as well as several
larger providers that offer a full range of services from temporary assignments
to permanent placement of executives.
Permanent employee placements can be made directly by employers or can
be made through the utilization of recruitment and placement services firms such
as the Company, which typically charge a placement fee based on the first year's
compensation of the employee. The Company believes that many recruitment and
placement firms specialize in serving various aspects of this market for
permanent employees, often characterized by concentrations in certain
industries, types of businesses or compensation levels. For instance, a
recruitment and placement services firm that normally places secretarial or
clerical workers might not also place executives or other highly paid employees.
Many personnel services firms such as the Company specialize in
satisfying the short-term or temporary personnel needs of their clients. These
firms typically are compensated based on the amount of time that their temporary
employees provide to their clients. These firms generally maintain a roster of
available temporary employees, who are paid by the personnel services firm
itself, for use by the firm's clients. Clients then arrange to pay the temporary
personnel services firm fixed or hourly amounts for the use of these temporary
employees, and these personnel services firms then pay their temporary employees
a lesser amount.
PEOs, also known as "employee leasing" companies, provide human
resource outsourcing to businesses. PEOs assume many functions associated with
employment, including pay processing, benefits administration, recruitment and
various other functions.
Certain personnel services firms may also provide more generalized
consulting services, such as outplacement, advising their clients as to
downsizing strategies and what type of employees they may require and the
alternative methods of securing such employees. In this way, a business may
allocate its personnel needs as appropriate between permanent and temporary
workers.
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The Company believes that while the search and recruitment business may
be the most profitable component of the staffing industry, the ability to
provide interim and temporary staffing assistance to clients is becoming
increasingly important as the staffing industry continues to evolve.
SCOPE OF STAFFING SERVICES PROVIDED
The Company provides its services to clients primarily in the New York
metropolitan area, but increasingly on a nationwide and global basis to certain
of the industries and functional areas that it serves. The Company's retained
executive search and contingency recruitment business is currently divided into
eight groups.
Retained Executive Search
CAPITAL MARKETS (SALES AND TRADING/INVESTMENT BANKING). The Company's
capital markets group primarily services domestic and international investment
and commercial banking institutions. This group places traders, institutional
sales people, investment bankers, research and quantitative analysts and
portfolio managers, and focuses on middle and senior level positions. As the
financial markets are global in nature, some of the Company's searches have
extended throughout North America, Asia and Europe.
HEALTH CARE. The Company's health care group services hospitals,
managed care firms, group health insurance companies and other health care
related companies. The Company fills primarily middle to senior level executive
positions in various functional areas of the health care industry such as sales,
marketing, operations, financial management and medical management. In addition,
the Company recruits professionals in the clinical area, such as physicians,
nurses, therapists and other specialists.
PUBLISHING AND NEW MEDIA AND TECHNOLOGY. The Company's publishing
division provides executive search services to businesses engaged in consumer
and business magazine publishing, educational publishing, professional reference
and trade book publishing, and information services on a nationwide basis. This
group handles primarily retained senior executive level searches in such
functional areas as editorial, marketing, sales, circulation and product and
technology development. One of the fastest growth areas within the publishing
industry is New Media and Technology. The marketplaces serviced within this area
include educational and consumer software publishers, internet and website
developers, on-line services, CD-ROM producers and distance learning companies.
The group also provides interim consulting services to this marketplace.
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Contingency Recruitment
INFORMATION TECHNOLOGY. The Company's information technology group
typically undertakes search assignments in the computer and information
technology industries for a diverse client base, including those in the
investment banking, financial services, communications, retail and high
technology industries. The Company fills positions at many levels and functions,
such as Chief Information Officers and Directors, project managers and
programmers, as well as less technical positions such as systems liaison,
business systems analyst and systems analyst.
LEGAL PROFESSIONALS. The Company's legal professional division serves
primarily the New York metropolitan area, providing suitable attorneys to law
firms, financial institutions and public and privately held companies. In law
firms, the division fills positions at the associate, of counsel and partner
level. For corporations, lawyers are provided for all positions under the
auspices of General Counsel. Specialty practice areas include corporate,
banking, real estate, ERISA and tax law, labor and employment, environmental
law, trusts and estates, intellectual property and litigation.
HUMAN RESOURCES: The Company's human resources division typically
undertakes search assignments for a diverse client base, from Fortune 500
companies to privately-held companies, in various industries such as financial
services, consumer products, manufacturing, publishing, telecommunications and
high technology. The Company fills positions for such human resources areas as
management and organizational planning, compensation and benefits, labor
relations and training. In addition, the Company recruits communications
professionals with backgrounds in areas including marketing communications,
internal communications, investor relations, public relations, media relations,
writing and editing.
FINANCE AND ACCOUNTING. The Company's finance and accounting group
specializes in providing financial and accounting personnel such as chief
financial officers, controllers, treasurers, financial analysts, financial
systems managers, bookkeepers and other related personnel to a wide variety of
corporate employers in various industries such as publishing, investment
banking, advertising, insurance, healthcare, apparel and real estate. Within
this division, the Company has added a concentration in strategic planning. This
area focuses on addressing the needs of clients in the areas of business
planning/strategy and corporate development.
FASHION SERVICES. The Company's fashion services group specializes in
providing management, design and other professionals to clients engaged in the
fashion services and retail industries, including manufacturers, specialty and
department stores, chains, mass merchandisers and catalogue companies. The
Company typically fills positions at the middle to senior executive levels in
many industry functions such as buyers, general merchandise managers, designers,
sales people and production professionals. This group also provides strategic
consulting services regarding organizational structures, merchandising,
marketing and product development to clients in these industries.
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Professional Temporary Staffing
INFORMATION TECHNOLOGY PARTNERS:
ITP provides professional consulting and staffing services on an
interim basis within the information technology field. ITP services clients
within the banking, brokerage, consumer products manufacturing, insurance and
telecommunications industries. ITP supplies skilled professionals in the areas
of Application Development, Business Analysis, Help Desk Support, Networking,
Project Management and Quality Assurance. ITP supplies its clients with these
professionals primarily on a time and materials basis.
OPERATIONAL PROCEDURES
The Company concentrates on establishing and maintaining strong
relationships with its clients in each industry or functional group. In this
way, it is able to become familiar with and sensitive to its clients' specific
needs, thereby facilitating its ability to provide high-quality services, which
in turn enhances client loyalty and repeat business.
Upon receiving a request to locate an appropriate candidate for a
position, the Company reviews its data base of qualified candidates to identify
the best possible candidates to meet its client's needs. The Company contacts
its targeted candidates directly and meets with them prior to their introduction
to its client, so as to confirm their suitability. After arranging an interview,
the Company continues to act as a liaison between its client and the candidate
until an agreement is reached. The Company communicates with most clients on an
ongoing basis in order to remain informed as to progress of the placed employee
and the prospect of additional staffing requirements.
The Company strengthens its relationships with its clients by
maintaining communication with them on an ongoing basis, whether or not the
client has a current outstanding requirement for the Company's permanent
placement or temporary staffing services. In this way, the Company believes that
it is able to provide its clients with the benefit of its experience. This
methodology helps to develop long-term client relationships and market knowledge
whether or not the Company is in a position to derive an immediate financial
benefit. The Company believes that its focus on comprehensive client service is
one of the primary reasons it receives a large number of new business referrals
from existing clients.
The Company recruits its candidates primarily through targeted
telephone solicitation and referrals by past and current candidates and through
advertising in local and national media and on the Internet.
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One customer of the Company accounted for approximately 15% of the
Company's revenues during the fiscal year ended September 30, 1996.
BUSINESS EXPANSION
During the next fiscal year, the Company intends to continue to expand
its current retained executive search, contingency recruitment and professional
temporary staffing business sectors through the retention of its existing staff
of experienced personnel counselors as well as the addition of new counselors
with placement experience, who will complement the Company's current scope of
business. Also, the Company aggressively pursues opportunities to attract highly
skilled staffing industry professionals in new areas of retained executive
search, contingency recruitment and professional interim staffing on an ongoing
proactive basis.
The Company intends to focus on blending temporary and permanent
placement services by expanding its existing presence within the Accounting and
Finance, Legal, Human Resources and New Media and Technology businesses in order
to capitalize on synergies in client relationships as well as extensive
knowledge of applicants and consultants in these functional areas of expertise.
The Company believes that this expansion will achieve benefits without
major start up costs due to the infrastructure assembled during the launch of
the Company's Information Technology temporary staffing subsidiary (ITP) during
the prior two fiscal years. This expansion will be facilitated through either
acquisition or continued internal growth.
ITP is aggressively pursuing a strategy of continued rapid expansion,
either by attracting seasoned sales and recruitment professionals or by
acquisition. According to staffing industry analysts, information technology
temporary placement is the most rapidly growing sector of the staffing market
with high gross margins and continued forecasts of additional long-term revenue
growth potential. ITP has recruited experienced marketing, recruiting and
administrative professionals to service Fortune 1000 and mid-sized clients on a
local, regional and subsequently nationwide basis. The staff comprises senior
level individuals with existing client and consultant relationships so that the
business can continue to grow in an expedient manner with a high degree of
customer satisfaction.
This extension of services would enable the Company to expand its
product mix and would further the consultative nature of long-term client
relationships. This expansion would also enable the Company to market a number
of recruitment services to clients by cross-selling the firm's diversified
capabilities.
COMPETITION
The Company believes that the personnel services industry is highly
competitive and that the services provided by the Company are also provided by
many other companies ranging from local, small operations to large recruitment
and placement and temporary personnel agencies,
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many of which are national in scope. Some of the Company's competitors,
including all of the national firms, are substantially larger and have greater
financial resources than the Company.
The Company believes that many clients generally use more than one
company to satisfy their personnel requirements, and the major factors affecting
competition in the industry are customer service, the availability of qualified
personnel, reputation for integrity and, to varying degrees, pricing. The
Company believes that it has a favorable competitive position that is
attributable to its firm-wide dedication to client service, integrity and
knowledge of the markets it serves, which enables it to fulfill its clients'
needs expeditiously and effectively. In addition, the diverse number of industry
categories and functional areas of placement provided by the Company creates a
number of cross-selling opportunities in enhancing the potential for account
penetration and increased revenues.
EMPLOYEES
As of September 30, 1996, the staff of the Company consisted of 85
full-time employees, including the Company's four executive officers, 64
recruitment and placement counselors and 17 administrative and clerical
employees. None of the Company's employees is represented by a labor
organization and the Company is not aware of any activity seeking such
organization. The Company considers its relationships with its employees to be
excellent.
REGULATION
The Company's operations are subject to state laws and regulations that
may require employment agencies and/or other personnel services firms to be
licensed. The principal requirements of such laws and regulations are
satisfactory prior experience and good moral character. Requirements for
licensing vary from state to state in those states that mandate licensing. The
Company believes that it has obtained all licenses and registrations material to
the conduct of its business.
TRADEMARKS AND SERVICE MARKS
The Company does not own any registered trademarks, service marks or
trademarks, but may seek the registration of its logo or trade name in the
future.
ITEM 2. DESCRIPTION OF PROPERTY
In May 1993, the Company entered into a lease, expiring August 31,
2006, for approximately 9,400 square feet of office space in New York, New York,
which is the Company's principal executive office. The lease provides for
minimum annual rental and utility obligations for years two through six of the
lease (after one rent-free year) of approximately $210,000. It further provides
for minimum annual rental and utility obligations for years seven through 11 of
the lease of approximately $226,000 and for minimum annual rental and utility
obligations for years 12 and 13 of the lease of approximately $282,000.
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In December 1994, the Company amended the lease described above to
include approximately 9,400 square feet of additional office space at the same
location. The minimum annual rental and utility obligations for the additional
office space through September 30, 2000 is approximately $259,000 (after four
rent-free months following the first anniversary and four rent-free months
following the second anniversary of the amendment commencement date) and is
$306,000 from October 1, 2000 through August 31, 2006. The Company occupied this
space in July 1995.
ITEM 3. LEGAL PROCEEDINGS
On July 3, 1996, Information Technology Partners, Inc., a wholly-owned
subsidiary of the Company ("ITP") commenced an action in the Supreme Court of
the State of New York, County of New York against Eastbourne Loss Prevention,
Inc. ("Eastbourne") seeking damages for breach of contract for Eastbourne's
failure to pay for services provided by ITP. Subsequently, on July 9, 1996,
Eastbourne commenced an action in the same court against the Company, ITP, Lloyd
Solomon, the Vice Chairman of the Board and a director of the Company, Eric
Davis, the Chief Financial Officer and a director of the Company, and Martin
Cook, a former executive of ITP, alleging in connection with products and
services provided to Eastbourne by ITP (i) common law breach of contract and
breach of contract under the Uniform Commercial Code (the "UCC"), (ii) breach of
warranty of merchantability under the UCC, (iii) breach of implied warranty
under the UCC, (iv) fraud and (v) breach of implied covenant of good faith and
fair dealing, and seeking a declaratory judgment that Eastbourne is not required
to pay any money to the Company for such products and services and to enjoin the
Company from making any statement to the effect that Eastbourne has any
obligations to the Company. Eastbourne is seeking damages in excess of
$3,050,000. ITP has moved to consolidate the actions, which motion is still
pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation (Nasdaq) SmallCap market under the symbol
SOLP. The table below sets forth the range of sale prices of the Common Stock as
reported by Nasdaq for the fiscal periods specified, beginning with the date on
which trading in the Common Stock commenced on Nasdaq.
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Common Stock
High Low
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FISCAL 1996
First Quarter ....................................... $15/16 $1/2
Second Quarter ...................................... 7/8 5/16
Third Quarter ....................................... 2-1/2 27/32
Fourth Quarter ...................................... 2-11/16 1-1/2
FISCAL 1995
First Quarter (commencing October 21, 1994) ......... $6-5/8 $1-1/8
Second Quarter ...................................... 2-1/4 1
Third Quarter ....................................... 3-11/32 1-3/16
Fourth Quarter ...................................... 1-1/2 13/16
As of December 20, 1996, there were 33 record holders of the Company's
Common Stock. The Company believes that there are in excess of 700 beneficial
owners of its Common Stock additional to such record holders.
The Company has never paid any dividends on its Common Stock and does
not intend to pay such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for the development and growth
of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial statements and notes thereto appearing elsewhere in this document.
OVERVIEW
The Company is primarily engaged in the business of providing personnel
placement services in three sectors: executive search, contingency recruitment
and professional temporary staffing. Executive search services are furnished in
three industry-specific categories to clients in the publishing, capital markets
and managed health care industries. The contingency recruitment sector of the
Company's business consists of four functional practices and one
industry-specific practice. The functional practices provide contingency
recruitment services to all industries seeking personnel in the legal, human
resources, information systems and technology and accounting areas. The
industry-specific practice provides contingency recruitment services to the
fashion services industry. Professional temporary staffing services are provided
to the
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information systems and technology marketplace by ITP, a wholly-owned subsidiary
of the Company.
The following is a summary of the Company's consolidated financial and
operating data:
Fiscal Year Ended September 30,
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Statements of Operations Data: 1996 1995
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Revenue $17,165,836 $7,331,053
Income [Loss] from Operations 509,313 (2,093,633)
Net Income [Loss] 710,326 (1,927,834)
Primary Income [Loss] Per Common Share $.14 $(.39)
Balance Sheet Data: September 30, 1996
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Working Capital $5,530,320
Total Assets 9,613,173
Long-term Debt, Net of Current Maturities 98,203
Stockholders' Equity 7,065,350
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Revenue increased to approximately $17,166,000 for the fiscal year
ended September 30, 1996, from approximately $7,331,000 for the fiscal year
ended September 30, 1995, an increase of approximately $9,835,000, or 134%.
Revenues from the Company's retained executive search and contingency
recruitment business were approximately $10,559,000 for the fiscal year ended
September 30, 1996 compared to approximately $5,831,000 for the same period in
1995 and revenues from the professional interim staffing business were
approximately $6,607,000 for the fiscal year ended September 30, 1996 compared
to approximately $1,500,000 for the same period in 1995.
The increase in revenues for the fiscal year ended September 30, 1996
compared with the fiscal year ended September 30, 1995 for the Company's
retained executive search and contingency recruitment sector can be attributed
to the expansion of its client base, strong demand for personnel from existing
clients and hiring of additional experienced counselors. In addition, during
1995 the Company expanded into providing executive search services to clients in
the publishing industry and augmented its presence in the managed health care
area through the expansion of executive search services to managed health care
clients on the West Coast. These expanded operations also contributed to the
increase in revenues for the fiscal year ended September 30, 1996. The Company's
professional interim staffing business, which commenced operations in November
1994, experienced a significant increase in revenues for the fiscal year ended
September 30, 1996 compared to the same period in 1995. The increase was
attributable to the retention of experienced sales and recruiting personnel,
establishment of various customer relationships as well as the expansion into
new geographical markets.
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Selling expenses for the fiscal year ended September 30, 1996 totaled
approximately $12,763,000 (74% of revenues) compared with approximately
$6,255,000 (85% of revenues) for the fiscal year ended September 30, 1995. The
improvements as a percentage of revenues relates to operating efficiencies and
economies of scale associated with increased revenues. The increase in selling
expenses is directly related to the Company's subsidiary ITP, which contributed
approximately $5,369,000 of the increased costs for the fiscal year ended
September 30, 1996. Such costs consist primarily of payroll relating to
temporary staffing requirements, salaries and commissions on sales and recurring
personnel, employee benefits and advertising expenses.
General and Administrative expenses increased to approximately
$3,653,000 (21% of revenues) for the fiscal year ended September 30, 1996 from
approximately $3,021,000 (41% of revenues) for the fiscal year ended September
30, 1995. The improvement as a percentage of revenues relates to operating
efficiencies and economies of scale associated with increased revenues. The
increase in general and administrative expenses is primarily a result of the
Company's planned business expansion through the retention of additional
administrative personnel, leasing additional office space and professional fees.
Depreciation and Amortization for the fiscal year ended September 30,
1996 totaled approximately $241,000 compared to approximately $148,000 for the
same period in 1995. The increase is due to amortization of intangible assets
related to the acquisition of trade names along with the acquisition of capital
assets, such as computer equipment, furniture and fixtures and leasehold
improvements.
Income from operations as a result of the above-mentioned factors
increased to approximately $509,000 in fiscal 1996 from an operating loss of
approximately $2,094,000 in fiscal 1994.
Due to the factors mentioned above net income was approximately
$710,000 for the fiscal year ended September 30, 1996 compared to a net loss of
approximately $1,928,000 for the fiscal year ended September 30, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Total Revenues increased from approximately $4,914,000 for the fiscal
year 1994 to approximately $7,331,000 for the fiscal year 1995, an increase of
approximately $2,417,000 or 49%. Revenues from the Company's executive search
and contingency recruitment business were approximately $5,831,000 and revenues
from the information technology temporary staffing and consulting business were
approximately $1,500,000 in fiscal 1995.
The increase in revenues from fiscal 1994 to 1995 for the Company's
executive search and contingency recruitment sector can be attributed to the
expansion of its client base, increased revenues from existing clients and
hiring of additional experienced counselors. In addition, during 1995 the
Company purchased a business providing executive search services to clients in
the publishing industry and augmented its presence in the managed health care
area through the
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acquisition of a California-based provider of executive search services to
managed health care clients on the West Coast. This acquisition also contributed
to the increase in revenues.
Selling expenses for fiscal 1995 totalled approximately $6,255,000 (85%
of revenues), compared with approximately $3,667,000 (75% of revenues) for
fiscal 1994. The increase in selling expenses was accounted for in part by the
commencement of operations of the Company's subsidiary, ITP, which provides
professional temporary staffing services to the information systems and
technology marketplace. The primary selling expense associated with ITP is
payroll and related expenses for the temporary employees, which were
approximately 70% of ITP revenues for fiscal 1995. The Company also incurred
other costs in connection with ITP and the expansion of its executive search and
contingency recruitment businesses, consisting primarily of salaries, sales
commissions and related employee benefits, advertising, public relations and
various other costs. The Company anticipates that revenue growth will more than
offset the increase in selling expenses.
General and Administrative expenses increased from approximately
$1,171,000 in fiscal 1994 (24% of revenues) to approximately $3,021,000 in
fiscal 1995 (41% of revenues), an increase of approximately $1,850,000. The
increase in general and administrative expenses is primarily the result of the
Company's planned business expansion, which included the retention of additional
administrative and financial personnel and the leasing of new office space. The
Company anticipates that general and administrative expenses will remain
relatively constant in subsequent fiscal years and are expected to be sufficient
to support the Company's anticipated revenue growth for the foreseeable future.
The Company also incurred increased professional fees.
Depreciation and Amortization expenses increased from approximately
$60,000 in fiscal 1994 to approximately $148,000 in fiscal 1995, an increase of
approximately $88,000. The increase is primarily due to the acquisition of
capital assets, such as computer equipment, furniture and fixtures and leasehold
improvements.
Interest income increased to approximately $274,000 in fiscal 1995 from
approximately $9,000 for the same period in 1994, an increase of $265,000. The
increase is due directly to investing the proceeds of the Company's initial
public offering of common stock in October 1994. Interest expense increased to
approximately $66,000 for fiscal 1995 from approximately $53,000 for fiscal
1994, an increase of $13,000, due to capital lease obligations for furniture,
fixtures and equipment.
Net Loss as a result of the above-mentioned factors was approximately
$1,928,000 in fiscal 1995 compared to a net loss of approximately $259,000 in
fiscal 1994.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's sources of liquidity included
approximately $3,424,000 in cash and cash equivalents and short-term
investments. In addition, the Company had working capital of approximately
$5,530,000 at September 30, 1996. Capital expenditures for fiscal 1997 are
expected to be approximately $400,000. The Company is currently in the process
of establishing a credit facility to increase liquidity, although there is no
assurance that such a facility on terms satisfactory to the Company will be
established.
Cash flows used in operating activities were approximately $650,000 for
the fiscal year ended September 30, 1996. The primary use of cash for operating
activities was to fund the increase in accounts receivable related to higher
revenues. Accounts receivable increased approximately $2,945,000 compared to
September 30, 1995. Cash used in investing activities for the fiscal year ended
September 30, 1996 totaled approximately $1,568,000, most of which was used for
the purchase of investments.
The Company is engaged in negotiations for an additional 9,400 square
feet at its current headquarters with a rental rate similar to that for the
floors it occupies under its existing lease.
The Company believes that its current cash position and investment
balances will be sufficient to support current working capital requirements for
the next 12 months.
IMPACT OF INFLATION
Inflation has not been a major factor in the Company's business since
inception. There can be no assurances that this will continue.
NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, " in March of
1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October of 1995. SFAS No. 123 uses a fair value based method
of accounting for stock options and similar equity instruments as contrasted to
the intrinsic value based method of accounting prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued to
Employees. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
the disclosure
-13-
<PAGE>
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. The Company anticipates continuing to
account for stock-based compensation using the intrinsic value method. SFAS No.
123 will not have an impact on the Company's results of operations or financial
position.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." In June 1996, SFAS No.
125 provides accounting and reporting standards which are based on consistent
application of a "financial-components approach" that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognized the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets extinguishment of liabilities
occurring after December 31, 1996. Adoption of SFAS No. 125 is not expected to
have an impact on the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-14-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than January 28, 1997 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934 ("Regulation 14A").
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than January 28, 1997 pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than January 28, 1997 pursuant to Regulation 14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than January 28, 1997 pursuant to Regulation 14A.
-15-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Exhibits
- ------ --------
3.1 (a) Certificate of Incorporation, as amended, of The Solomon-Page Group
Ltd. (Incorporated by reference to Exhibit 3.1(a) to Registration
Statement on Form SB-2, No. 33-81026)
(b) Certificate of Amendment to Certificate of Incorporation of The
Solomon- Page Group Ltd (Incorporated by reference to Exhibit 3.1(b)
to Registration Statement on Form SB-2, No. 33-81026)
3.2 Amended and Restated By-Laws of the Company (Incorporated by
reference to Exhibit 3 to the Company's Current Report on Form 8-K
dated June 8, 1995)
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to Registration Statement on Form SB-2, No. 33-81026)
4.2 Specimen Warrant Certificates (Incorporated by reference to Exhibit
4.2 to Registration Statement on Form SB-2, No. 33-81026)
10.1 1993 Long Term Incentive Plan (Incorporated by reference to Exhibit
10.2 to Registration Statement on Form SB-2, No. 33-81026)
10.2 1995 Directors' Stock Option Plan of the Company (Incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form
8-K dated June 8, 1995)
10.3 Employment Agreement dated June 14, 1993, as amended, between the
Company and Herbert Solomon (Incorporated by reference to Exhibit
10.3 to Registration Statement on Form SB-2, No. 33-81026)
10.4 Employment Agreement dated June 14, 1993, as amended, between the
Company and Lloyd Solomon (Incorporated by reference to Exhibit 10.4
to Registration Statement on Form SB-2, No. 33-81026)
10.5 Amendment dated June 8, 1995 to that certain Employment Agreement
dated as of June 14, 1993, by and between the Company and Lloyd
Solomon (Incorporated by reference to Exhibit 99.4 to the Company's
Current Report on Form 8-K dated June 8, 1995)
10.6 Employment Agreement dated June 14, 1993, as amended, between the
Company and Scott Page (Incorporated by reference to Exhibit 10.5 to
Registration Statement on Form SB-2, No. 33-81026)
10.7 Amendment dated June 8, 1995 to that certain Employment Agreement
dated as of June 14, 1993, by and between the Company and Scott Page
(Incorporated by reference to Exhibit 99.5 to the Company's Current
Report on Form 8-K dated June 8, 1995)
-16-
<PAGE>
*10.8 1996 Stock Option Plan
10.9 Form of Indemnification Agreement between the Company and its
officers and directors (Incorporated by reference to Exhibit 10.13
to the Company's Form 10-KSB for the fiscal year ended September 30,
1995)
10.10 Charter of the Audit Committee of the Board of Directors of the
Company (Incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated June 8, 1995)
10.11 The Company's Policy on Transactions in Company Securities by
Company Officers, Directors and Employees (Incorporated by reference
to Exhibit 99.3 to the Company's Current Report on Form 8-K dated
June 8, 1995)
*23 Consent of Moore Stephens P.C. dated December __, 1996
*27 Financial Data Schedule
- ---------------------------
* Filed herewith.
(b) Reports on Form 8-K
None.
-17-
<PAGE>
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.
THE SOLOMON-PAGE GROUP LTD.
Dated: December 27, 1996 By: /S/ LLOYD SOLOMON
------------------------------------
Lloyd Solomon
Vice Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/S/ HERBERT SOLOMON Chairman of the Board and December 27, 1996
- -----------------------
Herbert Solomon Director
/S/ LLOYD SOLOMON Vice Chairman of the Board and December 27, 1996
- ----------------------- Director (Principal Executive
Lloyd Solomon Officer)
- ----------------------- President and Director December __, 1996
Scott Page
/S/ ERIC M. DAVIS Vice President - Finance, Chief December 27, 1996
- ----------------------- Financial Officer and Director
Eric M. Davis (Principal Financial and
Accounting Officer)
Director December __, 1996
- -----------------------
Edward Ehrenberg
/S/ JOEL A. KLARREICH Director December 27, 1996
- -----------------------
Joel A. Klarreich
-18-
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PAGE
Independent Auditor's Report .......................................... F-2..
Consolidated Balance Sheet as of September 30, 1996 ................... F-3..
Consolidated Statements of Operations for the years ended
September 30, 1996 and 1995............................................ F-5..
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996 and 1995............................................ F-6..
Consolidated Statements of Cash Flows for the years ended
September 30, 1996 and 1995............................................ F-7..
Notes to Consolidated Financial Statements ............................ F-9..
. . . . . . . . . . . .
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
The Solomon-Page Group Ltd.
We have audited the accompanying consolidated balance sheet of
The Solomon-Page Group Ltd. and its subsidiary as of September 30, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of The Solomon-Page Group Ltd. and its subsidiary as of September 30,
1996, and the consolidated results of their operations and their cash flows for
each of the two fiscal years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
/s/ MOORE STEPHENS, P. C.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
December 6, 1996, except as to
Note 15, for which the date is
December 18, 1996
F-2
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
- --------------------------------------------------------------------------------
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,113,556
Short-Term Investments 1,310,325
Accounts Receivable - [Net of Allowance for
Doubtful Accounts of $89,900] 4,160,090
Other Current Assets 129,977
---------------
TOTAL CURRENT ASSETS 7,713,948
---------------
FURNITURE AND EQUIPMENT:
Furniture and Fixtures 274,716
Office Equipment 850,715
Leasehold Improvements 223,350
---------------
Total - At Cost 1,348,781
Less: Accumulated Depreciation and Amortization 409,962
---------------
FURNITURE AND EQUIPMENT - NET 938,819
---------------
OTHER ASSETS:
Intangible Assets - [Net of Accumulated
Amortization of $46,274] 553,327
Due from Related Parties 176,283
Security Deposits 85,278
Restricted Investment 34,466
Other Assets 111,052
---------------
TOTAL OTHER ASSETS 960,406
---------------
TOTAL ASSETS $ 9,613,173
===============
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-3
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accrued Salaries and Commissions $ 1,293,193
Accounts Payable and Accrued Expenses 676,955
Current Portion of Obligations Under Capital Leases 120,918
Other Current Liabilities 92,562
---------------
TOTAL CURRENT LIABILITIES 2,183,628
---------------
LONG-TERM LIABILITIES:
Obligations Under Capital Leases 98,203
Deferred Credit 265,992
---------------
TOTAL LONG-TERM LIABILITIES 364,195
---------------
COMMITMENTS AND CONTINGENCIES --
---------------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share; Authorized
2,000,000 Shares, None Issued or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 20,000,000 Shares, Issued and
Outstanding 5,139,285 Shares 5,139
Additional Paid-in Capital 8,488,247
Accumulated Deficit (1,428,036)
---------------
TOTAL STOCKHOLDERS' EQUITY 7,065,350
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,613,173
===============
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-4
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
REVENUE $ 17,165,836 $ 7,331,053
--------------- ---------------
SELLING EXPENSES 12,762,977 6,255,251
GENERAL AND ADMINISTRATIVE 3,652,619 3,021,184
DEPRECIATION AND AMORTIZATION 240,927 148,251
--------------- ---------------
TOTAL OPERATING EXPENSES 16,656,523 9,424,686
--------------- ---------------
INCOME [LOSS] FROM OPERATIONS 509,313 (2,093,633)
--------------- ---------------
OTHER INCOME [EXPENSES]:
Interest and Dividend Income 130,937 274,302
Interest Expense (49,215) (65,951)
Net Realized and Unrealized Gain on Investments 137,411 --
Amortization of Deferred Financing Costs -- (60,000)
Other Income [Expense] 1,080 (13,000)
--------------- ---------------
TOTAL OTHER INCOME 220,213 135,351
--------------- ---------------
INCOME [LOSS] BEFORE INCOME TAX EXPENSE [BENEFIT] 729,526 (1,958,282)
INCOME TAX EXPENSE [BENEFIT] 19,200 (30,448)
--------------- ---------------
NET INCOME [LOSS] $ 710,326 $ (1,927,834)
=============== ===============
PRIMARY INCOME [LOSS] PER COMMON SHARE $ .14 $ (.39)
=============== ===============
FULLY DILUTED INCOME [LOSS] PER COMMON SHARE $ .13 $ (.39)
=============== ===============
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-5
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
---------- -----
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
--------------- ------------ ------- ----------- -------------
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - SEPTEMBER 30, 1994 -- $ -- 2,550,000 $ 2,550 $ 856,678 $ (210,528) $ 648,700
Initial Public Offering -- -- 2,300,000 2,300 7,541,683 -- 7,543,983
Issuance of Bridge Units -- -- 175,000 175 -- -- 175
Issuance of Common Stock
Relating to Acquisitions -- -- 114,285 114 89,886 -- 90,000
Net [Loss] -- -- -- -- -- (1,927,834) (1,927,834)
--------- --------- ----------- ---------- ------------ ------------- ------------
BALANCE - SEPTEMBER 30, 1995 -- -- 5,139,285 5,139 8,488,247 (2,138,362) 6,355,024
Net Income -- -- -- -- -- 710,326 710,326
--------- --------- ----------- ---------- ------------ ------------- ------------
BALANCE - SEPTEMBER 30, 1996 -- $ -- 5,139,285 $ 5,139 $ 8,488,247 $ (1,428,036) $ 7,065,350
========= ========= =========== ========== ============ ============= ============
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-6
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
September 30,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income [Loss] $ 710,326 $ (1,927,834)
--------------- ---------------
Adjustments to Reconcile Net Income [Loss] to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 240,927 148,251
Provision for Losses on Accounts Receivable 235,157 62,500
Deferred Taxes -- (30,448)
Amortization of Deferred Financing Costs -- 60,000
[Gain] Loss on Disposal of Assets (580) 13,000
Deferred Credit 52,139 3,679
Net Realized and Unrealized Gain on Investments (137,411) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (2,944,843) (441,608)
Other Current Assets (120,881) 7,332
Security Deposits (7,531) (45,391)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 1,260,388 31,069
Other Current Liabilities 62,198 25,004
--------------- ---------------
Total Adjustments (1,360,437) (166,612)
--------------- ---------------
NET CASH - OPERATING ACTIVITIES (650,111) (2,094,446)
--------------- ---------------
INVESTING ACTIVITIES:
Purchases of Investments (4,618,641) --
Proceeds from Sales of Investments 3,446,508 --
Proceeds from Insurance Claim 23,799 --
Capital Expenditures (302,189) (520,316)
Acquisitions of Trade Names (179,601) (345,000)
Proceeds from Asset Sales -- 2,000
Transfer from Restricted Investment 90,043 127,682
Advances to Related Parties (46,888) (123,541)
Cash Received from Related Parties 19,000 --
--------------- ---------------
NET CASH - INVESTING ACTIVITIES (1,567,969) (859,175)
--------------- ---------------
FINANCING ACTIVITIES:
Principal Payments Under Capital Lease Obligations (113,525) (97,873)
Proceeds from Public Offering -- 7,915,067
Repayment of Bridge Loans -- (400,000)
Cash Paid to Related Parties -- (54,201)
--------------- ---------------
NET CASH - FINANCING ACTIVITIES (113,525) 7,362,993
--------------- ---------------
NET [DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS -
FORWARD $ (2,331,605) $ 4,409,372
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-7
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
NET [DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS -
FORWARDED $ (2,331,605) $ 4,409,372
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 4,445,161 35,789
--------------- ---------------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 2,113,556 $ 4,445,161
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 49,215 $ 55,733
Income Taxes $ -- $ --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1995, the Company acquired $19,500 of equipment utilizing
capital lease obligations.
During fiscal 1995, the Company issued 114,285 shares of common stock valued
at $90,000 in connection with the acquisition of a trade name.
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-8
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Solomon-Page Group Ltd. and its subsidiary provide retained
executive search contingency recruitment services in the fields of capital
markets, accounting and finance, fashion, human resources, legal, health care,
publishing, information systems and technology. Temporary staffing services are
provided in the fields of information systems and technology. The Company
provides its services principally in the New York metropolitan area through its
offices located in New York and New Jersey. The Company also provides services
in California and Georgia through its offices located in those areas.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiary. All material intercompany accounts
and transactions are eliminated.
REVENUE RECOGNITION - Search revenues are recognized in contingency search
engagements upon the successful completion of the assignment. In a retained
search engagement, the non-refundable retainer is recognized upon execution of
the agreement, with the balance recognized on completion of the search. Reserves
are established to estimate losses due to placed candidates not remaining in
employment for the Company's guarantee period. Temporary staffing revenue is
recognized when the temporary personnel provide the service.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Furniture, equipment and
leasehold improvements are recorded at cost.
DEPRECIATION AND AMORTIZATION - Depreciation is computed utilizing the
straight-line method based on estimated useful lives ranging from three to seven
years. Amortization is computed utilizing the straight-line method over the
remaining lease term. Depreciation expense was $203,153 and $139,751 for the
years ended September 30, 1996 and 1995, respectively.
DEFERRED INCOME TAXES - The Company accounts for deferred income taxes in
accordance with Statement of Financial Accounting Standards ["SFAS"] No. 109.
The statement requires that deferred income taxes reflect the tax consequences
on future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts.
DEFERRED CREDIT - The Company's lease on its premises provides for periodic
increases over the lease term. Pursuant to Statement of Financial Accounting
Standard ["SFAS"] No. 13, the Company records rent expense on a straight-line
basis. The effect of these differences is recorded as a deferred credit.
CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
INCOME [LOSS] PER SHARE - Income [Loss] per share of common stock is based on
the weighted average number of common shares outstanding for each period
presented. Common stock equivalents are included if dilutive. The number of
weighted average common shares outstanding utilized to compute primary income
[loss] per share was 5,139,285 and 4,916,311 and to compute fully diluted income
[loss] per share was 5,452,595 and 4,916,311 for the years ended September 30,
1996 and 1995, respectively.
INTANGIBLES - Trade names and customer lists are amortized utilizing the
straight-line method over periods of 5 to 15 years. When changing circumstances
warrant it, the Company evaluates the carrying value and the periods of
amortization based on the current and expected future non-discounted cash flows
from operations to determine whether revised estimates of carrying value or
useful lives is required. Amortization expense was $37,774 and $8,500 for the
years ended September 30, 1996 and 1995, respectively.
DEFERRED FINANCING COST - Deferred financing cost was amortized through the
effective date of the Company's initial public offering which occurred on
October 20, 1994.
F-9
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
- --------------------------------------------------------------------------------
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentration of credit risk include cash, cash equivalents and
accounts receivable arising from its normal business activities. The Company
places its cash with high credit quality financial institutions. The Company
currently has approximately $506,000 in a financial institution that is subject
to normal credit risk beyond insured amounts.
Regarding accounts receivable, the Company believes that credit risk is limited
due to the large number of entities comprising the Company's customer base and
the diversified industries in which the Company operates. As a consequence, the
Company believes that its accounts receivable credit risk exposure is limited.
The Company has one customer whose sales comprised approximately 15 percent of
total revenue and whose receivable at September 30, 1996 comprises 21 percent of
total accounts receivable.
The Company does not require collateral on accounts receivable.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
ADVERTISING - The Company expenses advertising costs as incurred. Total
advertising costs charged to expense amounted to approximately $150,000 and
$79,000 for the years ended September 30, 1996 and 1995, respectively.
[2] INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company adopted Statement of Financial Accounting Standards ["SFAS"] No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
October 1, 1994. In accordance with SFAS No. 115, prior years' financial
statements are not to be restated to reflect the change in accounting method.
There was no cumulative effect adjustment as a result of adopting SFAS No. 115
at October 1, 1994.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt and equity securities which the Company does
not have the intent to hold to maturity are classified as trading or available
for sale. Trading securities are carried at fair value with any unrealized gains
or losses included in earnings. Securities available for sale are carried at
fair value, with any unrealized holding gains and losses, net of tax, reported
in a separate component of shareholders' equity until realized. Held to maturity
securities are carried at amortized cost. At September 30, 1996, the Company had
no investments that qualified as available for sale. Marketable debt and equity
securities available for current operations are classified in the balance sheet
as current assets while securities held for non-current uses are classified as
long-term assets. Realized gains and losses are calculated utilizing the
specific identification method.
F-10
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
- --------------------------------------------------------------------------------
[2] INVESTMENTS IN DEBT AND EQUITY SECURITIES [CONTINUED]
At September 30, 1996, the Company's trading and held to maturity investments
consisted of certain highly liquid debt securities. A summary of the Company's
investments in debt securities is as follows:
<TABLE>
<CAPTION>
Gross Gross
----- -----
September 30, 1996 Unrealized Unrealized
------------------ ---------- ----------
Financial Statement Caption Carrying Value Fair Value Gains [Losses]
- --------------------------- -------------- ---------- ----- --------
<S> <C> <C> <C> <C>
Trading:
Cash and Cash Equivalents $ 793,846 $ 1,306 $ --
============= ============= ============
Short-Term Investments $ 1,310,325 $ 5,684 $ (2,658)
============= ============= ============
Held to Maturity:
Restricted Investment - Noncurrent $ 34,466 $ 34,466 $ -- $ --
============= ============= ============= ============
</TABLE>
Gross proceeds from sale of available for sale securities held at beginning of
the year were $4,391,642 and $2,677,191 and realized gain or loss on sales was
$-0- and $-0- for the years ended September 30, 1996 and 1995, respectively. Net
unrealized gains on trading securities was $4,332 and is included in earnings
for the year ended September 30, 1996.
Contractual maturities of debt securities classified as held to maturity are as
follows:
Within 1 year $ 34,466
[3] DUE FROM RELATED PARTIES
At September 30, 1996, the Company had a balance due from various officers of
the Company aggregating $176,283 including accrued interest. The advances bear
interest at 8 percent. Interest income on the advances was $10,401 and $8,451
for the years ended September 30, 1996 and 1995, respectively. Interest
receivable on the advances was $11,635 at September 30, 1996.
[4] CREDIT FACILITY
In September 1994, the Company entered into a $500,000 revolving credit facility
with a bank which was collateralized by the Company's accounts receivable. The
agreement provided for borrowings at the prime rate, required monthly interest
payments and expired on December 15, 1995.
[5] LEASES
CAPITAL LEASES - The Company is the lessee of furniture, fixtures and office
equipment under capital leases expiring in various years through 1999. The
assets and liabilities under capital leases are recorded at the present value of
the net minimum lease payments. The assets are amortized over their estimated
productive lives. Amortization of assets under capital leases is included in
depreciation expense.
Following is a summary of property held under capital leases:
Furniture and Fixtures $ 110,481
Office Equipment 360,778
---------------
Total - At Cost 471,259
Less: Accumulated Amortization 227,189
Total $ 244,070
----- ===============
F-11
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
- --------------------------------------------------------------------------------
[5] LEASES [CONTINUED]
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
1997 $ 146,702
1998 74,678
1999 37,901
2000 --
2001 --
Thereafter --
---------------
Net Minimum Lease Payments 259,281
Less: Amount Representing Interest (40,160)
Present Value of Net Minimum Lease Payments 219,121
Less: Current Portion 120,918
Long-Term Portion $ 98,203
----------------- ===============
OPERATING LEASES - The Company leases office space under operating leases
expiring through August 2006. In lieu of a cash security deposit, the Company
has delivered to the landlord a letter of credit in the amount of $34,466 as of
June 1, 1996. This letter of credit is collateralized by a U.S. Treasury Bill
and is classified as restricted investment in the accompanying balance sheet.
The Company leases office equipment under operating leases expiring through
1999.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of September 30, 1996 for each of the
next five years and in the aggregate are:
1997 $ 406,517
1998 451,001
1999 489,179
2000 484,100
2001 531,100
Subsequent to 2001 2,444,000
---------------
Total Minimum Future Rental Payments $ 4,805,897
------------------------------------ ===============
In addition, the Company is liable for its pro-rata share of increases in real
estate taxes and escalations as provided in the lease agreements.
Rent expense was $593,322 and $422,323 for the years ended September 30, 1996
and 1995, respectively.
F-12
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
- --------------------------------------------------------------------------------
[6] BRIDGE LOAN
On April 1, 1994, the Company borrowed $400,000, evidenced by promissory notes.
In addition, the Company issued 175,000 bridge units substantially identical to
the units sold to the public in the Company's initial public offering except for
the issuance of Class B warrants in addition to the Class A warrants. Each
bridge unit consisted of an option to purchase one share of common stock at an
exercise price of $.001 per share as well as the warrants and was issued after
the effective date of the offering. The bridge loans carried interest at the
rate of 8 percent per annum and the entire principal amount and accrued interest
was paid upon the closing of the Company's initial public offering, on October
20, 1994. The Company has recorded, and fully amortized, $420,000 of deferred
financing cost in connection with these notes. The loans were recorded at their
face amount which approximated their fair market value. Interest expense of
$2,325 was recorded on the bridge loans for the year ended September 30, 1995.
[7] CAPITAL STOCK
During the year ended September 30, 1995, the Company paid cash of $345,000 and
issued 114,285 shares of common stock valued at $90,000 principally in
connection with the acquisition of two trade names.
On October 20, 1994, the Company completed an initial public offering of its
common stock. The Company realized net proceeds of approximately $7,540,000 from
the sale of 2,300,000 units, each unit consisting of one share of common stock
and one Class A redeemable common stock purchase warrant. The Company also
issued 175,000 shares of common stock upon exercise of the bridge unit options
for $175.
[8] COMMITMENTS AND CONTINGENCIES
EMPLOYMENT ARRANGEMENTS - On June 14, 1993, the Company entered into employment
agreements with Mr. Herbert Solomon, Mr. Lloyd Solomon and Mr. Scott Page. In
addition, Mr. Herbert Solomon and Mr. Scott Page are entitled to receive
commission payments based on the revenues generated by their executive
recruitment and placement activities and Mr. Lloyd Solomon will be entitled to
receive incentive compensation for each fiscal year during the term of his
employment equal to that percentage of consolidated pre tax operating income
that consolidated pre tax operating income bears to total consolidated revenue.
These employment agreements are for an initial term of five years commencing
June 14, 1993 and will be extended automatically for additional one-year periods
unless terminated by either party. The employment agreements provide that if the
employee is terminated after the initial term other than for "cause" [as
defined], or dies or becomes permanently disabled, the Company will pay to the
employee certain severance. These employment agreements also prohibit the
employee from competing with the Company's business during the term thereof and
for a period of one year thereafter.
Salaries required to be paid as of September 30, 1996 are as follows:
1997 $ 775,000
1998 $ 549,000
F-13
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
- --------------------------------------------------------------------------------
[8] COMMITMENTS AND CONTINGENCIES [CONTINUED]
EMPLOYMENT ARRANGEMENTS [CONTINUED] - For the years ended September 30, 1996 and
1995, approximately $615,000 and $351,000, respectively, was charged to
operations under the commission portion and approximately $34,000 and $-0-,
respectively under the incentive compensation portion of the above described
executive compensation plans.
On September 18, 1996, the Company terminated an agreement relating to 794,136
escrow shares that had been made available for issuance to certain executives of
the Company. These escrow shares were to have been released based on the
achievement by the Company of prescribed levels of pre-tax earnings. In
consideration for terminating the escrow share agreement, the Company granted
stock options to purchase 200,000 shares of common stock at fair market value on
date of grant to each of the three executives who would have been eligible to
receive escrow shares.
The Company has agreements with certain employees whereby bonuses can be earned
based on the achievement of divisional revenue levels in excess of specified
amounts and the attainment of certain pre-tax profit levels.
LITIGATION - The Company is party to litigation arising from the normal course
of business. In managements' opinion, this litigation will not materially affect
the Company's financial position, results of operations or cash flows.
In July 1996, the Company commenced an action seeking damages for the breach of
contract for failure to pay for services rendered. Subsequently, a countersuit
was filed alleging various contract breaches by the Company and seeking damages
of $3,050,000. An estimate of the loss or range of loss, if any, that could
result cannot be made at this time. The Company believes it has numerous
defenses to this action an will ultimately prevail, however, it is at least
reasonably possible that a change in this estimate could occur in the near term.
ACQUISITIONS - In connection with certain acquisitions, the Company is required
to pay purchase price adjustments based on the achievement of various criteria.
These additional payments are charged to intangibles and are amortized over the
then remaining life of the intangible. Purchase price adjustments amounted to
$116,601 during the period ended September 30, 1996.
[9] OPTIONS AND WARRANTS
On April 1, 1994, the Company issued 175,000 Class A warrants and 175,000 Class
B warrants in connection with certain bridge financing which was repaid on
October 20, 1994. The Class A warrants are identical to those issued in the
Company's initial public offering. The Class B warrants are identical to the
Class A warrants except that the exercise price is $6.00 per share.
On October 20, 1994, in connection with its initial public offering the Company
has outstanding 2,300,000 Class A redeemable common stock purchase warrants.
Each Class A warrant entitles the holder to purchase one share of common stock
exercisable at $4.50 per share commencing October 20, 1995 and expiring on
October 20, 1999. The Class A warrants are redeemable at $.05 per warrant based
on the achievement of certain criteria.
On October 20, 1994, in connection with its initial public offering, the Company
granted to its underwriter an option to purchase an aggregate 200,000 units
exercisable at $6.60 per unit commencing October 20, 1995 and expiring October
20, 1999.
On August 17, 1995, the Company adopted the 1995 Director's Stock Option Plan
[the "Director's Plan"]. The Director's Plan provides for the grant of options
to purchase up to 100,000 shares of common stock to Directors who are not
employees of the Company. Options granted under the Director's Plan will be
exercisable commencing a minimum of 6 months from the date of grant for a period
of 10 years from the date of grant at an exercise price which is not less than
the fair market value of the common stock on the date of the grant.
F-14
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
- --------------------------------------------------------------------------------
[9] OPTIONS AND WARRANTS [CONTINUED]
On August 6, 1993, the Company adopted the 1993 Long Term Incentive Plan [the
"1993 Plan"], which was amended on June 24, 1994. The 1993 Plan provides for the
issuance of incentive awards in the form of but not limited to stock options,
stock appreciation rights, restricted stock and performance grants to purchase
up to 1,500,000 shares of common stock and provides that all individuals
performing services for the Company are eligible to receive incentive awards.
The 1993 Plan is administered by a committee designated by the Board of
Directors. The selection of participants, allotment of shares, determination of
price and other conditions of purchase of any awards granted will be determined
by such committee at its sole discretion. The purpose of the 1993 Plan is to
attract and retain persons instrumental to the success of the Company. Incentive
stock options granted under the 1993 Plan will be exercisable for a period of up
to 10 years from the date of grant at an exercise price which is not less than
the fair market value of the common stock on the date of the grant, except that
the term of an incentive stock option granted under the 1993 Plan to a
stockholder owning more than 10% of the outstanding shares of the common stock
may not exceed five years and its exercise price may not be less than 110% of
the fair market value of the common stock on the date of the grant.
On September 17, 1996, the Company adopted the 1996 Stock Option Plan [the "1996
Plan"]. The 1996 Plan provides for awards of incentive stock options and
non-qualified options to purchase up to 1,000,000 shares of common stock to
employees and directors of the Company. The 1996 Plan provides that
non-qualified options must be granted at not less than 80 percent of fair market
value on the date granted. No options at less than fair market value have been
awarded.
A summary of the activity in the option plans is as follows:
Shares Price
------ -----
OUTSTANDING AT SEPTEMBER 30, 1994 445,000 $ 2.50 - $2.75
Granted 1,057,000 $ 1.25 - $2.00
Exercised -- --
Expired/Canceled (130,000) ($ 1.25 - $2.50)
------------- ------------------
OUTSTANDING AT SEPTEMBER 30, 1995 1,372,000 $ 1.25 - $2.75
Granted 758,500 $ .56 - $2.27
Exercised -- --
Expired/Canceled (357,000) ($1.25 - $2.75)
------------- ------------------
OUTSTANDING AT SEPTEMBER 30, 1996 1,773,500 $ .56 - $2.50
============= ==================
Exercisable at September 30, 1996 460,000 $1.375 - $2.00
--------------------------------- ============= ==================
F-15
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
- --------------------------------------------------------------------------------
[10] INCOME TAXES EXPENSE [BENEFIT]
The provision for income taxes expense [benefit] consists of the following:
September 30,
-------------
1 9 9 6 1 9 9 5
------- -------
CURRENT:
Federal $ 379,000 $ --
Utilization of Net Operating Loss Carryforward (379,000) --
Federal Loss Carryback -- --
State and City 200,000 --
Utilization of Net Operating Loss Carryforward (196,000) --
----------- ----------
TOTAL CURRENT 4,000 --
----------- ----------
DEFERRED:
Federal 15,200 (13,802)
State and City -- (16,646)
----------- ----------
TOTAL DEFERRED 15,200 (30,448)
----------- ----------
Total Income Tax Expense [Benefit] $ 19,200 $ (30,448)
---------------------------------- =========== ==========
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
September 30,
-------------
1 9 9 6 1 9 9 5
------- -------
Federal Statutory Rate 34.0% (34.0)%
Non Deductible Expenses 17.4 --
Benefit of Loss Net Operating Loss (51.4 --
Loss for which No Benefit was Realized -- 30.8
State Income Taxes .5 --
Other 2.1 1.6
----------- ---------
Effective Rate 2.6% (1.6)%
-------------- =========== =========
The Company has net operating loss carryforwards of approximately $1,300,000 of
which $130,000 will expire in 2009 and $1,170,000 in 2010.
F-16
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
- --------------------------------------------------------------------------------
[10] INCOME TAXES EXPENSE [BENEFIT] [CONTINUED]
The major components of deferred income tax assets and liabilities are as
follows:
September 30,
-------------
1 9 9 6
-------
Deferred Tax Liabilities:
Cash Basis Adjustments $ (275,188)
Accelerated Depreciation (76,790)
Unrealized Gains on Trading Securities (3,146)
-------------
Total Deferred Tax Liabilities (355,124)
Deferred Tax Assets:
Federal Alternative Minimum Tax Payments 15,200
Rent Deferrals 119,696
Net Operating Loss 594,835
Reserves 40,455
Other 6,855
-------------
Total Deferred Tax Assets 777,041
Net Deferred Tax Asset
Before Valuation Allowance: 421,917
Valuation Allowance (421,917)
Net Deferred Income Tax Asset $ --
----------------------------- =============
The Company recorded a reduction of $285,186 in its valuation allowance due to
the achievement of profitable operations giving rise to a reduced net operating
loss carryforward available in future years.
[11] SIGNIFICANT CUSTOMER
For the year ended September 30, 1996, one customer accounted for 15 percent of
revenue.
[12] RETIREMENT PLAN
The Company maintains a 401[k] savings plan which covers substantially all
employees. Under the plan, employees may elect to defer up to 15 percent of
their salary, subject to the Internal Revenue Code limits. The Company may make
a discretionary match as well as a discretionary contribution. The Company did
not make any contributions during the years ended September 30, 1996 and 1995.
[13] FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosing fair value to the extent practicable for financial
instruments which are recognized or unrecognized in the balance sheet. The fair
value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
Carrying value approximates fair value for amounts classified as due from
related parties as the receivables carry market rates of interest. For certain
instruments, including cash, trade receivables and trade payables, and
short-term debt, it was estimated that the carrying amount approximates fair
value for the majority of these instruments because of their short maturities.
F-17
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
- --------------------------------------------------------------------------------
[14] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March of
1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October of 1995. SFAS No. 123 uses a fair value based method
of accounting for stock options and similar equity instruments as contrasted to
the intrinsic value based method of accounting prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, Accounting for Stock Issued to
Employees. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
the disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
anticipates continuing to account for stock-based compensation using the
intrinsic value method. SFAS No. 123 will not have an impact on the Company's
results of operations or financial position.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities." In June 1996, SFAS No. 125
provides accounting and reporting standards which are based on consistent
application of a "financial-components approach" that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets extinguishment of liabilities
occurring after December 31, 1996. Adoption of SFAS No. 125 is not expected to
have an impact on the Company's financial statements.
[15] SUBSEQUENT EVENT
On December 18, 1996, the Board of Directors of the Company authorized the
repurchase of up to 500,000 shares of the Company's common stock from time to
time in the open market or in privately negotiated transactions.
. . . . . . . . . . . .
F-18
THE SOLOMON-PAGE GROUP LTD.
1996 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of this 1996 Stock Option Plan (the "Plan") is to
provide additional incentive to the officers, directors and employees of the
Company who are primarily responsible for the management and growth of the
Company, and to consultants and advisors to the Company who otherwise materially
contribute to the conduct and direction of its business, operations and affairs,
in order to strengthen their desire to remain in the employ or retention of the
Company and to stimulate their efforts on behalf of the Company, and to retain
and attract to the employ of the Company persons of competence. Each option
granted pursuant to the Plan shall be designated at the time of grant as either
an "incentive stock option" or as a "nonqualified stock option." The terms and
conditions of the Plan shall be set forth or incorporated by reference in the
option agreements evidencing the options.
The Company intends that the Plan meet the requirements of
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan be exempt from the operation of Section 16(b)
of the Exchange Act. In all cases, the terms, provisions, conditions and
limitations of the Plan shall be construed and interpreted consistent with the
Company's intent as stated in this Section 1.
2. Definitions
For the purposes of the Plan, unless the context otherwise
requires, the following definitions shall be applicable:
(a) "Board" or "Board of Directors" means the Company's Board
of Directors.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the Stock Option Committee composed of
two or more Non-Employee Directors who shall be elected by, and who shall serve
at the pleasure of, the Board of Directors, and who shall be responsible for
administering the Plan.
(d) "Company" means The Solomon-Page Group Ltd., a Delaware
corporation.
<PAGE>
(e) "Employee" means an employee of the Company or of a
Subsidiary (including a director or officer of the Company or a Subsidiary who
is also an employee).
(f) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(g) "Fair Market Value" of the Shares means the closing price
of publicly traded Shares on the national securities exchange on which the
Shares are listed (if the shares are so listed) or on the NASDAQ National Market
or Small Cap Market (if the Shares are regularly quoted on the NASDAQ National
Market or Small Cap Market), or, if not so listed or regularly quoted, the mean
between the closing bid and asked prices of publicly traded Shares in the
over-the-counter market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code.
(h) "ISO" means an option intended to qualify as an incentive
stock option under Section 422 of the Code.
(i) "Non-Employee Director" means a non-employee director as
defined in Rule 16b-3.
(j) "NQO" means an option that does not qualify as an ISO.
(k) "Plan" means the 1996 Stock Option Plan of the Company.
(l) "Securities Act" means the Securities Act of 1933, as
amended.
(m) "Shares" means shares of the Company's Common Stock, $.001
par value, including authorized but unissued shares and shares that have been
previously issued and reacquired by the Company.
(n) "Subsidiary" of the Company means and includes a
"Subsidiary Corporation," as that term is defined in Section 424(f) of the Code.
3. Administration
Subject to the express provisions of the Plan, the Committee
shall have authority to interpret and construe the Plan, to prescribe, amend and
rescind rules and regulations relating to it, to determine the terms and
conditions of the respective option agreements (which need not be identical) and
to make all other determinations necessary or advisable for the administration
of the Plan. Subject to the express provisions of the Plan, the Committee,
-2-
<PAGE>
in its sole discretion, shall from time to time determine the persons from among
those eligible under the Plan to whom, and the time or times at which, options
shall be granted, the number of Shares to be subject to each option, whether an
option shall be designated an ISO or an NQO and the manner in and price at which
such option may be exercised. In making such determination, the Committee may
take into account the nature and period of service rendered by the respective
optionees, their level of compensation, their past, present and potential
contributions to the Company and such other factors as the Committee shall in
its discretion deem relevant. The determination of the Committee with respect to
any matter referred to in this Section 3 shall be conclusive.
In the event that for any reason the Committee is unable to
act or if the Committee at the time of any grant, award or other acquisition
under the Plan of an ISO or NQO or Share does not consist of two or more
Non-Employee Directors, then any such grant, award or other acquisition may be
approved or ratified in any other manner contemplated by subparagraph (d) of
Rule 16b-3.
4. Eligibility for Participation
Any Employee shall be eligible to receive ISOs or NQOs granted
under the Plan. Consultants and advisors to the Company and directors of the
Company who are not Employees shall be eligible to receive NQOs.
5. Limitation on Shares Subject to the Plan
Subject to adjustment as hereinafter provided, no more than
1,000,000 Shares may be issued pursuant to the exercise of options granted under
the Plan. If any option shall expire or terminate for any reason, without having
been exercised in full, the unpurchased Shares subject thereto shall again be
available for the purposes of the Plan.
6. Terms and Conditions of Options
Each option granted under the Plan shall be subject to the
following terms and conditions:
(a) Except as provided in Subsection 6(j), the option price
per Share shall be determined by the Committee, but (i) as to an ISO shall not
be less than 100% of the Fair Market Value of a Share on the date such ISO is
granted; and (ii) as to an NQO, shall not be less than 80% of the Fair Market
Value of a Share on the date such NQO is granted.
(b) The Committee shall, in its discretion, fix the term of
each option, provided that the maximum length of the term of each option granted
hereunder shall be 10 years and provided
-3-
<PAGE>
further that the provisions of Subsection 6(j) hereof shall be applicable to the
grant of ISOs to Employees therein identified.
(c) If a holder of an option dies while he is employed by the
Company or a Subsidiary or, if the Committee so determines in its discretion at
the time such option is granted or at any time thereafter, within three months
after the termination of such employment by reason of retirement with the
written consent of the Company or a Subsidiary, such option may, to the extent
that the holder of the option was entitled to exercise such option on the date
of his death, be exercised during a period after his death fixed by the
Committee in its discretion at the time such option is granted or at any time
thereafter, but in no event to exceed one year, by his personal representative
or representatives or by the person or persons to whom the holder's rights under
the option shall pass by will or by the applicable laws of descent and
distribution; provided, however no option granted under the Plan may be
exercised to any extent by anyone after its stated expiration date.
(d) In the event that a holder of an option shall voluntarily
retire or quit his employment without the written consent of the Company or a
Subsidiary or if the Company shall terminate the employment of a holder of an
option for cause, the options held by such holder shall forthwith terminate. If
a holder of an option shall voluntarily retire or quit his employment with the
written consent of the Company or a Subsidiary or if the employment of such
holder shall have been terminated by the Company or a Subsidiary for reasons
other than cause, such holder may unless his option shall have previously
expired pursuant to the provisions hereof, exercise his option at any time prior
to the first to occur of the expiration of the original option period or the
expiration of a period after termination of employment fixed by the Committee in
its discretion at the time the option is granted or at any time thereafter, but
in no event to exceed three months, to the extent of the number of Shares
subject to such option that were purchasable by him on the date of termination
of his employment. Options granted under the Plan shall not be affected by any
change of employment so long as the holder thereof continues to be an Employee.
(e) Anything to the contrary contained herein or in any option
agreement executed and delivered hereunder, no option shall be exercisable
unless and until the Plan shall have been approved by stockholders of the
Company in accordance with Section 13 hereof.
(f) Each option shall be nonassignable and nontransferable by
the option holder otherwise than by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the option holder
solely by him; provided, however, that options may be transferred pursuant to a
qualified
-4-
<PAGE>
domestic relations order (as defined in the Code or Title I of the Employee
Retirement Income Security Act, or the rules promulgated thereunder).
(g) An option holder desiring to exercise an option shall
exercise such option by delivering to the Company written notice of such
exercise, specifying the number of Shares to be purchased, together with payment
of the purchase price therefor; provided, however that no option may be
exercised in part with respect to fewer than 100 Shares, except to purchase the
remaining Shares purchasable under such option. Payment shall be made as
follows: (i) in United States dollars by cash or by check, certified check, bank
draft or money order payable to the order of the Company; (ii) at the discretion
of the Committee, by delivering to the Company Shares already owned by the
option holder and having a Fair Market Value on the date of exercise equal to
the exercise price or a combination of such Shares and cash; or (iii) by any
other proper method specifically approved by the Committee.
(h) In order to assist an option holder with the acquisition
of Shares pursuant to the exercise of an option granted under the Plan, the
Committee may, in its discretion and subject to the requirements of applicable
statutes, rules and regulations, whenever, in its judgment, such assistance may
reasonably be expected to benefit the Company, authorize, either at the time of
the grant of the option or thereafter (i) the extension of a loan to the option
holder by the Company, (ii) the payment by the option holder of the purchase
price of the Shares in installments, or (iii) the guaranty by the Company of a
loan obtained by the option holder from a third party. The Committee shall
determine the terms of any such loan, installment payment arrangement or
guaranty, including the interest rate and other terms of repayment thereof.
Loans, installment payment arrangements and guaranties may be authorized with or
without security and the maximum amount thereof shall be the option price for
the Shares being acquired plus related interest payments.
(i) The aggregate Fair Market Value (determined at the time an
ISO is granted) of the Shares as to which an Employee may first exercise ISOs in
any one calendar year under all incentive stock option plans of the Company and
its Subsidiaries may not exceed $100,000.
(j) An ISO may be granted to an Employee owning, or who is
considered as owning by applying the rules of ownership set forth in Section
424(d) of the Code, over 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary if the option price of such ISO equals
or exceeds 110% of the Fair Market Value of a Share on the date the ISO is
granted and such ISO expires not more than five years after the date of grant.
-5-
<PAGE>
7. Adjustments Upon Changes in Capitalization
(a) Subject to any required regulatory approval, new option
rights may be substituted for the option rights granted under the Plan, or the
Company's duties as to options outstanding under the Plan may be assumed, by a
corporation other than the Company, or by a parent or subsidiary of the Company
or such corporation, in connection with any merger, consolidation, acquisition,
sale of all or substantially all assets, separation, reorganization, liquidation
or like occurrence in which the Company is involved. Notwithstanding the
foregoing or the provisions of Subsection 7(b) hereof, in the event that such
corporation, or parent or subsidiary of the Company or such corporation, does
not substitute new option rights for, and substantially equivalent to, the
option rights granted hereunder, or assume the option rights granted hereunder,
the option rights granted hereunder shall terminate and thereupon become null
and void (i) upon dissolution or liquidation of the Company, or similar
occurrence, (ii) upon any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, in which the Company will not be a
surviving entity or (iii) upon a transfer of all or substantially all of the
assets of the Company or more than 80% of the outstanding Shares; provided,
however, that each option holder shall have the right immediately prior to or
concurrently with such dissolution, liquidation, merger, consolidation,
acquisition, sale of all or substantially all assets, separation, reorganization
or similar occurrence, to exercise any unexpired option rights granted hereunder
whether or not then exercisable. If the exercise of the foregoing right by the
holder of an ISO would be deemed to result in a violation of the provisions of
Subsection 6(i) of the Plan, then, without further act on the part of the
Committee or the option holder, such ISO shall be deemed an NQO to the extent
necessary to avoid any such violation.
(b) The existence of outstanding options shall not affect in
any way the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issuance of Shares or subscription rights
thereto, or any merger or consolidation of the Company, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting the
Shares or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise;
provided, however, that if the outstanding Shares shall at any time be changed
or exchanged by declaration of a stock dividend, stock split, combination of
shares or recapitalization, the number and kind of Shares subject to the Plan or
subject to any options theretofore granted, and the option prices, shall be
appropriately and equitably adjusted so as to
-6-
<PAGE>
maintain the proportionate number of Shares without changing the aggregate
option price.
(c) Adjustments under this Section 7 shall be made by the
Committee whose determination as to what adjustments, if any, shall be made, and
the extent thereof, shall be final.
8. Privileges of Stock Ownership
No option holder shall be entitled to the privileges of stock
ownership as to any Shares not actually issued and delivered to him.
9. Securities Regulation
(a) Each option shall be subject to the requirement that if at
any time the Board of Directors or Committee shall in its discretion determine
that the listing, registration or qualification of the Shares subject to such
option upon any securities exchange or under any Federal or state law, or the
approval or consent of any governmental regulatory body, is necessary or
desirable in connection with the issuance or purchase of Shares thereunder, such
option may not be exercised in whole or in part unless such listing,
registration, qualification, approval or consent shall have been effected or
obtained free from any conditions not reasonably acceptable to the Board of
Directors or Committee.
(b) Unless at the time of the exercise of an option and the
issuance of the Shares thereby purchased by any option holder hereunder there
shall be in effect as to such Shares a Registration Statement under the
Securities Act and the rules and regulations of the Securities and Exchange
Commission, or there shall be available an exemption from the registration
requirements of the Securities Act, the option holder exercising such option
shall deliver to the Company at the time of exercise a certificate (i)
acknowledging that the Shares so acquired may be "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act, (ii) certifying
that he is acquiring the Shares issuable to him upon such exercise for the
purpose of investment and not with a view to their sale or distribution; and
(iii) containing such option holder's agreement that such Shares may not be sold
or otherwise disposed of except in accordance with applicable provisions of the
Securities Act. The Company shall not be required to issue or deliver
certificates for Shares until there shall have been compliance with all
applicable laws, rules and regulations, including the rules and regulations of
the Securities and Exchange Commission.
-7-
<PAGE>
10. Employment or Retention of Option Holders
Nothing contained in the Plan or in any option agreement
executed and delivered thereunder shall confer upon any option holder any right
to continue in the employ or retention of the Company or any Subsidiary or to
interfere with the right of the Company or any Subsidiary to terminate such
employment or retention at any time.
11. Withholding; Disqualifying Disposition
(a) The Company shall deduct and withhold from any salary or
other compensation for employment services of an option holder all amounts
required to satisfy withholding tax liabilities arising from the grant or
exercise of an option under the Plan or the acquisition or disposition of Shares
acquired upon exercise of any such option.
(b) In the case of disposition by an option holder of Shares
acquired upon exercise of an ISO within (i) two years after the date of grant of
such ISO, or (ii) one year after the transfer of such Shares to such option
holder, such option holder shall give written notice to the Company of such
disposition not later than 30 days after the occurrence thereof, which notice
shall include all such information as may be required by the Company to comply
with applicable provisions of the Code and shall be in such form as the Company
shall from time to time determine.
(c) In the discretion of the Committee and in lieu of the
deduction and withholding provided for in subsection (a) above, the Company
shall deduct and withhold Shares otherwise issuable to the option holder having
a Fair Market Value on the date income is recognized pursuant to the exercise of
an option equal to the amount required to be withheld.
12. Amendment, Suspension and Termination of the Plan
Subject to any required regulatory approval, the Board of
Directors or Committee may at any time amend, suspend or terminate the Plan,
provided that, except as set forth in Section 7 above, no amendment may be
adopted without the approval of stockholders that would:
(a) increase the number of Shares that may be issued pursuant
to the exercise of options granted under the Plan;
(b) permit the grant of an ISO under the Plan with an option
price less than 100% of the Fair Market Value of the Shares at the time such
option is granted;
(c) change the provisions of Section 4;
-8-
<PAGE>
(d) extend the term of an option or the period during which an
option may be granted under the Plan; or
(e) decrease an option exercise price (provided that the
foregoing does not preclude the cancellation of an option and a new grant at a
lower exercise price without stockholder approval).
Unless the Plan shall theretofore have been terminated by the Board of Directors
or Committee, the Plan shall terminate on September 16, 2006. No option may be
granted during the term of any suspension of the Plan or after termination of
the Plan. The amendment or termination of the Plan shall not, without the
written consent of the option holder to be affected, alter or impair any rights
or obligations under any option theretofore granted to such option holder under
the Plan.
13. Effective Date
The effective date of the Plan shall be September 17, 1996,
subject to its approval by stockholders of the Company not later than September
16, 1997.
-9-
Exhibit 23
----------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement
on Form S-8 of The Solomon Page Group Ltd. and its subsidiary of our report
dated December 6, 1996, except as to Note 15, for which the date is December 18,
1996, relating to the consolidated balance sheet of The Solomon Page Group Ltd.
and its subsidiary as of September 30, 1996 and 1995, and the related
consolidated statements of oeprations, stockholders' equity, and cash flows for
each of the two fiscal years inthe period ended September 30, 1996 which report
appears in the September 30, 1996 annual report of Form 10-KSB of the Solomon
Page Group Ltd.
/s/ Moore Stevens, P.C.
-----------------------
Moore Stevens, P.C.
Certified Public Accountants
Cranford, New Jersey
December 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-KSB for the year ended September 30, 1996 and is qualified in
its entirety by reference to such Financial Statements and Notes, thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 2,113,556
<SECURITIES> 1,310,325
<RECEIVABLES> 4,249,989
<ALLOWANCES> 89,900
<INVENTORY> 0
<CURRENT-ASSETS> 7,713,948
<PP&E> 938,819
<DEPRECIATION> 240,927
<TOTAL-ASSETS> 9,613,173
<CURRENT-LIABILITIES> 2,183,628
<BONDS> 0
0
0
<COMMON> 5,139
<OTHER-SE> 7,065,350
<TOTAL-LIABILITY-AND-EQUITY> 9,613,173
<SALES> 17,165,836
<TOTAL-REVENUES> 17,165,836
<CGS> 12,762,977
<TOTAL-COSTS> 16,656,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,215
<INCOME-PRETAX> 729,526
<INCOME-TAX> 858,000
<INCOME-CONTINUING> 19,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710,326
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
