FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to ___________________
COMMISSION FILE NUMBER 0-24928
THE SOLOMON-PAGE GROUP LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0353012
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1140 AVENUE OF THE AMERICAS, NEW YORK, NY 10036
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 764-9200
------------------------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At February 7, 1997, there were
outstanding 5,129,285 shares of the Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format:
Yes_____ No__X__
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
- --------------------------------------------------------------------------------
FORM 10-QSB
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INDEX
- --------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements Page Number
-----------
Consolidated Balance Sheet as of December 31, 1996 [Unaudited] ............1
Consolidated Statements of Operations for the three months
ended December 31, 1996 and 1995 [Unaudited] ..............................3
Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 [Unaudited] ..............................4
Notes to Consolidated Financial Statements [Unaudited] ....................6
ITEM 2: Management's Discussion and Analysis or
Plan of Operation................................................7
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings...............................................10
ITEM 6: Exhibits and Reports on Form 8-K................................10
SIGNATURES................................................................11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996 [UNAUDITED]
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $1,729,277
Short-Term Investments 1,529,939
Accounts Receivable - [Net of Allowance for
Doubtful Accounts of $96,900] 4,627,282
Other Current Assets 177,175
----------
TOTAL CURRENT ASSETS 8,063,673
----------
FURNITURE AND EQUIPMENT [NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION OF $468,705] 916,461
----------
OTHER ASSETS:
Intangible Assets - [Net of Accumulated
Amortization of $62,347] 537,254
Due from Related Parties 176,283
Security Deposits 96,885
Restricted Investment 34,466
Other Assets 110,127
----------
TOTAL OTHER ASSETS 955,015
----------
TOTAL ASSETS $9,935,149
==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996 [UNAUDITED]
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accrued Salaries and Commissions $ 1,238,624
Accounts Payable and Accrued Expenses 645,321
Income Taxes Payable 77,926
Current Portion of Obligations Under Capital Leases 107,944
Other Current Liabilities 104,735
-----------
TOTAL CURRENT LIABILITIES 2,174,550
-----------
LONG-TERM LIABILITIES:
Obligations Under Capital Leases 80,071
Deferred Credit 289,798
-----------
TOTAL LONG-TERM LIABILITIES 369,869
-----------
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, 5,139,285 Issued
less 10,000 Treasury Shares 5,139
Additional Paid-in Capital 8,488,247
Treasury Stock; 10,000 shares at Cost (16,250)
Accumulated Deficit (1,086,406)
-----------
TOTAL STOCKHOLDERS' EQUITY 7,390,730
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,935,149
===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
Three Months Ended
December 31,
------------------
1996 1995
----------- -----------
REVENUE $ 5,478,063 $ 2,999,665
----------- -----------
SELLING EXPENSES 4,023,637 2,187,247
GENERAL AND ADMINISTRATIVE 985,912 972,075
DEPRECIATION AND AMORTIZATION 74,816 54,515
----------- -----------
TOTAL OPERATING EXPENSES 5,084,365 3,213,837
----------- -----------
INCOME [LOSS] FROM OPERATIONS 393,698 (214,172)
----------- -----------
OTHER INCOME [EXPENSES]:
Interest and Dividend Income 33,723 39,170
Interest Expense (12,167) (13,843)
Net Realized and Unrealized Gain on Investments 11,629 53,649
----------- -----------
TOTAL OTHER INCOME 33,185 78,976
----------- -----------
INCOME [LOSS] BEFORE INCOME TAX EXPENSE 426,883 (135,196)
INCOME TAX EXPENSE 85,253 0
----------- -----------
NET INCOME [LOSS] $ 341,630 ($ 135,196)
=========== ===========
PRIMARY INCOME [LOSS] PER COMMON SHARE $ 0.07 ($ 0.03)
=========== ===========
FULLY DILUTED INCOME [LOSS] PER COMMON SHARE $ 0.06 ($ 0.03)
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
Three Months Ended
December 31,
------------------
1996 1995
----------- -----------
OPERATING ACTIVITIES:
Net Income [Loss] $ 341,630 ($ 135,196)
----------- -----------
Adjustments to Reconcile Net Income [Loss]
to Net Cash [Used for] Operating Activities:
Depreciation and Amortization 74,816 54,515
Provision for losses on Accounts Receivable 7,000 7,500
Deferred Credit 23,806 723
Net Realized and Unrealized Gain on Investments (12,752) (53,649)
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (474,192) (734,538)
Other Assets (46,273) 29,865
Security Deposits (11,607) (15,408)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (86,203) 493,990
Income Tax Payable 77,926 --
Other Liabilities 12,173 18,370
----------- -----------
Total Adjustments ($ 435,306) ($ 198,632)
----------- -----------
NET CASH - OPERATING ACTIVITIES-
FORWARD ($ 93,676) ($ 333,828)
----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (36,385) (28,834)
Purchase of Investments (1,306,862) (3,840,387)
Proceeds from Sales of Investments 1,100,000 865,965
Purchase of Treasury Stock (16,250) --
Transfer from Restricted Investment -- (3,516)
----------- -----------
NET CASH - INVESTING ACTIVITIES -
FORWARD ($ 259,497) ($3,006,772)
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
Three Months Ended
December 31,
------------------
1996 1995
----------- -----------
NET CASH - OPERATING ACTIVITIES -
FORWARDED ($ 93,676) ($ 333,828)
----------- -----------
NET CASH - INVESTING ACTIVITIES -
FORWARDED ($ 259,497) ($3,006,772)
----------- -----------
FINANCING ACTIVITIES:
Principal Payments Under Capital
Lease Obligations (31,106) (26,817)
Payments from Related Parties -- 3,513
----------- -----------
NET CASH - FINANCING ACTIVITIES ($ 31,106) ($ 23,304)
----------- -----------
NET [DECREASE] IN CASH AND CASH EQUIVALENTS (384,279) (3,363,904)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 2,113,556 4,445,161
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,729,277 $ 1,081,257
=========== ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 12,167 $ 13,843
Income Taxes 19,200 --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- --------------------------------------------------------------------------------
[1] BASIS OF REPORTING
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, such statements include all adjustments
[consisting only of normal recurring items] which are considered necessary for a
fair presentation of the financial position of the Company at December 31, 1996
and the results of its operations for the three months ended December 31, 1996
and 1995 and cash flows for the three months ended December 31, 1996 and 1995.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements include the
accounts of The Solomon-Page Group Ltd. and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes for the fiscal year ended September 30,
1996 included in The Solomon-Page Group Ltd. Form 10-KSB.
[2] 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 5,139,175
and 5,139,285 and to compute fully diluted income [loss] per share was 5,412,986
and 5,139,285 for the three months ended December 31, 1996 and 1995,
respectively.
[3] RECLASSIFICATION
Certain prior period figures have been reclassified to conform with the current
period presentation.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
OVERVIEW
The Company is primarily engaged in the business of providing
personnel placement services in three sectors: executive search, contingency
recruitment and professional interim staffing. Executive search services are
furnished in three industry-specific categories in the publishing, capital
markets and managed health care markets. The contingency recruitment sector of
the Company's business consists of four functional practices and one
industry-specific. The functional practices provide contingency recruitment
services to all companies seeking personnel in the legal, human resources,
information systems and accounting areas. The industry-specific practice
provides contingency recruitment services to the fashion services industry.
Interim staffing services are provided to the information systems and technology
marketplace by Information Technology Partners, Inc. (ITP), a wholly-owned
subsidiary of the Company.
The following is a summary of the Company's consolidated financial
and operating data.
Three Months Ended
December 31,
------------------
STATEMENT OF OPERATIONS DATA: 1996 1995
- ----------------------------- ---- ----
Revenue $5,478,063 $2,999,665
Income [Loss] from Operations 393,698 (214,172)
Net Income [Loss] 341,630 (135,196)
Primary Income [Loss] Per Common Share $0.07 ($0.03)
BALANCE SHEET DATA: December 31, 1996
-----------------
Working Capital $5,889,123
Total Assets 9,335,149
Long-term Debt, Net of Current Maturities 80,071
Stockholders' Equity 7,390,730
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this document.
Revenue increased to approximately $5,478,000 for the three month
period ended December 31, 1996 from approximately $3,000,000 for the three month
period ended December 31, 1995, an increase of approximately $2,478,000 or 83%.
Revenues from the Company's executive search and contingency recruitment
segments experienced an increase of 27% to approximately $2,782,000 for the
three months ended December 31, 1996 compared to approximately $2,187,000 for
the same period in 1995. Revenues of ITP were approximately $2,696,000 for the
three month period ended December 31, 1996 compared to approximately $813,000
for the same period in 1995, an increase of approximately $1,883,000 or 232%.
The increase in revenues for the three months ended December 31,
1996 compared to the three months ended December 31, 1995 for the Company's
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, the expansion into
the publishing and new media industry and managed health care presence on the
West Coast contributed to the increase in revenues for the three months ended
December 31, 1996. The Company's interim staffing business experienced
significant increases in revenues for three months ended December 31, 1996
compared to the same period in 1995. The increases were attributable to the
retention of experienced sales and recruiting personnel, establishment of
various customer relationships as well as the expansion into new geographical
markets.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [CONTINUED]
- --------------------------------------------------------------------------------
Selling expenses for the three month period ended December 31, 1996
totaled approximately $4,031,000 (73% of revenues) compared with approximately
$2,187,000 (73% of revenues) for the three months ended December 31, 1995. The
increase in selling expenses is directly related to the Company's subsidiary ITP
which contributed approximately $2,201,000 for the three months ended December
31, 1996. Such costs consist primarily of payroll relating to temporary staffing
requirements, salaries and commissions of sales and recruiting personnel,
employee benefits and advertising.
General and Administrative expenses increased to approximately
$986,000 (18% of revenues) for the three months ended December 31, 1996 from
approximately $972,000 (32% of revenues ) for the three months ended December
31, 1995. The improvements as a percentage of revenues relates to operating
efficiencies and economies of scale associated with increased revenues.
Depreciation and Amortization expenses for the three months ended
December 31, 1996 totaled approximately $75,000 compared to approximately
$55,000 for same periods in 1995. The increase is due to amortization of
intangible assets related to the acquisition of trade names and the acquisition
of furniture and equipment.
Due to the factors mentioned above, income from operations was
approximately $394,000 for the three months ended December 31, 1996 compared to
a loss from operations of approximately $214,000 for the three months ended
December 31, 1995. Net income was approximately $342,000 for the three months
ended December 31, 1996 compared to a net loss of approximately $135,000 for the
three month period ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's sources of liquidity included
approximately $3,259,000 in cash and cash equivalents and short-term
investments. In addition, the Company had working capital of approximately
$5,889,000 at December 31, 1996. The Company is currently in negotiations with a
lender to establish a credit facility.
During the first three months of fiscal 1997, cash flow used by
operations was approximately $94,000, resulting primarily from an increase in
accounts receivable which was partially offset by increased earnings. Accounts
receivable increased approximately $474,000 compared to September 30, 1996. Cash
used in investing activities for the three months ended December 31, 1996
totaled approximately $259,000, most of which was used for the purchase of
investments.
The Company is engaged in final negotiations for an additional 9,400
square feet at its current headquarters at a rental rate similar to that for the
floors it occupies under its existing lease.
Capital expenditures for the remainder of fiscal 1997 are expected
to be approximately $350,000, which will primarily relate to the additional
rental space.
The Board of Directors authorized on December 16, 1996 the
repurchase of up to 500,000 shares of the Company's common stock in the open
market or in privately negotiated transactions. As of December 31, 1996, the
Company has purchased 10,000 shares of common stock.
The Company believes that its current cash position and investment
balances will be sufficient to support current working capital requirements for
the next twelve months.
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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [CONTINUED]
- --------------------------------------------------------------------------------
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 a material impact on the Company's results of operations or
financial position.
The FASB issued SAFS 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 and 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.
9
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to ITEM 3. LEGAL PROCEEDINGS of the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996, and
to the description therein of a civil action commenced in the Supreme Court of
the State of New York, County of New York by Information Technology Partners,
Inc., a wholly-owned subsidiary of the Company ("ITP"), against Eastbourne Loss
Prevention, Inc. ("Eastbourne") and a counter-action commenced in the same court
by Eastbourne.
The parties have agreed to discontinue the two actions and exchange
mutual general releases.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS: 27: FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K: NONE
10
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THE SOLOMON-PAGE GROUP LTD.
-------------------------------------------
(Registrant)
Date: February 10, 1997 /s/ Herbert B. Solomon
-------------------------------------------
Herbert B. Solomon, Chief Executive Officer
Date: February 10, 1997 /s/ Eric M. Davis
-------------------------------------------
Eric M. Davis, Chief Financial Officer
Vice President - Finance
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the three months ended December 31, 1996 and is
qualified in its entirety by reference to such FInancial Statements and Notes,
thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,729,277
<SECURITIES> 1,529,939
<RECEIVABLES> 4,724,182
<ALLOWANCES> 96,900
<INVENTORY> 0
<CURRENT-ASSETS> 8,063,673
<PP&E> 916,461
<DEPRECIATION> 74,816
<TOTAL-ASSETS> 9,935,149
<CURRENT-LIABILITIES> 2,174,550
<BONDS> 0
0
0
<COMMON> 5,139
<OTHER-SE> 7,385,591
<TOTAL-LIABILITY-AND-EQUITY> 9,935,149
<SALES> 5,478,063
<TOTAL-REVENUES> 5,478,063
<CGS> 4,023,637
<TOTAL-COSTS> 5,084,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,167
<INCOME-PRETAX> 426,883
<INCOME-TAX> 85,253
<INCOME-CONTINUING> 393,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,630
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
