SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998
/ / 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.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0353012
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(State or other (IRS Employer Identification
jurisdiction of Number)
incorporation or
organization
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) 403-6100
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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. /X/
State the issuer's revenues for its most recent fiscal year: The issuer's
revenues for the fiscal year ended September 30, 1998 were $44,638,642.
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 17, 1998 was approximately: $4,784,112. 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 17, 1998, there
were outstanding 4,652,282 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, 1999 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 a specialty niche provider of staffing services
organized into two primary operating divisions: temporary staffing/consulting
and executive search/full-time contingency recruitment. The temporary
staffing/consulting division provides services to companies seeking personnel in
the information technology, accounting and human resources areas and generated
approximately 60% of the Company's revenue for the year ended September 30,
1998. The executive search/full-time contingency recruitment division comprises
nine lines of business, including four industry (capital markets, publishing and
new media, healthcare and fashion services), and five functional (information
technology, accounting, human resources, legal and administrative support). The
executive search/full-time contingency recruitment division generated
approximately 40% of the Company's revenue for the year ended September 30,
1998.
In the executive search and full time contingency recruitment division,
fees usually range between 20% and 33% of the placed employee's guaranteed first
year's compensation. In the executive search sector, the Company generally
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. In the full
time contingency recruitment sector, the entire fee is 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 temporary staffing and consulting division, its clients
compensate the Company for services provided by temporary employees on a time
and materials basis. The Company's primary costs, in addition to its fixed costs
such as rental expense, salaries of support personnel and advertising, are the
variable costs of compensation relating to temporary staffing requirements,
commissions of sales and recruiting personnel and employee benefits.
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. References herein to the "Company" are references
to The Solomon-Page Group Ltd. and its wholly owned subsidiary, Information
Technology Partners, Inc. ("ITP").
INDUSTRY OVERVIEW
According to the Staffing Industry Report, the staffing industry grew from
approximately $31 billion in revenue in 1991 to approximately $86 billion in
1997, a compound annual growth rate of approximately 18%. Temporary help, the
largest staffing services segment, had estimated revenue of approximately $54
billion in 1997 and has grown at an average annual rate of approximately 19%
over the past five years. The information technology services has become one of
the fastest growing segments to the staffing services industry, as the increased
use of technology has led to a dramatic rise in demand
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for technical project support, software development and other computer-related
services. The information technology services segment had estimated revenues of
approximately $15 billion for 1997 and had a compounded annual growth rate of
approximately 27% since 1993. The placement and search sector of the staffing
industry consists of three segments, retained search, contingency recruitment
and temp-to- perm. The placement and search sector had estimated revenues of
approximately $10 billion in 1997 and had a compounded annual growth rate of
approximately 20% since 1993.
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
nine divisions.
Retained Executive Search
CAPITAL MARKETS (SALES AND TRADING/INVESTMENT BANKING). The Company's
capital markets division primarily services global financial service
institutions in North America, Europe and Asia. This division places traders,
institutional sales people, investment bankers, research and quantitative
analysts and portfolio managers, and focuses on middle and senior level
positions.
HEALTH CARE. The Company's health care division 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.
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
division 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.
Contingency Recruitment
INFORMATION TECHNOLOGY. The Company's information technology division
conducts search assignments for a diverse client base, including those in the
investment banking, financial services, communications, retail and high
technology industries. The division 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 liaisons,
business systems analysts and help desk personnel.
LEGAL PROFESSIONALS. The Company's legal professional division serves
primarily the New York metropolitan area, providing attorneys to law firms,
financial institutions and public and privately held
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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 undertakes search
assignments for a diverse client base, from Fortune 1000 companies to mid-size
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.
ACCOUNTING AND FINANCE. The Company's accounting and finance division
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 management consulting.
This area focuses on addressing the needs of clients in business and strategic
planning, corporate development and change management.
FASHION SERVICES. The Company's fashion services division 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 fills positions at the middle to senior executive levels in many
functional areas such as buyers, designers, sales and production.
ADMINISTRATIVE SUPPORT. The Company's administrative support division
serves primarily the New York metropolitan area, providing services in various
industries such as financial services, consumer products, publishing, insurance,
entertainment, telecommunications and technology. The Company fills positions at
the administrative support level within all functional areas and within the
hierarchy of a client's organization.
Temporary Staffing and Consulting
INFORMATION TECHNOLOGY. The Company's information technology temporary
staffing and consulting business provides services on a time and materials basis
to clients within the financial services, consumer products, telecommunications,
consulting and insurance industries. The Company supplies skilled professionals
in the areas of application development, business analysis, help desk support,
networking, project management and quality assurance.
ACCOUNTING AND HUMAN RESOURCES. The Company expanded its existing presence
within its full time accounting and human resources specialty niches by
providing temporary staffing and consulting
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services to existing as well as new clients through dedicated teams of
experienced staffing or industry personnel.
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. In addition, although the
Company's divisional structure causes its employees to concentrate on specific
areas, they are trained and compensated to recognize cross-selling opportunities
when they exist.
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.
The Company's future success is materially dependent on the skills of its
recruitment and placement counselors in attracting clients, matching the
clients' needs to appropriate candidates in each recruiting opportunity and in
establishing successful long term relationships with clients. The Company
generally does not have non-competition agreements or other restrictive
covenants with its recruitment and placement counselors.
One customer of the Company accounted for approximately 14% of the
Company's revenue during the fiscal year ended September 30, 1998. The loss of
this customer or a substantial reduction in its hiring activities through the
Company would have a material adverse effect on the Company's financial
performance.
BUSINESS EXPANSION
During the next fiscal year, the Company intends to shift its primary
focus from revenue growth to increases in earnings. This objective will be
pursued by maintaining current levels of general and administrative personnel
while continuing to grow revenues in each business sector (retained executive
search, full-time and part-time recruitment, and temporary staffing and
consulting) through retention of existing placement staff. In addition, new
sales personnel with prior staffing industry experience who will complement the
current scope of business will be recruited on an opportunistic basis. It is
management's belief that the sales, recruitment and operational infrastructure
put into place during the past three years will enable the company to accomplish
its goals of sales growth and earnings increases during the next two years.
Marketing efforts are currently focused on providing the Company's full
complement of services across a broad range of functional specialties in both
the full-time, temporary and consulting areas (information technology,
accounting, human resources, legal and administrative support) in specific major
geographic markets (New York, New Jersey and Connecticut) as well as certain
capabilities (information technology, accounting and healthcare) in Atlanta and
California. By developing a "brand identity" to provide a consistent level of
quality services in each specialty niche it covers, the Company is positioned as
a value-added resource serviced by experienced personnel in every area of
expertise. Management has implemented an ongoing emphasis on cross selling of
services and compensates employees for their efforts in selling customers the
firm's diversified capabilities.
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COMPETITION
The Company believes that the staffing 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, 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.
In addition, many of such firms have longer operating histories than the
Company, which may afford them significant advantages in obtaining future
clients, arranging financing and attracting skilled personnel.
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 which enhance the potential for account
penetration and increased revenues.
EMPLOYEES
As of September 30, 1998, the Company employed 136 full-time employees,
including the Company's four executive officers, 91 recruitment and placement
counselors and 41 administrative and support staff. 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, trade name or domain name
in the future.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate headquarters in New York, New York, as
well as space for its other locations. The aggregate area of space under leases
is approximately 39,000 square feet. The remaining lease terms run from month to
month to eight years and the aggregate rent paid for the year ended September
30, 1998 was approximately $1,017,000. The Company believes that its current
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facilities are adequate for its needs and does not expect to have difficulty
leasing additional office space to satisfy anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
On October 13, 1998, Romac International, Inc. ("Romac") instituted an
action against the Company and a former employee of both Romac and the Company
in the Superior Court of New Jersey, Chancery Division, Middlesex County. Romac
alleges that the former employee took confidential and proprietary information
upon leaving Romac and accepting employment with the Company. In addition Romac
alleges breach of a non-competition agreement by the former employee and that
the Company knew of the existence of such agreement. Romac seeks unspecified
monetary damages, as well as injunctive relief, against both the Company and the
former employee. The Company believes that this action will not have a material
adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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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.
Common Stock
FISCAL 1998 HIGH LOW
First Quarter........................................ $4-11/16 $2-15/16
Second Quarter....................................... 3-3/4 2-5/8
Third Quarter........................................ 4-31/32 3-1/8
Fourth Quarter ...................................... 3-3/4 1-7/16
FISCAL 1997
First Quarter........................................ $ 2-5/16 $ 1-3/8
Second Quarter....................................... 3-1/8 1-15/16
Third Quarter........................................ 2-13/16 1-15/16
Fourth Quarter....................................... 3-11/16 2-1/2
As of December 17, 1998, there were 38 record holders of the Company's
Common Stock. The Company believes that there are in excess of 1,300 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.
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OVERVIEW
The Company is a specialty niche provider of staffing services organized
into two primary operating divisions: temporary staffing/consulting and
executive search/full-time contingency recruitment. The temporary
staffing/consulting division provides services to companies seeking personnel in
the information technology, accounting and human resources areas and generated
approximately 60% of the Company's revenue for the year ended September 30,
1998. The executive search/full-time contingency recruitment division comprises
nine lines of business, including four industry (capital markets, publishing and
new media, healthcare and fashion services), and five functional (information
technology, accounting, human resources, legal and administrative support). The
executive search/full-time contingency recruitment division generated
approximately 40% of the Company's revenue for the year ended September 30,
1998.
The following is a summary of the Company's consolidated financial and
operating data:
FISCAL YEAR ENDED SEPTEMBER 30,
STATEMENT OF OPERATIONS DATA: 1998 1997
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Revenue $44,638,642 $28,996,485
Income from Operations 1,622,089 1,691,499
Net Income 822,552 1,282,365
Basic Income Per Common Share $.16 $ .25
Diluted Income Per Common Share .14 .23
SEPTEMBER 30,
BALANCE SHEET DATA: 1998 1997
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Working Capital $ 3,794,445 $ 4,921,334
Total Assets 16,735,142 12,815,456
Total Liabilities 8,695,588 4,483,991
Stockholders' Equity 8,039,554 8,331,465
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue increased to approximately $44,639,000 for the fiscal year ended
September 30, 1998 from approximately $28,996,000 for the fiscal year ended
September 30, 1997, an increase of approximately $15,643,000 or 54%. Revenues
from the Company's temporary staffing/consulting division were approximately
$26,864,000 for the fiscal year ended September 30, 1998 compared to
approximately $14,479,000 for the same period in 1997, an increase of
approximately $12,385,000 or 86%. Revenues from the Company's executive
search/full-time contingency recruitment division experienced an increase of 22%
to approximately $17,774,000 for the fiscal year ended September 30, 1998
compared to approximately $14,517,000 for the same period in 1997.
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The increase in revenues for the fiscal year ended September 30, 1998
compared to the fiscal year ended September 30, 1997 was primarily due to the
expansion of the Company's temporary staffing/consulting division within the
areas of accounting, human resource and information technology. The Company's
information technology temporary staffing/consulting business experienced
significant increases in revenue to approximately $22,757,000 for fiscal year
ended September 30, 1998 compared to approximately $13,332,000 the same period
in 1997, an increase of $9,425,000 or 71%. The increase in revenues can also be
attributed to the hiring of revenue generating personnel within the executive
search/full-time contingency recruitment division, which increased the number of
search placements made during fiscal 1998 compared with the same period in 1997.
In addition, during fiscal 1998 the Company expanded its contingency recruitment
division by providing administrative support services to clients within the New
York metropolitan area, which contributed to the increase in revenue.
Selling expenses for the fiscal year ended September 30, 1998 totaled
approximately $35,015,000 (78% of revenues) compared with approximately
$22,413,000 (77% of revenues) for the fiscal year ended September 30, 1997. The
increase in selling expenses is primarily related to compensation expense of
temporary personnel within the Company's temporary staffing/consulting division.
This increase can also be attributed to payroll, commissions and benefits
associated with the hiring of revenue-generating personnel within the executive
search/full-time contingency recruitment division. Selling expenses consist
primarily of temporary staffing/consulting compensation, salaries and
commissions of revenue generating personnel, employee benefits, telephone and
advertising.
General and Administrative expenses increased to approximately $7,486,000
(17% of revenues) for the fiscal year ended September 30, 1998 compared to
approximately $4,555,000 (16% of revenues), for the same period in 1997. The
increase in general and administrative expenses is primarily a result of
additional infrastructure costs related to business expansion, including
additional office space and the hiring of additional support personnel within
corporate accounting, information systems and administration.
Depreciation and Amortization expense increased to approximately $515,000
for the fiscal year ended September 30, 1998 compared to approximately $337,000
for same period in 1997. The increase is primarily related to a full year
depreciation expense on approximately $800,000 of capital expenditures incurred
during fiscal 1997. In addition, the Company began depreciating approximately
$1,100,000 of property and equipment acquired in fiscal 1998. The amortization
of intangible assets also contributed to this increase.
Other Income and (Expenses) for the year ended September 30, 1998 totaled
approximately $90,000 of expense compared to approximately $143,000 of income
for the same period in 1997. The increase in other expenses was due primarily to
interest expense of approximately $219,000, charged for borrowings under the
Company's line of credit.
Income from operations was approximately $1,622,000 for the fiscal year
ended September 30, 1998 compared to approximately $1,691,000 for the fiscal
year ended September 30, 1997 primarily due to the above mentioned factors.
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Income Tax Expense for the fiscal year ended September 30, 1998 was
approximately $710,000 (46% effective tax rate) compared with approximately
$553,000 (30% effective tax rate) for the same period in 1997. The increase in
the Company's effective tax rate was due to increased state and local taxes and
because certain expenses, including a portion of meals, entertainment and
premiums on keyperson life insurance policies are non-deductible for income tax
purposes. In addition, the Company received a tax benefit of net operating loss
carryforwards utilized in fiscal 1997.
Net income was approximately $823,000 for the fiscal year ended September
30, 1998 compared to approximately $1,282,000 for the fiscal year ended
September 30, 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue increased to approximately $28,996,000 for the fiscal year ended
September 30, 1997 from approximately $17,166,000 for the fiscal year ended
September 30, 1996, an increase of approximately $11,830,000 or 69%. These
results were achieved with only a 19% increase in recruitment and placement
counselors. Revenues from the Company's executive search and full time
contingency recruitment division experienced an increase of 37% to approximately
$14,517,000 for the fiscal year ended September 30, 1997 compared to
approximately $10,559,000 for the same period in 1996. Revenues from the
Company's temporary staffing and consulting division were approximately
$14,479,000 for the fiscal year ended September 30, 1997 compared to
approximately $6,607,000 for the same period in 1996, an increase of
approximately $7,872,000 or 119%.
The increase in revenues for the fiscal year ended September 30, 1997
compared to the fiscal year ended September 30, 1996 for the Company's executive
search and full time contingency recruitment division is primarily attributable
to the expansion of its client base and strong demand for personnel from
existing clients. Also, the addition of experienced counselors contributed to
the increase in revenues. Revenue for the Company's information technology
temporary staffing and consulting business increased significantly to
approximately $13,332,000 for fiscal year ended September 30, 1997 compared to
approximately $6,607,000 the same period in 1996, an increase of $6,725,000 or
102%. This increase was attributable to the hiring of experienced sales and
recruiting personnel as well as the establishment and penetration of customer
relationships. In addition, during fiscal 1997 the Company expanded its existing
presence within its accounting and human resources specialty niches by providing
temporary staffing and consulting services to existing as well as new clients
through dedicated teams of experienced staffing or industry personnel. These
expanded operations also contributed to the increase in revenues for the fiscal
year ended September 30, 1997.
Selling expenses for the fiscal year ended September 30, 1997 totaled
approximately $22,413,000 (77% of revenues) compared with approximately
$12,763,000 (74% of revenues) for the fiscal year ended September 30, 1996. The
increase in selling expenses as a percentage of revenues is directly related to
the Company's temporary staffing and consulting business, which incurred startup
costs during fiscal 1997 associated with the commencement of operations in the
accounting and human resources temporary staffing and consulting business. In
addition, the Company has incurred costs due to the hiring of senior level
counselors within various segments of the executive search and full time
contingency recruitment division. Such costs consist primarily of payroll
relating to temporary staffing requirements, salaries and commissions of sales
and recruiting personnel, employee benefits, telephone and advertising.
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General and Administrative expenses increased to approximately $4,555,000
(16% of revenues) for the fiscal year ended September 30, 1997 compared to
approximately $3,653,000 (21% of revenues), for the same period in 1996. The
improvements as a percentage of revenues relate to operating efficiencies and
economies of scale associated with increased revenues. The increase in general
and administrative expenses is primarily a result of planned business expansion
through the retention of additional administrative personnel and leasing of
additional office space.
Depreciation and Amortization expense for the fiscal year ended September
30, 1997 totaled approximately $337,000 compared to approximately $241,000 for
same period in 1996. The increase is due to increased capital expenditures and
the amortization of intangible assets related to the acquisition of trade names.
Income from operations was approximately $1,691,000 for the fiscal year
ended September 30, 1997 compared to approximately $509,000 for the fiscal year
ended September 30, 1996. The Company's operating results for the fiscal year
ended September 30, 1997 include charges of approximately $300,000 relating to
the startup of its accounting and human resource temporary staffing and
consulting business and a $200,000 charge relating to a potentially
uncollectible receivable.
Income Tax Expense for the fiscal year ended September 30, 1997 was
approximately $553,000 compared with approximately $19,000 for the fiscal year
ended September 30, 1996. At September 30, 1997, the Company has net operating
loss carryforwards of approximately $54,000, which can be applied to future
taxable income. The Company's effective tax rate for the fiscal year ended
September 30, 1997 increased to approximately 30% compared to approximately 3%
in Fiscal 1996. The increase in the Company's effective tax rate was due to the
utilization of net operating loss carryforwards in fiscal 1996, changes in
deferred tax asset valuation allowance and increases in state income taxes.
Due to the factors mentioned above net income was approximately $1,282,000
for the fiscal year ended September 30, 1997 compared to approximately $710,000
for the fiscal year ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's sources of liquidity included
approximately $1,539,000 in cash and cash equivalents and short-term
investments. The Company's working capital was approximately $3,794,000 at
September 30, 1998, are compared to approximately $4,921,000 at September 30,
1997. The reduction in working capital resulted from increased borrowings under
the credit facility described below. Also, the Company has available
approximately $1,112,000 of long-term investments as a source of liquidity if
required.
In February 1998, the Company entered into a one-year $4,000,000 demand
line of credit facility agreement with The Dime Savings Bank, which is
collateralized by all of the Company's assets. The agreement provides for
borrowings at 1% above the Dime Reference Rate (the Dime Reference Rate at
September 30, 1998 was 8.50%) in amounts not exceeding 80% of eligible accounts
receivable (as defined therein) and expires on February 28, 1999, on which date
the outstanding principal amount is required to be repaid. At September 30,
1998, the Company had borrowed approximately $3,100,000 under the credit
facility, of which approximately $1,118,000 was used for the repurchase of the
Company's Common Stock and Class A redeemable common stock purchase warrants.
The Company
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is currently in negotiations with the Dime Savings Bank to increase the facility
and modify its terms. If the Company is unable to extend such facility, the
Company believes that an alternative facility can be obtained on substantially
similar terms, although there can be no assurance in such regard.
Cash flows used in operating activities were approximately $473,000 for
the fiscal year ended September 30, 1998. The primary use of cash was to fund
the increase in accounts receivable related to higher revenues. Cash provided by
financing activities for the fiscal year ended September 30, 1998 was
approximately $1,974,000, which was primarily due to $3,100,000 of borrowings
under the line of credit offset by the $1,118,000 used for the repurchase of the
Company's Common Stock and Class A redeemable common stock purchase warrants.
On September 11, 1998, the Company announced that its Board of Directors
had authorized the repurchase of up to 1,000,000 shares of common stock.
Purchases are being made from time to time on the Nasdaq Small Cap market or
otherwise at prevailing market prices and may be made in privately negotiated
transactions. At December 17, 1998, an aggregate of 500,000 shares of common
stock had been repurchased for an aggregate purchase price of approximately
$1,135,000.
The Company believes that its current cash position and investment
balances, together with financing available under its working capital facility
will be sufficient to support current working capital requirements for the next
twelve months.
YEAR 2000 COMPUTER SOFTWARE COMPLIANCE
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years, and as a result, such systems will
recognize the year 2000 as "00". This is commonly referred to as the "Year 2000
Issue". This could cause many computer applications to fail or to create
erroneous results unless corrective measures are taken. The Company utilizes
software or related computer technologies in the course of its operations that
are essential to its business. The Company has reviewed its computer systems for
compliance with the potential hazards of the Year 2000 Issue and presently
believes that all of its computer system software is Year 2000 compliant and
does not expect any material adverse impact on its financial position or results
of operations to arise from Year 2000 Issue failures of its software. As would
be the case with other companies in a service industry, a significant failure of
the computer systems of a major client of the Company could have a material
adverse effect on the continuing business relationship of the Company with such
client and the amount of revenue generated from such client. The failure of
computer systems maintained by other third parties conducting business with the
Company could have a material adverse impact on the Company's business and
results of operations.
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.
-12-
<PAGE>
NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes are required. The Company
is in the process of determining its preferred format. The adoption of SFAS No.
130 will have no impact on the Company's consolidated results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure
about Pension and Other Post-retirement Benefits," which is effective for fiscal
years beginning after December 15, 1997. The modified disclosure requirements
are not expected to have a material impact on the Company's results of
operations, financial position or cash flows.
The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and how it is designated, for example, gains or losses
related to changes in the fair value of a derivative not designated as a hedging
instrument are recognized as earnings in the period, while certain types of
hedges may be initially reported as a component of other comprehensive income
until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of SFAS No. 133 should be as
of the beginning of a fiscal quarter; on that date, hedging relationships must
be designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier applications of all the provisions of SFAS No. 133 are encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company will evaluate the new standard to determine whether it requires any new
disclosures or accounting.
-13-
<PAGE>
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, 1999 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, 1999 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, 1999 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, 1999 pursuant to Regulation 14A.
-15-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit EXHIBITS
NUMBER
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)
10.8 1996 Stock Option Plan, (Incorporated by reference to
Exhibit 10.8 to the Company's Form 10-KSB for the fiscal
year ended September 30, 1996)
-16-
<PAGE>
Exhibit EXHIBITS
NUMBER
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 29, 1998
*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 23, 1998 By: /s/ Lloyd Solomon
---------------------
Lloyd Solomon
Vice Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
The Solomon-Page Group, Ltd. and each of the undersigned do hereby appoint
Lloyd Solomon, Scott Page and Eric Davis and each of them severally, its or his
true and lawful attorney to execute on behalf of The Solomon-Page Group, Ltd.
and the undersigned any and all amendments to this Annual Report on Form 10-KSB
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the other.
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 23, 1998
Herbert Solomon Director
/s/ Lloyd Solomon
- ------------------------ Vice Chairman of the Board, December 23, 1998
Lloyd Solomon Chief Executive Officer and
Director (Principal
Executive Officer)
/s/ Scott Page
- ------------------------ President and Director December 23, 1998
Scott Page
-18-
<PAGE>
SIGNATURE TITLE DATE
/s/ Eric M. Davis
- ------------------------ Vice President - Finance, December 23, 1998
Eric M. Davis Chief Financial Officer and
Director (Principal Financial
and Accounting Officer)
/s/Edward Ehrenberg
- ------------------------ Director December 23, 1998
Edward Ehrenberg
/s/ Joel A. Klarreich
- ------------------------ Director December 23, 1998
Joel A. Klarreich
-19-
<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, 1998 ..................... F-3
Consolidated Statements of Operations for the years ended
September 30, 1998 and 1997.............................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1998 and 1997.............................................. F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1998 and 1997.............................................. F-7
Notes to Consolidated Financial Statements .............................. F-8
. . . . . . . . . . . .
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 subsidiary as of September 30, 1998,
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,
1998. 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 subsidiary as of September
30, 1998, and the consolidated results of their operations and their cash flows
for each of the two fiscal years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
December 10, 1998
F-2
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 935,455
Investments 603,250
Accounts Receivable - [Net of Allowances of $200,000] 10,160,955
Other Current Assets 245,662
--------------
TOTAL CURRENT ASSETS 11,945,322
--------------
PROPERTY AND EQUIPMENT:
Equipment 1,725,924
Furniture and Fixtures 562,905
Leasehold Improvements 938,982
--------------
Total - At Cost 3,227,811
Less: Accumulated Depreciation 1,113,306
PROPERTY AND EQUIPMENT -NET 2,114,505
OTHER ASSETS:
Investments 1,111,741
Intangible Assets - [Net of Accumulated Amortization of $195,477] 1,018,986
Deferred Tax Asset 176,900
Due from Related Parties 135,725
Security Deposits 128,485
Restricted Investment 34,466
Other Assets 69,012
--------------
TOTAL OTHER ASSETS 2,675,315
--------------
TOTAL ASSETS $ 16,735,142
==============
</TABLE>
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, 1998.
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accrued Payroll and Commissions $ 3,498,371
Accounts Payable and Accrued Expenses 967,660
Income Taxes Payable 297,863
Line of Credit 3,100,000
Other Current Liabilities 131,301
Deferred Revenue 155,682
-------------
TOTAL CURRENT LIABILITIES 8,150,877
-------------
LONG-TERM LIABILITY:
Deferred Credit 544,711
-------------
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, 5,162,282 Shares 5,162
Issued and 5,121,282 Shares Outstanding
Additional Paid-in Capital 7,426,188
Unrealized Gain on Marketable Securities - Net 11,106
Treasury Stock; 41,000 Common Shares - At Cost (79,783)
Retained Earnings 676,881
-------------
TOTAL STOCKHOLDERS' EQUITY 8,039,554
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,735,142
=============
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
YEARS ENDED
-----------
SEPTEMBER 30,
-------------
1 9 9 8 1 9 9 7
------- -------
REVENUE 44,638,642 $ 28,996,485
------------ ------------
OPERATING EXPENSES:
Selling Expenses 35,015,061 22,412,747
General and Administrative 7,486,104 4,555,081
Depreciation and Amortization 515,388 337,158
------------ ------------
TOTAL OPERATING EXPENSES 43,016,553 27,304,986
------------ ------------
INCOME FROM OPERATIONS 1,622,089 1,691,499
------------ ------------
OTHER INCOME [EXPENSES]:
Interest and Dividend Income 127,558 133,077
Interest Expense (219,379) (26,820)
Realized Gain on Investments 2,301 37,140
------------ ------------
TOTAL OTHER [EXPENSES] INCOME (89,520) 143,397
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 1,532,569 1,834,896
INCOME TAX EXPENSE 710,017 552,531
------------ ------------
NET INCOME $ 822,552 $ 1,282,365
============ ============
BASIC EARNINGS PER COMMON SHARE $ .16 $ .25
============ ============
DILUTED EARNINGS PER COMMON SHARE $ .14 $ .23
============ ============
BASIC WEIGHTED AVERAGE SHARES 5,134,122 5,131,751
============ ============
DILUTED WEIGHTED AVERAGE SHARES 5,985,319 5,633,806
============ ============
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>
UNREALIZED
ADDITIONAL GAIN ON
PREFERRED STOCK COMMON STOCK PAID-IN MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES
------ ------ ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - OCTOBER 1, 1996 -- $ -- 5,139,285 $ 5,139 $ 8,488,247 $ --
Treasury Shares
Purchased -- -- -- -- -- --
Net Income -- -- -- -- -- --
------------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 1997 -- -- 5,139,285 5,139 8,488,247 --
Repurchase of 1,000,000
Class A Warrants -- -- -- -- (1,053,998) --
Costs Associated with
Registering Class A
Warrants -- -- -- -- (37,201) --
Exercise of Options -- -- 22,997 23 29,140 --
Treasury Shares Purchased -- -- -- -- -- --
Unrealized Gain on Marketable
Securities - Net -- -- -- -- -- 11,106
Net Income -- -- -- -- --
------------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 1998 -- $ -- 5,162,282 $ 5,162 $ 7,426,188 $ 11,106
============= =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
RETAINED TOTAL
TREASURY STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT [DEFICIT] EQUITY
------ ------ --------- ------
<S> <C> <C> <C> <C>
BALANCE - OCTOBER 1, 1996 -- $-- $(1,428,036) $ 7,065,350
Treasury Shares
Purchased 10,000 (16,250) -- (16,250)
Net Income -- -- 1,282,365 1,282,365
----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 1997 10,000 (16,250) (145,671) 8,331,465
Repurchase of 1,000,000
Class A Warrants -- -- -- (1,053,998)
Costs Associated with
Registering Class A
Warrants -- -- -- (37,201)
Exercise of Options -- -- -- 29,163
Treasury Shares Purchased 31,000 (63,533) -- (63,533)
Unrealized Gain on Marketable
Securities - Net -- -- -- 11,106
Net Income -- -- 822,552 822,552
----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 1998 41,000 $ (79,783) $ 676,881 $ 8,039,554
=========== =========== =========== ===========
</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 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 822,552 $1,282,365
----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided by [Used for]
Operating Activities:
Depreciation and Amortization 515,388 337,158
Provision for Losses on Accounts Receivable 75,000 35,100
Deferred Credit 160,848 117,871
Net Realized Gain on Investments (2,301) (37,140)
Deferred Taxes (78,618) (84,195)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (2,857,928) (3,253,036)
Other Current Assets (53,467) 15,701
Increase [Decrease] in:
Accounts Payable, Accrued Expenses, Accrued Payroll
and Commissions 1,004,043 1,491,840
Income Tax Payable 30,759 290,104
Other Current Liabilities (245,134) 36,353
Deferred Revenue 155,682 --
----------- -----------
Total Adjustments (1,295,728) (1,050,244)
----------- -----------
NET CASH - OPERATING ACTIVITIES (473,176) 232,121
----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (1,087,603) (791,427)
Purchases of Investments (799,812) (2,844,953)
Proceeds from Sales of Investments 1,248,655 2,041,991
Acquisitions of and Additions to Trade Names (350,330) (264,532)
Cash Received from Related Parties 55,000 10,000
Increase in Cash Surrender Value of Officer Life Insurance (46,253) (22,756)
Security Deposits 4,687 (47,894)
----------- -----------
NET CASH - INVESTING ACTIVITIES (975,656) (1,919,571)
----------- -----------
FINANCING ACTIVITIES:
Borrowings Under Line of Credit 3,100,000 --
Purchase of Treasury Stock and Warrants (1,117,531) (16,250)
Warrant Registration Costs (37,201) --
Proceeds from Exercise of Stock Options 29,163 --
----------- -----------
NET CASH - FINANCING ACTIVITIES 1,974,431 (16,250)
----------- -----------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS 525,599 (1,703,700)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 409,856 2,113,556
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 935,455 $ 409,856
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 219,379 $ 26,820
Income Taxes $ 776,587 $ 422,402
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements.
F-7
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] NATURE OF OPERATIONS
The Solomon-Page Group Ltd. and its wholly-owned subsidiary [the "Company"]
provides staffing services comprised of two primary operating divisions: (i)
temporary staffing and consulting which provides approximately 60% of the
Company's revenue, and (ii) retained executive search and full-time contingency
search which provides approximately 40% of the Company's revenue. The temporary
staffing and consulting division provides services to companies seeking
personnel in the information technology, accounting and human resources areas.
The retained executive search and full-time contingency search division
comprises nine lines of business including four industry [capital markets,
publishing and new media, healthcare and fashion services], and five functional
[information technology, accounting, human resources, legal and administrative
support]. 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.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 full-time contingency
search engagements upon the successful completion of the assignment. In a
retained executive search engagement, the non-refundable retainer is recognized
according to the terms of the search contract, with the unearned portions of the
retainer reflected as deferred revenue. The balance of the contract is
recognized upon successful completion of the search.
Temporary staffing and consulting revenue is recognized when the temporary
personnel provide the service.
RECEIVABLE ALLOWANCES - The Company records allowances against accounts
receivable, based on historical experience to estimate losses due to placed
candidates not fulfilling the terms of the search agreement or not remaining in
employment for the Company's guarantee period which generally ranges from 30 to
120 days but may extend up to 180 days. Losses from bad debts are charged to
expense and losses related to contract fulfillment are charged to revenue.
INVESTMENTS - The Company accounts for investments in accordance with Statement
of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." 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. Equity securities, and debt securities which the Company does not have the
intent to hold to maturity, are classified as trading or available for sale.
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
stockholders' equity until realized. Trading securities are carried at fair
value with any unrealized gains or losses included in earnings. Held to maturity
securities are carried at amortized cost. Marketable debt and equity securities
available for current operations, and maturing within one year, are classified
in the balance sheet as current assets while securities held for non-current
uses, and maturing after one year, are classified as long-term assets. Realized
gains and losses are calculated utilizing the specific identification method
[See Note 3].
PROPERTY AND EQUIPMENT - Equipment, furniture and leasehold improvements are
recorded at cost.
DEPRECIATION - Depreciation of furniture, fixtures and equipment is computed
utilizing the straight-line method based on estimated useful lives ranging from
three to nine years. Depreciation of leasehold improvements is computed
utilizing the straight-line method over the lesser of the life of the
improvement or the remaining lease term. Depreciation expense was $430,481 and
$272,863 for the years ended September 30, 1998 and 1997, respectively.
F-8
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
DEFERRED INCOME TAXES - The Company accounts for deferred income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." 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 SFAS No. 13, "Accounting for Leases,"
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.
START-UP COSTS - The Company expenses the startup cost of new business groups as
incurred.
EARNINGS PER COMMON SHARE - The Financial Accounting Standard Board has issued
SFAS No. 128, "Earnings Per Share," which is effective for financial statements
issued for periods ending after December 15, 1997. Accordingly, earnings per
share data in the financial statements for the years ended September 30, 1998
and 1997 [restated] have been calculated in accordance with SFAS No. 128.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share," and replaces its primary earnings per share with new basic earnings
per share representing the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. Diluted earnings
per share reflects the amount of earnings for the period available to each share
of common stock outstanding during the reporting period, while giving effect to
all dilutive potential common shares that were outstanding during the period,
such as common shares that could result from the potential exercise or
conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on earnings per share. The dilutive effect of outstanding options and
warrants and their equivalents is reflected in diluted earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earning per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the option or
warrants.
Potential future dilutive securities include 2,050,000 shares issuable under
outstanding warrants and 225,500 shares issuable under outstanding options.
INTANGIBLES - Intangibles which consist of trade names and customer lists are
recorded at cost and are amortized utilizing the straight-line method over
periods ranging from 5 to 15 years. When changing circumstances warrant, 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 $84,907 and $64,295 for the years ended
September 30, 1998 and 1997, respectively [See Note 8].
F-9
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk include cash, cash equivalents and
accounts receivable arising from its normal business activities. The Company
places its cash and cash equivalents with high credit quality financial
institutions. At September 30, 1998, the Company has approximately $561,000 in
financial institutions that is subject to normal credit risk beyond insured
amounts.
The Company believes that credit risk related to accounts receivable is limited
due to the large number of Fortune 1000 companies comprising the Company's
customer base and the diversified industries in which the Company operates. The
Company does not require collateral on accounts receivable or other financial
instruments.
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 $430,000 and
$207,000 for the years ended September 30, 1998 and 1997, respectively.
STOCK BASED COMPENSATION - The Company accounts for employee stock-based
compensation under the intrinsic value based method as prescribed by Accounting
Principles Board ["APB"] Opinion No. 25. The Company applies the provisions of
SFAS No. 123, "Accounting for Stock Based Compensation," to non-employee
stock-based compensation and the pro forma disclosure provisions of that
statement to employee stock-based compensation.
RECLASSIFICATIONS - Certain prior year figures have been reclassified to conform
with the current years presentation.
[3] INVESTMENTS IN DEBT AND EQUITY SECURITIES
At September 30, 1998, the Company's securities consisted of certain highly
liquid debt securities which were classified as available for sale and held to
maturity. A summary of the Company's investments in debt securities is as
follows:
SEPTEMBER 30, 1998
------------------
FINANCIAL STATEMENT CAPTION COST FAIR VALUE
- --------------------------- ---- ----------
Available for Sale:
Investments $ 1,695,214 $ 1,714,991
============= =============
Held to Maturity:
Restricted Investment - Noncurrent $ 34,466 $ 34,466
============= =============
Gross proceeds from sale of available for sale securities was $1,248,665 and
$2,041,991 and realized gains on sales was $2,301 and $37,140 for the years
ended September 30, 1998 and 1997, respectively.
F-10
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
[3] INVESTMENTS IN DEBT AND EQUITY SECURITIES [CONTINUED]
At September 30, 1998, gross unrealized gains on available for sale securities
was $19,777 and is included in stockholders' equity net of taxes of $8,671.
Contractual maturities of debt securities classified as available for sale and
held to maturity are as follows:
AVAILABLE FOR SALE HELD TO MATURITY
Within 1 year $ 600,000 $ 36,000
Between 1 and 5 years $ 1,100,000 $ --
[4] DUE FROM RELATED PARTIES
At September 30, 1998, the Company had a balance due from various officers of
the Company aggregating $135,725. The advances bear interest at 8%. Interest
income on the advances was $12,805 and $11,637 for the years ended September 30,
1998 and 1997, respectively. Interest receivable on the advances was $-0- at
September 30, 1998.
[5] LINE OF CREDIT
In February 1998, the Company entered into a one year $4,000,000 demand line of
credit facility agreement, which is collateralized by all the Company's assets.
The agreement provides for borrowing at 1% above the bank's reference rate (8.5%
at September 30,1998). Borrowings are limited to 80% of eligible accounts
receivable and expires on February 28, 1999, on which date the outstanding
principal amount is required to be repaid. As of September 30, 1998, the full
balance under the line is available and the Company borrowed approximately
$3,100,000 under the credit facility, of which approximately $1,118,000 was used
for the repurchase of the Company's common stock, and Class A redeemable common
stock purchase warrants with the balance used to fund current working capital
requirements.
The weighted average interest rate on short-term borrowings outstanding as of
September 30, 1998 was 9.5%.
[6] LEASES
OPERATING LEASES - The Company leases office space under operating leases
expiring through September 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 which
expires June 26, 1999. This letter of credit is collateralized by a U.S.
Treasury Bill which is classified as a noncurrent restricted investment in the
accompanying balance sheet. The Company leases office equipment under operating
leases expiring through 1999.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of September 30, 1998 for each of the
next five years and in the aggregate are:
YEAR ENDING
- -----------
SEPTEMBER 30,
- -------------
1999 $ 919,512
2000 985,187
2001 1,014,913
2002 1,048,185
2003 888,634
Subsequent to 2003 2,418,150
-------------
TOTAL MINIMUM FUTURE RENTAL PAYMENTS $ 7,274,581
=============
F-11
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
[6] LEASES [CONTINUED]
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 approximately $1,017,000 and $617,000 for the years ended
September 30, 1998 and 1997, respectively.
[7] CAPITAL STOCK
On December 18, 1996, the Company's Board of Directors 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. The Company repurchased
10,000 shares during the year ended September 30, 1997, at a cost of $16,250. On
October 31, 1997, the Company's Board of Directors terminated its common stock
repurchase plan.
On September 11, 1998, the Company's Board of Directors authorized the
repurchase of 1,000,000 shares of the Company's common stock, from time to time,
in the open market or in privately negotiated transactions. During the year
ended September 30, 1998, 31,000 shares were repurchased at a cost of $63,533.
[8] COMMITMENTS AND CONTINGENCIES
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.
INTANGIBLES - In connection with certain acquisitions, the Company will be
required to pay purchase price adjustments through July 6, 2000 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 approximately $350,000 during the year
ended September 30, 1998.
[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
issued 2,300,000 Class A redeemable common stock purchase warrants. Each Class A
warrant entitles the holder to purchase one share of common stock 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 of 200,000 units
of Company securities [consisting of one share of common stock and one Class A
redeemable common stock purchase warrant] exercisable at $6.60 per unit
commencing October 20, 1995 and expiring October 20, 1999.
On October 31, 1997, the Company's Board of Directors authorized the repurchase
of up to 1,000,000 of the Company's Class A redeemable common stock purchase
warrants in open market or privately negotiated transactions. On February 12,
1998, the Company completed the repurchase of 1,000,000 Class A redeemable
common stock purchase warrants at a cost of $1,053,998.
F-12
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
[9] OPTIONS AND WARRANTS [CONTINUED]
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. Options vest
at a rate of 50% after one year and 50% after two years.
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.
Non-executive officer options vest at a rate of 33 1/3% after three years, 33
1/3% after four years and 33 1/3% after five years. Options to purchase 450,000
shares of common stock have been granted to executive officers and vest at a
rate of 33 1/3% upon grant, 33 1/3% after six months and 33 1/3% after thirteen
months.
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% of fair market value
on the date granted. No options at less than fair market value have been
awarded. Non-executive officer options vest at a rate of 33 1/3% after three
years, 33 1/3% after four years and 33 1/3% after five years. Executive officers
vest at a rate of 33 1/3% after one year, 33 1/3% after two years and 33 1/3%
after three years.
A summary of the activity in the option plans is as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
OUTSTANDING AT OCTOBER 1, 1996 1,773,500 $ 1.71
Granted 246,750 2.33
Exercised --
Expired/Canceled (55,000) 1.43
------------
OUTSTANDING AT SEPTEMBER 30, 1997 1,965,250 1.80
Granted 355,500 2.70
Exercised (22,997) 1.27
Expired/Canceled (128,169) 1.85
------------
OUTSTANDING AT SEPTEMBER 30, 1998 2,169,584 1.95
============
EXERCISABLE AT SEPTEMBER 30, 1998 1,057,316 $ 1.76
============
F-13
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
[9] OPTIONS AND WARRANTS [CONTINUED]
No compensation cost was charged to earnings during the years ended September
30, 1998 and 1997. If compensation cost for the stock option plans had been
determined based on the fair value at the grant dates for awards under the
plans, consistent with the alternative method set forth under SFAS No. 123, the
Company's net income, basic and diluted earnings per share would have been
reduced on a pro forma basis as indicated below:
1 9 9 8 1 9 9 7
------- -------
Year ended September 30:
Net Income:
As Reported $ 822,552 $ 1,282,365
Pro Forma $ 500,101 $ 952,889
Basic Earnings Per Common Share:
As Reported $ .16 $ .25
Pro Forma $ .10 $ .19
Diluted Earnings Per Common Share:
As Reported $ .14 $ .23
Pro Forma $ .09 $ .17
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants awarded in 1998 and 1997, respectively:
SEPTEMBER 30,
1 9 9 8 1 9 9 7
------- -------
Dividend Yields 0.00% 0.00%
Expected Volatility 131.54% 105.29%
Risk-Free Interest Rate 4.32% 5.99%
Expected Lifes 5.5 Years 4 Years
The weighted-average fair value of options granted was $2.40 and $1.73 for the
years ended September 30, 1998 and 1997, respectively.
The following table summarizes information about stock options at September 30,
1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ 0.56 - 2.00 1,095,084 4.9 Years $ 1.45 584,657 $ 1.37
$ 2.01 - 3.69 1,074,500 6.3 Years $ 2.46 472,659 $ 2.25
------------ ---------
2,169,584 5.6 Years $ 1.95 1,057,316 $ 1.76
============ =========
</TABLE>
F-14
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
[10] INCOME TAXES EXPENSE
The provision for income tax expense consists of the following:
SEPTEMBER 30,
-------------
1 9 9 8 1 9 9 7
------- -------
Current:
Federal $ 523,835 $ 835,681
Utilization of Net Operating Loss Carryforward (13,344) (423,131)
State and City 278,144 453,680
Utilization of Net Operating Loss Carryforward -- (229,504)
----------- ----------
Total Current 788,635 636,726
----------- ----------
Deferred [Benefit]:
Federal (49,692) (60,923)
State and City (28,926) (23,272)
----------- ----------
Total Deferred (78,618) (84,195)
----------- ----------
TOTAL INCOME TAX EXPENSE $ 710,017 $ 552,531
------------------------ =========== ==========
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
SEPTEMBER 30,
-------------
1 9 9 8 1 9 9 7
------- -------
Federal Statutory Rate 34.0% 34.0%
Non Deductible Expenses 1.9 4.4
Benefit of Net Operating Loss Carryforward (.9) (23.1)
Change in Deferred Tax Asset Valuation Allowance -- 7.8
State Income Taxes [Net of Federal Tax Benefit] 12.0 8.1
Other (.7) (1.1)
EFFECTIVE RATE 46.3% 30.1%
-------------- ====== =======
The Company has net operating loss carryforwards of approximately $14,000 which
will expire in 2009.
F-15
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
[10] INCOME TAXES EXPENSE [CONTINUED]
The major components of deferred income tax assets and liabilities are as
follows:
SEPTEMBER 30,
-------------
1 9 9 8
-------
Deferred Tax Liabilities:
Cash Basis Adjustments $ (89,546)
Accelerated Depreciation (89,558)
Other (8,671)
-----------
Total Deferred Tax Liabilities (187,775)
Deferred Tax Assets:
Rent Deferrals 239,286
Net Operating Loss 5,075
Reserves 79,072
Other 27,155
-----------
Total Deferred Tax Assets 350,588
-----------
NET DEFERRED TAX ASSET $ 162,813
- ---------------------- ===========
Net Current Deferred Tax Liability $ (14,087)
Net Noncurrent Deferred Tax Asset 176,900
-----------
NET DEFERRED TAX ASSET $ 162,813
---------------------- ===========
The net current deferred tax liability is included in other current liabilities
in the accompanying balance sheet.
[11] EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the years ended September 30, 1998 and 1997:
SEPTEMBER 30,
-------------
1 9 9 8 1 9 9 7
------- -------
Basic Earnings Per Common Share $ .16 $ .25
============ ===========
Weighted Average Shares Outstanding - Basic 5,134,122 5,131,751
Dilutive Options 851,197 502,055
------------ -----------
Weighted Average Shares Outstanding - Diluted 5,985,319 5,633,806
DILUTED EARNINGS PER COMMON SHARE $ .14 $ .23
--------------------------------- ============ ===========
[12] SIGNIFICANT CUSTOMERS
For the year ended September 30, 1998, one customer accounted for approximately
$6,250,000 or 14% of revenue.
For the year ended September 30, 1997, two customers accounted for approximately
$3,200,000 or 11% and $2,900,000 or 10% of revenue.
F-16
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
[13] 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% of their
salary, subject to the Internal Revenue Code limits. The Company may make a
discretionary match as well as a discretionary contribution. No discretionary
match or contribution was made, and no amount was charged to operations, during
the years ended September 30, 1998 or 1997.
[14] FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective October 1, 1995, the Company adopted SFAS 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 and cash
equivalents, trade receivables and trade payables and line of credit, it was
estimated that the carrying amount approximates fair value for the majority of
these instruments because of their short maturities.
[15] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Earlier application is permitted.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The Company is in the process of determining
its preferred format. The adoption of SFAS No. 130 will have no material impact
on the Company's consolidated results of operations, financial position or cash
flows.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have not impact on the Company's
consolidated results of operations, financial position or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15,1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and how it its designated. For example, gains or losses related to
changes in the fair value of a derivative, not designated as a hedging
instrument, is recognized in earnings in the period of the change, while certain
types of hedges may be initially reported as a component of other comprehensive
income until the consummation of the underlying transaction.
F-17
<PAGE>
THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
[15] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company will evaluate the new principle to determine any required new
disclosures or accounting.
[16] SUBSEQUENT EVENT
Through December 10, 1998, the Company has repurchased 469,000 shares of its
common stock, pursuant to its common stock repurchase plan [See Note 7], at a
cost of $1,071,287.
. . . . . . . . . . . .
F-18
EXHIBIT 23
----------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the
Registration Statement on Forms S-3 [File Number 033-81026] and S-8 [File Number
333-32293] of The Solomon-Page Group Ltd. and its subsidiary of our report dated
December 10, 1998, relating to the consolidated balance sheet of The Solomon
Page Group Ltd. and its subsidiary as of September 30, 1998, 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, 1998 which report
appears in the September 30, 1998 annual report on Form 10-KSB of The
Solomon-Page Group Ltd.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
December 29, 1998
<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, 1998 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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 935,455
<SECURITIES> 1,714,991
<RECEIVABLES> 10,360,955
<ALLOWANCES> 200,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,945,322
<PP&E> 2,114,505
<DEPRECIATION> 430,481
<TOTAL-ASSETS> 16,735,142
<CURRENT-LIABILITIES> 8,150,877
<BONDS> 0
0
0
<COMMON> 5,162
<OTHER-SE> 8,034,392
<TOTAL-LIABILITY-AND-EQUITY> 16,735,142
<SALES> 44,638,642
<TOTAL-REVENUES> 44,638,642
<CGS> 35,015,061
<TOTAL-COSTS> 43,016,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,379
<INCOME-PRETAX> 1,532,569
<INCOME-TAX> 710,017
<INCOME-CONTINUING> 1,622,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822,552
<EPS-PRIMARY> .16
<EPS-DILUTED> .14
</TABLE>
