FORM 10-Q/A
(Amendment No. 1)
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, 1998
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0353012
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1140 AVENUE OF THE AMERICAS, NEW YORK, NY 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 403-6100
N/A
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(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 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No/ /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At February 11, 1999, there
were outstanding 4,652,282 shares of the Registrant's Common Stock, $.001 par
value.
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THE SOLOMON-PAGE GROUP LTD.
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FORM 10-Q/A
AMENDMENT NO. 1 TO THE QUARTERLY REPORT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
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INDEX
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ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
SIGNATURES 6
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 70% of the Company's revenue for the three months ended December
31, 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 30% of the Company's revenue for the three months ended
December 31, 1998.
The following is a summary of the Company's consolidated financial
and operating data (amounts in thousands, except for per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 1998 1997
- ----------------------------- ---- ----
<S> <C> <C>
Revenue $11,516 $10,213
Income from Operations 342 729
Income Before Income Tax Expense 292 741
Income Tax Expense 127 334
Net Income 165 407
Basic Earnings Per Common Share $0.03 $0.08
Diluted Earnings Per Common Share $0.03 $0.07
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31, 1998 SEPTEMBER 30, 1998
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<S> <C> <C>
Working Capital $3,116 $3,794
Total Assets 15,537 16,735
Total Liabilities 8,404 8,696
Stockholders' Equity 7,133 8,039
</TABLE>
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 $11.5 million for the three
months ended December 31, 1998 from approximately $10.2 million for the three
months ended December 31, 1997, an increase of approximately $1.3 million or
13%. Revenues from the Company's temporary staffing and consulting division were
approximately $8.1 million for the three months ended December 31, 1998 compared
to approximately $5.9 million for the same period in 1997, an increase of
approximately $2.2 million or 37%. Revenues from the Company's executive search
and full time contingency recruitment division were approximately $3.4 million
for the three months ended December 31, 1998 compared to approximately $4.3
million for the same period in 1997, a decrease of approximately $900,000 or
21%.
1
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [CONTINUED]
The increase in revenues for the three months ended December 31,
1998 compared to the three months ended December 31, 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
executive search and full time contingency recruitment division experienced a
decrease in revenues for the three months ended December 31, 1998 compared to
the same period in 1997. The decreases were attributable to global events
impacting the financial services industry, which subsequently had an impact on
providers of services to the financial community. In addition, mergers and
consolidations within a variety of industries have contributed to the decrease
in revenues within the executive search and full time contingency recruitment
business.
Selling expenses for the three months ended December 31, 1998
totaled approximately $9.3 million (81% of revenues) compared with approximately
$7.8 million (76% of revenues) for the three months ended December 31, 1997. The
increase in selling expenses as a percentage of revenue is primarily due to
fixed costs associated with the operation of the executive search/full-time
contingency recruitment division offset by a decrease in revenue. This increase
is also attributable 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 $1.7
million (15% of revenues) for the three months ended December 31, 1998 compared
to approximately $1.6 million (16% of revenues), for the same period in 1997.
The improvements as a percentage of revenues relate to economies of scale gained
from a larger revenue base. In addition, 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
$165,000 for the three months ended December 31, 1998 compared to approximately
$115,000 for same period in 1997. The increase is due to increased capital
expenditures incurred during fiscal 1998. The amortization of intangible assets
also contributed to this increase.
Other Income and (Expenses) for the three months ended December 31,
1998 totaled approximately $50,000 of expense compared to approximately $12,000
of income for the same period in 1997. The increase in other expenses was due
primarily to interest expense of approximately $76,000, charged for borrowings
under the Company's line of credit.
Income from operations was approximately $292,000 for the three
months ended December 31, 1998 compared to approximately $741,000 for the three
months ended December 31, 1997 primarily due to the above mentioned factors.
Income Tax Expense for the three months ended December 31, 1998 was
approximately $127,000 (43% effective tax rate) compared with approximately
$334,000 (45% effective tax rate) for the same period in 1997. The changes in
the Company's effective tax rate reflect the impact of state and local taxes and
other non-deductible items for income tax purposes.
Net income was approximately $165,000 for the three months ended
December 31, 1998 compared to approximately $407,000 for the three months ended
December 31, 1997.
2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [CONTINUED]
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company's sources of liquidity included
approximately $945,000 in cash and cash equivalents and short-term investments.
The Company's working capital was approximately $3.1 million at December 31,
1998 compared to approximately $3.8 million at September 30, 1998. The reduction
in working capital resulted primarily from increased borrowings under the credit
facility described below. The Company has available approximately $600,000 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
December 31, 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 December 31, 1998,
the Company had borrowed approximately $3.8 million under the credit facility.
The Company 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 $361,000
for the three months ended December 31, 1998. The cash used was primary
attributable to the decrease in accounts payable, accrued commissions and
accrued expenses, offset by a decrease in accounts receivable. Cash flow used in
financing activities for the three months ended December 31, 1998 was
approximately $332,000, which was primarily due to $739,000 of borrowings under
the line of credit offset by the $1,071,000 used for the repurchase of the
Company's Common Stock.
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 February 11, 1999, 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.
3
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [CONTINUED]
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 1900. 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 and related information technology systems in the course of its
operations that are essential to its business. The Company has reviewed its
current software and information technology systems for compliance with the
potential hazards of the Year 2000 Issue and presently believes the vast
majority of its software and information technology systems are currently, Year
2000 compliant or will be so by mid-1999. The Company does not expect any
material adverse impact on its financial position or results of operations to
arise from Year 2000 failures of its software and information technology
systems.
Ultimately, the potential impact of the Year 2000 Issue will depend
not only on the Company's internal Year 2000 compliance, but also on the way in
which the Year 2000 Issue is addressed by the Company's customers, vendors,
banking institutions and service utilities. The Company is currently in the
process of determining the extent to which it may be vulnerable to any Year 2000
failures by external parties with which the Company conducts business. The
Company plans to request written confirmations from external parties indicating
whether their systems are Year 2000 compliant by mid-1999. Once the Company
receives responses from external parties as to their Year 2000 compliance, the
Company plans to develop contingency plans as it deems necessary based on such
responses. The efforts of third parties are not within the Company's control,
however, and the failure of such third parties to remedy Year 2000 Issues
successfully could result in business disruption, loss of revenue and increased
operating costs. Thus, the Company is unable at this time to determine the
extent of any adverse impact on the Company of the failure of any external
parties to be Year 2000 compliant. At the present time, it is not possible to
determine whether any such events are likely to occur, or to quantify any
potential negative impact such events may have on the Company's future results
of operations and financial condition.
The Company has not incurred any material costs and does not
anticipate any material future costs relating to its software and information
technology systems due to the Year 2000 Issue. The Company cannot estimate at
this time whether it will incur any material costs due to the failure of any of
its service providers or clients to be Year 2000 compliant.
The foregoing discussion regarding Year 2000 contains
forward-looking statements, which are based on management's best estimates
derived using various assumptions. These forward-looking statements involve
inherent risks and uncertainties, and actual results could differ materially
from those contemplated by such statements. Factors that might cause material
differences include, but are not limited to, (i) the Company's ability to obtain
alternative sources of financing or cash should the operations of its current
sources of financing and cash be disrupted due to Year 2000 complications, (ii)
the Company's ability to respond to a potential loss of revenue of a major
client due to Year 2000 complications, and (iii) the Company's ability to
respond to any unforeseen Year 2000 complications. Such material differences
could result in business disruption, operational problems and financial loss.
4
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NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
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 gains and losses from 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.
5
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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.
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(Registrant)
Date: March 29, 1999 /S/ Lloyd B. Solomon
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Lloyd B. Solomon, Chief Executive Officer
Date: March 29, 1999 /S/ Eric M. Davis
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Eric M. Davis, Chief Financial Officer
Vice President - Finance
6
