Form 10-Q
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-24928
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The Solomon-Page Group Ltd
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(Exact name of registrant as specified in its charter)
Delaware 51-035301
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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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 10, 2000, there
were outstanding 4,152,282 shares of the Registrant's Common Stock, $.001 par
value.
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
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FORM 10-Q
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
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INDEX
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Part I: FINANCIAL INFORMATION
Item 1: Financial Statements Page Number
-----------
Consolidated Balance Sheets as of December 31, 1999 1
[Unaudited] and September 30, 1999
Consolidated Statements of Operations for the three months 3
ended December 31, 1999 and 1998 [Unaudited
Consolidated Statements of Cash Flows for the three months 4
ended December 31, 1999 and 1998 [Unaudited]
Notes to Consolidated Financial Statements [Unaudited] 6
Item 2: Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About 11
Market Risk.
Part II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 949 $ 580
Investments 298 849
Accounts receivable - [ Net of Allowances of $280 ] 11,828 11,416
Other Current Assets 669 391
------- -------
Total Current Assets 13,744 13,236
------- -------
Property and Equipment:
Equipment 2,203 2,022
Furniture and Fixtures 802 797
Leasehold Improvements 1,123 1,103
------- -------
Totals - At Cost 4,128 3,922
Less: Accumulated Depreciation 1,810 1,659
------- -------
Property and Equipment - Net 2,318 2,263
------- -------
Other Assets:
Investments 680 686
Intangible Assets - [ Net of Accumulated
Amortization of $351 and $310, Respectively] 1,403 1,444
Web Site Development Costs 76 0
Deferred Tax Asset 327 324
Due from Related Parties 91 135
Other Assets 258 260
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Total Other Assets 2,835 2,849
------- -------
Total Assets $18,897 $18,348
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY: (unaudited)
<S> <C> <C>
Current Liabilities:
Accrued Payroll and Commissions $ 4,092 $ 4,607
Accounts Payable and Accrued Expenses 1,057 1,276
Income Taxes Payable -- 1,417
Line of Credit 2,475 350
Term Loan Payable 375 500
Deferred Revenue 437 380
Other Current Liabilities 736 576
----------- -----------
Total Current Liabilities 9,172 9,106
----------- -----------
Long-Term Liabilities:
Term Loan Payable - Net of Current Portion 750 750
Deferred Credit 636 638
----------- -----------
Total Long Term Liabilities 1,386 1,388
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Stockholders' Equity:
Preferred stock - $.001 par value; 2,000,000
shares authorized, none issued or outstanding -- --
Common stock - Par Value $.001 Per Share;
Authorized 20,000,000 Shares, 5,163,948
Shares Issued and 4,153,948 Shares Outstanding at
December 31, 1999 and September 30, 1999, Respectively 5 5
Additional Paid-in Capital 7,428 7,428
Accumulated Other Comprehensive Income (16) (7)
Treasury Stock At Cost; 1,010,000 Common Shares
at December 31, 1999 and September 30, 1999, Respectively (2,248) (2,248)
Retained Earnings 3,170 2,676
----------- -----------
Total Stockholders' Equity 8,339 7,854
----------- -----------
Total Liabilities and Stockholders' Equity $ 18,897 $ 18,348
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended
------------------
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Revenue $ 15,991 $ 11,516
----------- -----------
Operating Expenses:
Selling Expenses 12,493 9,457
General and Administrative 2,379 1,552
Depreciation and Amortization 192 165
----------- -----------
Total Operating Expenses 15,064 11,174
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Income from Operations 927 342
----------- -----------
Other Income [Expenses]
Interest and Dividend Income 35 26
Interest Expense (63) (76)
Realized Gain on Investments 1 --
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Total Other Expenses (27) (50)
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Income Before Income Tax Expense 900 292
Income Tax Expense 406 127
----------- -----------
Net Income $ 494 $ 165
=========== ===========
Basic Earnings Per Common Share $ 0.12 $ 0.03
=========== ===========
Diluted Earnings Per Common Share $ 0.11 $ 0.03
=========== ===========
Basic Weighted Average Shares 4,153,948 4,864,015
=========== ===========
Diluted Weighted Average Shares 4,540,994 5,205,545
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
------------------
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net Income $494 $165
------------ ---------
Adjustments to Reconcile Net Income
to Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 192 165
Deferred Credit (2) 23
Net Realized Gain on Investments (1) 0
Deferred Taxes (3) (48)
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (412) 354
Other Assets (276) 34
Increase [Decrease] in:
Accounts Payable, Accrued Expenses, Accrued Payroll
and Commissions (734) (1,188)
Income Tax Payable (1,417) 88
Deferred Revenue 57 (31)
Other Liabilities 160 77
------------ ---------
Total Adjustments ($2,436) ($526)
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Net Cash - Operating Activities ($1,942) ($361)
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Investing Activities:
Capital Expenditures (206) (412)
Purchase of Investments 0 (199)
Proceeds from Sales of Investments 549 557
Web Site Development Costs (76) 0
Cash Received from Related Parties 44 0
------------ ---------
Net Cash - Investing Activities $311 ($54)
------------ ---------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
December 31,
1999 1998
---- ----
.
<S> <C> <C>
Financing Activities:
Borrowings Under Term Loan and Line of Credit 3,075 739
Repayments Under Term Loan and Line of Credit (1,075) --
Purchase of Treasury Stock and Warrants 0 (1,071)
------------- --------------
Net Cash - Financing Activities $2,000 ($332)
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Net Increase [Decrease] in Cash and Cash Equivalents 369 (747)
Cash and Cash Equivalents - Beginning of Periods 580 935
------------- --------------
Cash and Cash Equivalents - End of Periods $949 $188
============= ==============
Supplemental Cash Flow Information:
Cash paid during the periods for:
Interest $63 $76
Income Taxes $2,157 $67
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
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[1] Basis of Reporting
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. These unaudited financial statements include the accounts
of The Solomon-Page Group Ltd. and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated financial
statements included in this Form 10-Q reflect all adjustments, consisting only
of normal recurring items, which are considered necessary for a fair
presentation of the results of operations for the periods presented. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes for the fiscal year ended September 30,
1999 included in The Solomon-Page Group Ltd. Form 10-K.
[2] Summary of Significant Accounting Policies
Comprehensive Income - The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," as of October 1,
1998. SFAS No. 130 establishes new rules for reporting and display of
comprehensive income and its components, however it has no material impact on
the Company's net income or total stockholders' equity. Accumulated other
comprehensive income presented in the accompanying consolidated balance sheets
consists of the accumulated net unrealized gains on available-for-sale
investments.
Reclassification - Certain prior period amounts have been reclassified to
conform to the current period presentation.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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, human resources, legal and banking areas
and generated 58% of the Company's revenue for the three months ended December
31, 1999. The executive search/full-time contingency recruitment division
comprises ten lines of business, including five industry (capital markets,
publishing and new media, healthcare, fashion services and banking), and five
functional (information technology, accounting, human resources, legal and
administrative support). The executive search/full-time contingency recruitment
division generated 42% of the Company's revenue for the three months ended
December 31, 1999.
The following is a summary of the Company's consolidated financial
and operating data (amounts in thousands, except for per share amounts).
Three Months Ended
December 31,
Statement of Operations Data: 1999 1998
- ----------------------------- ---- ----
Revenue $15,991 $11,516
Income from Operations 927 342
Income Before Income Tax Expense 900 292
Income Tax Expense 406 127
Net Income 494 165
Basic Earnings Per Common Share $0.12 $0.03
Diluted Earnings Per Common Share $0.11 $0.03
Balance Sheet Data: December 31, 1999 September 30, 1999
- ------------------- ----------------- ------------------
Working Capital $4,572 $4,130
Total Assets 18,897 18,348
Total Liabilities 10,558 10,494
Stockholders' Equity 8,339 7,854
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.
Results of Operations
Revenue increased to $16 million for the three months ended December
31, 1999 from $11.5 million for the three months ended December 31, 1998, an
increase of $4.5 million or 39%. These increases were comprised of $1.1 million
in temporary staffing and consulting, and $3.4 million in executive search and
full time contingency and recruitment for the three months ended December 31,
1999, and were the result of factors further described below.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [Continued]
Revenues from the Company's temporary staffing and consulting
business were $9.2 million for the three months ended December 31, 1999 compared
to $8.1 million for the same period in 1998, an increase of $1.1 million or 14%.
The temporary staffing and consulting business experienced increases in revenue
within the accounting and human resources divisions compared to the prior
period. In addition, the Company's expansion to provide temporary staffing to
companies seeking personnel in the legal and banking fields, which commenced
operations during 1999, contributed to the increase in revenue. The information
technology division experienced an 8% decrease in revenue for the three months
ended December 31, 1999 compared to the same period in 1998. This decrease was
due primarily to customers focusing on Year 2000 costs, which deferred spending
and staffing requirements until calendar year 2000.
Revenues from the Company's executive search and full time
contingency recruitment business were $6.8 million for the three months ended
December 31, 1999 compared to $3.4 million for the same period in 1998, an
increase of $3.4 million or 100%. All divisions within the executive search and
full time contingency recruitment business experienced increases in revenue for
the three months ended December 31, 1999 compared to the same period in 1998.
The capital markets, publishing and new media, banking and legal divisions
experienced the greatest demand for services during the three months ended
December 31, 1999 and contributed the largest increases in revenue.
Selling expenses for the three months ended December 31, 1999
totaled $12.5 million (78% of revenues) compared with $9.5 million (82% of
revenues) for the three months ended December 31, 1998. The increase in selling
expense is primarily related to commissions earned by personnel within the
executive search and full time contingency recruitment business due to increases
in revenue. In addition, compensation expenses of temporary personnel as well as
increases in employee benefits contributed to the increase in selling expenses.
General and Administrative expenses were $2.4 million (15% of
revenues) for the three months ended December 31, 1999 compared to $1.6 million
(14% of revenues) for the same period in 1998. The increase is primarily a
result of additional infrastructure costs, which include additional office space
and the hiring of support personnel within corporate accounting, information
systems and administration. In addition, the Company has incurred $150,000 of
expense relating to the development of its web site, which is expected to be
operational during the second quarter of 2000.
Depreciation and Amortization expense for the three months ended
December 31, 1999 totaled $192,000, compared to $165,000 for the same period in
1998. Depreciation expense increased principally as a result of capital
expenditures made during fiscal 1999. The amortization of intangible assets
associated with certain acquisitions also contributed to this increase.
Income from operations was $927,000 for the three months ended
December 31,1999, compared to $342,000 for the three months ended December 31,
1998, primarily due to the factors mentioned in the first three paragraphs of
this section.
Other Income and (Expenses) for the three months ended December 31,
1999 totaled $27,000 of expense, compared to $50,000 of expense for the same
period in 1998. The decrease in other expenses primarily was due to a lower
average outstanding balance under the Company's line of credit and term loan
facility and a concommitant lower interest expense charged for borrowings
thereunder.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [Continued]
Income Tax Expense for the three months ended December 31, 1999 was
$406,000 (45% effective tax rate), compared with $127,000 (44% effective tax
rate) for the same period in 1998. The increase in the Company's effective tax
rate was due to an increase in certain non-deductible expenses, including a
portion of meals, entertainment and premiums on key person life insurance
policies.
Net income was $494,000 for the three months ended December 31,
1999, compared to $165,000 for the three months ended December 31, 1998, due to
the factors mentioned in the first three paragraphs of this section.
Liquidity and Capital Resources
As of December 31, 1999, the Company's sources of liquidity included
$1.25 million in cash and cash equivalents and short-term investments. The
Company's working capital was $4.6 million at December 31, 1999 compared to $4.1
million at September 30, 1999. The Company has available $680,000 of long-term
investments as a source of liquidity if required.
In February 1999, the Company entered into a $6.5 million credit
facility agreement with The Dime Savings Bank. The facility agreement consists
of a $5 million working capital line of credit and a term loan of $1.5 million,
which are collateralized by all of the Company's assets. The agreement provides
for borrowings under the working capital line of credit at 1% above the Dime
Reference Rate and expires on February 28, 2002. The term loan shall be paid in
12 quarterly installments commencing May 31, 1999 and ending on February 28,
2002 and bears interest at 1.25% above the Dime Reference Rate. The Dime
Reference Rate at December 31, 1999 was 8.50%. At December 31, 1999, there were
$2.475 million of borrowings under the working capital line of credit, and
$1.125 million was outstanding under the term loan. The credit facility
agreement contains various covenants, among which are minimum working capital
and tangible net worth requirements and a provision restricting payment of
dividends in excess of 50% of net profits.
Net cash used by operating activities for the three months ended
December 31, 1999 was $1.9 million compared to net cash used by operating
activities of $361,000 for the same period in 1998. The increase in net cash
used by operating activities was due primarily to the payment of income taxes of
$1.4 million. Net cash provided by investing activities was $311,000 for the
three months ended December 31, 1999, which was primarily due to proceeds from
sale of investments of $549,000 offset by $206,000 of capital expenditures. Net
cash used in financing activities for the three months ended December 31, 1999
was $2,000,000, which was due to borrowings under the line of credit.
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 Compliance
Prior to January 1, 2000, there was a great deal of concern
regarding the ability of computers to adequately distinguish 21st century dates
from 20th century dates due to the two-digit date fields used by many systems.
Most reports to date, however, are that computer systems are functioning
normally and the compliance and remediation work accomplished leading up to 2000
was effective to prevent any problems.
To date the Company has not experienced such problems, nor has the
Company incurred material costs or expenses relating to the Year 2000 issue,
either on its own account or in ensuring that its key vendors, suppliers or
customers were Year 2000 compliant. Computer experts have warned, however, that
there may still be residual consequences of the change in centuries. For
example, some software programs may have difficulty resolving the so-called
"century leap year" algorithm which will occur during the Year 2000. Any such
residual consequences could result in information technology system and software
failure, the corruption or loss of data contained in the Company's internal
information system, and failures affecting the Company's key vendors, suppliers
or customers. This in turn may lead to legal action, and may otherwise also have
a material adverse effect on the Company's business, results of operations or
financial condition.
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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [Continued]
New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board["FASB"] issued SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of Effective Date of
FASB Statements No. 133." This statement defers for one year the effective date
of FASB Statement No. 133, "Accounting Derivative Instruments and Hedging
Activities." The rule now will apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. This statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. This statement will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of SFAS No. 133 will be on
the earnings and financial position of the Company.
10
<PAGE>
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Certain financial instruments held by the Company, such as cash,
cash equivalents and accounts receivable arising in the ordinary course of
business, may subject the Company to concentrations of credit risk.
While the Company seeks to place its cash and cash equivalents with
high credit-quality financial institutions, the Company is still exposed to
credit risk for uninsured amounts held by such institutions. Such uninsured
amounts subject to credit risk totaled approximately $106,000 on December 31,
1999. The Company does not expect its exposure to such credit risk to cause a
material adverse effect on its financial condition or results of operation.
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. While the Company does not require collateral on accounts receivable
or other financial instruments, it does not believe that its exposure to credit
risk relating to its accounts receivable will result in a material adverse
effect on its financial condition or results of operations.
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits:
---------
27 Financial Data Schedule
(B) Reports on Form 8-K: None
11
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: February 10, 2000 The Solomon-Page Group Ltd.
---------------------------------------
(Registrant)
Date: February 10, 2000 /s/ Lloyd B. Solomon
---------------------------------------
Lloyd B. Solomon, Chief Executive Officer
Date: February 10, 2000 /s/ Eric M. Davis
----------------------------------------
Eric M. Davis, Chief Financial Officer
Vice President - Finance
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the three months ended December 31, 1999 and is
qualified in its entirety by reference to such Financial Statements and Notes,
thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 949,000
<SECURITIES> 978,000
<RECEIVABLES> 12,108,000
<ALLOWANCES> 280,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,744,000
<PP&E> 2,318,000
<DEPRECIATION> 192,000
<TOTAL-ASSETS> 18,897,000
<CURRENT-LIABILITIES> 9,172,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 8,334,000
<TOTAL-LIABILITY-AND-EQUITY> 18,897,000
<SALES> 15,991,000
<TOTAL-REVENUES> 15,991,000
<CGS> 12,493,000
<TOTAL-COSTS> 15,064,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,000
<INCOME-PRETAX> 900,000
<INCOME-TAX> 406,000
<INCOME-CONTINUING> 927,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494,000
<EPS-BASIC> .12
<EPS-DILUTED> .11
</TABLE>
