SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: JULY 31, 1998 Commission File #000-17468
GREENSTONE ROBERTS ADVERTISING, INC.
401 Broadhollow Road
Melville, New York 11747
Tel. (516) 249-2121
(Exact name of Registrant as certified in its charter, address of Principal
Executive Offices and Registrant's telephone number)
NEW YORK 11-2250305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
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 Act of 1934 during the
preceding 12 months (or for such shorter periods 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 Registrant's classes of
Common Stock, as of the latest practicable date:
Common Stock, $.01 par value: 743,277 shares
as of September 2, 1998
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JULY 31, 1998
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1998 and October 31, 1997 3
Condensed Consolidated Statements of
Operations for the three and nine months ended
July 31, 1998 and 1997 4
Condensed Consolidated Statements of
Shareholders' Equity for the nine months ended
July 31, 1998 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended July 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
1998 1997
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $2,619,512 $2,989,370
Accounts receivable, net of allowance for doubtful
accounts of $833,654 in 1998 and $886,645 in 1997 3,452,510 4,280,534
Billable production orders in process, at cost 349,785 495,712
Deferred income tax benefit 128,918 128,918
Recoverable income taxes 52,000 52,000
Receivable from investee company 96,727 60,000
Other current assets 100,157 69,610
-------------- ---------------
TOTAL CURRENT ASSETS 6,799,609 8,076,144
Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $2,883,267 in 1998 and $2,612,569 in 1997 837,795 649,455
Investment in investee company, net of accumulated
amortization of $63,682 in 1998 and $27,612 in 1997 - 66,258
Deferred income tax benefit 65,202 65,202
Cost in excess of net assets acquired and other assets,
net of accumulated amortization of 300,306 308,731
$346,661 in 1998 and $337,661 in 1997 ---------------- ---------------
TOTAL ASSETS $8,002,912 $9,165,790
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $5,221,076 $5,570,804
Accrued liabilities 102,984 247,010
---------------- ---------------
TOTAL CURRENT LIABILITIES 5,324,060 5,817,814
Long-Term Debt 250,000 250,000
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.10 par value, 3,000,000 shares
authorized, 1,060,000 shares issued 106,000 106,000
Additional paid-in capital 3,600,692 3,600,692
Retained earnings 89,768 758,892
Less: Treasury stock, 316,723 shares held at cost (1,367,608) (1,367,608)
---------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 2,428,852 3,097,976
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,002,912 $9,165,790
================ =================
</TABLE>
See accompanying notes.
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For three months ended July 31, For nine months ended July 31,
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $1,001,056 $1,622,303 $4,311,913 $5,270,237
-------------- ------------ ------------ --------------
EXPENSES:
Salaries and employee related costs 966,328 1,192,078 3,223,640 3,825,806
Office and general expenses 658,636 619,165 1,756,968 1,960,842
--------------- -------------- ------------- ---------------
Total Expenses 1,624,964 1,811,243 4,980,608 5,786,648
--------------- -------------- ------------- ---------------
Loss from operations (623,908) (188,940) (668,695) (516,411)
Interest income/(expense) 21,902 (2,356) 65,829 39,195
Equity in operations of investee company - - (66,258) -
--------------- -------------- -------------- ---------------
LOSS BEFORE INCOME TAXES (602,006) (191,296) (669,124) (477,216)
Provision for income taxes - (5,000) - (51,314)
---------------- -------------- --------------- ----------------
NET LOSS $(602,006) $(186,296) $(669,124) $(425,902)
================ ============== ================ ================
LOSS PER COMMON
SHARE, BASIC AND DILUTED $(0.81) $(0.25) $(0.90) $(0.57)
================ ============== ================ =================
SHARES USED IN COMPUTING LOSS
PER COMMON SHARE, BASIC AND DILUTED 743,277 745,317 743,277 746,391
================= ============== ================= ===================
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JULY 31, 1998
Common Stock Treasury Stock
Additional Number
Number of Paid-in Retained of
Shares Amount Capital Earnings Shares Amount Total
------ ------ -------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Oct. 31, 1997 1,060,000 $106,000 $3,600,692 $758,892 316,723 $(1,367,608) $3,097,976
Net loss - - - (669,124) - - (669,124)
------------- ------------ ------------- ----------- ----------- -------------- ------------
Balance, Jul. 31, 1998 1,060,000 $106,000 $3,600,692 $89,768 316,723 $(1,367,608) $2,428,852
============= =========== ============= ============ =========== ============= ===========
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine Months ended July 31,
1998 1997
----- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(669,124) $(425,902)
Adjustments to reconcile net loss to et cash (used in)/provided by
operating activities:
Depreciation and amortization 279,698 315,984
Equity in operations of investee company 66,258 78,193
Provision for doubtful accounts (52,991) (120,728)
Deferred income tax benefit - (51,314)
Changes in operating assets and liabilities:
Accounts receivable 881,015 2,710,829
Billable production orders in process, at cost 145,927 454,255
Recoverable income tax and other current assets (30,547) (1,955)
Other assets (575) (7,030)
Accounts payable (349,728) (3,092,057)
Accrued liabilities (144,026) (122,038)
----------------- ------------------
Net cash (used in)/provided by operating activities 125,907 (261,763)
----------------- ------------------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (459,038) (46,972)
Maturity/purchase of short-term investments - 302,422
Advances to investee company, net (36,727) (15,000)
---------------- -------------------
Net cash (used in)/provided by investing activities (495,765) 240,450
---------------- -------------------
FINANCING ACTIVITIES:
Purchase of treasury stock - (8,990)
Net cash used in financing activities - (8,990)
---------------- -------------------
Decrease in cash and cash equivalents (369,858) (30,303)
Cash and cash equivalents at beginning of period 2,989,370 2,553,730
---------------- -------------------
Cash and cash equivalents at end of period $2,619,512 $2,523,427
=============== ===================
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 The consolidated interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is therefore suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1997.
2 These statements reflect all adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the Company's financial position and results of
operations and cash flows for the three and nine month periods ended July
31, 1998 and 1997.
3 Results of operations for interim periods are not necessarily indicative
of annual results.
4 The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and
transactions have been eliminated.
5 On July 5, 1998 the Company and Gothard Group (a/k/a Gothard/Greenstone
Roberts) received a final judgement of approximately $1,000,000 from
Proven Edge Inc., a past client. However, there can be no assurance that
such judgment is collectible. Accordingly, management has not recorded a
reduction in the provision to reserve against such claim. In addition,
the former client's claim against the Company and Gothard was denied.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED JULY 31, 1998 AS COMPARED TO
THE THIRD QUARTER ENDED JULY 31, 1997.
Commissions and fees decreased $621,247 or 38% from $1,622,303 for the quarter
ended July 31, 1997 to $1,001,056 for the quarter ended July 31, 1998. This is
attributed to a decrease in commissions and fees from the closing of the Orlando
office partially offset by new business and increased activity from existing
clients in the Melville office.
Salaries and employee related costs decreased 19% from $1,192,078 for the
quarter ended July 31, 1997 to $966,328 for the quarter ended July 31, 1998.
This decrease is the result of a reduction in staffing throughout the year and
closing of the Orlando office on July 15, 1998. Salaries and employee related
costs as a percent of revenues increased from 73% for the quarter ended July 31,
1997 to 96% for the quarter ended July 31, 1998.
Office and general expenses increased $39,471 or 6% attributed to costs incurred
in connection with the closing of the Orlando office.
Due to the reasons listed above, loss before taxes increased $410,710 from a
loss of $191,296 for the quarter ended July 31, 1997 compared to a loss of
$602,006 for the quarter ended July 31, 1998.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 31, 1998 AS COMPARED TO THE
NINE MONTHS ENDED JULY 31, 1997.
Commissions and fees decreased $958,324 or 18% from $5,270,237 for the nine
months ended July 31, 1997 to $4,311,913 for the nine months ended July 31,
1998. This is attributed to a decrease in commissions and fees from the closing
of the Orlando office, offset partially by new business and increased activity
from the Melville office.
Salaries and employee related costs decreased 16% from $3,825,806 for the nine
months ended July 31, 1997 to $3,223,640 for the nine months ended July 31,
1998. Salaries and employee related costs as a percent of revenues increased
from 73% for the nine months ended July 31, 1997 to 75% at July 31, 1998 due to
the decrease in commissions and fees from the Orlando office.
Office and general expenses decreased 10%, mainly as a result of management's
continuing efforts to control costs in various operating areas.
Due to the reasons listed above, loss before taxes increased $191,908 from a
loss of $477,216 for the nine months ended July 31, 1997, to a loss of $669,124
for the nine months ended July 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,476,000 at July 31, 1998, including cash
and cash equivalents of $2,620,000, accounts receivable of $3,453,000 and
billable production orders of $350,000 offset by accounts payable and accrued
liabilities of $5,324,000.
Net cash provided by operating activities for the nine months ended July 31,
1998 was approximately $126,000. The principal factors contributing to the cash
flow were the net loss in the period, decreases in accounts payable and accrued
liabilities of $494,000, offset by decreases in billable production orders of
$146,000 and decreases in accounts receivable of $881,000.
Because the Company recognizes commissions as a percentage of expenditures
incurred, the accounts receivable balance relates not only to the commissions
and fees shown on the income statement, but also to receivables for production
costs and media purchased for clients. Similarly, the accounts payable balance
includes payables for production costs and media incurred on behalf of clients.
The Company has available an unsecured $2,000,000 line of credit from a bank
which expires on April 30, 1999. Management believes that its current working
capital levels will be sufficient to meet the Company's liquidity and working
capital requirements for the foreseeable future. The Company does not anticipate
any increases in capital expenditures or other cash requirements which would
have a material adverse effect on its liquidity.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K:
Exhibits:
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
On July 7, 1998, a Form 8-K was filed to disclose that the Circuit
Court of Pinellas County, Florida had granted Greenstone Roberts and
The Gothard Group (a/k/a Gothard/Greenstone Roberts) a final judgment
of $1,000,000 from Proven Edge Inc., a past client.
On July 27, 1998, a Form 8-K was filed to disclose that Greenstone
Roberts Advertising, Inc. (the "Company") was advised by letter dated
July 20, 1998 by the NASDAQ Stock Market, Inc. that the Company's
Common Stock would be delisted from the NASDAQ SmallCap market
effective with the close of business on July 28, 1998.
SIGNATURES
Pursuant to the requirements 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 in the City of Melville, State of New
York on September 14, 1998.
Greenstone Roberts Advertising, Inc.
By: /s/ Ronald Greenstone
--------------------------------------
Ronald Greenstone
Chairman and Chief Executive Officer
By: /s/ Jeannie Huie
--------------------------------------
Jeannie Huie
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 2,619,512
<SECURITIES> 0
<RECEIVABLES> 4,286,164
<ALLOWANCES> (833,654)
<INVENTORY> 0
<CURRENT-ASSETS> 6,799,609
<PP&E> 3,721,062
<DEPRECIATION> (2,883,267)
<TOTAL-ASSETS> 8,002,912
<CURRENT-LIABILITIES> 5,324,060
<BONDS> 250,000
0
0
<COMMON> 106,000
<OTHER-SE> 2,428,852
<TOTAL-LIABILITY-AND-EQUITY> 8,002,912
<SALES> 0
<TOTAL-REVENUES> 4,311,913
<CGS> 0
<TOTAL-COSTS> 3,223,640
<OTHER-EXPENSES> 1,756,968
<LOSS-PROVISION> (52,991)
<INTEREST-EXPENSE> (65,829)
<INCOME-PRETAX> (669,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (669,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (669,124)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.90)
</TABLE>
