FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: JANUARY 31, 1998 Commission File #000-17468
GREENSTONE ROBERTS ADVERTISING, INC.
One Huntington Quadrangle
Melville, New York 11747
Tel. (516) 249-2121
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 March 4, 1998
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GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
January 31, 1998 and October 31, 1997 3
Condensed Consolidated Statements of Operations
for the three months ended January 31, 1998 and 1997 4
Condensed Consolidated Statements of Shareholders'
Equity for the three months ended January 31, 1998 5
Condensed Consolidated Statements of Cash Flows for
the three months ended January 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
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, October 31,
1998 1997
---- -----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $2,167,091 $2,989,370
Accounts receivable, net of allowance for bad debts of
$892,138 in 1998 and $886,645 in 1997 4,376,668 4,280,534
Billable production orders in process, at cost 258,074 495,712
Deferred income tax benefit 128,918 128,918
Recoverable income taxes 52,000 52,000
Receivable from investee company 92,000 60,000
Other current assets 60,005 69,610
------------ -------------
TOTAL CURRENT ASSETS 7,134,756 8,076,144
Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $2,684,498 in 1998 and $2,612,569 in 1997 581,160 649,455
Investment in investee company, net of accumulated
amortization of $33,237 in 1998 and $27,612 in 1997 30,272 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 $340,661 in 1998 and $337,661 in 1997 306,305 308,731
------------- --------------
TOTAL ASSETS $8,117,695 $9,165,790
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $4,575,109 $5,570,804
Accrued liabilities 145,175 247,010
-------------- ---------------
TOTAL CURRENT LIABILITIES 4,720,284 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 and outstanding 106,000 106,000
Additional paid-in capital 3,600,692 3,600,692
Retained earnings 808,327 758,892
Less: Treasury stock at cost, 316,723 shares held at cost (1,367,608) (1,367,608)
------------ -----------------
TOTAL SHAREHOLDERS' EQUITY 3,147,411 3,097,976
------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,117,695 $9,165,790
============= ==================
See accompanying notes.
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<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JANUARY 31,
1998 1997
---- ----
<S> <C> <C>
COMMISSIONS AND FEES $1,743,413 $1,663,235
EXPENSES:
Salaries and employee related expenses 1,177,756 1,375,502
Office and general expenses 504,397 620,245
-------------- --------------
1,682,153 1,995,747
-------------- --------------
Income(loss) from operations 61,260 (332,512)
Interest income 24,161 23,919
Equity in operations of investee company (35,986) -
---------------- ---------------
INCOME(LOSS) BEFORE INCOME TAXES 49,435 (308,593)
Provision for income taxes - 163,554
---------------- ----------------
NET INCOME(LOSS) $49,435 $(145,039)
================ ================
EARNINGS(LOSS) PER COMMON SHARE, BASIC AND DILUTED $0.07 $(0.19)
================ ================
SHARES USED IN COMPUTING
EARNINGS(LOSS) PER COMMON SHARE, BASIC 743,277 747,442
================= ================
Shares used in computing earnings
(loss) per common share, diluted 753,365 747,442
================= ================
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 1998
COMMON STOCK TREASURY STOCK
Additional
Paid-in Retained
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 Income - - - 49,435 - - 49,435
------------ ---------- ------------ ----------- ---------- ------------ -------------
BALANCE, JAN. 31, 1998 1,060,000 $106,000 $3,600,692 $808,327 316,723 $(1,367,608) $3,147,411
See accompanying notes.
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<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
1998 1997
----- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss) $ 49,435 $(145,039)
Adjustments to reconcile net income(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 74,929 110,104
Equity in operations of investee company 35,986 12,837
Provision for bad debts 5,493 1,830
Deferred income tax benefit - (163,554)
Changes in operating assets and liabilities:
Accounts receivable (101,627) 3,142,654
Billable production orders in process, at cost 237,638 199,640
Recoverable income taxes and other current assets 9,605 31,617
Other assets (575) 29,856
Accounts payable (995,695) (1,761,716)
Accrued liabilities (101,834) (21,554)
-------------- ------------------
Net cash (used in) provided by operating activities (786,645) 1,436,675
-------------- ------------------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (3,634) (17,212)
Maturity of short term investments, net - 2,422
Advances to investee company, net (32,000) (60,000)
-------------- ------------------
Net cash (used in) provided by investing activities (35,634) (74,790)
-------------- ------------------
Net (decrease) increase in cash and cash equivalents (822,279) 1,361,885
Cash and cash equivalents at beginning of period 2,989,370 2,553,730
-------------- ------------------
Cash and cash equivalents at end of period $2,167,091 $3,915,615
============== ==================
See accompanying notes.
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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 month periods ended
January 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 February 17, 1998, the Company and Gothard received a summary
judgment of approximately $941,000 as it relates to a counter claim
with a former 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 FIRST QUARTER ENDED JANUARY 31, 1998 AS COMPARED
TO THE FIRST QUARTER ENDED JANUARY 31, 1997.
Commissions and fees increased $80,178 or 5% from $1,663,235 for the quarter
ended January 31, 1997 to $1,743,413 for the quarter ended January 31, 1998. The
increase is primarily from new client activity partially offset by lost clients.
Salaries and employee related costs decreased 14% from $1,375,502 for the
quarter ended January 31, 1997 to $1,177,756 for the quarter ended January 31,
1998. The decrease is the result of a reduction in staffing. Salaries and
employee related costs as a percent of revenues decreased from 83% for the
quarter ended January 31, 1997 to 68% for the quarter ended January 31, 1998.
Office and general expenses decreased $115,848 or 19% as management continues
its efforts to control costs in various operating areas.
Income before provision for income taxes increased $358,028 from a loss of
$308,593 for the quarter ended January 31, 1997 compared to income of $49,435
for the quarter ended January 31, 1998. This increase is the result of increases
in commissions and fees and management's efforts to reduce and control costs.
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital was $2,414,000 at January 31, 1998, including cash
and cash equivalents of $2,167,000, accounts receivable of $4,377,000 and
billable production orders of $258,000 offset by accounts payable and accrued
liabilities of $4,720,000.
Net cash used in operating activities for the three months ended January 31,
1998 was approximately $786,000. The principal factors contributing to the cash
flow were decreases in accounts payable of $996,000, partially offset by
decreases in billable production orders of $238,000.
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.
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K:
On February 17, 1998 a Form 8-K was filed to disclose that the Circuit Court of
Pinellas County, Florida granted Greenstone Roberts and the Gothard Group (a/k/a
Gothard/Greenstone Roberts), a summary judgment as it relates to the fraud and
negligence claims brought by Proven Edge, Inc., a past client. The court has
denied the motion summary judgment as it relates to Proven Edge's breach of
contract claim.
The court granted partial summary judgment to Greenstone Roberts and The Gothard
Group in their counterclaim in the amount of $941,333.12.
Exhibit 27 - Financial Data Schedule
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 March 12, 1998.
Greenstone Roberts Advertising, Inc.
By: /s/ Ronald Greenstone
Ronald Greenstone
Chairman and CEO
By: /s/ Nelson C. Hunter
Nelson C. Hunter
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,167,091
<SECURITIES> 0
<RECEIVABLES> 5,268,806
<ALLOWANCES> (892,138)
<INVENTORY> 0
<CURRENT-ASSETS> 7,134,756
<PP&E> 3,265,658
<DEPRECIATION> (2,684,498)
<TOTAL-ASSETS> 8,117,695
<CURRENT-LIABILITIES> 4,720,284
<BONDS> 250,000
0
0
<COMMON> 106,000
<OTHER-SE> 3,147,411
<TOTAL-LIABILITY-AND-EQUITY> 8,117,695
<SALES> 0
<TOTAL-REVENUES> 1,743,413
<CGS> 0
<TOTAL-COSTS> 1,177,756
<OTHER-EXPENSES> 540,383
<LOSS-PROVISION> 5,493
<INTEREST-EXPENSE> (24,161)
<INCOME-PRETAX> 49,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 49,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,435
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
