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: APRIL 30, 1998 Commission File #000-17468
GREENSTONE ROBERTS ADVERTISING, INC.
One Huntington Quadrangle
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 June 2, 1998
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED APRIL 30, 1998
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1998 and October 31, 1997 3
Condensed Consolidated Statements of Operations for
the three and six months ended April 30, 1998 and 1997 4
Condensed Consolidated Statements of Shareholders'
Equity for the six months ended April 30, 1998 5
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 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 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10-11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31
1998 1997
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $2,411,232 $2,989,370
Accounts receivable, net of allowance for doubtful
accounts of $844,815 in 1998 and $886,645 in 1997 4,446,107 4,280,534
Billable production orders in process, at cost 248,361 495,712
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 60,231 69,610
--------------- ---------------
TOTAL CURRENT ASSETS 7,438,849 8,076,144
Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $2,750,696 in 1998 and $2,612,569 in 1997 529,603 649,455
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 $343,661 in 1998 and $337,661 in 1997 303,306 308,731
--------------- ----------------
TOTAL ASSETS $8,336,960 $9,165,790
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $4,938,659 $5,570,804
Accrued liabilities 117,444 247,010
--------------- ----------------
TOTAL CURRENT LIABILITIES 5,056,103 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 691,773 758,892
Less: Treasury stock, 316,723 shares held at cost (1,367,608) (1,367,608)
--------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 3,030,857 3,097,976
--------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,336,960 $9,165,790
=============== =================
See accompanying notes.
</TABLE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED APRIL 30, FOR SIX MONTHS ENDED APRIL 30,
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $1,567,444 $1,984,699 $3,310,857 $3,647,934
-------------- ------------ ------------- ---------------
EXPENSES:
Salaries and employee related costs 1,079,555 1,258,225 2,257,311 2,633,727
Office and general expenses 593,936 708,595 1,098,333 1,328,840
--------------- ------------ -------------- -------------
1,673,491 1,966,820 3,355,644 3,962,567
(Loss)/income from operations (106,047) 17,879 (44,787) (314,633)
Interest income 19,765 17,632 43,926 41,551
Equity in operations of investee company (30,272) - (66,258) -
---------------- ------------ -------------- --------------
(LOSS)/INCOME BEFORE
INCOME TAXES (116,554) 35,511 (67,119) (273,082)
Provision for income taxes - 117,240 - (46,314)
----------------- ------------- -------------- ---------------
NET (LOSS)/INCOME $(116,554) $(81,729) $(67,119) $(226,768)
================= ============= =============== ================
(LOSS)/INCOME PER COMMON
SHARE, BASIC AND DILUTED $(0.16) $(0.11) $(0.09) $(0.30)
================= ============= =============== ================
SHARES USED IN COMPUTING
(LOSS)/EARNINGS PER COMMON SHARE 743,277 746,413 743,277 746,936
================= ============= =============== ================
See accompanying notes.
</TABLE>
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 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 - - - (67,119) - - (67,119)
------------- ------------- ------------ ------------ ------------ -------------- --------------
BALANCE, APR. 30, 1998 1,060,000 $106,000 $3,600,692 $691,773 316,723 $(1,367,608) $3,030,857
See accompanying notes.
</TABLE>
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30,
1998 1997
----- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss)/income $(67,119) $(226,768)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 144,127 216,345
Equity in operations of investee company 66,258 42,407
Provision for doubtful accounts 41,830 (120,728)
Deferred income tax benefi 0 (46,314)
Changes in operating assets and liabilities:
Accounts receivable (207,403) 2,065,240
Billable production orders in process, at cost 247,351 325,979
Recoverable income tax and other current assets 9,379 2,686
Other asset (575) (8,681)
Accounts payable (632,145) (2,795,088)
Accrued liabilities (129,566) (86,363)
---------------- ----------------
Net cash used in operating activities (527,863) (631,285)
---------------- -----------------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (18,275) (34,945)
Maturity/purchase of short-term investments - 302,422
Advances to investee company, net (32,000) 2,000
---------------- ----------------
Net cash (used in)/provided by investing activities (50,275) 269,477
---------------- ----------------
FINANCING ACTIVITIES:
Purchase of treasury stock - (5,839)
Net cash (used in)/provided by financing activities - (5,839)
---------------- ----------------
(Decrease)/increase in cash and cash equivalents (578,138) (367,647)
Cash and cash equivalents at beginning of period 2,989,370 2,553,730
---------------- -----------------
Cash and cash equivalents at end of period $2,411,232 $2,186,083
================ =================
See accompanying notes.
</TABLE>
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 six month periods ended April 30, 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 counterclaim 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 SECOND QUARTER ENDED APRIL 30, 1998 AS
COMPARED TO THE SECOND QUARTER ENDED APRIL 30, 1997.
Commission and fees decreased $417,255 or 21% from $1,984,699 for the
quarter ended April 30, 1997 to $1,567,444 for the quarter ended April
30, 1998. This is primarily attributed to decreased revenues from the
Orlando office partially offset by new business and increased activity
from existing clients in the Melville office.
Salaries and employee related costs decreased 14% from $1,258,225 for the
quarter ended April 30, 1997 to $1,079,555 for the quarter ended April
30, 1998. This decrease is the result of a reduction in staffing.
Salaries and employee related costs as a percent of revenues increased
from 63% for the quarter ended April 30, 1997 to 69% for the quarter
ended April 30, 1998.
Office and general expenses decreased $114,659 or 16% as management
continues its efforts to control costs in various operating areas.
Income before taxes decreased $152,065 from income of $35,511 for the
quarter ended April 30, 1997 compared to a loss of $116,554 for the
quarter ended April 30, 1998. This decrease is primarily attributed to
decreased revenues from the Orlando office, partially offset by
management's efforts to control costs as discussed above.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1998 AS COMPARED
TO THE SIX MONTHS ENDED APRIL 30, 1997.
Commission and fees decreased $337,077 or 9% from $3,647,934 for the six
months ended April 30, 1997 to $3,310,857 for the six months ended April
30, 1998. This decrease is attributed to the loss of several significant
clients from the Orlando office, offset partially by new business and
increased activity from the Melville office.
Salaries and employee related costs decreased 14% from $2,633,727 for the
six months ended April 30, 1997 to $2,257,311 for the six months ended
April 30, 1998. Salaries and employee related costs as a percent of
revenues decreased from 72% for the six months ended April 30, 1997 to
68% at April 30, 1998.
Office and general expenses decreased 17%, mainly as a result of
management's continuing efforts to control costs in various operating
areas.
Loss before taxes decreased $205,963 from a loss of $273,082 for the six
months ended April 30, 1997, to a loss of $67,119 for the six months
ended April 30, 1998. This is primarily attributed to decreased Orlando
revenues offset by increased Melville revenues and management's
continuing efforts to reduce and control costs.
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital was $2,383,000 at April 30, 1998, including
cash and cash equivalents of $2,411,000, accounts receivable of
$4,446,000 and billable production orders of $248,000 offset by accounts
payable and accrued liabilities of $5,056,000.
Net cash used in operating activities for the six months ended April 30,
1998 was approximately $528,000. The principal factors contributing to
the cash flow were decreases in accounts payable of $632,000, partially
offset by decreases in billable production orders of $247,000 and
increases in accounts receivable of $207,000.
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 1 - Legal Proceedings
On February 17, 1998 the Circuit Court of Pinellas County, Florida
granted Greenstone Roberts and The Gothard Group (a/k/a
Gothard/Greenstone Roberts), a summary judgement as it relates to the
fraud and negligence claims brought by Proven Edge, Inc., a past client.
The court has denied the motion for summary judgement as it relates to
Proven Edge's breach of contract claim.
The court granted partial summary judgement to Greenstone Roberts and The
Gothard Group in their counterclaim in the amount of $941,333.12.
Item 4 - Submission of Matters to a Vote of Security-Holders:
On April 8, 1998 the Registrant held its annual meeting and recorded the
voting results of its shareholders for the election of the following
items:
-Election of Directors
-Amendment of the Company's stock option plan to provide for the issuance
of stock options to non-employee members of the Board of Directors.
-Extension of the Company's stock option plan for an additional ten
years.
-Appointment of Ernst & Young LLP as auditors for 1998.
-Appointment of Directors
APPOINTMENT OF DIRECTORS VOTES FOR VOTES AGAINST ABSTENTIONS UNVOTED
Ronald M. Greenstone 574,705 19,175 - -
Richard Projain 574,495 19,385 - -
Monsignor Thomas J. Hartman 580,205 13,675 - -
Victor F. Trizzino 578,245 15,635 - -
The directors whose term of office as a director continued after the
meeting are: Gary C. Roberts, Anthony V. Curto and Martin S. Sussman.
AMENDMENT OF THE COMPANY'S STOCK OPTION PLAN TO PROVIDE FOR THE ISSUANCE
OF STOCK OPTIONS TO NON-EMPLOYEE MEMBERS OF THE BOARD OF DIRECTORS:
VOTES FOR VOTES AGAINST ABSTENTIONS UNVOTED
461,880 32,676 2,583 96,741
EXTENTION OF THE COMPANY'S STOCK OPTION PLAN FOR AN ADDITIONAL TEN YEARS:
VOTES FOR VOTES AGAINST ABSTENTIONS UNVOTED
465,395 30,303 2,591 95,591
APPOINTMENT OF INDEPENDENT AUDITORS:
VOTES FOR VOTES AGAINST ABSTENTIONS UNVOTED
589,730 3,245 905 -
Item 6 - Exhibits and Reports on Form 8-K:
Exhibits:
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
None.
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 June 15, 1998.
Greenstone Roberts Advertising, Inc.
By: /s/ Gary C. Roberts
Gary C. Roberts
President
By: /s/ Nelson C. Hunter
Nelson C. Hunter
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 2,411,232
<SECURITIES> 0
<RECEIVABLES> 5,290,922
<ALLOWANCES> (844,815)
<INVENTORY> 0
<CURRENT-ASSETS> 7,438,849
<PP&E> 3,280,299
<DEPRECIATION> (2,750,696)
<TOTAL-ASSETS> 8,336,960
<CURRENT-LIABILITIES> 5,056,103
<BONDS> 250,000
0
0
<COMMON> 106,000
<OTHER-SE> 3,030,857
<TOTAL-LIABILITY-AND-EQUITY> 8,336,960
<SALES> 0
<TOTAL-REVENUES> 3,310,857
<CGS> 0
<TOTAL-COSTS> 2,257,311
<OTHER-EXPENSES> 1,164,591
<LOSS-PROVISION> (41,830)
<INTEREST-EXPENSE> (43,926)
<INCOME-PRETAX> (67,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,119)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
