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: APRIL 30, 1999 Commission File #000-17468
-------------- ----------
GREENSTONE ROBERTS ADVERTISING, INC.
401 Broadhollow Road
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: 918,277 shares
as of June 10, 1999
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 1999
PART I - FINANCIAL INFORMATION
PAGE NUMBER
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1999 and October 31, 1998 3
Condensed Consolidated Statements of 4
Operations for the three and six months ended
April 30, 1999 and April 30, 1998
Condensed Consolidated Statements of 5
Shareholders' Equity for the six months
ended April 30, 1999
Condensed Consolidated Statements of Cash 6
Flows for the six months ended April 30,
1999 and 1998
Notes to Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
PART II - OTHER INFORMATION
Item 4. Submission Of Matters To A Vote Of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $1,199,485 $1,753,681
Accounts receivable, net of allowance for bad debts of
$1,025,223 in 1999 and $986,723 in 1998 2,835,190 3,797,631
Billable production orders in process, at cost 84,378 249,858
Deferred income taxes 64,000 64,000
Other current assets 142,961 73,487
--------------------- ---------------------
TOTAL CURRENT ASSETS 4,326,014 5,938,657
Furniture, equipment and leasehold improvements,
Less accumulated depreciation and amortization
Of $1,383,654 in 1999 and $1,275,092 in 1998 701,504 761,119
Deferred income taxes 130,120 130,120
Cost in excess of net assets acquired and other assets, net of
accumulated amortization of $368,675 in 1999
and $365,104 in 1998 15,406 18,977
--------------------- ---------------------
TOTAL ASSETS $5,173,044 $6,848,873
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,997,686 $4,442,500
Accrued liabilities 70,819 194,795
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 3,068,505 4,637,295
--------------------- ---------------------
Other liabilities 88,035 52,450
--------------------- ---------------------
TOTAL LONG TERM LIABILITIES 88,035 52,450
--------------------- ---------------------
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/(deficit) (322,580) (179,956)
Less: treasury stock, 316,723 shares at cost (1,367,608) (1,367,608)
--------------------- ---------------------
TOTAL SHAREHOLDERS' EQUITY 2,016,504 2,159,128
--------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,173,044 $6,848,873
===================== =====================
See accompanying notes.
</TABLE>
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED APRIL 30, FOR SIX MONTHS ENDED APRIL 30,
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $1,011,718 $1,567,444 $2,170,315 $3,310,857
--------------- ---------------- --------------- ----------------
EXPENSES:
Salaries and employee related expenses 788,877 1,079,555 1,571,994 2,257,311
Office and general expenses 427,641 593,936 769,389 1,098,333
--------------- ---------------- --------------- ----------------
1,216,518 1,673,491 2,341,383 3,355,644
Income/(loss) from operations (204,800) (106,047) (171,068) (44,787)
Interest income 13,548 19,765 28,444 43,926
Equity in operations in investee company - (30,272) - (66,258)
--------------- ---------------- --------------- ----------------
INCOME/(LOSS) BEFORE (191,251) (116,554) (142,624) (67,119)
INCOME TAXES
Provision for income taxes - - - -
--------------- ---------------- --------------- ----------------
NET INCOME/(LOSS) $(191,251) $(116,554) $(142,624) $(67,119)
=============== ================ =============== ================
INCOME/(LOSS) PER COMMON
SHARE, BASIC AND DILUTED $(0.26) $(0.16) $(0.19) $(0.09)
=============== ================ =============== ================
Shares used in computing Income/(loss)
per common share, basic 743,277 743,277 743,277 743,277
=============== ================ =============== ================
Shares used in computing Income/(loss)
per common share, diluted 743,277 753,365 743,277 753,365
=============== ================ =============== ================
See accompanying notes.
</TABLE>
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
Additional Retained
Paid-in Earnings/
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Oct. 31, 1998 1,060,000 $106,000 $3,600,692 $(179,956) 316,723 $(1,367,608) $2,159,128
Net Income/(Loss) - - - (142,624) - - (142,624)
--------- -------- ----------- ---------- --------- ------------ -----------
BALANCE, APRIL 30, 1999 1,060,000 $106,000 $3,600,692 $(322,580) 316,723 $(1,367,608) $2,016,504
========= ======== =========== ========== ========= ============= ===========
See accompanying notes.
</TABLE>
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(loss) $ (142,624) $ (67,119)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 108,562 144,127
Equity in operations of investee company - 66,258
Provision for bad debts 38,500 41,830
Changes in operating assets and liabilities:
Accounts receivable 923,941 (207,403)
Billable production orders in process, at cost 165,480 247,351
Other current assets (69,473) 9,379
Other assets 3,571 (575)
Accounts payable (1,444,814) (632,145)
Accrued liabilities and other (88,392) (129,566)
----------- -----------
Net cash used in operating activities (505,249) (527,863)
----------- ----------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold
improvements (48,947) (18,275)
Advances to investee company, net - (32,000)
----------- ----------
Net cash used in investing activities (48,947) (50,275)
----------- -----------
Net decrease in cash and cash equivalents (554,196) (578,138)
Cash and cash equivalents at beginning of year 1,753,681 2,989,370
----------- -----------
Cash and cash equivalents at end of period $1,199,485 $2,411,232
=========== =============
</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 Greenstone Roberts Advertising, Inc. ("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, 1998.
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, 1999 and 1998.
3. Results of operations for interim periods are not necessarily indicative of
annual results.
4. Theconsolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions
have been eliminated.
5. On June 9, 1999 a third party purchased 175,000 of the Company's common
shares for the sum of $498,750. The shares were sold from the Company's
existing treasury stock. At the same time, the Company entered into a
consulting agreement with such third party, for a term of four years at a
fee of $50,000 per annum.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1999 AS COMPARED TO
THE THREE MONTHS ENDED APRIL 30, 1998.
Commissions and fees decreased $555,726 or 35 percent from $1,567,444 for the
three months ended April 30, 1998 to $1,011,718 for the three months ended April
30, 1999. This decrease is principally attributable to the closing of the
Orlando office during fiscal 1998.
Salaries and employee related expenses decreased $290,678 or 27 percent from
$1,079,555 for the three months ended April 30, 1998 to $788,877 for the three
months ended April 30, 1999. The decrease is a result of a reduction in staff
attributable to the Orlando office closing as discussed above, as well as
reductions in staffing levels in the New York office. Salaries and employee
related expenses as a percent of commissions and fees increased from 69 percent
for the three months ended April 30, 1998 to 78 percent for the three months
ended April 30, 1999. This increase is primarily due to commission paid to an
employee based on specific client fees and commissions collected, as provided in
such employee's employment agreement.
Office and general expenses decreased $166,295 or 28 percent from $593,936 for
the three months ended April 30, 1998 to $427,641 for the three months ended
April 30, 1999. This decrease is due primarily to the closing of the Orlando
office during fiscal 1998 and management efforts to control costs in various
operating areas.
Interest income, net, decreased $6,217 or 31 percent from $19,765 for the three
months ended April 30, 1998 to $13,548 for the three months ended April 30,
1999. This decrease is due to the reduction in short-term investments.
Equity in operations in investee company decreased $30,272 or 100 percent from
$30,272 for the three months ended April 30, 1998 to zero dollars for the three
months ended April 30, 1999. This decrease is the recognition of the Company's
proportionate share of the investee company's losses at that time.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999 AS COMPARED TO THE
SIX MONTHS ENDED APRIL 30, 1998.
Commissions and fees decreased $1,140,542 or 34 percent from $3,310,857 for the
six months ended April 30, 1998 to $2,170,315 for the six months ended April 30,
1999. This decrease is principally attributable to the closing of the Orlando
office during fiscal 1998.
Salaries and employee related expenses decreased $685,317 or 30 percent from
$2,257,311 for the six months ended April 30, 1998 to $1,571,994 for the six
months ended April 30, 1999. The decrease is a result of a reduction in staff
attributable to the Orlando office closing as discussed above, as well as
reductions in staffing levels in the New York office. Salaries and employee
related expenses as a percent of commissions and fees increased from 68 percent
for the six months ended April 30, 1998 to 72 percent for the six months ended
April 30, 1999. This increase is primarily due to commission paid to an employee
based on specific, new client fees and commissions collected, as provided in an
employment agreement.
Office and general expenses decreased $328,944 or 30 percent from $1,098,333 for
the six months ended April 30, 1998 to $769,389 for the six months ended April
30, 1999. This decrease is due primarily to the closing of the Orlando office
during fiscal 1998 and management efforts to control costs in various operating
areas.
Interest income, net, decreased $15,482 or 35 percent from $43,926 for the six
months ended April 30, 1998 to $28,444 for the six months ended April 30, 1999.
This decrease is due to the reduction in short-term investments.
Equity in operations in investee company decreased $66,258 or 100 percent from
$66,258 for the six months ended April 30, 1998 to zero dollars for the six
months ended April 30, 1999. This decrease is the recognition of the Company's
proportionate share of the investee company's losses at that time.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,258,000 at April 30, 1999, primarily
comprised of cash and cash equivalents of $1,199,000, accounts receivable of
$2,835,000 and billable production orders of $84,000, offset by accounts payable
and accrued liabilities of $3,069,000.
Net cash used in operating activities for the six months ended April 30, 1999
was approximately $505,000. The principal factors contributing to the decrease
in cash flow were decreases in accounts payable of $1,445,000, partially offset
by decreases in accounts receivable of $924,000 and billable production orders
in process of $165,000.
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 $500,000 line of credit from a bank which
expires in March 2000. Loans against the credit line bear interest equal to the
"Prime Rate", as defined in the loan agreement. The Prime Rate at June 1, 1999
was 7.75 percent. 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.
YEAR 2000
Management has initiated a company-wide program to prepare the Company's
computer systems, applications, and software products for the Year 2000, as well
as to assess the readiness for the Year 2000 of critical vendors and other third
parties upon which the Company relies to operate its business. The Year 2000
issue arises from the widespread use of computer programs that rely on two-digit
codes to perform computations or decision-making functions.
The Company is currently converting its major hardware and software to Year 2000
compliant versions. The Company anticipates completing all of its system
critical upgrades, enhancements and testing and major vendor and client Year
2000 assessments before the end of the third quarter of fiscal 1999. For most
major vendors the Company has several alternative vendors, in the event that any
such vendor is not Year 2000 compliant. All costs associated with Year 2000
compliance are estimated at $35,000, not including internal payroll costs, and
consist of new hardware and software. The Company has incurred approximately
$20,000 in Year 2000 costs to date.
There can be no assurance that the computer systems of other companies which the
Company's systems or software products rely upon will be timely converted, or
that such failure to convert by another company would not have a material
adverse effect on the Company's business or systems and results of operations.
The statements contained in this Year 2000 readiness disclosure are subject to
certain protection under the Year 2000 Information and Readiness Disclosure Act.
Item 3 - Quantitative and Qualitative Disclosures About Market Risks
None.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 4 - Submission Of Matters To A Vote Of Security Holders
On April 13, 1999 the Company held its annual meeting and recorded the voting
results of its shareholders for the election of Directors and the appointment of
independent auditors. The following table details these results:
APPOINTMENT OF DIRECTORS
VOTES FOR VOTES AGAINST ABSTENTIONS
Gary C. Roberts 511,787 2,290
Anthony V. Curto 511,787 2,290
Martin S. Sussman 511,792 2,285
The directors whose term of office as a director continued after the meeting
are: Ronald M. Greenstone, Richard Progain, Victor F. Trizzino, and Monsignor
Thomas J. Hartman.
APPOINTMENT OF INDEPENDENT AUDITORS:
VOTES FOR VOTES AGAINST ABSTENTIONS
- --------- ------------- -----------
511,600 1,780 597
Item 5. Other Information.
On June 9, 1999 a third party purchased 175,000 of the Company's common shares
for the sum of $498,750. The shares were sold from the Company's existing
treasury stock. At the same time, the Company entered into a consulting
agreement with such third party, for a term of four years at a fee of $50,000
per annum.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 - Consulting Agreement between Greenstone Roberts
Advertising, Inc. and Herman Fialkov dated June 1,
1999.
Exhibit 27 - Financial Data Schedule
(b) None.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
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 14, 1999.
Greenstone Roberts Advertising, Inc.
By: /s/ RONALD M. GREENSTONE
-----------------------------------
Ronald M. Greenstone
Chairman of the Board, Chief
Executive Officer and Director
By: /s/ ROBERT M. SCHILDKRAUT
-----------------------------------
Robert M. Schildkraut
Chief Financial Officer
Exhibit 10.1
[Greenstone Roberts Letterhead]
JUNE 1, 1999
Mr. Herman Fialkov
199 Middle Neck Road
Great Neck, New York 11021
Dear Mr. Fialkov:
This letter will confirm the terms pursuant to which you have agreed to serve as
a consultant to Greenstone Roberts Advertising, Inc., a New York corporation,
("GRA") for a period commencing on the date of this letter and ending on May 31,
2003.
1. Your duties as consultant shall consist of serving GRA as an advisor and
consultant, as requested by its Board of Directors or by members of its senior
management of GRA in response to such inquiries or requests for introductions
relating to the business of GRA as they shall from time to time address to you.
You will use your best judgement in responding to such requests and to be
generally supportive of the business goals of the corporation. Responses shall
be oral except to the extent that you shall prefer, from time to time, to
respond in writing. Your consulting duties under this agreement do not require
the preparation of written reports or analyses.
2. Your fee as a consultant shall be equivalent to $50,000 per annum,
payable quarterly.
3. Your services pursuant to this agreement shall be performed at such
times as shall be reasonably convenient to you in the light of your other
business, professional and personal activities, including business or personal
travel and your own vacation schedule. You shall not be required to perform
services under this agreement, except within 50 miles of Melville, Long Island,
New York, unless you consent otherwise.
4. Should you be required to perform services beyond the scope of ordinary
consulting duties, you will be additionally compensated for such service on a
basis to be agreed between you and GRA. Such agreement shall be made promptly
after you advise the person requesting such services that such services are
beyond the scope of ordinary consulting duties. Pending such an agreement,
neither you nor GRA shall have any obligation in relation to such services.
5. GRA contemplates that, during the terms of this agreement you may engage
in all such business activities as you desire to conduct, in addition to serving
as consultant under this agreement. No limitation on such activities is imposed
by this agreement except that, without GRA's consent, you will not serve any
competitor of GRA engaged in the advertising business.
6. You agree that you will keep in strict secrecy and confidence any
information, knowledge or data, written or unwritten, relating to GRA's
business, that you may receive, develop or learn in the course of your
engagement by GRA, which (i) has not been disclosed in issued patents or (ii) is
not generally or publicly known or (iii) has not been unrestrictedly disclosed
by GRA. You further agree not to disclose any such information, knowledge or
date to others, and not to use such information, knowledge or data for any
purpose of your own, whether during or after your engagement with GRA, except
with the prior written consent of GRA. It is understood that this agreement does
not restrict you in the exercise of your technical skill subsequent to your
engagement with GRA; provided that the exercise of such skill does not involve
the disclosure to others of the aforesaid secret or confidential information,
knowledge or data, or the use by you of such secret or confidential information,
knowledge or data, on your own behalf or on behalf of other employers or
business interests. You further agree, during engagement as a consultant to GRA,
or upon termination of such engagement, not to take with you without GRA's
written consent, design, descriptive matter, picture, reproduction or any other
matter representing any product, machine, process or other development
whatsoever, which has been, or is to be, made or used GRA.
7. Your obligations under this agreement shall inure to the benefit of and
be enforceable by an corporation or other entity which is, or any time after the
date hereof shall be, a parent of subsidiary or otherwise affiliated with GRA
and by any corporation or other entity which shall hereafter acquire GRA or any
such affiliate.
If the foregoing conforms with our understanding, please sign the enclosed
copy hereof at the place provided for your signature and return it to the
undersigned.
Very truly yours,
GREENSTONE ROBERTS ADVERTISING, INC.
By: /s/ RONALD M. GREENSTONE, CEO
-------------------------------
Accepted and Agreed to:
/s/ HERMAN FIALKOV
- ------------------------
Herman Fialkov
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 1,199,485
<SECURITIES> 0
<RECEIVABLES> 3,860,413
<ALLOWANCES> (1,025,223)
<INVENTORY> 0
<CURRENT-ASSETS> 4,326,014
<PP&E> 2,085,158
<DEPRECIATION> (1,383,654)
<TOTAL-ASSETS> 5,173,044
<CURRENT-LIABILITIES> 3,068,505
<BONDS> 0
0
0
<COMMON> 106,000
<OTHER-SE> 1,910,504
<TOTAL-LIABILITY-AND-EQUITY> 5,173,044
<SALES> 0
<TOTAL-REVENUES> 2,170,315
<CGS> 0
<TOTAL-COSTS> 1,571,994
<OTHER-EXPENSES> 769,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28,444)
<INCOME-PRETAX> (142,624)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,624)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19
</TABLE>
