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: JULY 31, 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 September 10, 1999
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JULY 31, 1999
PART I - FINANCIAL INFORMATION
PAGE NUMBER
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of July 31, 1999
and October 31, 1998 3
Consolidated Statements of Operations for the
three and nine months ended July 31, 1999 and
July 31, 1998 4
Consolidated Statements of Shareholders'
Equity for the nine months ended July 31, 1999 5
Consolidated Statements of Cash Flows for the
nine months ended July 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $1,259,139 $1,753,681
Accounts receivable, net of allowance for bad debts of
$1,028,223 in 1999 and $986,723 in 1998 2,863,550 3,797,631
Billable production orders in process, at cost 92,050 249,858
Deferred income taxes 64,000 64,000
Other current assets 122,523 73,487
--------------------- ---------------------
TOTAL CURRENT ASSETS 4,401,262 5,938,657
Furniture, equipment and leasehold improvements,
Less accumulated depreciation and amortization
$1,436,243 in 1999 and $1,275,092 in 1998 675,516 761,119
Deferred income taxes 130,120 130,120
Cost in excess of net assets acquired and other assets, net of
accumulated amortization of $379,388 in 1999 and
$365,104 in 1998 4,691 18,977
--------------------- ---------------------
TOTAL ASSETS $5,211,589 $6,848,873
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,882,460 $4,442,500
Accrued liabilities 99,379 194,795
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 2,981,839 4,637,295
--------------------- ---------------------
Other liabilities 104,210 52,450
--------------------- ---------------------
TOTAL LONG TERM LIABILITIES 104,210 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 3,343,793 3,600,692
Deficit (712,294) (179,956)
Less: treasury stock, 141,723 and 316,723 shares, at cost (611,959) (1,367,608)
--------------------- ---------------------
TOTAL SHAREHOLDERS' EQUITY 2,125,540 2,159,128
--------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,211,589 $6,848,873
===================== =====================
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED JULY 31, FOR NINE MONTHS ENDED JULY 31,
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $700,643 $1,001,056 $2,870,958 $4,311,913
----------------- ---------------- --------------- -----------------
EXPENSES:
Salaries and employee related expenses 722,445 966,329 2,294,439 3,223,640
Office and general expenses 381,538 658,635 1,150,927 1,756,968
----------------- ---------------- --------------- -----------------
1,103,983 1,624,964 3,445,365 4,980,608
----------------- ---------------- --------------- -----------------
Loss from operations (403,340) (623,908) (574,408) (668,695)
Interest income, net 13,627 21,903 42,070 65,829
Equity in operations in investee company - - - (66,258)
----------------- ---------------- --------------- -----------------
LOSS BEFORE INCOME TAXES (389,713) (602,005) (532,338) (669,124)
Provision for income taxes - - - -
----------------- ----------------- --------------- -----------------
NET LOSS $(389,713) $(602,005) $(532,338) $(669,124)
================= ================= =============== =================
INCOME/(LOSS) PER COMMON
SHARE, BASIC AND DILUTED $(0.46) $(0.81) $(0.68) $(0.90)
=================== ================== =============== =================
Shares used in computing loss
per common share, basic 844,092 743,277 778,277 743,277
=================== ================== ================ =================
Shares used in computing loss
per common share, diluted 844,092 743,277 778,277 743,277
=================== ================== ================ ==================
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
Additional
Paid-in
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
Issuance of treasury
stock (256,889) (175,000) 755,649 498,750
Net Loss - - - (532,338) - - (532,338)
--------- --------- ---------- ---------- -------- ------------ -----------
BALANCE, JULY 31, 1999 1,060,000 $106,000 $3,343,793 $(712,294) 141,723 $(611,959) $2,125,540
========= ========= ========== ========== ======== ============ ===========
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JULY 31,
1999 1998
---- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (532,338) $ (669,124)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 175,435 279,698
Equity in operations of investee company - 66,258
Provision for bad debts 41,500 (52,991)
Changes in operating assets and liabilities:
Accounts receivable 892,581 881,015
Billable production orders in process, at cost 157,808 145,927
Other current assets (49,035) (30,547)
Other assets 14,286 (575)
Accounts payable (1,560,040) (349,728)
Accrued liabilities and other (43,656) (144,026)
------------ ------------
Net cash (used in) provided by operating activities (903,459) 125,907
------------ ------------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold
improvements (89,833) (459,038)
Advances to investee company, net - (36,727)
----------- -----------
Net cash used in investing activities (89,833) (495,765)
----------- -----------
FINANCING ACTIVITIES:
Sale of treasury stock 498,750 -
------- -----------
Net cash provided by financing activities 498,750 -
--------- -----------
Net decrease in cash and cash equivalents (494,542) (369,858)
Cash and cash equivalents at beginning of period 1,753,681 2,989,370
------------ ------------
Cash and cash equivalents at end of period $1,259,139 $2,619,512
============ ============
</TABLE>
See accompanying notes.
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited 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 nine month periods ended July 31, 1999 and 1998.
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 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 JULY 31, 1999 AS COMPARED TO
THE THREE MONTHS ENDED JULY 31, 1998.
Commissions and fees decreased $300,413 or 30 percent from $1,001,056 for the
three months ended July 31, 1998 to $700,643 for the three months ended July 31,
1999. This decrease is principally attributable to the closing of the Orlando
office during fiscal 1998.
Salaries and employee related expenses decreased $243,884 or 25 percent from
$966,329 for the three months ended July 31, 1998 to $722,445 for the three
months ended July 31, 1999. The decrease is a result of a reduction in staff
attributable to the Orlando, Florida office closing as discussed above, as well
as reductions in staffing levels in the Melville, New York office. Salaries and
employee related expenses as a percent of commissions and fees increased from 97
percent for the three months ended July 31, 1998 to 103 percent for the three
months ended July 31, 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 $277,097 or 42 percent from $658,635 for
the three months ended July 31, 1998 to $381,538 for the three months ended July
31, 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 $8,276 or 38 percent from $21,903 for the three
months ended July 31, 1998 to $13,627 for the three months ended July 31, 1999.
This decrease is due to the reduction in short-term investments.
Net loss decreased $212,292 or 35 percent from $602,005 for the three months
ended July 31, 1998 to $389,713 for the three months ended July 31, 1999. This
decrease is primarily due to the closing of the Orlando office during fiscal
1998.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 31, 1999 AS COMPARED TO THE
NINE MONTHS ENDED JULY 31, 1998.
Commissions and fees decreased $1,440,955 or 33 percent from $4,311,913 for the
nine months ended July 31, 1998 to $2,870,958 for the nine months ended July 31,
1999. This decrease is principally attributable to the closing of the Orlando
office during fiscal 1998.
Salaries and employee related expenses decreased $929,201 or 29 percent from
$3,223,640 for the nine months ended July 31, 1998 to $2,294,439 for the nine
months ended July 31, 1999. The decrease is a result of a reduction in staff
attributable to the Orlando, Florida office closing as discussed above, as well
as reductions in staffing levels in the Melville, New York office. Salaries and
employee related expenses as a percent of commissions and fees increased from 75
percent for the nine months ended July 31, 1998 to 80 percent for the nine
months ended July 31, 1999. This increase is primarily due to commission paid to
an employee based on specific, new client fees and commissions collected, as
provided in such employee's employment agreement.
Office and general expenses decreased $606,041 or 34 percent from $1,756,968 for
the nine months ended July 31, 1998 to $1,150,927 for the nine months ended July
31, 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 $23,759 or 36 percent from $65,829 for the nine
months ended July 31, 1998 to $42,070 for the nine months ended July 31, 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 nine months ended July 31, 1998 to zero dollars for the nine
months ended July 31, 1999. This decrease is the recognition of the Company's
proportionate share of the investee company's losses at that time.
Net loss decreased $136,789 or 20 percent from $669,124 for the nine months
ended July 31, 1998 to $532,338 for the nine months ended July 31, 1999. This
decrease is primarily due to the closing of the Orlando office during fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,419,000 at July 31, 1999, primarily
comprised of cash and cash equivalents of $1,259,000, accounts receivable of
$2,864,000 and billable production orders of $92,000, offset by accounts payable
and accrued liabilities of $2,982,000.
Net cash used in operating activities for the nine months ended July 31, 1999
was approximately $903,000. The principal factors contributing to the decrease
in cash flow were decreases in accounts payable of $1,560,000, partially offset
by decreases in accounts receivable of $893,000 and billable production orders
in process of $158,000.
Net cash provided by financing activities for the nine months ended July 31,
1999 was $498,750. 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.
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 a $500,000 line of credit from a bank which expires in
April 2000. Loans against the credit line bear interest equal to the "Prime
Rate", as defined in the line letter. The Prime Rate at September 6, 1999 was
8.25 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 completed all of its system critical upgrades,
enhancements and testing and major vendor and client Year 2000 assessments, with
the exception of it voice mail system which will completed in October 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
$30,000 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 September 13, 1999.
Greenstone Roberts Advertising, Inc.
(Registrant)
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 1,259,139
<SECURITIES> 0
<RECEIVABLES> 3,891,773
<ALLOWANCES> (1,028,223)
<INVENTORY> 0
<CURRENT-ASSETS> 4,401,262
<PP&E> 2,111,759
<DEPRECIATION> (1,436,243)
<TOTAL-ASSETS> 5,211,289
<CURRENT-LIABILITIES> 2,981,839
<BONDS> 0
0
0
<COMMON> 106,000
<OTHER-SE> 2,019,540
<TOTAL-LIABILITY-AND-EQUITY> 5,211,589
<SALES> 0
<TOTAL-REVENUES> 2,870,958
<CGS> 0
<TOTAL-COSTS> 2,294,439
<OTHER-EXPENSES> 1,150,927
<LOSS-PROVISION> 41,500
<INTEREST-EXPENSE> 42,070
<INCOME-PRETAX> (532,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (532,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (532,338)
<EPS-BASIC> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
