SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
For the transition period from___________to___________
Commission file number: 000-17468
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GREENSTONE ROBERTS ADVERTISING, INC.
(Exact name of Company as specified in its charter)
NEW YORK 11-2250305
(State or other jurisdiction of (I.R.S. Employer
(Incorporation or organization) Identification No.
401 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(Address of principal executive offices) (Zip Code)
(631) 249-2121
Company's telephone number, including area code
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein and no disclosure will be contained, to the best
of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3,877,996
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Company, computed by reference to the price at which
the common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days.
$1,951,339 AS OF JANUARY 18, 2000
<PAGE>
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE --
918,277 SHARES (AS OF JANUARY 18, 2000)
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Company's 2000 Annual Meeting
of Shareholders will be incorporated into Part III of this Form 10-KSB.
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF FEDERAL SECURITIES LAWS WHICH ARE INTENDED TO BE COVERED BY THE SAFE
HARBORS CREATED THEREBY. THOSE STATEMENTS INCLUDE, BUT MAY NOT BE LIMITED TO,
THE DISCUSSIONS OF THE COMPANY'S OPERATING AND GROWTH STRATEGY. INVESTORS ARE
CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD PROVE TO BE INACCURATE, AND THEREFORE, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS ANNUAL REPORT ON
FORM 10-K WILL PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES
INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF
SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR
ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT EVENTS AND CIRCUMSTANCES
OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
AUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-KSB.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company was incorporated under the laws of the State of New York on February
25, 1972 under the name Greenstone Ad Agency, Inc. and subsequently changed its
name to Greenstone Roberts Advertising, Inc. On July 29, 1997 the Company filed
an amendment to its Certificate of Incorporation with the New York Secretary of
State as a result of a reverse one-for-ten stock split.
The Company is a full-service advertising agency which analyzes and provides
advertising for its clients, and plans and creates advertising for dissemination
through various media such as television, radio, newspapers, magazines, the
internet and billboards. The Company has developed expertise in such related
areas of marketing, consultation, direct mail advertising, market and product
research, design and production of merchandising and sales promotion programs
and materials, corporate identification, and public relations. The Company
creates an advertising program within the limits imposed by the client's
advertising budget or its annual retainer. The Company's commission for
advertising services is generally 15% of the gross charge (commonly referred to
as "billings") for purchasing advertising space or time. This is consistent with
the industry average.
The Company maintains its operations in Long Island, New York. On July 15, 1998
the Company closed its Florida operation, due primarily to the loss of several
significant customers of the Florida office. The Company does not believe that
the closing of the Florida office has had or will have an adverse effect on its
financial condition and results of operations. In addition, as of October 31,
1998, the Company had fully amortized its 49% equity interest in The Gothard
Group ("Gothard"), a Miami-based public relations agency. In July 1998, the
Company filed a lawsuit against Gothard seeking among other things, damages
under a certain management agreement and repayment of certain loans made by the
Company to Gothard. In December 1998, Gothard filed for Chapter 7 protection and
all assets were placed in trust. During 1998, the Company advanced Gothard
approximately $126,000, and as of October 31, 1998 was owed $186,000 for
advances of monies and $126,000 in accounts receivable. In connection with
Gothard filing for Chapter 7, the Company, in the fourth quarter of fiscal 1998,
fully reserved approximately $126,000 of accounts receivable and the $186,000 of
advances due from Gothard. Also for the year ended October 31, 1998, the Company
recorded an equity loss of $66,258 representing its proportionate share of
Gothard's losses up to the Company's remaining investment in Gothard. No
additional loss of Gothard will be recognized as the Company has no plans to
support the operations of Gothard. Any monies recovered by the Company from
Gothard will be recorded as Other Income.
The Company believes, based on management's knowledge of and experience in the
market, that it is one of the largest advertising agencies on Long Island, New
York in terms of commissions and fee revenues. The Company's success in these
areas is based on its established reputation and expertise in representing
clients in businesses such as vitamins, minerals and nutritional supplements,
personal care and food products, computer hardware and software, financial
services, telecommunication services, cleaning and safety products, healthcare
and education. In the past fifteen years, the Company has received many of the
advertising industry's most recognized awards including ANDY's, CLIO's and ONE
SHOW's. Also in the past fifteen years, the Company has received in excess of
one hundred "Best on Long Island" awards for its creativity in advertisements
and collateral materials. The strategy of the Company is to concentrate on
servicing medium and large accounts that are seeking the personalized service,
attention and continuity of relationships with top management and creative
personnel that the Company offers and that larger advertising firms based in
major metropolitan areas are not always able to provide. The Company plans to
continue to expand its business by focusing on such accounts and through
possible acquisitions of other advertising agencies on Long Island, and in other
east coast markets.
SOLICITATION OF NEW BUSINESS
The Company has been in business for 27 years and believes it is well known in
the Long Island marketplace. The Company generally obtains new clients through
referrals or by identifying prospects through market research in product and
service industries in which the Company does not have a competing client. The
Company solicits prospective clients through personal contacts and presentations
by agency principals, backed by a team of creative and media personnel. The
initial step in the selection process normally involves preparing a capability
study demonstrating the Company's ability to service the prospective client.
Following the submission of a capability study, advertisers generally seek
presentations from a limited number of agencies. In soliciting new clients, the
Company often incurs expenses prior to obtaining such clients, and there is no
assurance that the Company will be able to obtain such clients or, if the
clients are obtained, that such expenses will be reimbursed by the client. The
Company considers the potential revenue from a new client when determining the
appropriate level of expenses for such presentations. The period of time
required by the Company to obtain a new client and generate revenues therefrom
may range from weeks to several months.
REVENUES
The primary sources of the Company's revenues are commissions earned from
advertising placed with the various media and service fees for creative time.
The Company places advertising for its clients only in the capacity of an agent
and not as a principal. It is expressly understood that the Company is acting
only as an agent of its clients and that ultimate responsibility for the costs
incurred rests solely with such clients and not with the Company. Clients pay
the Company the full media charge for these advertisements. The Company retains
an agency commission, which is generally 15% of the gross media charges, and
remits the remaining fee to the media. The billing and collection procedures
established by the Company require that billings be collected from its clients
in sufficient time for the Company to make the corresponding payment to the
related media, usually within 30 to 60 days of invoice. Service fees for
creative and typesetting time are established on a case-by-case basis. The
Company also receives a service fee on its outside purchases of production
materials (such as photography and printing) for clients, generally 20% over the
cost of such purchases. In some cases, fees are generated in lieu of commissions
on media and markup on outside purchases of production materials.
CLIENTS
The Company considers its relationships with its clients to be good. Due to the
nature of the business, however, any client could at some time in the future
reduce its advertising budget, or transfer to another agency all or part of its
advertising presently placed through the Company. Representation of a client
does not necessarily mean that all advertising for such client is handled by the
Company exclusively. In some cases, the Company handles the advertising of only
a portion of a client's products or services.
For the twelve months ended October 31, 1999, five of the Company's clients
represented 17%, 17%, 12%, 11% and 11%, respectively, of the Company's revenues.
The Company depends upon a core of approximately 15 clients from which it
obtains the bulk of its revenues.
Advertising industry clients can terminate their relationship with the Company
on relatively short notice, typically 60 to 90 days. The Company can terminate,
at any time, personnel working directly on the accounts to reduce its overhead.
SUPPLIERS
The Company internally produces substantially all of the materials required for
its clients. Services and materials such as photography, printing and film are
generally purchased from outside vendors. The Company does not maintain any
written contracts with its suppliers. Substantially all of such suppliers are
located on Long Island.
SEASONALITY
Historically, first quarter revenues have been less than other quarters because
of the timing of certain major clients' budgetary cycles.
GOVERNMENT REGULATION
Federal, state and local governments and governmental agencies in recent years
have adopted statutes and regulations affecting the advertising activities of
advertising agencies and their clients. For example, statutes and regulations
have prohibited television advertising for certain products and regulated the
form and content of certain types of advertising for many consumer products. The
Federal Trade Commission ("FTC") has also required proof of accuracy of
advertising claims with respect to various products and, in its enforcement
policies, is seeking to establish more stringent standards with respect to
advertising practices. The FTC has the authority to investigate and to institute
proceedings against advertisers and their advertising agencies for deceptive
advertising. The effect on the advertising business of future interpretations of
existing statutes or regulations, or the effect of new legislation or regulatory
activity cannot be predicted.
No claims or enforcement actions have been instituted against the Company to
date and the Company believes that it is in compliance in all material respects
with all applicable regulations. The Company maintains errors and omissions
insurance and believes that such coverage would adequately protect it in the
event claims are made by governmental agencies or others. In addition, the
Company has a "hold harmless" clause in most agreements with clients.
EMPLOYEES
As of October 31, 1999, the Company employed 28 people, all but one of which are
employed on a full-time basis, including 8 in account management, 4 in media, 3
in production, 5 in creative services and 8 in general administration and
finance.
The Company believes its future success will depend, in part, on its ability to
recruit and retain highly skilled management and creative personnel.
Professional personnel in the advertising industry normally do not enter into
employment contracts and are free to move from one agency to another. There is
substantial competition for qualified employees, although there is a large pool
of such people in the New York Metropolitan area. The Company, because of the
competitive nature of the advertising business, has required almost all
personnel to execute employee restrictive covenant agreements, which provide
generally that when such employee leaves the employ of the Company voluntarily,
for a period of one year such employee is prohibited from soliciting and
accepting business from the Company's clients and from trying to persuade any of
the Company's other employees to sever their employment with the Company.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relationships are
good. In order to recruit and retain key personnel, the Company has a wide range
of employee benefit plans.
COMPETITION
The advertising industry and other marketing communications businesses are
highly competitive. Agencies of all sizes strive to attract new clients or
additional assignments or accounts from existing clients. In addition, many
companies have in-house departments which handle all or a portion of their
advertising and/or public relations requirements.
Competition in the advertising industry depends to a large extent on the
client's perception of the quality of an agency's "creative product". As the
Company has restructured its operations it has had to compete more frequently
against larger advertising agencies. These larger agencies generally have
substantially greater financial resources, personnel and facilities than the
Company and many of them are large conglomerates and/or have an international
clientele. The Company believes it is able to compete on the basis of the
quality of its product, service, personal relationships with clients and
reputation. There can be no assurance that the Company will be able to maintain
its current position in the industry.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own any real property. The Company leases its office, which
is considered ample for its present needs. The following table provides data on
the Company's office.
ANNUAL APPROXIMATE LEASE
OFFICE LOCATION BASE RENT SQUARE FEET EXPIRATION DATE
- -------------------------------------------------------------------------------
New York 401 Broadhollow Road $ 284,136 12,944 7/31/08
Melville, New York
ITEM 3. LEGAL PROCEEDINGS.
In June 1997, a former client of the Company filed a civil claim against the
Company and Gothard. The former client sought, among other remedies, to be
relived of its obligations to pay outstanding bills due and owing the Company
and to collect damages. The Company and Gothard filed a counterclaim against the
former client seeking payment of amounts due for advertising and public
relations services and expenses. In February 1998, the Company obtained a
judgment against the former client in the total amount of $1,196,000. Efforts to
collect the judgment have, thus far, been unsuccessful. On September 20, 1999
the former client filed for Chapter 7 Bankruptcy in United States Bankruptcy
Court, Middle District of Florida, Tampa Division. The Company is filing its
claim as a creditor with the bankruptcy trustee.
Greenstone Roberts Advertising Florida, Inc., a wholly-owned subsidiary of the
Company, Gothard, an entity which is 49% owned by Greenstone Roberts Advertising
Florida, Inc. and Ronald Greenstone, Chairman of the Board, Chief Executive
Officer and Director of the Company were named as defendants in litigation filed
by Barbara W. Gothard in Circuit Court in Miami-Dade County, Florida on April
21, 1998. The action arises from a dispute between the Company and Barbara
Gothard concerning the management and operation of Gothard. This case has been
consolidated under court order with an earlier filed action between Greenstone
Roberts Advertising Florida, Inc. against Gothard and Barbara W. Gothard in
which the Company seeks, among other things, damages for breaches of contract
and breaches of fiduciary duty. The Gothard claim against the Greenstone
entities has been dismissed. Written discovery by the Greenstone entities is
on-going.
Pursuant to the agreement of the parties, the Court has appointed a receiver for
Gothard. On December 15, 1998, a Chapter 7 bankruptcy was filed on behalf of
Gothard, by Barbara Gothard and a bankruptcy trustee has been appointed.
Management believes that the outcome of such litigation will not have a material
adverse effect on its financial condition or annual results of operations.
Barbara Gothard and The Gothard Group, Inc., d/b/a Gothard/Greenstone Roberts
were named defendants in litigation filed by Centurion Capital Corp in Circuit
Court in Miami-Dade County Florida on April 29, 1998. This action asserts a
claim against the defendants in the amount of approximately $60,000 based on
alleged claims of breach of contract, money lent, conversion and account stated.
The Company is vigorously defending the claims. Management believes that the
outcome of such litigation will not have a material effect on its financial
condition or annual results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
There were no matters submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock was delisted from the NASDAQ SmallCap market
effective with the close of business July 28, 1998. On July 29, 1998 the Company
filed a Form 8-K to disclose the delisting. Effective July 29, 1998 the
Company's common stock is trading on the over-the-counter bulletin board market
and continues to be quoted under the symbol GRRI.
The following table sets forth the high and low closing bid quotations for the
Company's common stock, as reported by Standard & Poors Comstock for the periods
indicated. These quotations represent bid prices between dealers, do not include
retail markups, markdowns or commissions, and do not necessarily represent
actual transactions.
COMMON STOCK CLOSING BID PRICES FOR EACH QUARTER
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998 AND OCTOBER 31, 1999
1999 1998
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $1.44 $0.91 $2.88 $1.88
Second Quarter 1.00 0.88 2.88 1.75
Third Quarter 2.75 0.88 2.75 1.25
Fourth Quarter 2.50 0.88 1.31 .90
The Company's common stock was held by approximately 261 shareholders of record
as of January 18, 2000.
The Company has never paid a cash dividend on its common stock and does not
contemplate paying cash dividends on its common stock in the foreseeable future.
On June 9, 1999 the Company sold 175,000 shares of its common stock to Herman
Fialkov (the "Investor") in a private placement for a purchase price of
$498,750. Such securities were sold by the Company without registration under
the Securities Act of 1933, as amended (the "Securities Act") in reliance on the
exemption provided by Section 4(2) of the Securities Act. The Investor
represented to the Company that he is an "accredited investor" as defined in
Regulation D of the Securities Act.
ITEM 6A. PLAN OF OPERATION
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 that would have a material adverse
effect on its liquidity and that would require the Company to raise additional
capital.
ITEM 6B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999 AS COMPARED TO
THE FISCAL YEAR ENDED OCTOBER 31, 1998
Commission and fee revenue decreased $1,773,603 or 31% from $5,651,599 for the
fiscal year ended October 31, 1998 to $3,877,996 for the fiscal year ended
October 31, 1999. This decrease is principally attributable to the closing of
the Orlando office during fiscal 1998.
Salaries and employee-related expenses decreased $1,066,725 or 27% from
$3,961,639 for the fiscal year ended October 31, 1998 to $2,894,914 for the
fiscal year ended October 31, 1999. The decrease is a result of a reduction in
staff attributable to the Orlando office closing discussed above and management
efforts to control salary expenses.
Office and general expenses decreased $807,911 or 34% from $2,343,506 for the
fiscal year ended October 31, 1998 to $1,535,595 for the fiscal year ended
October 31, 1999. The decrease is a result of a reduction in expenses
attributable to the Orlando office closing as discussed above and management
efforts to control expenses.
Interest income decreased $21,147 or 27% from $79,647 for the fiscal year ended
October 31, 1998 to $58,500 for the fiscal year ended October 31, 1999. The
decrease is due to lower cash balances maintained during fiscal 1999.
The equity in operations and provision for loss on amounts due from investee
company decreased from $378,102 or 100% for the fiscal year ended October 31,
1998 to zero dollars for the fiscal year ended October 31, 1999. During fiscal
1998 the Company determined it would no longer fund the operations of Gothard
once its investment in Gothard was fully amortized.
Net loss decreased $444,835 or 47% from $938,848 for the fiscal year ended
October 31, 1998 to $494,013 for the fiscal year ended October 31, 1999 due to
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,429,000 at October 31, 1999, primarily
comprised of cash and cash equivalents of $1,985,000, accounts receivable of
$4,035,000 and billable production orders of $126,000, offset by accounts
payable and accrued liabilities of $4,834,000.
Net cash used in operating activities for the year ended October 31, 1999 was
approximately $183,000. The principal factors contributing to the decrease in
cash flow were a net loss of $494,000 and increases in accounts receivable of
$250,000 and other current assets of $43,000, offset by increases in accounts
payable and accrued liabilities of $239,000 and depreciation and amortization of
$229,000.
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 a $500,000 line of credit from a bank which expires in
April 30, 2000. Loans against the credit line shall bear interest equal to the
"Prime Rate", as defined in the credit agreement. The Prime Rate at October 31,
1999 was 8.0%. The Company did not have any amounts outstanding to the bank at
October 31, 1999. The Company intends to renew its line of credit in April 2000.
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 that would have a material adverse
effect on its liquidity.
On June 9, 1999 a third party purchased 175,000 shares of the Company's common
stock 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 7. FINANCIAL STATEMENTS.
The information required by this item is incorporated herein by reference to the
Consolidated Financial Statements listed in Item 13(a) of Part IV of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During 1998, the Company dismissed Ernst & Young LLP as its independent auditors
and retained BDO Seidman LLP. On November 9, 1998, the Company filed a Form 8-K
disclosing the change in the Company's certified public accountants, which is
incorporated herein by reference.
There were no disagreements with the accountants on accounting and financial
disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
On October 29, 1999 Herman Fialkov filed Form 3 for the purchase of 175,000
share of the Company's common stock on June 9, 1999. Said form was to be filed
by June 19, 1999.
Required information incorporated by reference to the Company's Proxy Statement
to be filed within 120 days of October 31, 1999.
ITEM 10. EXECUTIVE COMPENSATION.
Required information is incorporated by reference to the Company's Proxy
Statement to be filed within 120 days of October 31, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Required information is incorporated by reference to the Company's Proxy
Statement to be filed within 120 days of October 31, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On June 9, 1999 Herman Fialkov, a third party, purchased 175,000 shares of the
Company's common stock 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 Fialkov, for a term of four years, at a fee of $50,000
per annum.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements:
Refer to F-1 for index
Number Description
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on
Form S-18 (Registration No. 33-26372 NY)).
3.2 By-laws of the Registrant (incorporated by reference to Exhibit 3.2 of
the Registrant's Registration Statement on Form S-18 (Registration No.
33-26372 NY)).
10.1 * 1988 Stock Option Plan (incorporated by reference to Exhibit 10.6 of
the Registrant's Registration Statement on Form S-18 (Registration No.
33-26372 NY)).
10.2 * Amendment No. 1 to the 1988 Stock Option Plan dated February 7, 1990
(incorporated by reference to Exhibit 10.6 of the Registrant's Form
10-K for the fiscal year ending October 31, 1990)).
10.11 Lease agreement between the Registrant and Lincoln-Sun Center Ltd.
dated September 4, 1992 (incorporated by reference to Exhibit 10.11 of
the Registrant's Form 10-K for the fiscal year ending October 31,
1992).
10.13 Employment agreement between the Company and Ronald M. Greenstone
dated January 1, 1998.
10.14 Employment agreement between the Company and Gary C. Roberts dated
January 1, 1998.
10.15 Form of lease agreement between the Registrant and 401 Broadhollow
Realty Corp dated April 15, 1998.
21** Subsidiaries of the Company.
27** Financial data schedule
28 Consulting agreement between the Company and Herman Fialkov dated June
9, 1999.
99** Employment agreement between the Company and Gary C. Roberts dated
December 22, 1999.
(b) Reports on Form 8-K:
None.
*Indicates a Management Contract or a Compensatory Plan or Arrangement.
**Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company 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 January 27, 2000.
Greenstone Roberts Advertising, Inc.
By: /S/ RONALD M. GREENSTONE
--------------------------
/s/ Ronald M. Greenstone
Chairman of the Board
/S/ ROBERT M. SCHILDKRAUT
----------------------------
/s/ Robert M. Schildkraut
Chief Financial Officer
(Principal Accounting and
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities and on the dates
indicated.
/S/ RONALD M. GREENSTONE Chairman of the Board, Chief January 26, 2000
- --------------------------- Executive Officer and Director
/s/ Ronald M. Greenstone (principal executive officer)
/S/ GARY C. ROBERTS President and Director January 26, 2000
- ---------------------------
/s/ Gary C. Roberts
Director January 27, 2000
- ---------------------------
/s/ Thomas Hartman
/S/ ANTHONY V. CURTO Director January 26, 2000
- ---------------------------
/s/ Anthony V. Curto
/S/ RICHARD PROJAIN Director January 27, 2000
- ---------------------------
/s/ Richard Projain
/S/ VICTOR F. TRIZZINO Director January 27, 2000
- ---------------------------
/s/ Victor F. Trizzino
<PAGE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of October 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended
October 31, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity for the years
ended October 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 to F-13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Greenstone Roberts Advertising, Inc.
We have audited the accompanying consolidated balance sheets of Greenstone
Roberts Advertising, Inc. and subsidiary as of October 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greenstone Roberts
Advertising, Inc. and subsidiary at October 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
two years then ended, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Melville, New York
January 10, 2000
<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
1999 1998
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $1,985,070 $1,753,681
Accounts receivable, net of allowance for bad debts
of $998,723 in 1999 and $986,723 in 1998 4,035,734 3,797,631
Billable production orders in process, at cost 126,413 249,858
Other current assets 116,886 73,487
------------ -----------
TOTAL CURRENT ASSETS 6,264,103 5,874,657
Furniture, equipment and leasehold improvements,
less accumulated depreciation and amortization 632,141 761,119
Deferred income taxes 194,120 194,120
Cost in excess of net assets acquired and other assets, net of
accumulated amortization of $97,041 in 1999 and
$80,323 in 1998 2,257 18,977
------------ -----------
TOTAL ASSETS $7,092,621 $6,848,873
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $4,834,686 $4,637,295
TOTAL CURRENT LIABILITIES ----------- ------------
4,834,686 4,637,295
Other liabilities 94,070 52,450
------------ -----------
TOTAL LIABILITIES 4,928,756 4,689,745
COMMITMENTS AND CONTINGENCIES (NOTE 9)
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 3,343,793 3,600,692
Accumulated deficit (673,969) (179,956)
Less: treasury stock, 141,723 and 316,723 shares at cost (611,959) (1,367,608)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 2,163,865 2,159,128
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,092,621 $6,848,873
============ ===========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31,
1999 1998
---- ----
<S> <C> <C>
Commissions and fees $3,877,996 $5,651,599
Expenses:
Salaries and employee-related expenses 2,894,914 3,961,639
Office and general expenses 1,535,595 2,343,506
---------------- ------------------
4,430,509 6,305,145
---------------- ------------------
(552,513) (653,546)
Interest income 58,500 79,647
Equity in operations and provision for loss on
amounts due from investee company - (378,102)
---------------- ------------------
Loss before income taxes (494,013) (952,001)
Federal income tax benefit - 13,153
---------------- ------------------
Net Loss $ (494,013) $ (938,848)
================ ==================
Net loss per common share-basic and diluted $ (0.61) $ (1.26)
================ ==================
Weighted average common shares outstanding-
Basic and diluted 812,813 743,277
================ ==================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
COMMON STOCK Additional TREASURY STOCK
Paid-In Retained
TOTAL SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - OCTOBER 31, 1997 1,060,000 $106,000 $3,600,692 $758,892 316,723 $(1,367,608) $3,097,976
Net loss - - (938,848) - (938,848)
- -
------------ ------------ ------------ ----------- ----------- ------------ -------------
BALANCE - OCTOBER 31, 1998 1,060,000 106,000 3,600,692 (179,956) 316,723 (1,367,608) 2,159,128
Treasury stock issued (256,899) (175,000) 755,649 498,750
Net loss (494,013)
(494,013)
------------ ------------ ------------ ----------- ----------- ------------ -------------
BALANCE - OCTOBER 31, 1999 1,060,000 $106,000 $3,343,793 $ (673,969) 141,723 $ (611,959) $2,163,865
============ ============ ============ =========== =========== ============ =============
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31,
1999 1998
- - ---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(494,013) $(938,848)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 229,940 354,223
Provision for amounts due from investee company
and equity in operations 378,102
-
Provision for bad debts 12,000
-
Changes in operating assets and liabilities:
Accounts receivable (250,103) 356,991
Billable production orders in process, at cost 123,445 245,854
Recoverable income taxes and other current assets (43,399) 48,122
Other assets 12,311
-
Accounts payable and accrued liabilities 239,011 (1,128,069)
-------------- ---------------
Net cash used in operating activities (183,119) (671,314)
-------------- ---------------
INVESTING ACTIVITIES:
Purchases of furniture, equipment and leasehold
Improvements (84,242) (438,443)
Advances to investee company, net - (125,932)
-------------- ---------------
Net cash used in investing activities (84,242) (564,375)
-------------- ---------------
FINANCING ACTIVITIES:
Sale of treasury stock 498,750 -
-------------- ---------------
Net cash provided by financing activities 498,750 -
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 231,389 (1,235,689)
Cash and cash equivalents at beginning of year 1,753,681 2,989,370
-------------- ---------------
Cash and cash equivalents at end of year 1,985,070 $1,753,681
============== ===============
SUPPLEMENTAL NON CASH ACTIVITY:
In 1998, Notes Payable, which related to an acquisition,
totaling $250,000 were written off against related goodwill
See accompanying notes to consolidated financial statements
</TABLE>
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Greenstone Roberts Advertising, Inc. and its wholly-owned subsidiary, Greenstone
Roberts Advertising Florida, Inc. ("Florida"), (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
NATURE OF BUSINESS:
The Company is a full service advertising agency which analyzes and provides
advertising for its clients, and plans and creates advertising for dissemination
through various media such as television, radio, newspapers, magazines and
billboards. The Company operates in only one segment.
RECOGNITION OF COMMISSION AND FEE REVENUE
Substantially all revenues are derived from commissions for placement of
advertisements in various media and fees for production of advertisements and
marketing materials. Such revenues are recognized as earned. Billings are
generally rendered upon insertion date for media and as costs are incurred for
production. Fee revenue is recognized when services are rendered. Accounts
receivable include both the income recognized, as well as the actual media and
production costs which are paid for by the Company and rebilled to clients at
the Company's cost plus agreed upon commissions.
CONCENTRATION OF CREDIT RISK
The Company provides advertising and marketing services to a wide range of
clients who operate in many industry sectors and are principally located in the
Northeast. The Company grants credit to all qualified clients and generally does
not require collateral. The Company does not believe it is exposed to any undue
concentration of credit risk to any significant degree. (see Note 7.)
RECLASSIFICATIONS
Certain amounts as previously reported have been reclassified to conform to
current year classifications.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents, including commercial
paper, certificates of deposit and money market mutual funds. Cash equivalents
as of October 31, 1999 and 1998 were approximately $1,985,000 and $1,750,000,
respectively.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method, over the estimated useful lives of the
related assets as follows:
Furniture 5 - 7 years
Equipment 5 - 7 years
Leasehold improvements Lease term or useful life, whichever is shorter
LONG LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable through the estimated undiscounted future
cash flows from the use of these assets. When such an impairment exists, the
related assets will be written down to fair value. No impairment losses have
been necessary through October 31, 1999.
INCOME TAXES
The Company accounts for income taxes on the liability method. Under the
liability method, deferred income taxes are provided on the differences in bases
of assets and liabilities between financial reporting and tax returns using
enacted tax rates.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect, in
periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options. For fiscal 1999 and 1998, all options
outstanding were anti-dilutive. These options expire in 2005.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles required the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company reviews all significant estimates affecting the financial statements on
a recurring basis and records the effect of any adjustments when necessary.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income (loss) and earnings (loss) per share as if the fair value based method of
accounting had been applied as required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses are reasonable estimates of their fair value because of the short
maturity of these items.
2. INVESTMENT IN INVESTEE COMPANY:
------------------------------
On August 8, 1996, the Company acquired a 49% interest in the Gothard Group,
Inc., a Miami-based public relations agency. The Company merged its existing
public relations business and its Hispanic Division into the Gothard Group, Inc.
and renamed the new company Gothard/Greenstone Roberts, Inc. ("Gothard"). The
Company accounted for its interest in Gothard using the equity method of
accounting. The excess of the purchase price over the net assets of the acquired
interest was being amortized over ten years.
In July 1998 the Company filed a lawsuit against Gothard seeking among other
things, damages under a certain management agreement and repayment of certain
loans made by the Company to Gothard. (See note 9). In December 1998, Gothard
filed for Chapter 7 bankruptcy protection and all assets were placed in trust.
During 1998, the Company advanced Gothard approximately $126,000 ($75,000 of
which represented the payment of an outstanding bank loan for which the Company
was a guarantor). In connection with Gothard filing for Chapter 7, the Company
fully reserved approximately $126,000 of accounts receivable and $186,000 of
advances due from Gothard at October 31, 1998. Also, for the year ended October
31, 1998, the Company recorded an equity loss of $66,258 representing its
proportionate share of Gothard's losses up to the Company's remaining investment
in Gothard. No additional loss of Gothard will be recognized as the Company has
no plans to support the operations of Gothard.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
------------------------------------------------
Furniture, equipment and leasehold improvements are summarized as follows:
<TABLE>
<CAPTION>
October 31, October 31,
1999 1998
---- ----
<S> <C> <C>
Office equipment $1,613,469 $1,584,159
Furniture and fixtures 182,083 172,596
Leasehold improvements 324,902 279,456
------------ -------------
2,120,454 2,036,211
Less accumulated depreciation and amortization (1,488,313) (1,275,092)
------------ -------------
$632,141 $761,119
============ =============
Depreciation expense totaled approximately $213,000 and $387,000 for the years
ended October 31, 1999 and 1998, respectively.
</TABLE>
4. LINE OF CREDIT AGREEMENT:
------------------------
The Company has available a $500,000 line of credit with a bank, which expires
April 30, 2000. Borrowings against this line bear interest at the prime rate, as
defined. The prime rate approximated 8.0% at October 31, 1999. The Company did
not have any amounts outstanding to the bank at October 31, 1999. The Company
intends to renew its line of credit in April 2000.
5. INCOME TAXES:
------------
As a result of losses from operations, the Company has available a Federal net
operating loss carryforward of approximately $1,265,000 which expires in various
years through 2019, a New York State net operating loss carryforward of
approximately $972,000 which expires in various years through 2018, and a
Florida state net operating loss carryforward of approximately $2,007,000 which
expires in various years through 2018.
The components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
October 31, October 31,
1999 1998
---- ----
Deferred tax liability:
<S> <C> <C>
Fixed assets $(23,000) $(9,000)
Other - (24,000)
--------------- ---------------
Total deferred tax liability (23,000) (33,000)
--------------- ---------------
Net Deferred tax assets:
Net operating loss carryforwards 487,000 344,000
Accounts receivable reserves 456,000 452,000
Amortization of excess of purchase price
over net assets acquired 169,000 141,120
Other 33,120 -
--------------- ---------------
Total deferred tax assets 1,145,120 927,120
--------------- ---------------
Valuation allowance for deferred tax assets (928,000) (710,000)
--------------- ---------------
Net deferred tax assets $194,120 $194,120
=============== ===============
</TABLE>
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
The following table reconciles the Federal statutory rate to the Company's
effective rate:
<TABLE>
<CAPTION>
October 31, October 31,
1999 1998
---- ----
(Benefit)provision for Federal income
<S> <C> <C>
taxes at the statutory rate (34.0)% (34.0)%
State income taxes, net of Federal
Income tax benefit (4.5) -
Non-deductible expenses 1.0 2.7
Other - 1.1
Increase in valuation allowance 37.5 28.8
---------------- --------------
-% (1.4)%
================ ==============
</TABLE>
Income taxes paid during the years ended October 31, 1999 and 1998 were
approximately $0 and $10,000, respectively.
6. SAVINGS PLAN:
-------------
The Company maintains a 401(k) Savings Plan ("Savings Plan") that covers all
employees with one or more years of service. The Company matches employee
contributions utilizing a percentage determined at the discretion of management.
Such percentage was 15% of employee contributions for the years ended October
31, 1999 and 1998. The Company's matching contribution to the Savings Plan was
approximately $14,000 and $17,000 for the years ended October 31, 1999 and 1998,
respectively.
7. SIGNIFICANT CUSTOMERS:
----------------------
For the year ended October 31, 1999, five customers represented 17%, 17%, 12%,
11% and 11% of the Company's revenues. For the year ended October 31, 1998,
revenues from four customers represented 19%, 16%, 13% and 12% of the Company's
revenues. For the year ended October 31, 1999, two customers represented 50% and
28% of the Company's Accounts Receivable. For the year ended October 31, 1998
three customers represented 26%, 25% and 21% of the Company's Accounts
Receivable.
8. STOCK OPTION PLAN:
------------------
In December 1988, the Board of Directors approved the adoption of the 1988 Stock
Option Plan (the "Plan"). The Plan was amended in 1990 to increase the number of
common shares reserved for issuance to key employees, including officers and
directors who are also employees, from 60,000 to 90,000 shares. All options are
granted at no less than 100% of the fair market value on the date of grant.
Options expire from two to six years from the date of grant, and are exercisable
one year from the date of grant. Options that are unexercised are canceled
immediately if the holder ceases to be an employee of the Company.
At a meeting on January 26, 1998, the Board of Directors elected to amend the
Plan to permit the granting of stock options to non-employee directors. In
addition, the Board of Directors voted to issue 4,000 shares of common stock to
each of the non-employee directors. The fair value of the options granted was
not material. The Board also voted to grant to all members of the Board of
Directors who are not employees of the Company an additional 2,000 options to
purchase shares of stock of the Company on each anniversary that such individual
is a member of the Board of Directors. The amendment of the Company's Stock
Option Plan to provide for the issuance of the Stock Options to non-employee
members of the Board of Directors was voted upon and approved at the Company's
annual meeting on April 8, 1998.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
UNDER OPTION EXERCISE PRICE
--------------------------------
<S> <C> <C>
BALANCE, October 31, 1997 at exercise price of $2.25 76,850 $2.25
Options canceled at exercise price of $2.25 (20,600) $2.25
Options granted at exercise price of $2.75 12,300 $2.75
------ -----
BALANCE, October 31, 1998 at exercise prices from $2.25 to $2.75 68,550 $2.34
Options canceled at exercise price of $2.75 ( 300) $2.75
Options canceled at exercise price of $2.25 (4,000) $2.25
Options granted at exercise price of $1.28 2,500 $1.28
Options granted at exercise price of $1.00 15,000 $1.00
======= ======
BALANCE, October 31, 1999 at exercise prices 81,750 $2.05
======= ======
</TABLE>
The weighted-average fair value of options granted during the years ended
October 31, 1999 and 1998 was $0.46 and $1.52, respectively. At October 31, 1999
and 1998, 8,250 and 21,450 shares respectively were available for grant.
The following table summarizes information about stock options outstanding at
October 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ----------------------
EXERCISE NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER EXERCISABLE
PRICES AT 10/31/99 REMAINING CONTRACTUAL LIFE AT 10/31/99
<S> <C> <C> <C>
$ 2.25 52,250 3.75 52,250
$ 2.75 12,000 4.33 12,000
$ 1.281 2,500 5.00 2,500
$ 1.00 15,000 5.50 --
- -------------------------------------------------------------------------------------------------
81,750 4.19 66,750
</TABLE>
<PAGE>
SFAS No. 123,"Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants;dividend yield of zero for both years; expected
volatility of 46.0% in 1999and 58.0% in 1998; risk-free interest rates of
ranging from 4.5% to 5.5% in 1999 and 5.45% in 1998; and expected lives of five
years for both years.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
and earning (loss) per share would have been reduced to the pro forma amounts
indicated below:
1999 1998
- ------------------------------------------------------------------
Net income (loss)
As reported $(494,013) $(938,848)
Pro forma (502,013) (959,000)
Net income (loss) per common
share-basic and diluted
As reported $(0.61) $(1.26)
Pro forma (0.62) (1.29)
9. COMMITMENTS AND CONTINGENCIES:
LEASES
At October 31, 1999, the Company was committed under operating leases,
principally for office space, through fiscal 2008.
Rent expense was approximately $364,000 and $605,000, for the years ended
October 31, 1999 and 1998, respectively. Future minimum rents under the
remaining terms of existing operating leases are as follows:
FISCAL
------
2000 $284,136
2001 $299,658
2002 $335,163
2003 $342,606
Thereafter $1,887,003
EMPLOYMENT AGREEMENTS
Effective January 1, 1998, the Company renewed its employment agreement with its
chief executive officer. The agreement provides for annual compensation of
$275,000 and incentive compensation of an amount equivalent to 10% of income
before provision for income taxes and expires on December 31, 2000. The
agreement provides for, upon termination, a one time payment equal to the
current annual salary then being paid for a one year non-compete agreement.
In December 1999, the Company and its President agreed that his employment
will be on an "at will" basis, with a salary of $225,000 and fringe benefits, as
defined. The Company or the employee may terminate such employee's employment
with 30 days written notice upon which time a lump sum payment of $225,000 will
be paid.
CONSULTING AGREEMENT
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.
LITIGATION
Various claims, suits and complaints arise in the ordinary course of the
Company's business. In the opinion of the Company, all such pending matters are
without merit, covered by insurance or of such kind, or involve such amounts, as
would not have a material adverse effect on the financial statements of the
Company if disposed of unfavorably.
In June 1997, a former client of the Company filed a civil claim against the
Company and Gothard. The former client sought, among other remedies, to be
relieved of its obligation to pay outstanding bills due and owing the Company
and to collect damages. The Company and Gothard filed a counterclaim against the
former client seeking payment of amounts due for advertising and public
relations services and expenses. Accordingly, related accounts receivable were
reserved for at October 31, 1997. In February 1998, the Company obtained
judgment against the former client in the total amount of $1,196,000. Efforts to
collect the judgment have, thus far, been unsuccessful. On September 20, 1999
the former client filed for Chapter 7 Bankruptcy in United States Bankruptcy
Court, Middle District of Florida, Tampa Division. The Company is filing its
claim as a creditor with the bankruptcy trustee.
Greenstone Roberts Advertising Florida, Inc., a wholly-owned subsidiary of the
Company, The Gothard Group d/b/a Gothard/Greenstone Roberts, an entity which is
49% owned by Greenstone Roberts Advertising Florida, Inc. and Ronald Greenstone,
Chairman of the Board, Chief Executive Officer and Director of the Company were
named defendants in litigation filed by Barbara W. Gothard in Circuit Court in
Miami-Dade County, Florida on April 21, 1998. The action arises from a dispute
between the Company and Barbara Gothard concerning the management and operation
of the Gothard Group. The action seeks, among other things, the dissolution of
and the appointment of a receiver over the Gothard Group, an accounting,
injunctive relief and damages. The Company is vigorously defending the claims
against it and this case has been consolidated, under court order, with an
earlier filed action between Greenstone Roberts Florida, Inc. against The
Gothard Group and Barbara W. Gothard in which the Company seeks, among other
things, damages for breaches of contract and breaches of fiduciary duty. Written
discovery has commenced and each side has filed motions to dismiss, which have
not yet been heard by the Court. Pursuant to the agreement of the parties, the
Court has appointed a receiver for The Gothard Group. On December 15, 1998, a
Chapter 7 bankruptcy was filed on behalf of The Gothard Group, Inc. by Barbara
Gothard and a bankruptcy trustee has been appointed. Management believes that
the outcome of such litigation will not have a material adverse effect on its
financial condition or annual results of operations.
Barbara Gothard, The Gothard Group, Inc., d/b/a Gothard/Greenstone Roberts were
named defendants in litigation filed by Centurion Capital Corp in Circuit Court
in Miami-Dade County Florida on April 29, 1998. This action asserts a claim
against the defendants in the amount of approximately $60,000 based on alleged
claims of breach of contract, money lent, conversion and account stated. The
Company is vigorously defending the claims. Management believes that the outcome
of such litigation will not have a material effect on its financial condition or
annual results of operations.
Exhibit 21
Subsidiaries of the Company
NAME OF SUBSIDIARY STATE OF INCORPORATION % OWNERSHIP
- ------------------ ---------------------- -----------
Greenstone Roberts Advertising, Florida 100%
Florida, Inc.
Exhibit 99
December 22, 1999
Mr. Gary Roberts
Greenstone Roberts Advertising, Inc.
401 Broadhollow Road
Melville, NY 11747
RE: EMPLOYMENT AGREEMENT
Dear Gary:
I am writing you to clarify our proposal to you with regard to your
employment with Greenstone Roberts.
As you know, it is the Board's intention not to renew your contract,
but rather to offer you continued employment on "at will" basis. Consequently,
your employment contract dated January 1, 1998 is terminated effective December
31, 1999. This means, at any time, you or the company may terminate the
employment by giving the other thirty (30) days written notice in advance of
such termination. During the term of your employment you will be compensated at
the annual rate of $225,000.00 payable in the manner consistent with the
company's past practices. Also, during the period, you will be entitled to such
other fringe benefits as you presently enjoy.
After thirty (30) days written notice of termination by either party
the corporation shall within five (5) days after the expiration of said thirty
(30) days pay to the Executive in one lump sum a special severance and
termination payment of $225,000.00.
Please acknowledge the receipt of this communication and your
agreement to this by signing in the space provided below.
Upon your doing so, this letter will constitute an employment
agreement between you and Greenstone Roberts Advertising, Inc.
I need and look forward to your continued support.
Cordially,
GREENSTONE ROBERTS
ADVERTISING, INC.
By: /s/ Ronald Greenstone
---------------------------
Name: RONALD GREENSTONE
Title: Chairman of the Board
/s/ Gary C. Roberts
- -------------------------------
GARY C. ROBERTS
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 1,985,070
<SECURITIES> 0
<RECEIVABLES> 5,034,457
<ALLOWANCES> (998,723)
<INVENTORY> 0
<CURRENT-ASSETS> 6,264,103
<PP&E> 2,120,454
<DEPRECIATION> (1,488,313)
<TOTAL-ASSETS> 7,092,621
<CURRENT-LIABILITIES> 4,834,686
<BONDS> 0
0
0
<COMMON> 106,000
<OTHER-SE> 2,057,865
<TOTAL-LIABILITY-AND-EQUITY> 7,092,621
<SALES> 0
<TOTAL-REVENUES> 3,877,996
<CGS> 0
<TOTAL-COSTS> 2,894,914
<OTHER-EXPENSES> 1,535,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,500)
<INCOME-PRETAX> (494,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> (494,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (494,013)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
