ITEM 1. 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 & Rabasca Advertising, Inc. On December 16, 1988, the Company amended its Certificate of Incorporation to increase the number of shares of common stock authorized to 30,000,000, par value $.01 per share, and to change its name to Greenstone Rabasca Roberts, Inc. Its stock was first sold to the public on February 13, 1989. At their annual meeting on April 5, 1991, the Company's shareholders approved the Company's name change 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 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 will have an adverse effect on its financial condition and results of operations. In addition, as of October 31, 1998, the Company has 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, 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 has 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 26 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 (the "Advertiser") 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 the Advertiser and that ultimate responsibility for the costs incurred rests solely with the Advertiser 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, 1998, four of the Company's clients (Domino Sugar and Bic Corporation, Astoria Federal Savings and Fidelis Care, New York), represented 19%, 16%, 13% and 12%, respectively, of the Company's revenues. In addition, its five largest clients represented 70% of revenues for that period and the Company depends upon a core of approximately 20 clients from which it obtains the bulk of its revenues. Effective December 1998, Bic Corporation notified the Company of its intention to change advertising agencies.
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, 1998, the Company employed 38 people, all but two of which are employed on a full-time basis, including 11 in account management, 4 in media, 3 in production, 8 in creative services and 12 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.
ITEM 2. PROPERTIES.
The Company does not own any real property. The office is located on leased premises, 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 $345,713 12,944 7/31/08 Melville, New York
ITEM 3.
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 relieved 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.
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 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 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 Advertising 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, 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.
ITEM 4.
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.
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S 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 29th 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 (restated for the reverse one-for-ten stock split effective July 29, 1997), as reported by NASDAQ 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 Fiscal Year Ended October 31, 1998 1997
HIGH LOW HIGH LOW ---- ---- ---- --- First Quarter 2.88 1.88 4.69 2.81
Second Quarter 2.88 1.75 3.75 1.88
Third Quarter 2.75 1.25 2.81 2.19
Fourth Quarter 1.31 .90 3.50 2.00
The Company's common stock was held by approximately 274 shareholders of record as of January 5, 1999.
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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR SELECTED FINANCIAL DATA
The following selected historical financial data presented below has been derived from consolidated financial statements audited by BDO Seidman LLP for the year ended October 31, 1998, Ernst & Young LLP for the year ended October 31, 1997 and Arthur Andersen LLP for the years ended October 31, 1996, 1995 and 1994. The selected historical financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes thereto and other financial information included elsewhere in this document.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998 AS COMPARED TO THE FISCAL YEAR ENDED OCTOBER 31, 1997
Commission and fee revenue decreased $1,461,545 or 21% from $7,113,144 for the year ended October 31, 1997 to $5,651,599 for the year ended October 31, 1998. This decrease is principally attributable to the closing of the Orlando office during fiscal 1998.
Salaries and employee-related expenses decreased 21% from $5,004,743 for the year ended October 31, 1997 to $3,961,639 for the year ended October 31, 1998. The decrease is a result of a reduction in staff attributable to the Orlando office closing discussed above.
Office and general expenses decreased $7,006 from $2,350,512 for the year ended October 31, 1997 to $2,343,506 for the year ended October 31, 1998. Office and general expenses were not reduced proportionately during the year due to certain fixed costs for the Orlando office prior to its closing.
Interest income increased $14,596 from $65,051 for the year ended October 31, 1997 to $79,647 for the year ended October 31, 1998.
The equity in operations and provision for loss on amounts due from investee company increased from $144,668 for the year ended October 31, 1997 to $378,102. During fiscal 1998 the Company determined it would no longer fund the operations of Gothard once its investment in Gothard was fully amortized. The provision for loss on amounts due from an investee company of $311,844, which arose in the fourth quarter of fiscal 1998, represents a reserve for accounts receivable of approximately $126,000 and $186,000 for advances due from Gothard.
Net loss for the year ended October 31, 1998 is $938,848 compared to a loss of $1,117,895 for the year ended October 31, 1997 attributable to the factors discussed above.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 AS COMPARED TO THE FISCAL YEAR ENDED OCTOBER 31, 1996.
Commission and fee revenue decreased $1,847,839 or 21% from $8,960,983 for the year ended October 31, 1996 to $7,113,144 for the year ended October 31, 1997. This decrease is principally attributable to the full year effect of closing the Recruitment, Spanish International and Coconut Creek divisions in fiscal 1996.
Salaries and employee-related expenses decreased 17% from $6,014,572 for the year ended October 31, 1996 to $5,004,743 for the year ended October 31, 1997. The decrease is the result of a reduction in staff attributable to the divisional closings discussed above.
Office and general expenses decreased $584,336, from $2,934,848 for the year ended October 31, 1996 to $2,350,512 for the year ended October 31, 1997. This decrease is principally attributable to the full year effect of closing the Recruitment, Spanish International and Coconut Creek divisions in fiscal 1996.
The provision for loss on claim in litigation arose in the fourth quarter of fiscal 1997. While management is vigorously pursuing this claim and believes that it will be successful, the financial viability of the entity being litigated is questionable. Accordingly, management has reserved against this claim.
Interest income decreased $23,528 from $88,579 for the year ended October 31, 1996 to $65,051 for the year ended October 31, 1997 due primarily to the reduction in available funds for investing activities.
Net loss for the year ended October 31, 1997 of $1,117,895 compared to net income of $53,828 for the year ended October 31, 1996 is attributable primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,301,000 at October 31, 1998, primarily comprised of cash and cash equivalents of $1,754,000, accounts receivable of $3,798,000 and billable production orders of $250,000, offset by accounts payable and accrued liabilities of $4,637,000.
Net cash used in operating activities for the year ended October 31, 1998 was approximately $671,000. The principal factors contributing to the decrease in cash flow were decreases in accounts receivable of $357,000, billable production orders of $246,000 and accounts payable and accrued liabilities of $1,128,000 offset by depreciation and amortization of $354,000, equity in operations and a provision for amounts due from Gothard of $378,000 and the net loss for the period of approximately $939,000.
Because the Company recognizes commissions as a percentage of expenditures incurred, the accounts receivable balance relates not only to the commissions and fees shown on the income statement, but also to receivables for production costs and media purchased for clients. Similarly, the accounts payable balance includes payables for production costs and media incurred on behalf of clients.
The Company has available an unsecured $2,000,000 line of credit from a bank which expires in March 1999. Loans against the credit line shall bear interest equal to the "Prime Rate", as defined. The Prime Rate at October 31, 1998 was 8.00%. The Company intends to renew its credit line in 1999. Management believes that its current working capital levels will be sufficient to meet the Company's liquidity and working capital requirements for the foreseeable future. The Company does not anticipate any increases in capital expenditures or other cash requirements which would have a material adverse effect on its liquidity.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.
SFAS is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. SFAS 130 is not expected to materially impact the Company's disclosure when adopted.
REPORTING FOR SEGMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise". SFAS 131 establishes standards for the way public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. SFAS 131 is not expected to materially impact the Company's disclosures when adopted.
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 date codes to perform computations or decision-making functions. The Company anticipates completing all of its system critical upgrades and enhancements and testing before the end of the third quarter 1999. The Company expects to incur internal payroll costs as well as consulting costs and other expenses relating to infrastructure, facility enhancements and software upgrades necessary to prepare the Company's systems for the Year 2000. All costs associated with Year 2000 compliance are being expensed as incurred and are not expected to have a material adverse effect on the Company's business, financial condition and results of operations.
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 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated herein by reference to the Consolidated Financial Statements listed in Item 14(a) of Part IV of this report.
ITEM 9.
ITEM 9. 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. During 1997, the Company dismissed Arthur Andersen, LLP as its independent auditors and retained Ernst & Young LLP. On February 25, 1997, the Company filed a Form 8-K disclosing the change in the Company's certified public accountants, which is incorporated herein by reference.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Required information will be incorporated in the Company's Proxy Statement to be filed within 120 days of October 31, 1998 and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Required information will be incorporated in the Company's Proxy Statement to be filed within 120 days of October 31, 1998 and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Required information will be incorporated in the Company's Proxy Statement to be filed within 120 days of October 31, 1998 and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable. PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements: Refer to for index
(2) Financial Statement Schedules: Refer to 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)).
10.3 Lease agreements between the Registrant and We're Associates dated September 28, 1987 (incorporated by reference to Exhibit 10.4 and 10.5 of the Registrant's Registration Statement on Form S-18 (Registration No. 33-26372 NY)).
10.4 Second and third modifications of lease agreements between the Registrant and We're Associates dated February 14, 1989 and July 7, 1989, respectively (incorporated by reference to Exhibit 10.8 of the Registrant's Form 10-K for the fiscal year ending October 31, 1990).
10.5 Lease agreements between the Registrant and Wyncreek Partners, Ltd. dated April 17, 1989 and the first and second amendments dated June 29, 1989 and April 10, 1990, respectively (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K for the fiscal year ending October 31, 1990).
10.6 * Employment agreement between the Registrant and Ronald M. Greenstone dated December 31, 1994. (Incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-K for the fiscal year ending October 31, 1994).
10.7 * Employment agreement between the Registrant and Gary C. Roberts dated December 31, 1995.
10.8 Fifth and sixth amendments of lease agreements between the Registrant and We're Associates dated June 13, 1990 and June 18, 1991, respectively (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K for the fiscal year ending October 31, 1991).
10.9 Third amendment of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated January 19, 1991 (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-K for the fiscal year ending October 31, 1991). 10.10 Fourth and fifth amendments of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated January 22, 1992 and May 12, 1992, respectively (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K for the fiscal year ending October 31, 1992).
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).
10.12 Sixth amendment of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated August 26, 1993 (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-K for the fiscal year ending October 31, 1993).
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
(b) Reports on Form 8-K:
On November 8, 1998, a Form 8-K was filed for the change in the Company's independent auditors.
*Indicates a Management Contract or a Compensatory Plan or Arrangement.
** Filed herewith
SIGNATURES
Pursuant to the requirements of Section 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 February 11, 1999.
Greenstone Roberts Advertising, Inc.
By: /s/ Ronald M. Greenstone --------------------------- Ronald M. Greenstone Chairman of the Board
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 February 11, 1999 - ------------------------- Executive Officer and Director Ronald M. Greenstone Director (principal executive officer and financial officer)
/s/ Gary C. Roberts President and Director February 11, 1999 - ------------------------- Gary C. Roberts
/s/ Thomas Hartman Director February 11, 1999 - ------------------------- Thomas Hartman
/s/ Anthony V. Curto Director February 11, 1999 - ------------------------- Anthony V. Curto
/s/ Martin Sussman Director February 11, 1999 - ------------------------- Martin Sussman
/s/ Victor F. Trizzino Director February 11, 1999 - ------------------------- Victor F. Trizzino
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Report of Independent Auditors - BDO Seidman LLP
Report of Independent Auditors - Ernst & Young LLP
Report of Independent Public Accountants - Arthur Andersen LLP
Consolidated Balance Sheets as of October 31, 1998 and 1997
Consolidated Statements of Operations for the years ended October 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended October 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended October 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements to
Index to Supplemental Schedule S-1
Report of Independent Public Accountants on Schedule S-2
Schedule II - Valuation and Qualifying Accounts S-3
Information required by other schedules required under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Greenstone Roberts Advertising, Inc.
We have audited the accompanying consolidated balance sheet of Greenstone Roberts Advertising, Inc. and subsidiary as of October 31, 1998 and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a) for the year ended October 31, 1998. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.
We conducted our audit 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 audit provides 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, 1998 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth herein.
/s/ BDO Seidman LLP
Melville, New York December 29, 1998
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Greenstone Roberts Advertising, Inc.
We have audited the accompanying consolidated balance sheet of Greenstone Roberts Advertising, Inc. and subsidiary as of October 31, 1997 and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a) for the year ended October 31, 1997. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.
We conducted our audit 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 audit provides 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, 1997 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth herein.
/s/ Ernst & Young LLP
Melville, New York December 22, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Greenstone Roberts Advertising, Inc.:
We have audited the accompanying consolidated statement of operations, shareholders' equity and cash flows of Greenstone Roberts Advertising, Inc. (a New York corporation) and subsidiary for the year ended October 31, 1996. These 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Greenstone Roberts Advertising, Inc. and subsidiary for the year ending October 31, 1996 , in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York January 9, 1997
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
See accompanying notes to consolidated financial statements.
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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
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.
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 billed. Billings are generally rendered upon insertion date for print media, job completion date for production costs, and air date for broadcast media.
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, 1998 and 1997 were approximately $1,750,000 and $1,020,000, 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
EXCESS OF COST OVER NET ASSETS ACQUIRED
Long-lived assets, such as goodwill and 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, 1998.
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
During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which provides for the calculation of "basic and diluted" earnings per share. This statement is effective for financial statements issued for periods ending after December 15, 1997. Basic earnings 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. As required by this statement, all periods presented have been restated to comply with the provisions of SFAS No. 128. The adoption of this statement did not affect the financial statements of the Company. For fiscal 1998, 1997 and 1996, all options outstanding were anti-dilutive. These options expire in 2004.
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 and earnings 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 is accounting 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 has fully reserved for 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 has 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:
October 31, October 31, 1998 1997 ---- ----
Office equipment $1,584,159 $2,512,982 Furniture and fixtures 172,596 535,219 Leasehold improvements 279,456 178,984 Automobiles - 34,839 ----------------- ------------------ 2,036,211 3,262,024
Less accumulated depreciation and amortization (1,275,092) (2,612,569) ------------------ -------------------- $761,119 $649,455 ================== ==================== 4. LINE OF CREDIT AGREEMENT:
The Company has available an unsecured $2,000,000 line of credit with a bank, which expires on March 31, 1999. Borrowings against this line bear interest at the prime rate, as defined. The prime rate approximated 8% at October 31, 1998. The Company did not have any amounts outstanding to the bank at October 31, 1998 or 1997.
5. INCOME TAXES:
The provision (benefit) for income taxes included in the accompanying consolidated statements of operations consists of the following:
October 31, October 31, October 31, 1998 1997 1996 ---- ---- ---- CURRENT: Federal $(13,153) $(52,000) $19,121 State - - (5,906) --------- ---------- ----------- (13,153) (52,000) 13,215 DEFERRED: Accelerated depreciation - - (13,255) Allowance for bad debts - - (1,301) Goodwill amortization - - (10,177) Vacation accrual - - 30,651 Various accrued - - 27,181 liabilities and other Federal NOL carryback - 52,000 - State NOL carryforward - - - --------- ---------- ----------- - 52,000 33,099 --------- ---------- ----------- TOTAL: $(13,153) - $46,314 ========= ========== ===========
As a result of losses from operations, the Company has available a Federal net operating loss carryforward of approximately $527,000 which expires in various years through 2018, a New York State net operating loss carryforward of approximately $134,000 which expires in various years through 2012, and a Florida state net operating loss carryforward of approximately $1,775,000 which expires in various years through 2018.
The components of the Company's net deferred tax assets are as follows:
October 31, October 31, 1998 1997 ---- ---- Deferred tax liability: Depreciation and amortization $(9,000) $(40,000) Other - (43,000) --------- --------- Total deferred tax liability (9,000) (83,000) --------- --------- Net Deferred tax assets: Net Operating loss carryforwards 203,000 132,000 Capital loss carryforward 148,000 Accounts receivable reserves 380,000 356,000 Amortization of excess of purchase price 65,000 93,000 over net assets acquired Other 31,000 46,000 --------- -------- Total deferred tax assets 827,000 627,000 --------- --------- Valuation allowance for deferred tax assets (624,000) (350,000) --------- --------- Net deferred tax assets $194,000 $194,000 ========== =========
The following table reconciles the Federal statutory rate to the Company's effective rate:
October 31, October 31, October 31 1998 1997 1996 ---- ---- ----
(Benefit)provision for Federal (34.0)% (34.0)% 22.0% income taxes at the statutory rate
State income taxes, net of Federal income tax benefit - (3.8) 2.0 Non-deductible expenses 2.7 .9 16.3 Other 1.1 - 5.9 Valuation allowance on deferred tax assets 28.8 36.9 - ------ ------ ----- (1.4)% -% 46.2% ====== ====== ======
Income taxes paid during the years ended October 31, 1998, 1997 and 1996 were approximately $10,000 $43,000 and $77,000, 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, 1998, 1997 and 1996. The Company's matching contribution to the Savings Plan was approximately $17,000, $22,000 and $23,000, for the years ended October 31, 1998, 1997 and 1996, respectively.
7. SIGNIFICANT CUSTOMERS:
For the year ended October 31, 1998, four customers represented 19%, 16%, 13% and 12% of the Company's revenues. In addition, the Company's five largest clients represented 70% of revenues for that period. For the year ended October 31, 1997, revenues from two customers represented 13% and 12% of the Company's revenues. For the years ended October 31, 1996, revenues from a company which is no longer a customer represented 15% of revenues. For the year ended October 31, 1998, three customers represented 26%, 25%, 21% of the Company's Accounts Receivable. For the year ended October 31, 1997, four customers represented 26%, 17%, 13% and 12% 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.
As a result of the reverse one-for-ten stock split on July 29, 1997, all unexercised stock options issued prior to August 5, 1997 were canceled. On August 5, 1997, new options were issued at an exercise price of $2.25, the fair market value of the underlying common stock on that date.
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. Accordingly, the Company has reserved 90,000 of the options available under the Plan for this purpose. 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:
The weighted-average fair value of options granted during the years ended October 31, 1998, 1997 and 1996 was $1.52, $1.21 and $.83, respectively. At October 31, 1998, 1997 and 1996, 21,450, 13,150 and 21,450 shares respectively were available for grant.
The following table summarizes information about stock options outstanding at October 31, 1998:
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 all three years; expected volatility of 58.00% for all three years; risk-free interest rates of 5.45% in 1998, 6.10% in 1997 and 5.94% in 1996; and expected lives of three to five years for all three 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:
1998 1997 1996 - ----------------------------------------------------------------------------- Net income (loss) As reported (938,848) (1,117,895) 53,828 Pro forma (959,000) (1,132,000) 48,000 Net income (loss) per common share-basic and diluted As reported (1.26) (1.50) .07 Pro forma (1.29) (1.52) .06
9. COMMITMENTS AND CONTINGENCIES:
LEASES
At October 31, 1998, the Company was committed under operating leases, principally for office space, through fiscal 2008.
Rent expense was approximately $605,000, $666,000 and $843,000, for the years ended October 31, 1998, 1997 and 1996, respectively. Future minimum rents under the remaining terms of existing operating leases are as follows:
FISCAL ------- 1999 $315,947 2000 $318,088 2001 $334,614 2002 $370,116 2003 $377,561 Thereafter $2,053,032
EMPLOYMENT AGREEMENTS
Effective January 1, 1998, the Company renewed employment agreements with its two executive officers. One of the agreements 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 other agreement provides for annual compensation of $225,000 and incentive compensation of an amount equal to 2% of income before provision for income taxes and expires on December 31, 1999.
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.
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 of annual results of operations.
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
INDEX TO SUPPLEMENTAL SCHEDULE
PAGE NUMBER ------
Report of Independent Public Accountants on Schedule S-2
Schedule II - Valuation and Qualifying Accounts S-3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of Greenstone Roberts Advertising, Inc.:
We have audited, in accordance with generally accepted auditing standards, the consolidated statements of operations, shareholders' equity and cash flows of Greenstone Roberts Advertising, Inc. and subsidiary for the year ended October 31, 1996 included in this filing and have issued our report thereon dated January 9, 1997. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule, as it relates to the year ended October 31, 1996 has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York January 9, 1997
SCHEDULE II
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
This schedule should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
EXHIBIT 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)).
10.3 Lease agreements between the Registrant and We're Associates dated September 28, 1987 (incorporated by reference to Exhibit 10.4 and 10.5 of the Registrant's Registration Statement on Form S-18 (Registration No. 33-26372 NY)).
10.4 Second and third modifications of lease agreements between the Registrant and We're Associates dated February 14, 1989 and July 7, 1989, respectively (incorporated by reference to Exhibit 10.8 of the Registrant's Form 10-K for the fiscal year ending October 31, 1990).
10.5 Lease agreements between the Registrant and Wyncreek Partners, Ltd. dated April 17, 1989 and the first and second amendments dated June 29, 1989 and April 10, 1990, respectively (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K for the fiscal year ending October 31, 1990).
10.6 * Employment agreement between the Registrant and Ronald M. Greenstone dated December 31, 1994. (Incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-K for the fiscal year ending October 31, 1994).
10.7 * Employment agreement between the Registrant and Gary C. Roberts dated December 31, 1995.
10.8 Fifth and sixth amendments of lease agreements between the Registrant and We're Associates dated June 13, 1990 and June 18, 1991, respectively (incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-K for the fiscal year ending October 31, 1991).
10.9 Third amendment of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated January 19, 1991 (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-K for the fiscal year ending October 31, 1991). 10.10 Fourth and fifth amendments of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated January 22, 1992 and May 12, 1992, respectively (incorporated by reference to Exhibit 10.10 of the Registrant's Form 10-K for the fiscal year ending October 31, 1992).
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).
10.12 Sixth amendment of lease agreement between the Registrant and Wyncreek Partners, Ltd. dated August 26, 1993 (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-K for the fiscal year ending October 31, 1993).
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
(b) Reports on Form 8-K:
On November 8, 1998, a Form 8-K was filed for the change in the Company's independent auditors.
*Indicates a Management Contract or a Compensatory Plan or Arrangement.
** Filed herewith