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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-17468
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KUPPER PARKER COMMUNICATIONS, INCORPORATED
(Exact name of the Registrant as specified in its charter)
NEW YORK 11-2250305
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8301 Maryland Avenue, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 290-2000
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(Former name, former address and former fiscal year, if changed from last
report)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No .
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,874,227 shares of Common Stock, par
value $0.01. -------------------------------------
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Transitional Small Business Disclosure Format (check one): Yes No X
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I - FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements -----------
Condensed Consolidated Balance Sheets as of
April 30, 2001 (Unaudited) and October 31, 2000 3
Condensed Consolidated Statements of Operations for
the three months ended April 30, 2001 and 2000
(Unaudited) 4
Condensed Consolidated Statements of Operations for
the six months ended April 30, 2001 and 2000
(Unaudited)
5
Condensed Consolidated Statements of Cash Flows for
the six months ended April 30, 2001 and 2000
(Unaudited) 6
Notes to Condensed Consolidated Financial Statements
7
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters To a Vote of Security Holders
12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
April 30, October 31,
2001 2000
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ASSETS
Current Assets
Cash and cash equivalents $ 744,368 $ 2,177,052
Accounts receivable, net of allowance for bad debts
of $213,059 and $208,355 5,737,346 7,047,089
Other current assets 781,197 1,268,440
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Total Current Assets 7,262,911 10,492,581
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Property and equipment, net of accumulated depreciation and
amortization of $1,171,232 and $972,482 1,070,400 1,146,160
Goodwill, net of accumulated amortization of
$297,813 and $212,288 3,091,058 2,669,883
Investment in CiB 153,973 -
Other assets 261,718 256,672
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Total Assets $ 11,840,060 $ 14,565,296
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 32,777 $ 64,572
Short-term bank borrowings 725,000 550,000
Accounts payable 5,872,887 8,383,471
Deferred revenue 495,735 901,537
Accrued expenses 623,603 678,206
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Total Current Liabilities 7,750,002 10,577,786
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Noncurrent Liabilities
Long-term debt, less current maturities 129,188 166,393
Other long-term liabilities 1,405,953 1,522,477
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Total Noncurrent Liabilities 1,535,141 1,688,870
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Stockholders' Equity
Common stock, $.10 stated value, 30,000,000 shares authorized;
5,965,950 and 5,833,950 shares issued 596,595 583,395
Paid-in capital 3,272,570 2,964,520
Retained earnings (694,644) (637,317)
Treasury stock, at average cost; 141,723 shares (611,958) (611,958)
Cumulative translation adjustment (7,646) -
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Total Shareholders' Equity 2,554,917 2,298,640
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Total Liabilities and Shareholders' Equity $ 11,840,060 $ 14,565,296
============ ============
See accompanying notes to condensed consolidated financial statements.
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THREE MONTHS ENDED APRIL 30,
--------------------------------
2001 2000
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REVENUES $ 3,325,364 $ 3,212,419
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OPERATING EXPENSES:
Salaries and Benefits 2,591,942 2,738,591
Office and General 870,154 609,258
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Total Operating Expenses 3,462,096 3,347,849
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Operating Income (Loss) (136,732) (135,430)
OTHER INCOME (EXPENSE):
Interest income 14,257 19,229
Interest expense (19,319) (9,958)
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(5,062) 9,271
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Pretax Income (Loss) (141,794) (126,159)
PROVISION FOR TAXES (37,711) 44,806
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NET INCOME (LOSS) $ (104,083) $ (170,965)
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BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.02) $ (0.03)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For six months ended April 30,
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2001 2000
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REVENUES $ 6,878,759 $ 6,050,612
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OPERATING EXPENSES:
Salaries and Benefits 5,209,470 4,794,636
Office and General 1,715,526 1,058,624
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Total Operating Expenses 6,924,996 5,853,260
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Operating Income (Loss) (46,237) 197,352
OTHER INCOME (EXPENSE):
Interest income 44,713 46,433
Interest expense (21,109) (32,051)
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12,662 25,324
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Pretax Income (Loss) (33,575) 222,676
PROVISION FOR TAXES 23,752 211,928
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NET INCOME (LOSS) $ (57,327) $ 10,748
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BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.01) $ 0.00
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED APRIL 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (57,327) $ 10,748
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization 284,275 127,102
Provision for bad debts 46,137 112,737
Shares earned and released by ESOP in excess of cost - 402,170
Changes in assets - (increase) decrease
Accounts receivable 1,575,969 1,606,185
Other current assets 541,597 87,653
Other assets (5,046) 9,542
Changes in liabilities - increase (decrease)
Accounts payable (2,650,109) (1,757,640)
Deferred revenue (405,802) 6,044
Accrued expenses (105,691) (73,019)
Other non-current liabilities (116,524) (20,570)
Other (39,213) 171
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Net Cash Provided by Operating (931,734) 511,123
Activities
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (65,924) (41,405)
Purchase of 12% interest in CiB (153,973) -
Acquisition of Chameleon Design, Inc. (12,259) -
Acquisition of CGT (368,343) -
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Net Cash Used By Investing Activities (600,499) (41,405)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (69,000) (144,419)
Purchase of treasury shares - (30,000)
Proceeds from issuance of common stock - 260,000
Proceeds from short-term bank borrowings 725,000 -
Payments of short-term bank borrowings (550,000) -
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Net Cash Provided (Used) by Investing Activities 106,000 85,581
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Impact of foreign currency on cash (6,451) -
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Net Increase (Decrease) in Cash and Cash Equivalents (1,432,684) 555,299
Cash and cash equivalents, at beginning of period 2,177,052 538,783
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Cash and cash equivalents, at end of period $ 744,368 $ 1,094,082
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See accompanying notes to condensed consolidated financial statements.
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2001
1. These unaudited interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is therefore suggested
that these unaudited interim financial statements be read in
conjunction with the company's audited financial statements and notes
thereto for the fiscal year ended October 31, 2000 included in the
company's Form 10-KSB for the fiscal year ended October 31, 2000.
Results of operations for interim periods are not necessarily
indicative of annual results.
2. These statements reflect all adjustments consisting of normal
recurring accruals, which, in the opinion of management, are necessary
for a fair presentation of the Company's financial position and
results of operations and cash flows for the periods presented.
3. The Company classifies its other comprehensive income, which is
comprised solely of foreign currency translation adjustments, as a
separate component of stockholders' equity. Total comprehensive income
for the three- and six-month periods ended April 30, 2001 and 2000 are
as follows:
Three Months Ended Six Months Ended
April 30, April 30,
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2001 2000 2001 2000
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Net income (loss) $(104,083) $(170,965) $(57,327) $10,748
Foreign currency translation (7,646) - (7,646) -
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Comprehensive income (loss) $(111,729) $(170,965) $(64,973) $10,748
====================================================
4. A reconciliation of shares used in calculating basic and diluted
earnings per share is as follows:
Three Months Ended Six Months Ended
April 30, April 30,
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2001 2000 2001 2000
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Basic 5,802,205 5,073,957 5,777,818 4,643,400
Effect of assumed conversion of employee N/A N/A N/A 185,300
stock options
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Diluted N/A N/A N/A 4,828,700
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5. Effective September 29, 2000, Greenstone Roberts Advertising, Inc.
(Greenstone), legally acquired all of the outstanding common stock of
Kupper Parker Communications, Incorporated (Kupper Parker) by
exchanging 5,073,950 newly issued shares of common stock for all of
the 931 outstanding shares of common stock of Kupper Parker. The
resulting exchange ratio was 5,450 shares of Greenstone common stock
to 1 share of Kupper Parker common stock. In connection with the
acquisition, the Company bought back 300,000 shares of common stock
from Greenstone's original stockholders for $1,350,000 and changed its
name to that of the Company, Kupper Parker Communications,
Incorporated. As a result, the former stockholders of Kupper Parker
assumed ownership of approximately 89% of the outstanding common stock
of Greenstone. The purchase price consisted of $1,350,000, excluding
cash acquired of $1,118,000, and $806,000 of equity.
Although Greenstone was the legal acquirer, Kupper Parker was the
acquirer for accounting purposes because the former Kupper Parker
stockholders obtained a controlling voting interest in Greenstone as a
result of this "reverse acquisition." The acquisition was accounted
for using the purchase method of accounting whereby the purchase price
was allocated to the assets acquired and liabilities assumed based on
their relative fair values, including amounts assigned to other
long-term liabilities related to employment agreements with several
former Greenstone employees of approximately $1.4 million. Goodwill of
approximately $2.5 million was recorded representing the excess of the
purchase price over the fair value of the assets acquired and
liabilities assumed and is being amortized over 20 years.
The accompanying consolidated financial statements include the
results of operations of Greenstone from the date of acquisition.
Because Greenstone is considered the legal acquirer, the accompanying
consolidated financial statements include amounts related to the
legally issued shares of common stock and treasury stock of
Greenstone. As such, common stock, treasury stock, paid-in capital,
stock option information and earnings (loss) per share have been
retroactively restated to reflect the exchange ratio established in
the transaction for all periods presented.
The following information reflects unaudited pro forma operating
results for the six months ended April 30, 2000 assuming that the
acquisition of Greenstone was consummated on November 1, 1999.
2000
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Revenues $ 7,770,420
Income before taxes 11,548
Net loss 151,898
Basic and diluted net loss per share (0.03)
The unaudited pro forma financial information has been presented for
comparative purposes only and does not purport to be indicative of the
results of operations that would have actually resulted had the
acquisition of Greenstone occurred on November 1, 1999, or which may
result in the future.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On September 29, 2000, the Company merged with and into Greenstone Roberts
Advertising, Inc. ("GRAI") in a transaction accounted for a reverse acquisition
(the "Merger"). As a result, the financial statements included as a part of this
Form 10-QSB represent the results of the Company for all periods presented and
the results of GRAI for the period of September 29, 2000 through April 30, 2001.
During the first six months of fiscal 2001, the Company continued to look to
expand and enhance its operations through acquisitions:
- On November 13, 2000, the Company acquired all of the outstanding
stock of Chameleon Design, Inc. ("Chameleon"), a company that
specializes in interactive design and development, in exchange for
62,000 shares of common stock. Under the terms of the acquisition
agreement, the Company will issue an additional 61,680 shares of
common stock to the former Chameleon shareholders if Chameleon meets
certain revenue targets. Chameleon had unaudited revenues of
approximately $250,000 for the twelve months ended October 31, 2000.
- In November 2000, the Company purchased for $153,973 a 12% interest in
The Communications in Business Group Limited ("CiB"), a London-based
communications agency with offices in Dusseldorf, Germany and Milan,
Italy. CiB had revenues of approximately $3,717,000 for the twelve
months ended May 31, 2000. As previously disclosed in its Annual
Report for the fiscal year ended October 31, 2000, the Company intends
to increase its ownership in CiB during 2001.
- On February 23, 2001, the Company acquired all of the outstanding
stock of CGT (UK) Limited ("CGT"), a London-based strategic marketing
communications agency, in exchange for $475,000 in cash and 70,000
shares of common stock. Under the terms of the acquisition agreement,
the Company will issue an additional 500,000 shares of common stock to
the former CGT shareholders if CGT meets certain pretax targets. CGT
had revenues of approximately $1,315,000 for the twelve months ended
March 31, 2000.
- On February 7, 2001, the Company entered into a letter of intent to
acquire Christopher Thomas Associates, Inc., a marketing
communications agency headquartered in Melville, New York with offices
in Boston, Massachusetts and Stamford, Connecticut. Christopher Thomas
Associates, Inc. had unaudited revenues of approximately $4,500,000
for the twelve months ended December 31, 2000.
The company continues to look to make acquisitions to expand its market presence
and enhance its marketing communications capabilities.
To obtain maximum synergies and efficiencies in its U.S. operations, the Company
intends to upgrade its computer systems and software during 2001, at an
estimated cost of $300,000.
As a result of these investment activities, the Company is currently considering
several opportunities to enhance its capital structure. These include the
potential sale of common stock through a private placement as well as
negotiations with several banks to secure long-term financing at favorable
rates.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 2001
Revenues for the three months ended April 30, 2001 were $3,325,364, a 3.5%
increase over fiscal 2000 revenues of $3,212,419. The acquisitions of Greenstone
Roberts Advertising, Inc. and CGT accounted for $596,605 of second quarter 2001
revenues. Revenues from existing operations declined 15%, due principally to the
fact that many of the Company's existing clients cut or deferred marketing
expenditures in response to their concerns over general economic conditions.
Salaries and benefits expense decreased $146,649 or 5.4% to $2,591,942. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$563,733 of second quarter 2001 salaries and benefits expense. Salaries and
benefits expense of existing operations declined approximately 20.6% between
years as the Company reduced overall staffing levels and eliminated bonuses and
other fringe benefits to offset the impact of the 15% decline in revenues of
existing operations.
Office and general expenses increased $260,896 or 42.8% between years. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$291,352 of second quarter 2001 office and general expense. Office and general
expense of existing operations declined approximately $30,000 or 5%, due to cost
controls instituted by the Company during the second quarter of 2001.
While the Company reported an operating loss of $136,732 for the second quarter
of 2001, both existing operations and CGT recorded operating profits. The
operating loss of approximately $301,000 reported by the Company's New York
operations (resulting from the acquisition of Greenstone Roberts Advertising,
Inc.) is principally due to the seasonal nature of its clients spending
patterns. During the period of January 2001 through May 2001, the Company
assessed staffing levels in view of revenue trends and reduced its overall
headcount by 11%. In addition, the Chief Executive Officer, Chief Operating
Officer, and Chief Financial Officer accepted 30% reductions in salaries. As a
result of these staffing changes, the Company anticipates that it will report
operating profits in future quarters.
The Company reported net interest expense of $5,062 for the three months ended
April 30, 2001 compared to net interest income of $9,271 for the same period in
fiscal 2000. Higher average debt levels in fiscal 2001 resulting from the
Company's acquisition program account for this change.
RESULTS OF OPERATIONS - SIX MONTHS ENDED APRIL 30, 2001
Revenues for the six months ended April 30, 2001 were $6,878,759, a 13.7%
increase over fiscal 2000 revenues of $6,050,612. The acquisitions of Greenstone
Roberts Advertising, Inc. and CGT accounted for $1,327,214 of fiscal 2001
revenues. Revenues from existing operations declined 8%, due principally to the
fact that many of the Company's existing clients cut or deferred marketing
expenditures during the second quarter of fiscal 2001 in response to their
concerns over general economic conditions.
Salaries and benefits expense increased $414,834 or 8.7% to $5,209,470. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$1,084,494 of fiscal 2001 salaries and benefits expense. Salaries and benefits
expense of existing operations declined approximately 14.0% between years, due
to the previously-mentioned cost savings initiatives that the Company undertook
during the second quarter of 2001.
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Office and general expenses increased $656,902 or 62.1% between years. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$566,897 of fiscal 2001 office and general expense. Office and general expense
of existing operations increased approximately $90,000.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2001, Kupper Parker's cash and cash equivalents totaled
$744,368, compared to $2,177,052 at October 31, 2000. The decline in cash and
cash equivalents is principally due to the cyclical nature of the GRAI business
and because the Company paid off $550,000 in short-term bank borrowings during
the first quarter of fiscal 2001.
Operating Activities: Kupper Parker's funds from operating activities consist
primarily of net income adjusted for non-cash items and changes in operating
assets and liabilities. Cash used by operating activities was $931,734 in the
first six months of 2001 compared to cash provided by operating activities of
$511,123 in 2000. Operating cash flows are impacted by the seasonal relationship
of accounts receivable to accounts payable, particularly those of GRAI. At
October 31, 2000, the relationship of accounts receivable to accounts payable
was at optimum levels. This relationship generally changes during the first six
months of a fiscal year, as clients slow payments by as much as one to two
weeks. Kupper Parker's policy is to bill and collect monies from its clients
prior to payments due to the media.
Investing Activities: Cash used by investing activities was $600,499 in 2001
compared to $41,405 in 2000. The principal reason for this increase is due to
the previously-mentioned acquisition of CGT and investment in CiB.
Financing Activities: As previously indicated, the Company paid off its $550,000
in short-term bank borrowings that it incurred in connection with the Merger
during the first quarter of 2001. The Company financed its fiscal 2001
acquisition activity with short-term bank borrowings. During the first six
months of fiscal 2000, the Company financed its investing activities through the
sale of its common stock.
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PART II - OTHER INFORMATION
Item 4 - Submission of Matters To A Vote of Security Holders
On March 13, 2001 the Company held its Annual Meeting of Stockholders to
consider and vote on the following matters:
1. A proposal to elect three directors.
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For Withheld
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John Rezich 4,253,587 628,057
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Gary Roberts 4,284,115 597,529
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James Saitz 4,284,587 597,057
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2. A proposal to approve the Company's amended stock option plan.
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For Against Abstain
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4,371,265 0 510,379
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3. A proposal to ratify the appointment of Arthur Andersen LLP as
Registrant's independent accountants.
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For Against Abstain
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4,336,507 65,780 479,357
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Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
1. In a Form 8-K filed on March 1, 2001, Registrant reported first
quarter 2001 earnings.
2. In a Form 8-K filed on March 6, 2001, Registrant reported that it
completed its acquisition of CGT (UK) Limited.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of St. Louis, State of
Missouri on June 13, 2001.
Kupper Parker Communications, Incorporated
By: /s/ John J. Rezich
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John J. Rezich
Chief Financial Officer
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