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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 July 31, 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: 5,824,227 shares of Common Stock, par
value $0.01.
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
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 2001 (Unaudited) and October 31, 2000 3
Condensed Consolidated Statements of Operations for
the three months ended July 31, 2001 and 2000
(Unaudited) 4
Condensed Consolidated Statements of Operations for the
nine months ended July 31, 2001 and 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended July 31, 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 6. Exhibits and Reports on Form 8-K 12
Signatures 12
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KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
July 31, October 31,
2001 2000
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ASSETS
Current Assets
Cash and cash equivalents $ 1,201,759 $ 2,177,052
Accounts receivable, net of allowance for bad debts
of $247,749 and $208,355 6,000,386 7,047,089
Other current assets 809,051 1,268,440
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Total Current Assets 8,011,196 10,492,581
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Property and equipment, net of accumulated depreciation and
amortization of $1,263,813 and $972,482 1,029,775 1,146,160
Goodwill, net of accumulated amortization of
$343,068 and $212,288 3,143,812 2,669,883
Investment in CiB 153,973 -
Other assets 271,731 256,672
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Total Assets $ 12,610,487 $ 14,565,296
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 16,513 $ 64,572
Short-term bank borrowings 725,000 550,000
Accounts payable 6,984,298 8,383,471
Deferred revenue 512,301 901,537
Accrued expenses 515,607 678,206
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Total Current Liabilities 8,753,719 10,577,786
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Noncurrent Liabilities
Long-term debt, less current maturities 129,188 166,393
Other long-term liabilities 1,416,767 1,522,477
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Total Noncurrent Liabilities 1,545,955 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 (938,957) (637,317)
Treasury stock, at average cost; 141,723 shares (611,958) (611,958)
Cumulative translation adjustment (7,437) -
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Total Shareholders' Equity 2,310,813 2,298,640
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Total Liabilities and Shareholders' Equity $ 12,610,487 $ 14,565,296
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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 JULY 31,
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2001 2000
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REVENUES $ 3,076,615 $ 3,000,599
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OPERATING EXPENSES:
Salaries and Benefits 2,473,760 2,927,615
Office and General 954,443 622,599
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Total Operating Expenses 3,428,203 3,550,214
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Operating Income (Loss) (351,588) (549,615)
OTHER INCOME (EXPENSE):
Interest income 5,692 28,252
Interest expense (19,246) (8,143)
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(13,554) 20,109
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Pretax Income (Loss) (365,142) (529,506)
PROVISION FOR TAXES (120,829) (26,399)
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NET INCOME (LOSS) $ (244,313) $ (503,107)
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BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.04) $ (0.10)
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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 NINE MONTHS ENDED JULY 31,
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2001 2000
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REVENUES $ 9,955,374 $ 9,051,211
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OPERATING EXPENSES:
Salaries and Benefits 7,683,230 7,722,251
Office and General 2,669,969 1,681,223
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Total Operating Expenses 10,353,199 9,403,474
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Operating Income (Loss) (397,825) (352,263)
OTHER INCOME (EXPENSE):
Interest income 50,405 74,685
Interest expense (51,297) (29,252)
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(892) 45,433
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Pretax Income (Loss) (398,717) (306,830)
PROVISION FOR TAXES
(97,077) 185,529
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NET INCOME (LOSS) $ (301,640) $ (492,359)
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BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.05) $ (0.10)
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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 NINE MONTHS ENDED JULY 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (301,640) $ (492,359)
Adjustments to reconcile net income (loss) to net cash (used) provided by
operating activities
Depreciation and amortization 422,041 189,078
Provision for bad debts 114,137 127,737
Shares earned and released by ESOP in excess of cost - 992,356
Changes in assets - (increase) decrease
Accounts receivable 1,244,929 2,708,566
Other current assets 513,743 96,510
Other assets (15,059) (18,046)
Changes in liabilities - increase (decrease)
Accounts payable (1,538,698) (1,652,662)
Deferred revenue (389,236) 319,410
Accrued expenses (213,687) (153,735)
Other non-current liabilities (144,260) (30,855)
Other (67,840) 171
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Net Cash (Used) Provided by Operating Activities (375,570) 2,086,171
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (117,881) (99,382)
Purchase of 12% interest in CiB (153,973) -
Acquisition of Chameleon Design, Inc. (13,632) -
Acquisition of CGT (397,802) -
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Net Cash Used By Investing Activities (683,288) (99,382)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (85,264) (299,473)
Purchase of treasury shares - (125,225)
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 by Investing Activities 89,736 (164,698)
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Impact of foreign currency on cash (6,171) -
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Net Increase (Decrease) in Cash and Cash Equivalents (975,293) 1,822,091
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 $ 1,201,759 $ 2,360,874
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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
JULY 31, 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 accumulated 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 nine-month periods ended July 31, 2001 and
2000 are as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
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2001 2000 2001 2000
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Net income (loss) $ (244,313) $ (503,107) $ (301,640) $ (492,359)
Foreign currency translation (7,437) -- (7,437) --
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Comprehensive income (loss) $ (251,750) $ (503,107) $ (309,077) $ (492,359)
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4. A reconciliation of shares used in calculating basic and diluted
earnings per share is as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
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2001 2000 2001 2000
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Basic 5,824,227 5,055,408 5,793,458 4,827,606
Effect of assumed conversion of employee N/A N/A N/A N/A
stock options
Diluted N/A N/A N/A N/A
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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 three and nine months ended July 31, 2000 assuming that
the acquisition of Greenstone was consummated on November 1, 1999.
Three Months Ended Nine Months Ended
July 31, 2000 July 31, 2000
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Revenues $ 3,647,622 $ 11,418,024
Loss before taxes (902,470) (890,922)
Net loss (750,572) (890,922)
Basic and diluted net loss per share (0.13) (0.16)
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 July 31, 2001.
During the first nine 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 revenues of approximately $4,000,000 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 calendar 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 JULY 31, 2001
Revenues for the three months ended July 31, 2001 were $3,076,615, a 2.5%
increase over fiscal 2000 revenues of $3,000,599. The acquisitions of Greenstone
Roberts Advertising, Inc. and CGT accounted for $616,419 of third quarter 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 in response to their concerns over general economic conditions.
Salaries and benefits expense decreased $453,855 or 15.5% to $2,473,760. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$549,580 of third quarter 2001 salaries and benefits expense. Salaries and
benefits expense of existing operations declined approximately 34.3% between
years as the Company reduced overall staffing levels and eliminated bonuses and
other fringe benefits to offset the impact of the 8% decline in revenues of
existing operations.
Office and general expenses increased $331,844 or 53.3% between years. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$342,668 of third quarter 2001 office and general expense. Office and general
expense of existing operations declined approximately $11,000 or 2%.
While the Company reported an operating loss of $351,588 for the third quarter
of 2001, CGT recorded operating profits of approximately $65,000 and existing
operations improved from an operating loss of $549,615 in the third quarter of
2000 to an operating loss of $76,000 in the third quarter of 2001. The operating
loss of approximately $340,000 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 during the third quarter
of 2001.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 2001
Revenues for the nine months ended July 31, 2001 were $9,955,374, a 10.0%
increase over fiscal 2000 revenues of $9,051,211. The acquisitions of Greenstone
Roberts Advertising, Inc. and CGT accounted for $1,943,633 of fiscal 2001
revenues. Revenues from existing operations declined 11.5%, 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 decreased $39,021 or 0.5% to $7,683,230. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$1,634,074 of fiscal 2001 salaries and benefits expense. Salaries and benefits
expense of existing operations declined approximately 21.7% between years, due
to the previously-mentioned cost savings initiatives that the Company undertook
during the second quarter of 2001.
Office and general expenses increased $988,746 or 58.8% between years. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for
$894,269 of fiscal 2001 office and general expense. Office and general expense
of existing operations increased approximately $95,000.
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LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2001, Kupper Parker's cash and cash equivalents totaled
$1,201,759, 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 $375,570 in the
first nine months of 2001 compared to cash provided by operating activities of
$2,086,171 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 nine 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 $683,288 in 2001
compared to $99,382 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 nine
months of fiscal 2000, the Company financed its investing activities through the
sale of its common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for using the
purchase method of accounting. Under SFAS No. 142, goodwill and other intangible
assets with indefinite lives are no longer amortized, but are reviewed for
impairment on an annual basis, unless impairment indicators arise sooner.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their estimated useful lives, but with no maximum
life. The amortization provisions of SFAS No. 142 apply immediately to goodwill
and intangible assets acquired after June 30, 2001. Goodwill and intangible
assets acquired on or prior to June 30, 2001 is required to be accounted for
under SFAS No. 142 beginning on November 1, 2002, unless adopted earlier on
November 1, 2001. We are currently evaluating the effect that the adoption of
the provisions of SFAS Nos. 141 and 142 will have on our results of operations
and financial position.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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 September 11, 2001.
Kupper Parker Communications, Incorporated
By: /s/ John J. Rezich
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John J. Rezich
Chief Financial Officer
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