AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 2001
REGISTRATION NO.______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
KUPPER PARKER COMMUNICATIONS, INCORPORATED
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW YORK 7311 11-2250305
(STATE OR OTHER JURISDICTION PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NO.)
8301 MARYLAND AVENUE
ST. LOUIS, MO 63105
(314) 290-2000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRUCE KUPPER, CHIEF EXECUTIVE OFFICER
KUPPER PARKER COMMUNICATIONS, INCORPORATED
8301 MARYLAND AVENUE
ST. LOUIS, MO 63105
(314) 290-2000
(ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
JOSEPH S. VON KAENEL
ARMSTRONG TEASDALE LLP
ONE METROPOLITAN SQUARE, SUITE 2600
ST. LOUIS, MISSOURI 63102-2740
(314) 621-5070; FACSIMILE (314) 621-5065
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933 CHECK THE FOLLOWING BOX. [ ]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(b) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ]____________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ] ____________
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
NUMBER OF
SHARES TO PROPOSED MAXIMUM PROPOSED MAXIMUM
BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE
Common Stock (1) (2) 1,183,050 $1.05 $1,242,202.50 $310.55
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act based on the average of the high
and low prices per share of the Registrant's Common Stock on the NASD OTC
Bulletin Board on October 9, 2001.
(2) Includes 350,350 shares of the Registrant's Common Stock issuable upon the
exercise of the Registrant's outstanding warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
DISCLOSURE ALTERNATIVE USED (CHECK ONE): ALTERNATIVE 1 X ALTERNATIVE 2
--- ---
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
DATED OCTOBER , 2001
----
1,183,050 SHARES
KUPPER PARKER COMMUNICATIONS, INCORPORATED
COMMON STOCK
This Prospectus relates to the offering of 1,183,050 shares of our common stock.
These shares may be sold from time to time by some of our current stockholders,
each of whom acquired these shares from us in a private placement.
The selling stockholders may sell the shares at prices determined by the
prevailing market price for the shares or in negotiated transactions. We will
not receive any proceeds from the sale of these shares by the selling
stockholders.
Our common stock is traded on the NASD OTC Bulletin Board under the symbol
"KPCG". On October 9, 2001, the last reported sale price of our common stock
was $1.05 per share.
----------------------------
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
The date of this prospectus is ,. 2001
------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and should
be read in conjunction with the more detailed information and financial
statements appearing elsewhere in this Prospectus.
We are an international marketing communications firm specializing in providing
integrated marketing communications solutions for middle market businesses. We
also provide specialized marketing consultation services to television and radio
stations. Our principal offices are located at 8301 Maryland, St. Louis,
Missouri and our telephone number is (314) 290-2000.
This offering relates to the offering of 1,183,050 shares of our common stock.
These shares may be sold from time by some of our current stockholders, each of
whom acquired these shares from us in a private placement. We will not receive
any proceeds from the sale of these shares by the selling stockholders.
RISK FACTORS
In addition to the other information in this Prospectus, you should carefully
consider the following factors in evaluating an investment in the shares of our
common stock:
WE MAY BE UNABLE TO IMPROVE THE OPERATING RESULTS OF GREENSTONE ROBERTS.
Greenstone Roberts Advertising, Inc., the company that we acquired at the end of
September 2000, has experienced substantial net operating losses in each of the
last three years. Although we have taken steps through cost reduction efforts
and new business activities to cause this business to break-even or report a
small profit in fiscal 2001, it is possible that the steps we have taken will
not be successful or of sufficient impact to achieve our desired effect. For
instance, our new business activities may not be successful at obtaining the
required levels of new business revenues that will cause this business to break
even or report a small profit in fiscal 2001. In addition, we may not be able to
realize sufficient cost savings in fiscal 2001 to cause this business to break
even or report a small profit.
WE MAY BE UNABLE TO RETAIN OUR CLIENT BECAUSE WE GENERALLY DO NOT HAVE LONG-TERM
CONTRACTS WITH OUR CLIENTS.
Our clients typically hire us on a project by project basis or on an annual
contractual relationship. Moreover, our clients generally have the right to
terminate their relationships with us without penalty and with relatively short
or no notice. Once a project is completed we cannot assure you that a client
will engage us for further services. From time to time, highly successful
engagements have ended because our client was acquired and the new owners
decided not to retain us. A client that generates substantial revenue for us in
one period may not be a substantial source of revenue in a subsequent period. We
expect a relatively high level of client concentration to continue but not
necessarily involve the same clients from period to period. The termination of
our business relationships with any of our significant clients, or a material
reduction in the use of our services by any of our significant clients, could
cause us to report lower revenues in future periods.
VARIABILITY OF OUR QUARTER-TO-QUARTER OPERATING RESULTS MAY CAUSE OUR STOCK
PRICE TO DECLINE.
Our quarterly operating results have fluctuated in the past, and may continue to
fluctuate in the future as a result of a variety of factors, any of which are
outside of our control, including:
- the loss or resignation of a significant client;
- the timing of new hires in anticipation of growth in our
business and employee attrition;
- the timing and scope of new projects;
- the devotion of resources to new business development;
- reduction, cancellation or completion of major projects;
- the opening or closing of an office;
- costs related to the expansion of our business;
- changes in pricing by us or our competitors;
- employee utilization rates (that is, our ability to utilize
our employees efficiently in serving our clients);
- integration of acquisitions; and
- use of more expensive temporary employees to provide our
professional services.
We also experience some variation in operating results throughout the year due
in part to the spending patterns and business cycles of our clients and to
marketing communications services spending patterns in general. For instance,
certain of our clients in the packaged foods business spend the majority of
their advertising and marketing budgets in the winter and fall months; because
our compensation related to these clients is principally based on media
placements we recognize the majority of our revenues from these clients in the
winter and fall months while our cost of our personnel servicing these clients
is recognized ratably throughout the year. Going forward, we expect this pattern
to be tempered somewhat by the seasonal spending patterns of Greenstone Roberts'
clients, which have differed from those of our clients.
As a result of these fluctuations, we believe that you cannot rely on
period-to-period comparisons of our operating results as indicators of our
future performance. In some period of our operating results may fall below the
expectations of securities analysts and investors due to any of the factors
described above. If this occurs, the trading price of our common stock would
likely decline.
2
IF WE ARE UNABLE TO INTEGRATE OUR RECENT ACQUISITIONS AND OTHER COMPANIES THAT
WE MAY ACQUIRE, WE MAY REPORT OPERATING LOSSES IN FUTURE PERIODS.
We recently acquired other companies, and we plan to acquire additional
companies. We expect that the integration of acquired operations will place a
significant burden on our management. Such integration is subject to risks and
uncertainties, including:
- the inability to effectively assimilate the operations,
services, personnel and cultures of entities that we acquire;
- the diversion of management's attention;
- undisclosed or potential legal liabilities of acquired
businesses;
- the potential disruption of our business; and
- the impairment or loss of relationships with employees and
clients.
We believe that a key in the success of our future acquisitions will be our
ability to achieve economies of scale in certain "back -office" functions such
as accounting and human resources as well as in certain client service
activities such as media buying and creative. To accomplish this, we must be
able to quickly convert these acquired businesses to our business practices,
policies and systems. It is possible that we may be prevented from accomplishing
this conversion because of specific information requirements of clients that our
business systems may not be able to accommodate. In addition, we may be unable
to achieve economies of scale in the areas of media buying for the same reason
and in the area of creative because of differences in regional tastes and
culture. As a result, it is possible that we will not be able to obtain the
level of cost savings necessary to make these future acquisitions successful.
If in connection with acquiring new businesses we fail to integrate our
operations successfully or on a timely basis, or if we incur any unforeseen
expenses, our financial performance could suffer.
DIFFICULTIES PRESENTED BY INTERNATIONAL FACTORS COULD CAUSE US TO REPORT LOWER
PROFITS IN FUTURE PERIODS.
One component of our strategy is to expand into international markets, as
evidenced by our recent acquisitions in London. Once we select a new location,
we typically devote substantial financial and management resources to launch and
grow that office. We cannot assure you that we will select appropriate
international markets to enter, open new offices efficiently or manage new
offices profitably. Any new international office could under-perform relative to
our expectations and we may not be able to achieve the same levels of business
growth and profitability as in our domestic offices. We believe that we will
face risks in doing business abroad that we do not face domestically. Among the
international factors we believe are most likely to affect us are:
- difficulties and costs of staffing and managing international
operations;
- different rate structures based on local economies;
3
- international currency issues, including fluctuations in
currency;
- legal and regulatory requirements of different countries, such
as differing tax or labor laws; and
- cultural and language differences.
The executive officers of our company have limited experience in managing
foreign operations. As a result, in managing these businesses we may incur
substantial legal, accounting and consulting costs to ensure that we adhere to
local legal and regulatory requirements. In addition, it is possible that we
could face higher employee turnover rates in our foreign operations due to
cultural and language differences.
Any of these factors could cause our international operations to report
operating losses.
CONTINUED GROWTH OF OUR BUSINESS WILL PLACE INCREASED DEMANDS ON OUR SYSTEMS AND
RESOURCES AND MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND OUR ABILITY TO
RETAIN TALENTED PERSONNEL.
The expansion of our business and client base has placed increased demands on
our management, operating systems, internal controls and financial and physical
resources. Our continued growth, if any, may strain existing management and
human resources in particular, affecting our ability to attract and retain
talented personnel. Consequently, we may be required to increase expenditures to
hire new employees, open new offices and invest in new equipment or make other
capital expenditures. Any failure to expand any of the foregoing areas in an
efficient manner could cause us to report operating losses in future periods. We
also cannot assure you that we will be able to sustain the rates of growth that
we have experienced in the past or manage our growth effectively in the future.
WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS.
We rely on our key management personnel, including Bruce Kupper, our Chairman
and Chief Executive Officer, and Mary De Hahn, our Chief Operating Officer,
because personal relationships are critical to obtaining and retaining client
engagements. We believe that our future success will depend upon our ability to
attract and retain additional key management personnel. If any of our officers
or key employees leaves our company, the relationships that they have with our
clients could be lost. We entered into a two-year employment agreement with
Bruce Kupper as of January 1, 2001. We also intend to issue stock options to
selected employees as an incentive to remain with our company.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US.
THE RAISING OF ANY ADDITIONAL CAPITAL MAY DILUTE YOUR OWNERSHIP IN US.
We will need to raise additional funds through public or private debt or equity
financing in order to:
- take advantage of business opportunities, including more rapid
expansion or acquisitions of, or investments in, businesses or
technologies;
- develop new services; or
4
- respond to competitive pressures.
Any additional capital raised through the sale of equity may dilute your
ownership percentage in our common stock. Furthermore, we cannot assure you that
any additional financing we may need will be available on terms favorable to us,
or at all. Our failure to obtain additional capital may have an adverse effect
on our business results and expansion efforts.
THERE IS ONLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK AND IT IS POSSIBLE
THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES EASILY.
There is currently only a limited trading market for our common stock. Our
common stock trades on the NASD OTC Bulletin Board under the symbol "KPCG" with
very limited trading volume. There can be no assurance that a substantial
trading market will ever develop (or be sustained, if developed) for our common
stock, or that stockholders will be able to resell their securities or otherwise
liquidate their investment without delay.
THE ISSUANCE OF, OR THE PERCEPTION THAT WE MAY ISSUE, SUBSTANTIAL AMOUNTS OF
STOCK IN THE FUTURE COULD DEPRESS THE MARKET PRICE FOR OUR COMMON STOCK.
We have 24,034,050 authorized but unissued shares of common stock available for
future issuance. In addition, our executive officers, directors and affiliates
own in the aggregate 2,346,012 shares of our common stock, assuming the exercise
of options which are currently exercisable. Although such shares are restricted
securities and therefore subject to resale limitations, we could file a
registration statement for some or all of those shares. In addition, we have
entered into a number of acquisition transactions where we have agreed to issue
shares of our common stock as consideration to the sellers of those businesses.
Although unregistered at the time of issuance, such shares typically contain
piggyback and demand registration rights. Consequently, sales of substantial
amounts of our common stock in the public market, or the perception that such
sales could occur, may depress the market price of our common stock.
As of September 28, 2001 we have issued 132,000 unregistered shares of our
common stock that carry "demand or piggyback" registration rights. This stock
was issued in connection with our acquisitions of Chameleon Design, Inc. in
November 2000 and CGT Limited in February 2001. Under the terms of the related
acquisition agreements, we will issue up to 516,680 additional unregistered
shares of our common stock based upon the future operating results of these
companies. All shares of common stock issued or to be issued in connection with
these acquisitions carry "demand or piggyback" registration rights.
EXCLUSIVITY ARRANGEMENTS WITH OUR CLIENTS MAY LIMIT OUR ABILITY TO PROVIDE
SERVICES TO OTHERS.
It is customary in the marketing communications services industry to enter into
exclusivity arrangements with clients. We have entered into these arrangements
with a number of our clients, restricting our ability to provide services to
their competitors. We have in the past been, and may in the future be, unable to
take on new clients because such opportunities would require us to provide
services to direct competitors of our existing clients. In addition, we risk
harming relationships with existing clients if we agree to provide services to
their indirect competitors. Prospective clients may also choose not to retain us
for reasons of actual or perceived conflicts of interest.
5
THE MARKETING COMMUNICATIONS SERVICES MARKET IS HIGHLY COMPETITIVE.
The marketing communications services market is intensely competitive. We expect
competition to intensify even further as this market evolves. Some of our
competitors and potential competitors have longer operating histories, greater
financial strength, longer client relationships, and greater financial,
management, technology, development, marketing and other resources than we do.
Competition depends to a large extent on clients' perception of quality and
creativity as well as the impact our services have on the business of our
clients. We also compete on the basis of price and the ability to serve clients
on a broad geographic basis. To the extent we lose clients to our competitors
because of dissatisfaction with our services, or if our reputation is adversely
impacted for any other reason, our future operating performance could be
materially and adversely affected.
CHANGES IN GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS.
A number of the services that we provide are subject to extensive government
regulation, both domestic and foreign, with respect to the truth in and fairness
of advertising and other marketing-related regulations. To ensure that our
clients' communications with their customers do not violate these regulations,
we must comply with Federal Trade Commission regulations governing the marketing
of products and services with similar state regulations. In addition, there has
been an increasing tendency in the United States on the part of businesses to
resort to the judicial system to challenge comparative advertising of their
competitors on the grounds that the advertising is false and deceptive. While we
have not been subject to such claims in the past, we cannot assure you that we
will not be subject to claims against us or our clients by other companies or
governmental agencies or that any such claims, regardless of merit, would not
have a material adverse effect on our future operating performance.
WE MAY BE LIABLE TO OUR CLIENTS FOR DAMAGES.
Many of our engagements involve the development, implementation and execution of
marketing communications programs that are critical to our clients' businesses.
Our failure or inability to meet a client's expectations in the performance or
completion of services could injure our business reputation or result in a claim
for substantial damages against us regardless of our responsibility for such
failure. In addition, in the course of providing marketing communications
services to our clients we may be given access to confidential or proprietary
client information. Although we have implemented policies to prevent such client
information from being disclosed to unauthorized parties or used
inappropriately, any such unauthorized disclosure or use could result in a claim
against us for substantial damages. Our contractual provisions attempting to
limit such damages may not be enforceable in all instances or may otherwise fail
to protect us from liability or damages, which could adversely affect our future
operating performance.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares by the
selling stockholders. The shares offered hereby include shares issuable upon the
exercise of outstanding warrants. We will receive the proceeds, if any, from the
exercise of such warrants.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July 31,
2001 and as adjusted to reflect 700,700 shares issuable to certain of the
selling stockholders subject to the Securities and Exchange Commission
indicating its willingness to declare effective the registration statement of
which this Prospectus is a part.
6
JULY 31, AS
2001 ADJUSTED(1)
---------- -----------
Total debt 870,701 145,701
---------- ----------
Stockholders' equity
Common stock, $0.01 par value; 30,000,000
shares authorized; 5,965,950 and 6,666,020
shares issued 596,595 666,665
Paid in capital 3,272,570 4,118,550
Retained earnings (deficit) (938,957) (938,957)
Treasury stock, at average cost; 141,723 shares (611,958) (611,958)
Cumulative transaction adjustment (7,437) (7,437)
---------- ----------
2,310,813 3,226,863
---------- ----------
$3,181,514 $3,372,564
========== ==========
----------
(1) Excludes any shares issuable upon exercise of warrants.
DIVIDEND POLICY
We expect to retain our earnings to finance further growth and, when
appropriate, retire existing debt. As a result, our Directors expect that, for
the foreseeable future, we will not declare or pay any dividends on any of our
shares.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements within the meaning of the
federal securities laws. When we use the words "may", "plan", "will",
"believes", "anticipates", "intends", "expects" and other similar expressions in
this document, we are making forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results to be materially different from any future results
expressed or implied by these statements. Such factors include, among other
things, the following: history of operating losses; the ability to integrate
acquired companies; variability of operating results; the ability to attract and
retain qualified professionals; the cost and timing of domestic and
international expansion; the ability to manage future growth, if any; dependence
on key management personnel; and changes in government regulation. Investors are
also directed to consider other risks and uncertainties discussed in other
reports previously and subsequently filed by use with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of such statements.
We undertake no obligation to publicly release the results of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
BUSINESS
OVERVIEW
We are an international marketing communications firm specializing in providing
integrated marketing communications solutions for middle market businesses. Our
client-focused approach combines a deep understanding of our client's unique
needs with our experience in business strategy, marketing, creative design, and
Internet technology. Our integrated service offering, delivered globally, is
much broader than that of a traditional advertising agency. It includes:
- strategic and marketing consulting, branding and market
research;
- planning, creation and execution of advertising campaigns;
- all media services, including research, planning and
placement;
7
- public relations and investor relations;
- direct response and database marketing services;
- sales promotion services;
- design, development and implementation of e-business websites
and interactive media;
- graphic design services;
- communications management; and
- specialized marketing consultation services to television and
radio services.
HISTORY AND RECENT DEVELOPMENTS
Our predecessor, Kupper Advertising, Inc. was founded in St. Louis, Missouri in
1978. Beginning in 1993, we commenced an expansion and acquisition program with
the result that we now have offices in Melville, New York; Kansas City,
Missouri; Louisville, Kentucky; Memphis, Tennessee; Nashville, Tennessee; New
Orleans, Louisiana; and London, England.
In September 2000, we completed a reverse merger with Greenstone Roberts
Advertising, Inc. ("Greenstone Roberts"), a publicly traded company based in
Melville, New York. As a result of that reverse merger, we became a publicly
traded company. The reverse merger was accounted for as a purchase.
The following information compares audited financial results for the fiscal year
ended October 31, 2000 to unaudited pro forma results assuming that the
acquisition of Greenstone Roberts had been consummated at the start of that
fiscal year:
As Reported Pro Forma
----------- ---------
Revenues $12,033,040 $14,809,812
(Loss) income from operations (284,553) (1,852,762)
Net loss (448,383) (1,790,133)
Basic and diluted net loss per share (0.09) (0.33)
The operating and net losses shown above include ESOP expenses of $992,356 and
management bonuses of $647,500. We terminated our ESOP effective August 31, 2000
and will not incur any further expenses relative to this plan. Also, we intend
to reduce our reliance on management bonuses by offering stock options to key
employees now that we are a public company. With this in mind, we have received
approval from our shareholders for an amendment to our stock option plan to
permit the granting of options for an additional 400,000 shares. We further
intend to strengthen operating performance by increasing new business
development activities; supplementing advertising revenues with public
relations, interactive and other "below the line" services at newly acquired
companies; and achieving operational efficiencies.
Since October 31, 2000, the following developments have occurred:
8
- On November 13, 2000, we acquired all of the outstanding stock
of Chameleon Design, Inc. ("Chameleon"), a company in St.
Louis, Missouri that specializes in interactive design and
development, in exchange for 62,000 shares of our Common
Stock. Under the terms of the acquisition agreement, we will
issue up to an additional 61,680 shares of our Common Stock to
the former Chameleon shareholders if Chameleon meets certain
future revenue targets over the next two years. Chameleon had
unaudited revenues of approximately $250,000 for the twelve
months ended October 31, 2000.
- In November 2000, we 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. We intend
to increase our ownership in CiB during 2001.
- On October 9, 2001, we acquired Christopher Thomas Associates,
Inc. "Christopher Thomas"), a marketing communications agency
headquartered in Melville, New York, with offices in Boston,
Massachusetts and Stamford, Connecticut. The price consisted
of an initial cash payment of $1,450,000, eight quarterly cash
payments of $75,000 each, and two cash earnout payments of
$550,000 and $450,000 so long as the Christopher Thomas
operations have revenues of at least $4,500,000 for the year
ended December 31, 2001 and 2002, respectively. Christopher
Thomas had unaudited revenues of approximately $4,000,000 for
the twelve months ended December 31, 2000.
- On February 23, 2001, we 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 our Common Stock. Under the terms of
the acquisition agreement, we will issue up to an additional
500,000 shares of our Common Stock to the former CGT
shareholders if CGT meets certain pretax earnings targets. CGT
had revenues of approximately $1,315,000 for the twelve months
ended March 31, 2000.
On an annualized basis, we, our affiliates and our completed or announced
acquisitions have revenues of approximately $25 million for the fiscal year
ended October 31, 2000.
OUR GROWTH STRATEGY
Our history has demonstrated that combining the disciplines of traditional
advertising with "below the line" marketing services capabilities ("below the
line" marketing services includes public relations, investor relations, direct
response and database marketing services, sales promotion services, e-business
websites and interactive media, and communications management services) fuels
revenue growth that exceeds advertising expenditure growth. The table below
shows for our three most recent fiscal years a comparison of our revenues from
traditional advertising and revenues from "below the line" services:
9
FISCAL 1998 FISCAL 1999 FISCAL 2000
----------- ----------- -----------
Advertising $7,200,000 $ 8,333,000 $ 8,515,000
"Below the line" marketing services (1) 1,660,000 2,514,000 3,518,000
---------- ------------ ------------
Total $8,860,000 $ 10,847,000 $ 12,033,000
========== ============ ============
------------------------------
(1) Includes public relations, investor relations, direct response and
database marketing services, sales promotion services, e-business websites
and interactive media, and communications management services.
The major agency networks also recognize the shift from pure advertising to a
more balanced mix of communication tools, and have focused their acquisition
efforts on companies providing "below the line" marketing communications
services. Our November 2000 acquisition of Chameleon strengthened our
capabilities in the areas of design, development and implementation of
e-business websites and interactive media.
An important step in securing a profitable niche in the Long Island market will
be the acquisition of "below the line" marketing service capabilities for that
market during fiscal 2001. Our proposed acquisition of Christopher Thomas would
broaden the market leadership of our recently acquired Greenstone Roberts
operations in Melville, New York as well as give us offices in Boston,
Massachusetts and Stamford, Connecticut. While both Christopher Thomas and
Greenstone Roberts have been operating at less than optimal efficiency, we
expect them to provide us with opportunities to obtain new accounts, increase
operational efficiencies and provide "below the line" services.
In the United States, part of our strategy is to expand into cities with an
attractive economic base that have been largely ignored by the larger
advertising agency networks. We may consider opportunities in larger markets as
they become available.
Internationally, we have targeted London as the first logical step in the
establishment of an international network. The U.S. and British cultures are
similar, the British economy is relatively stable, and Great Britain is
generally the first place that our clients look to as they establish a plan to
become global. We have implemented this strategy with the November 2000 purchase
of a 12% interest in CiB. CiB is a small public relations and advertising agency
that has created a franchise in the recreation and tourism representation
business and has offices in London, Dusseldorf and Milan. As discussed above, we
plan to increase our investment in CiB in 2001.
Our international capabilities have recently been enhanced by the selection of
CiB's London office as the world headquarters for Confrad International, a
worldwide network of independent advertising agencies owned by its member
shareholders. Confrad has members in nearly 50 countries and provides its member
agencies with the access and advantages of a multinational agency. Through
Confrad, we are able to quickly locate agencies to service our clients in
countries in which we do not currently have an office.
Our affiliation with CiB led to our joint selection with CiB in February 2001 as
the agency of record for Gulf Air. This international airline, based in Bahrain,
is the national carrier of Bahrain, Oman, Qatar and the United Arab Emirates. It
serves more than 50 destinations on five continents with one of the world's
youngest jet fleets. Our services to Gulf Air will include advertising, public
relations and direct marketing across Europe and the United States. The account
was previously serviced by J. Walter Thompson.
10
In January 2001, we continued to pursue our international strategy by entering
into an agreement to acquire CGT, a small highly profitable marketing
communications group in London with strong management. We completed this
acquisition on February 23, 2001.
Individually, CiB and CGT would each make clear logical fits to our network.
Combined as one agency, these companies would represent a very credible presence
in the London market, and would closely mirror our agency model.
During the next five years we will look to add to our international network
based upon the following criteria:
- stability of the economy;
- closeness in culture to U.S. business practices; and
- projected future increases in local advertising and
communications expenditures.
These criteria lead us to believe that we should focus our short-term
international expansion on Germany and France. Outside of these areas, we will
seek to establish a network of affiliations with other smaller agencies so that
we can jointly serve clients in parts of the globe in which we do not have an
office.
Establishing an agency in a new geographic location is a difficult, time
consuming, and expensive proposition. There are a multitude of smaller
advertising agencies in attractive geographic locations that can be acquired at
reasonable prices for several reasons:
- With the continuing consolidation of the communications
business, owner/operators of small agencies have come to
realize that an affiliation with a larger agency network is an
essential strategy for preserving client relationships.
- It is our belief that many owner/operators of smaller agencies
are talented in serving clients and are distracted by
operating their business.
- In smaller agencies, ownership is generally held by a very
small group of individuals. Retirement of one of the owners
creates the need for the other owners to either invest more of
their personal wealth in the business or to look for other
sources of equity participation.
- Many of the key individuals in these smaller agencies spent a
substantial part of their working careers at one of the major
agency networks and are reluctant to sell their business and
return to employment with one of these networks.
As a potential acquirer, we believe that our company can offer definite
advantages to such individuals:
- With each acquisition in the United States, we will take on
all back-office functions (such as accounting and human
resources) in our St. Louis headquarters - freeing the
advertising practitioners to focus on client service.
11
- As part of a larger communications organization, we offer
these practitioners access to a wide array of talent in
several communications specialties such as media planning and
buying, Internet, public relations, direct marketing, and
sales promotion. Access to these specialties generally results
in increased business with each client and a stronger
relationship between the client and its agency.
- As part of a small network, key individuals in these agencies
can readily perceive that they will play an important role in
the growth and success of our company.
Excluding the nine industry giants, we believe that we are the only publicly
traded acquisition vehicle based in the United States for agencies that want to
unite with a larger organization.
DESCRIPTION OF PROPERTY
The following table provides data on our wholly-owned offices as of August 31,
2001:
------------------------------- ----------------------------------------- ------------------------ -------------------
LEASE
APPROXIMATE EXPIRATION
OFFICE LOCATION SQUARE FEET DATE
------------------------------- ----------------------------------------- ------------------------ -------------------
St. Louis 8301 Maryland Avenue 22,595 5/31/10
Clayton, Missouri
------------------------------- ----------------------------------------- ------------------------ -------------------
Melville 401 Broadhollow Road 12,944 7/31/08
Melville, New York
------------------------------- ----------------------------------------- ------------------------ -------------------
Kansas City 106 West 14th Street 2,711 10/31/02
Kansas City, Missouri
------------------------------- ----------------------------------------- ------------------------ -------------------
Louisville 135 West Muhammad Ali Blvd. 5,200 12/31/02
Louisville, Kentucky
------------------------------- ----------------------------------------- ------------------------ -------------------
Memphis 6060 Poplar Avenue 3,105 8/31/04
Memphis, Tennessee
------------------------------- ----------------------------------------- ------------------------ -------------------
Nashville 2505 Hillsboro Road 1,672 12/31/01
Nashville, Tennessee
------------------------------- ----------------------------------------- ------------------------ -------------------
New Orleans 433 Metairie Road 4,499 2/28/03
Metairie, Louisiana
------------------------------- ----------------------------------------- ------------------------ -------------------
All of our operations are conducted in leased premises located in the various
cities in which we do business. Our physical property consists primarily of
leasehold improvements, furniture, fixtures and equipment. We believe that we
maintain adequate insurance on all of our property. We do not anticipate any
difficulty in negotiating lease renewals or in finding other satisfactory space
if premises become unavailable.
LITIGATION
We are involved in various claims and legal actions incidental to the normal
conduct of our business. It is not possible at the present time to estimate the
ultimate liability, if any, of our company with respect to such litigation;
however, management believes that any ultimate liability will not be material in
relation to our consolidated results of operations or financial position.
12
EMPLOYEES
As of September 28, 2001, we employed approximately 130 people. We
consider our relationship with our employees to be satisfactory.
MANAGEMENT DISCUSSION AND ANALYSIS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OVERVIEW
The following discussion relates to our results of operations, financial
condition and liquidity for the periods indicated and should be read in
conjunction with our financial statements and the notes thereto.
On September 29, 2000, Kupper Parker Communications, Incorporated ("KPCG")
merged with and into Greenstone Roberts Advertising, Inc. ("GRAI") in a
transaction accounted for a reverse acquisition (the "Merger"). As a result, our
audited financial statements included as a part of this Form SB-1 represent the
results of KPCG for all periods presented and the results of GRAI for the period
of September 29, 2000 through October 31, 2000.
Prior to September 29, 2000, KPCG operated as a privately held company. Its
compensation scheme for its employees emphasized contributions to its Employee
Stock Ownership Plan ("ESOP") and cash bonuses. In anticipation of the Merger,
during July 2000 KPCG made its last required contribution to its ESOP and
initiated steps to terminate this plan effective August 31, 2000. We do not
intend to make any future contributions to the ESOP. Fiscal 2000 after tax
expense related to this plan was $891 or $0.18 per share.
Our operating results have fluctuated in the past, and may continue to fluctuate
in the future, as a result of a variety of factors, including: the timing of new
projects; material reductions, cancellations or completions of major projects;
the loss of significant clients; the opening or closing of offices; our relative
mix of business; changes in our pricing strategies or those of our competitors;
employee utilization rates; changes in personnel; and other factors that are
outside of our control. We also experience some variation in operating results
throughout the year that results in part from the spending patterns and business
cycles of our clients, and from marketing communications services spending
patterns in general. Going forward, we expect this pattern to be tempered
somewhat by the seasonal spending patterns of GRAI's clients, which have
differed from those of KPCG's clients.
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 for the twelve months ended October 31,
2000.
13
- In November 2000, the Company purchased for $154 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 for the twelve months ended May 31, 2000.
- 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 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 for the twelve months ended
March 31, 2000.
- On October 9, 2001, we acquired Christopher Thomas Associates,
Inc. ("Christopher Thomas"), a marketing communications agency
headquartered in Melville, New York, with offices in Boston,
Massachusetts and Stamford, Connecticut. The price consisted
of an initial cash payment of $1,450, eight quarterly cash
payments of $75, and two cash earnout payments of $550 and
$450 so long as the Christopher Thomas operations have
revenues of at least $4,500 for the years ended December 31,
2001 and 2002, respectively. Christopher Thomas had audited
revenues of approximately $4,000 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.
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.
RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999
Revenues for the year ended October 31, 2000 were $12,033, a 10.9% increase over
1999 revenues of $10,847. Public relations revenues increased 34% between years
and now amount to 19.1% of total revenues compared to 15.8% in 1999. Sales
promotion and direct marketing revenues increased 25% to 5.5% of total revenues
in 2000. The increase in revenues between years was principally due to an
increase in project volume. Fiscal 2000 revenues include $283 in revenues from
GRAI's operations for the period of September 29, 2000, the date of the Merger,
through year-end. Had the Merger occurred on November 1, 1999, fiscal 2000
revenues would have been $14,810.
Salaries and benefits expense increased 13.7% to $9,981. The most significant
increase in this category of expense relates to the fair value of the shares of
KPCG common stock released for
14
allocation to its ESOP participants ($992 in fiscal 2000 compared to $403 in
fiscal 1999). As more fully discussed above, KPCG made its last required
contribution to its ESOP in July 2000 and has taken steps to terminate its ESOP
during fiscal 2000.
Excluding this ESOP expense, salaries and benefits expense increased
approximately $610 or 7.3% - 3.6 percentage points less than the revenue
increase. This increase was due to an increase in staff to handle the volume of
projects requested by clients.
Office and general expenses increased approximately $334 or 16.7% as compared to
the 10.9% increase in revenues. The principal reason for this increase was that
the Company leased additional space in St. Louis to accommodate its increased
staff.
KPCG reported net interest income of $61 in 2000 compared to net interest
expense of $7 in 1999. Interest income increased between years due to higher
average collected cash balances. Interest expense decreased between years due to
lower long-term debt balances.
KPCG's effective tax rate was high in both years due principally to the fact
that the difference between the fair market value and the historical cost of
shares allocated to ESOP participants is not deductible for tax purposes. See
Footnote 11 of the KPCG Financial Statements as of October 31, 2000 and 1999 for
the reconciliation of the Company's effective tax rate to the U.S. statutory
income tax rate.
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
Revenues for the year ended October 31, 1999 were $10,847, a 22.4% increase over
1998 revenues of $8,860. Public relations revenues increased 47% between years
and now amount to 15.8% of total revenues compared to 13.1% in 1998. Sales
promotion and direct marketing revenues increased 7.6% to 4.9% of total revenues
in 1999.
Salaries and benefits expense increased 17.6% to $8,782. The most significant
increase in this category of expense relates to the fair value of the shares of
KPCI common stock released for allocation to its ESOP participants ($403 in
fiscal 1999 compared to $328 in fiscal 1998). Excluding this ESOP expense,
salaries and benefits expense increased approximately $1,239 or 17.4% - 5
percentage points less than the revenue increase.
Office and general expenses increased approximately $548 or 37.7% as compared to
the 22.4% increase in revenues. The principal reason for this increase was that
the Company leased additional space in St. Louis to accommodate its increased
staff.
KPCI reported net interest expense of $7 in 1999 compared to net interest income
of $9 in 1998. Interest income decreased between years due to lower average
collected cash balances. Interest expense decreased between years due to lower
long-term debt balances.
KPCI's effective tax rate was high in both years due principally to the fact
that the difference between the fair market value and the historical costs of
shares allocated to ESOP participants is not deductible for tax purposes. See
Footnote 11 of the KPCI Financial Statements as of October 31, 2000 and 1999 for
the reconciliation of the Company's effective tax rate to the U.S. statutory
income tax rate.
15
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 2001
Revenues for the nine months ended July 31, 2001 were $9,955, a 10.0% increase
over fiscal 2000 revenues of $9,051. The acquisitions of GRAI and CGT accounted
for $1,944 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 or 0.5% to $7,683. The acquisitions
of Greenstone Roberts Advertising, Inc. and CGT accounted for $1,634 of fiscal
2001 salaries and benefits expense. Salaries and benefits expense of existing
operations declined approximately 21.7% between years, due to cost savings
initiatives that the Company undertook during the second quarter of 2001 which
included the elimination of approximately 10% of staff positions in the company
and a 30% reduction in the salaries of the chief executive officer, chief
operating officer and chief financial officer.
Office and general expenses increased $989 or 58.8% between years. The
acquisitions of Greenstone Roberts Advertising, Inc. and CGT accounted for $894
of fiscal 2001 office and general expense. Office and general expense of
existing operations increased approximately $95,000.
Net interest expense was $1 in 2001 compared to net interest income of $45 in
2000, due to higher average daily short-term bank borrowings.
For the nine months ended July 31, 2000 the company reported a tax provision of
$186 compared to a pre-tax loss of $307 because these results included $738 of
ESOP expense representing the difference between the cost and the fair value of
the shares of KPCG common stock released for allocation to its ESOP
participants: this expense is non-deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES - AT OCTOBER 31, 2000
As of October 31, 2000, KPCG's cash and cash equivalents totaled $2,177 compared
to the 1999 year-end balance of $539. The principal reasons for the increase in
cash and cash equivalents are (1) KPCG had $550 in short-term bank borrowings at
October 31, 2000 that it repaid in November 2000, and (2) increased net cash
provided by operating activities.
Operating Activities: KPCG's funds from operating activities consist primarily
of net income adjusted for non-cash items and changes in operating assets and
liabilities. During fiscal 2000, KPCG emphasized the management of accounts
payable and accounts receivable, resulting in additional net cash inflows of
$1,122.The most significant non-cash item is entitled "Shares earned and
released by ESOP" and represents the fair market value of the related shares
that are allocated to ESOP participants. This non-cash charge increased 146%
between years from $403 in 1999 to $992 in 2000. The principal reason for the
increase is that the fair value of KPCG common stock increased by 154% between
years both as a result of internal growth and as a result of the Merger. During
July 2000, KPCG made its last required contribution to its ESOP and does not
intend to make any future contributions to this plan. In addition, KPCG has
initiated steps to terminate its ESOP effective August 31, 2000. As a result,
operating results in periods subsequent to August 31, 2000 do not contain
similar non-cash charges to earnings. Cash
16
provided by operating activities was $1,387 in 2000 compared to cash provided by
operating activities of $331 in 1999.
Investing Activities: On September 29, 2000, KPCG acquired the assets and
operations of Greenstone Roberts Advertising, Inc. in a transaction accounted
for as a reverse acquisition. The net cash cost of this transaction was $232
comprised of acquisition costs of $1,350 and accounting and legal fees of $73,
net of cash acquired of $1,191. KPCG's capital expenditures for property and
equipment were $140 for the year ended October 31, 2000 compared to $199 in
1999. At October 31, 2000, KPCG had no material commitments for future capital
expenditures.
Financing Activities: In September 2000, KPCG borrowed $1,350 on a two-month
basis to finance the Merger. During October 2000, KPCG repaid $800 of this loan,
and repaid the balance in November 2000. KPCG was in compliance with all
covenants and conditions related to its debt agreements.
LIQUIDITY AND CAPITAL RESOURCES - AT JULY 31, 2001
As of July 31, 2001, Kupper Parker's cash and cash equivalents totaled $1,202,
compared to $2,177 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 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 $376 in the first
nine months of 2001 compared to cash provided by operating activities of $2,086
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 in 2001
compared to $99 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
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
17
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 are
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.
MANAGEMENT
The following table sets forth certain information with respect to our executive
officers and directors as of August 31, 2001.
-----------------------------------------------------------------------------------------------------------
NAME AGE POSITION(S)
-----------------------------------------------------------------------------------------------------------
Bruce Kupper 48 Chief Executive Officer, President and Chairman of the Board
-----------------------------------------------------------------------------------------------------------
Mary De Hahn 51 Chief Operating Officer and Director
-----------------------------------------------------------------------------------------------------------
John Rezich 45 Chief Financial Officer, Treasurer, Secretary and Director
-----------------------------------------------------------------------------------------------------------
Ronald Greenstone 60 Chief Executive Officer of Long Island Operations and Director
-----------------------------------------------------------------------------------------------------------
Gary Roberts 62 President of Long Island Operations and Director
-----------------------------------------------------------------------------------------------------------
S. Lee Kling 71 Director
-----------------------------------------------------------------------------------------------------------
James Saitz 51 Director
-----------------------------------------------------------------------------------------------------------
Bruce Kupper has served as our Chief Executive Officer, President and Chairman
of the Board since the Merger. Prior to that time he served in the same
capacities for Kupper Parker Communications, Incorporated (1993 - 2000) and its
predecessor, Kupper Advertising, Inc. (1978 - 1993). Prior to that time, Mr.
Kupper worked as an account executive for Young & Rubicam where he was named
Young & Rubicam's 1977 National Account Executive of the Year.
Mary De Hahn has served as Chief Operating Officer and as a Director of our
company since the Merger. Prior to that time she served in the similar executive
capacities for Kupper Parker Communications, Incorporated (1993 - 2000) and its
predecessor, Kupper Advertising, Inc. (1988 - 1993). Before joining Kupper
Advertising, Inc., Ms. De Hahn served as senior vice president of marketing for
Landmark Bancshares Corporation, a bank holding company in St. Louis, Missouri
and executive director of the Missouri Arts Council.
John Rezich has served as Chief Financial Officer and a Director of our company
since the Merger. Prior to that time he served in the same capacities for Kupper
Parker Communications, Incorporated from May 2000 to September 2000. Mr. Rezich
joined Kupper Parker Communications, Incorporated in October 1999 as Executive
Vice President, Mergers and Acquisitions. From 1985 to March 1999, Mr. Rezich
served in various executive financial positions for True North Communications,
Inc., a publicly held marketing communications company.
Ronald Greenstone has been a Director of our company since 1972. Prior to the
Merger, Mr. Greenstone had been Chairman of the Board of Directors, Chief
Executive Officer and a Director
18
of our company for a period of more than five years. Mr. Greenstone founded
Greenstone Roberts Advertising, Inc. in 1972.
Gary Roberts has been a Director of our company since February 1989. Prior to
the Merger, Mr. Roberts had been President of our company for a period of more
than five years. Mr. Roberts joined Greenstone Roberts Advertising, Inc. in
1988. Prior to that time he served in various executive capacities for Slater
Hanft Martin (a New York, New York advertising agency) and Wells Rich Greene (a
New York, New York advertising agency).
S. Lee Kling has been a Director of our company since the Merger. Prior to that
time, Mr. Kling served as an advisory director to Kupper Parker Communications,
Incorporated for a period of more than five years. He has served since 1991 as
Chairman of the Board of Kling Rechter & Company, a merchant banking company
which works in partnership with First Chicago Equity Capital Corp., and served
as Vice Chairman of Willis Corroon Corp. of Missouri until July 2000. Mr. Kling
served as Chairman of the Board of Landmark Bancshares Corporation, a bank
holding company in St. Louis, Missouri ("Landmark"), until December 1991 when
the company merged with Magna Group, Inc. He had served in such capacity with
Landmark since 1974 and had also served as Chief Executive Officer of Landmark
from 1974 through October 1990 except for the period from May 1978 to January
1979 when he served as Assistant Special Counselor on Inflation for the White
House and Deputy for Ambassador Robert S. Strauss. Mr. Kling serves on the
Boards of Directors of Falcon Products, Co. (a furniture and fixtures
manufacturer), Top Air Manufacturing Inc. (a manufacturer of agricultural
equipment), National Beverage Corp. (a beverage manufacturer), Electro Rent
Corporation (an electronic equipment rental company), Engineered Support
Systems, Inc. (a product manufacturer in the defense industry), Learn2.com (an
internet based learning service provider), and Bernard Chaus, Inc. (a company
that designs, arranges for the manufacture of and markets an extensive range of
women's career and casual sportswear), all of which are public companies.
James Saitz has been a Director of our company since the Merger. Prior to that
time, Mr. Saitz served as an advisory director to Kupper Parker Communications,
Incorporated for a period of more than five years. Mr. Saitz is the Chairman and
Chief Executive Officer of Trustcorp Financial, Inc. (1994 - present), a
commercial bank holding company, and is the Chairman and Chief Executive Officer
of Missouri State Bank (1994 - present), a commercial bank.
There are no family relationships among any of our officers or directors.
The Directors of our company are divided into two classes and hold office until
the second succeeding Annual Meeting of Stockholders following the election of
their respective class and the qualification of their successors. Mr. Rezich,
Mr. Roberts and Mr. Saitz constitute the class of Directors whose terms expire
in 2003. Mr. Kupper, Ms. De Hahn, Mr. Greenstone and Mr. Kling constitute the
class of Directors whose terms expire in 2002.
19
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation received,
for each of the last three fiscal years, for services rendered to us by our
Chief Executive Officer and each of our other most highly compensated executive
officers during the fiscal year ended October 31, 2000 whose total compensation
equaled or exceeded $100,000.
Annual Compensation Long-Term Compensation
------------------------------------------------------------------------------- --------------------------------------
Securities
Name and Principal Other Annual Restricted Underlying LTIP All Other
Position Year Salary Bonus Comp. (1) Stock Awards Options/SAR's Payouts Comp. (2)
--------------------- ------- --------- --------- -------------- -------------- ---------------- --------- -----------
Bruce Kupper (4) 2000 288,000 317,750 -- -- -- -- --
CEO 1999 288,000 485,000 1,500 -- -- -- --
1998 288,000 589,000 3,000 -- -- -- --
Mary De Hahn (4) 2000 170,000 90,000 -- -- -- -- 9,323
COO 1999 120,000 145,500 1,500 -- -- -- 14,336
1998 120,000 130,000 3,000 -- -- -- --
John Rezich (3) (4) 2000 120,000 20,000 -- -- -- -- --
CFO 1999 22,615 -- -- -- -- -- --
1998 -- -- -- -- -- -- --
Ronald Greenstone 2000 247,083 -- -- -- 1,575
Director 1999 264,583 -- -- -- -- -- 1,500
1998 277,325 -- -- -- -- -- 1,500
Gary Roberts 2000 226,250 -- -- -- -- -- 1,575
Director 1999 225,000 -- -- -- -- -- 1,500
1998 227,519 -- -- -- -- -- 1,500
1. Amounts shown in this column are for cash payments for attendance at
KPCG's Board of Directors' meetings.
2. Amounts shown in this column are for company contributions to KPCG's
ESOP and 401K plans on behalf of the named Executive.
3. Mr. Rezich commenced employment in October 1999.
4. Includes compensation received from Kupper Parker Communications,
Incorporated prior to the Merger.
YEAR 2000 STOCK OPTION GRANTS TO EXECUTIVE OFFICERS
On August 22, 2000, we issued a stock option grant to Mr. Greenstone. Under the
terms of the stock option agreement, Mr. Greenstone is entitled to purchase up
to 18,750 shares of our common stock at an exercise price of $2.375 per share
(which was the fair market value of the underlying common stock on the grant
date). This stock option grant vests 100% one year after its issuance and it
expires on August 22, 2005. Assuming compound annual appreciation rates of 5 and
10% over the five-year life of this option, the aggregate potential realizable
values of this option are $12,303 and $27,187, respectively. We did not grant
any other stock options to executive employees or any other employees during
2000.
YEAR 2000 STOCK OPTION EXERCISES BY EXECUTIVE OFFICERS
During 2000, our executive officers did not exercise any of their various stock
option grants.
STOCK OPTIONS HELD BY EXECUTIVE OFFICERS
The following table sets forth unexercised stock options held by each of our
Executive Officers as of October 31, 2000:
20
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options/SAR's as of October Options/SAR's as of October 31, 2000 (1)
31, 2000
--------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------- --------------------- --------------------- --------------------- --------------------
Bruce Kupper 141,700 -- $389,649 --
Ronald Greenstone 25,000 18,750 12,500 $9,609
Gary Roberts 15,000 -- 7,500 --
1. Calculated by determining the difference between the exercise price and
the deemed fair value of the securities underlying the options at
October 31, 2000.
EMPLOYMENT AGREEMENTS
Effective January 1, 2001 we entered into a two-year employment agreement with
Mr. Kupper. Mr. Kupper's Employment Agreement provides for an initial base
salary of $360,000 per year, annual raises of 4%, and incentive compensation in
accordance with KPCG's Executive Compensation Program. Mr. Kupper is also
eligible to receive stock options and to participate in certain fringe benefits
and in KPCG's employee benefit plans generally available to senior executives.
The terms of this agreement provide that Mr. Kupper will become a consultant to
KPCG for the two-year period immediately following the expiration of the term of
his employment, as extended, if applicable. During this consulting period, Mr.
Kupper will receive annual compensation equal to 75% of the average of his
annual base salary over the last three full calendar years of his employment.
This consulting arrangement will also apply if Mr. Kupper resigns prior to the
scheduled expiration of the term of his employment, subject to a reduction in
the annual compensation based on vesting over a five-year period commencing
January 1, 2001.
Mr. Kupper's Employment Agreement provides that, in the event of termination of
employment by KPCG or by Mr. Kupper after the occurrence of one or more
specified events (none of which have occurred to date) (a "Qualifying
Termination"), Mr. Kupper would be entitled to receive his base salary,
incentive compensation and certain continuing benefits for two years and the
annual consulting compensation described above for the following two years. This
employment agreement provides that, upon a Qualifying Termination, each stock
option granted after January 1, 2001 and then held by Mr. Kupper shall be fully
vested and exercisable in full for up to three years (but not beyond ten years
after the date of grant of such option). Mr. Kupper's Employment Agreement also
contains a provision prohibiting him from engaging in certain competitive
activities with KPCG during his employment and during any severance and/or
consulting period.
In September 2000, in connection with the Merger, we entered into a two-year
employment agreement with Mr. Greenstone providing for an annual base salary of
$215,000. Pursuant to this employment agreement, if we terminate Mr.
Greenstone's employment without cause, or if we are unable to enter into a
mutually agreeable written renewal employment agreement for a term of not less
than one year prior to the expiration of the initial employment agreement, we
are obligated to pay Mr. Greenstone all amounts owed under the initial
employment agreement and a lump-sum payment of $250,000.
In September 2000, in connection with the Merger, we entered into a two-year
employment agreement with Mr. Roberts providing for an annual base salary of
$240,000. Pursuant to this employment agreement, if we terminate Mr. Roberts'
employment without cause, or if we are unable to enter into a mutually agreeable
written renewal employment agreement for a term of
21
not less than one year prior to the expiration of the initial employment
agreement, we are obligated to pay Mr. Roberts all amounts owed under the
initial employment agreement and a lump-sum payment of $225,000.
STOCK OPTION PLAN
In 1988, we adopted our Stock Option Plan. Under the terms of this plan, options
to purchase shares of our common stock can be issued to our employees and
directors at a price equal to 100% of the fair market value of our common stock
on the date of grant. Options issued under this plan 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 cancelled immediately if the holder
ceases to be an employee or director of our company.
DIRECTOR COMPENSATION
Each director who is not also our employee is paid $10,000 per year.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF MATTERS
Section 722 of the New York Business Corporation Law ("BCL") permits a
corporation to indemnify a director or officer, made a party to an action by
reason of the fact that he or she was a director or officer of the corporation,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, if such director or officer acted in good faith, for
a purpose which he or she reasonably believed to be in the best interests of the
corporation.
Our Certificate of Incorporation includes limitations on the liability of
officers and directors, except for liability pursuant to a judgment or other
final adjudication adverse to such director which establishes that his or her
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he or she gained personally in fact a financial
profit or other advantage to which he or she was not entitled or his acts
violated Section 719 of the BCL. Our Board of Directors has authorized KPCG to
provide a general indemnification of its officers, directors and employees
regarding any claims or liabilities incurred in the course of their employment,
subject to the foregoing provisions.
We also maintain insurance, that we believe to be adequate, covering all of our
directors and officers against certain liabilities and reimbursing us for
obligations for which we incur as a result of its indemnification of such
directors, officers and employees. At present, there is no pending litigation or
proceeding involving any officer, director or agent of ours where
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "1933 Act") may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by us
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
22
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
PRINCIPAL AND SELLING STOCKHOLDERS
Of the 1,183,050 shares offered hereby 132,000 shares were issued to Messrs.
Coleman, Stein, Thackery, Thom and Thatcher in connection with our acquisition
of their respective businesses in transactions exempt from registration. Of the
balance of 1,051,500 shares offered hereby 700,700 were issued to individuals in
transactions exempt from registration subject to the Securities and Exchange
Commission indicating its willingness to declare effective a registration
statement covering such shares. In connection with their purchase of such
700,700 shares, the purchasers were issued five year warrants entitling them
to purchase an aggregate of 350,500 additional shares at a price of $2.50 per
share.
The following table sets forth certain information regarding the beneficial
ownership of the shares as of August 1, 2001, by (i) each person known by us to
own more than 5% or more of our stock, (ii) each of our directors, (iii) each of
our executive officers, and (iv) each of the selling stockholders. The number of
shares in the column "Number of Shares Being Offered" represents all of the
shares that each selling stockholder may offer under this Prospectus. We do not
know how long the selling stockholders may offer under this Prospectus. We do
not know how long the selling stockholders will hold the shares before selling
them, and we currently have no agreements, arrangements or understandings with
any of the selling stockholders regarding the sale of any of the shares, except
for executive officers and directors who have agreed to a 120 day "lock-up".
Pursuant to the lock-up, we and our executive officers and directors have agreed
not to offer, sell or otherwise dispose of any shares for 120 days after
effectiveness of the registration statement of which this Prospectus is a part,
provided that we may issue shares in connection with acquisitions. The shares
being offered by this Prospectus may be offered from time to time by the selling
stockholders named below.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------- --------------------
NUMBER OF SHARES
BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---------------- ------ ------- ------------- ------ -------
EXECUTIVE OFFICERS AND DIRECTORS
Bruce Kupper 1,758,200(2) 24.4 175,500(1) 1,582,700 26.3
Mary DeHahn 303,867(3) 4.3 10,050(1) 298,817 5.0
John Rezich 279,000 3.9 115,500(1) 163,500 2.7
Ronald Greenstone 233,287(4) 3.5 30,000(1) 223,287 3.7
Gary Roberts 102,708(5) 1.4 30,000(1) 72,708 1.2
S. Lee Kling 155,000 * 150,000(1) 5,000 *
James Saitz 60,000 * 60,000(1) ----- -----
SELLING STOCKHOLDERS
John Lionel Coleman 28,000 * 28,000 ----- -----
Ronald K. Greenberg 30,000 * 30,000(1) ----- -----
Dennis M. Jones 150,000 2.1 150,000(1) ----- -----
Charles W. Oertli 30,000 * 30,000(1) ----- -----
Nathaniel Orme 30,000 * 30,000(1) ----- -----
23
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------- --------------------
NUMBER OF SHARES
BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---------------- ------ ------- ------------- ------ -------
Chris Pauli 15,000 * 15,000(1) ----- -----
Robert Pauli 15,000 * 15,000(1) ----- -----
Ronald F. Saverin 60,000 * 60,000(1) ----- -----
Jeff Stein 31,000 * 31,000 ----- -----
Robert M. Thackery 28,000 * 28,000 ----- -----
Tom Tham 31,000 * 31,000 ----- -----
David Ian Thatcher 14,000 * 14,000 ----- -----
Drew Wolfson 150,000 2.1 150,000(1) ----- -----
* Represents less than one percent.
(1) One-third of such shares consist of shares issuable upon the exercise of
warrants issued in connection with such holder's initial purchase of such
shares. The warrants are exercisable at any time before __________, 2006
at a price of $2.50 per share.
(2) Includes 141,700 shares currently issuable upon the exercise of options.
(3) Includes 200,717 shares held in her account by an ESOP.
(4) Includes 43,750 shares currently issuable upon the exercise of options.
(5) Includes 15,000 shares currently issuable upon the exercise of options.
DESCRIPTION OF SECURITIES
We are a New York business corporation and have authorized capital of 30,000,000
shares of Common Stock, par value $0.01 per share, and 1,000,000 shares of
Preferred Stock, par value $1.00 per share. As of September 28, 2001, there were
5,824,277 shares of Common Stock held by 245 shareholders of record and no
shares of Preferred Stock outstanding.
COMMON STOCK
The holders of our Common Stock are entitled to one vote for each share held of
record on matters voted on our stockholders. Holders of Common Stock are
entitled to receive dividends subject to the rights of the Preferred Stock, if
any, when, as and if declared by our Board of Directors and to share ratably in
our assets legally available for distribution to its stockholders in the event
of our liquidation, dissolution or winding up. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights.
The current bid price of our stock is available over the Internet at
www.otcbb.com.
PREFERRED STOCK
Our Board of Directors may, without further action by our stockholders, from
time to time direct the issuance of up to 1,000,000 shares of Preferred Stock in
series, and may at the time of issuance determine the rights, preferences and
limitations of each series.
24
PLAN OF DISTRIBUTION
The shares registered hereunder could be sold, if desired, by the selling
stockholders on the Over-the-Counter Bulletin Board. The selling stockholders
may also decide not to sell all the shares they are allowed to sell under this
Prospectus. The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale.
The shares being offered hereby may be sold: (i) through dealers or in ordinary
brokers' transactions, in the over-the-counter market or otherwise; (ii) at the
market or through market makers or into an existing market for the shares; or
(iii) in other ways not involving market makers or established trading markets,
including direct sales to purchasers or effected through agents, or (iv) in
combinations of any of such methods of sale. The shares will be sold at market
prices prevailing at the time of sale or at negotiated prices.
If a dealer is utilized in the sale of the shares in respect of which this
Prospectus is delivered, the selling stockholders will sell such shares to the
dealer, as principal. The dealer may then resell such shares to the public at
varying prices to be determined by such dealer at the time of resale.
Sales of shares "at the market" and not at a final price, which are made into an
existing market for the shares, will be made by the selling stockholders to or
through a market maker, acting as principal or as agent. Other sales may be
made, directly or through an agent, to purchasers outside existing trading
markets. A selling broker may act as agent or may acquire existing trading
markets. A selling broker may act as agent or may acquire the shares or
interests therein as principal or pledgee and may, from time to time, effect
distributions of such shares.
The shares offered hereby are eligible for sale only in certain states, and, in
some of those states, may be offered or sold only to "institutional investors"
as defined under applicable state securities law.
LEGAL MATTERS
Armstrong Teasdale LLP, St. Louis, Missouri, will pass on the validity of our
common stock being offered registered.
EXPERTS
Our consolidated financial statements included in this Prospectus for the fiscal
year ended October 31, 2000 and 1999 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of Greenstone Roberts included in this Prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their reports appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of said firm as experts in auditing and accounting.
The financial statements of CGT (UK) Limited included in this Prospectus for the
fiscal year ended March 31, 2000 have been audited by Edward, independent
registered auditors, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Christopher Thomas Associates, Inc. included in
this Prospectus for the fiscal year ended December 31, 2000 and 1999 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
25
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-1 (the "Registration Statement") under the
Securities Act, with respect to the shares offered hereby. This Prospectus
constitutes a part of the Registration Statement and does not contain all of the
information set forth in this Prospectus as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete and, where such agreement or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof. For further information concerning us,
reference is hereby made to the Registration Statement and to the exhibits
thereto.
The Registration Statement and the exhibits may be inspected, without charge,
and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549, or on the Internet at http://www.sec.gov.
In addition, copies of the Registration Statement and the exhibits may be
obtained by mail, at prescribed rates, from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549.
In connection with this offering, we continue to be subject to the information
and periodic reporting requirements of the Securities Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities referred to above. We intend to furnish our stockholders
with annual reports containing audited financial statements certified by
independent public accountants and with quarterly reports containing unaudited
financial statements for the first three quarters of each fiscal year.
26
KUPPER PARKER COMMUNICATIONS, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
I. Pro Forma Financial Information F-4
II. Consolidated Financial Statements of Kupper Parker
Communications, Incorporated as of October 31, 2000 and 1999
Report of Independent Public Accountants F-13
Consolidated Balance Sheets as of October 31, 2000 and 1999 F-14
Consolidated Statements of Operations for the years ended
October 31, 2000 and 1999 F-15
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 2000 and 1999 F-16
Consolidated Statements of Cash Flows for the years ended
October 31, 2000 and 1999 F-17
Notes to Consolidated Financial Statements F-18
III. Unaudited Consolidated Condensed Financial Statements of
Kupper Parker Communications, Incorporated for the nine months
ended July 31, 2001
Condensed Consolidated Balance Sheets as of July 31, 2001 (Unaudited)
and October 31, 2000 F-27
Condensed Consolidated Statements of Operations for the three months
ended July 31, 2001 and 2000 (Unaudited) F-28
Condensed Consolidated Statements of Operations for the nine months
ended July 31, 2001 and 2000 (Unaudited) F-29
Condensed Consolidated Statements of Cash Flows for the nine months
ended July 31, 2001 and 2000 (Unaudited) F-30
Notes to Condensed Consolidated Financial Statements F-31
IV. Consolidated Financial Statements of Greenstone Roberts Advertising, Inc.
as of October 31, 1999 and 1998
Report of Independent Public Accountants F-34
Consolidated Balance Sheets as of October 31, 1999 and 1998 F-35
Consolidated Statements of Operations for the years ended
October 31, 1999 and 1998 F-36
Consolidated Statements of Shareholders' Equity for the years ended
October 31, 1999 and 1998 F-37
Consolidated Statements of Cash Flows for the years ended
October 31, 1999 and 1998 F-38
Notes to Consolidated Financial Statements F-39
F-1
V. Unaudited Consolidated Condensed Financial Statements of
Greenstone Roberts Advertising, Inc. for the nine months ended
July 31, 2000
Condensed Consolidated Balance Sheets as of July 31, 2000 (Unaudited)
and October 31, 1999 F-47
Condensed Consolidated Statements of Operations for the three and
nine months ended July 31, 2000 and 1999 (Unaudited) F-48
Condensed Consolidated Statements of Cash Flows for the nine
months ended July 31, 2000 and 1999 (Unaudited) F-49
Notes to Condensed Consolidated Financial Statements F-50
VI. Financial Statements of CGT (UK) Limited as of March 31, 2000
Report of the Directors F-52
Report of the Auditors F-54
Profit and Loss Account for the year ended March 31, 2000 F-55
Balance Sheet at March 31, 2000 F-56
Statement of Cash Flows for the year ended March 31, 2000 F-57
Notes to Financial Statements F-58
VII. Unaudited Condensed Financial Statements of CGT (UK) Limited as
of December 31, 2000
Unaudited Profit and Loss Account for the nine months ended
December 31, 2000 F-64
Unaudited Balance Sheet at December 31, 2000 F-65
Unaudited Statement of Cash Flows for the nine months ended
December 31, 2000 F-66
Notes to Financial Statements F-67
VIII. Financial Statements of Christopher Thomas Associates, Inc. as of
December 31, 2000 and 1999
Report of Independent Public Accountants F-70
Balance Sheets as of December 31, 2000 and 1999 F-71
Statements of Operations for the years ended
December 31, 2000 and 1999 F-72
Statements of Stockholders' Equity for the years ended
December 31, 2000 and 1999 F-73
Statements of Cash Flows for the years ended
December 31, 2000 and 1999 F-74
Notes to Financial Statements F-75
F-2
IX. Unaudited Condensed Financial Statements of Christopher Thomas
Associates, Inc. for the seven months ended July 31, 2001
Condensed Balance Sheets as of July 31, 2001 (Unaudited)
and December 31, 2000 F-81
Condensed Statements of Operations for the seven months ended
July 31, 2001 and 2000 (Unaudited) F-82
Condensed Statements of Cash Flows for the seven
months ended July 31, 2001 and 2000 (Unaudited) F-83
Notes to Condensed Financial Statements F-84
NOTE: Registrant has included herein the audited financial statements and
unaudited interim financial statements of CGT (UK) Limited, a foreign business,
meeting the requirements of Item 17 of Form 20-F as prescribed by Rule 3.05 of
Regulation S-X.
F-3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma financial statements give effect to the
following:
1. The acquisition of 100% of the common stock of Christopher Thomas
Associates, Inc. The price will consist of an initial cash payment of
$1,450,000, eight quarterly cash payments of $75,000, and two cash
earnout payments of $550,000 and $450,000 so long as the Christopher
Thomas operations have revenues of at least $4,500,000 for the years
ended December 31, 2001 and 2002, respectively. We completed this
transaction on October 9, 2001.
2. The acquisition of 100% 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 our Common Stock.
Under the terms of the acquisition agreement, we will issue up to an
additional 500,000 shares of our Common Stock to the former CGT
shareholders if CGT meets certain pretax earnings targets. We
completed this transaction on February 23, 2001 and have consolidated
the results of CGT in our financial statements from that date.
3. The acquisition by Greenstone Roberts Advertising, Inc. ("Greenstone
Roberts") of 100% of the outstanding capital stock of Kupper Parker
Communications, Incorporated ("Kupper Parker") in a transaction
accounted for as a reverse acquisition under the purchase method of
accounting. The consideration was comprised of $1,350,000 in cash and
approximately 10.9% of the assets and operations of Kupper Parker with
a fair value of approximately $806,000. We completed this transaction
on September 29, 2000 and have consolidated the results of Kupper
Parker and Greenstone Roberts from that date.
The unaudited pro forma balance sheet of Kupper Parker as of July 31, 2001
presents the financial position of Kupper Parker and Christopher Thomas assuming
the acquisition of Christopher Thomas had occurred on that date.
The unaudited pro forma income statements of Kupper Parker Communications,
Incorporated for the year ended October 31, 2000 and for the nine months ended
July 31, 2001 present the operations of all of the above-noted entities assuming
each acquisition had occurred at the beginning of each period presented.
This pro forma financial information does not purport to be indicative of
the results that would have actually occurred had these transactions occurred at
the beginning of each period presented or which may be obtained in the future.
F-4
KUPPER PARKER COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA BALANCE SHEET
AT JULY 31, 2001
KUPPER CHRISTOPHER PRO FORMA
PARKER THOMAS ADJUSTMENTS TOTAL
------------ ----------- ----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 1,201,759 $ 364,267 $ - $ 1,566,026
Accounts receivable, net of allowance for bad debts 6,000,386 3,679,481 9,679,867
Other current assets 809,051 85,702 - 894,753
------------ ----------- ----------- -----------
Total current assets 8,011,196 4,129,450 - 12,140,646
============ =========== =========== ===========
Property and equipment, net of accumulated depreciation and
amortization 1,029,775 415,440 - 1,445,215
Goodwill, net of accumulated amortization 3,143,812 - 2,392,770(d) 5,536,582
Investment in CiB 153,973 - - 153,973
Other assets 271,731 - - 271,731
------------ ----------- ----------- -----------
$ 12,610,487 $ 4,544,890 $ 2,392,770 $19,548,147
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 16,513 $ 61,999 $ 289,079(b) $ 367,591
Short-term bank borrowings 725,000 - 1,450,000(a) 2,175,000
Accounts payable 6,984,298 2,284,227 90,000(c) 9,358,525
Deferred revenue 512,301 1,082,846 - 1,595,147
Accrued expenses 515,607 1,407,143 - 1,922,750
------------ ----------- ----------- -----------
Total current liabilities 8,753,719 4,836,215 1,829,079 15,419,013
============ =========== =========== ===========
Noncurrent liabilities
Long-term debt, less current maturities 129,188 - 272,366(b) 401,554
Other long-term liabilities 1,416,767 - - 1,416,767
------------ ----------- ----------- -----------
Total noncurrent liabilities 1,545,955 - 272,366 1,818,321
============ =========== =========== ===========
Stockholders' equity
Common stock 596,595 5,000 (5,000)(e) 596,595
Paid-in capital 3,272,570 - - 3,272,570
Retained earnings (938,957) (296,325) 296,325(e) (938,957)
Treasury stock, at average cost (611,958) - - (611,958)
Cumulative translation adjustment (7,437) - - (7,437)
------------ ----------- ----------- -----------
2,310,813 (291,325) 291,325 2,310,813
------------ ----------- ----------- -----------
$ 12,610,487 $ 4,544,890 $ 2,392,770 $19,548,147
============ =========== =========== ===========
F-5
KUPPER PARKER COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
Historical
-------------------------------------------------------
KUPPER GREENSTONE CHRISTOPHER PRO FORMA
PARKER ROBERTS(f) CGT(g) THOMAS(h) ADJUSTMENTS TOTAL
------------ ----------- ---------- ----------- ----------- -----------
REVENUES $ 12,033,040 $ 2,776,772 $1,494,831 $ 4,000,280 $ - 20,304,923
OPERATING EXPENSES:
Salaries and Benefits 9,981,015 2,632,665 627,285 2,367,911 - 15,608,876
Office and General 2,336,578 1,595,426 589,544 2,015,217 128,361(i) 6,665,126
------------ ----------- ---------- ----------- ----------- ------------
Total Operating Expenses 12,317,593 4,228,091 1,216,829 4,383,128 128,361 22,274,002
------------ ----------- ---------- ----------- ----------- ------------
Operating Loss (284,553) (1,451,319) 278,002 (382,848) (128,361) (1,969,079)
OTHER INCOME (EXPENSE):
Interest income 106,448 74,439 6,887 26,967 - 214,741
Interest expense (45,365) (5,393) - (7,855) (210,635)(j) (269,248)
------------ ----------- ---------- ----------- ----------- ------------
61,083 69,046 6,887 19,112 (210,635) (54,507)
------------ ----------- ---------- ----------- ----------- ------------
Pretax Loss (223,470) (1,382,273) 284,889 (363,736) (338,996) (2,023,586)
PROVISION FOR TAXES 224,913 - 84,731 1,712 (224,913)(k) 86,443
------------ ----------- ---------- ----------- ----------- ------------
NET LOSS $ (448,383) $(1,382,273) $ 200,158 $ (365,448) $ (114,083) $ (2,110,029)
============ =========== ========== =========== =========== ============
BASIC AND DILUTED LOSS PER SHARE $ (0.09) (l) $ (0.38)
============ ============
WEIGHTED AVERAGE SHARES USED IN BASIC
AND DILUTED PER SHARE COMPUTATION 4,960,749 5,577,806
============ ============
F-6
KUPPER PARKER COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2001
Historical
---------------------------------------
KUPPER CHRISTOPHER PRO FORMA
PARKER CGT(m) THOMAS(n) ADJUSTMENTS TOTAL
----------- --------- ----------- ----------- ------------
REVENUES $ 9,955,374 $ 320,670 $ 3,733,305 $ - $ 14,009,349
OPERATING EXPENSES:
Salaries and Benefits 7,683,230 199,757 2,721,840 - 10,604,827
Office and General 2,669,969 119,189 784,196 5,477(o) 3,578,831
----------- --------- ----------- ----------- ------------
Total Operating Expenses 10,353,199 318,946 3,506,036 5,477 14,183,658
----------- --------- ----------- ----------- ------------
Operating Loss (397,825) 1,724 227,269 (5,477) (174,309)
OTHER INCOME (EXPENSE):
Interest income 50,405 - 17,068 - 67,473
Interest expense (51,297) (10,349) (95,476)(p) (157,122)
----------- --------- ----------- ----------- ------------
(892) - 6,719 (95,476) (89,649)
----------- --------- ----------- ----------- ------------
Pretax Loss (398,717) 1,724 233,988 (100,953) (263,958)
PROVISION FOR TAXES (97,077) 345 2,328 53,077(q) (41,327)
----------- --------- ----------- ----------- ------------
NET LOSS $ (301,640) $ 1,379 $ 231,660 $ (154,030) $ (222,631)
=========== ========= =========== =========== ============
BASIC AND DILUTED LOSS PER SHARE $ (0.05) (r) $ (0.04)
=========== ============
WEIGHTED AVERAGE SHARES USED IN BASIC
AND DILUTED PER SHARE COMPUTATION 5,793,458 5,824,227
=========== ============
F-7
KUPPER PARKER COMMUNICATIONS, INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Kupper Parker Communications, Incorporated ("Kupper Parker") has completed the
following purchase transactions since November 1, 1999:
o The acquisition by Greenstone Roberts Advertising, Inc. ("Greenstone
Roberts") of 100% of the outstanding capital stock of Kupper Parker
Communications, Incorporated ("Kupper Parker") in a transaction
accounted for as a reverse acquisition under the purchase method of
accounting. The consideration was comprised of $1,350,000 in cash and
approximately 10.9% of the assets and operations of Kupper Parker with
a fair value of approximately $806,000. We completed this transaction
on September 29, 2000 and have consolidated the results of Kupper
Parker and Greenstone Roberts from that date.
o The acquisition of 100% 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 our Common Stock.
Under the terms of the acquisition agreement, we will issue up to an
additional 500,000 shares of our Common Stock to the former CGT
shareholders if CGT meets certain pretax earnings targets. We
completed this transaction on February 23, 2001 and have consolidated
the results of CGT in our financial statements from that date.
o The acquisition of 100% of the common stock of Christopher Thomas
Associates, Inc. The price will consist of an initial cash payment of
$1,450,000, eight quarterly cash payments of $75,000, and two cash
earnout payments of $550,000 and $450,000 so long as the Christopher
Thomas operations have revenues of at least $4,500,000 for the years
ended December 31, 2001 and 2002, respectively. We completed this
transaction on October 9, 2001.
Because the acquisitions of Greenstone Roberts and CGT occurred prior to July 1,
2001, these business combinations were accounted for as purchase transactions
under APB Opinion No. 16, "Business Combinations". Goodwill arising from these
business combinations is being amortized over a twenty year period.
Because the acquisition of Christopher Thomas occurred after July 1, 2001, this
business combination has been accounted for under SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangibles Assets",
goodwill arising from this transaction will not be amortized but will be tested
for impairment at least annually.
F-8
The unaudited pro forma balance sheet includes the balance sheets of Christopher
Thomas Associates, Inc. ("Christopher Thomas") and Kupper Parker as of July 31,
2001. The unaudited pro forma statements of operations includes the statements
of operations of Kupper Parker, Greenstone Roberts, CGT and Christopher Thomas
for the year ended October 31, 2000 and for the nine months ended July 31, 2001.
These financial statements were presented as if each acquisition had occurred at
the beginning of each period presented.
The historical balance sheets as of July 31, 2001 have been derived from the
unaudited financial statements of Kupper Parker and Christopher Thomas included
elsewhere in this Form SB-1. The unaudited historical statements of operations
for Greenstone Roberts, CGT and Greenstone Roberts have been derived from the
books and records of these companies for the periods presented.
2. UNAUDITED PRO FORMA BALANCE SHEET AT JULY 31, 2001
(a) Represents the short-term borrowings incurred in connection with the
acquisition of Christopher Thomas.
(b) Represents the present value of the eight quarterly payments of
$75,000 owed to the former shareholders of Christopher Thomas.
(c) Represents estimated acquisition costs related to the acquisition of
Christopher Thomas.
(d) Represents the net excess of acquisition cost over the fair value of
net assets acquired in connection with the acquisition of Christopher
Thomas, calculated as follows:
Purchase price
Payable at closing $1,450,000
Present value of quarterly payments 561,445
----------
Total purchase price 2,011,445
Acquisition costs 90,000
----------
Total cost of acquisition 2,101,445
Less: fair value of net assets (liabilities) acquired (291,325)
----------
Excess of total cost of acquisition over the fair
value of net assets (liabilities) acquired $2,392,770
(e) Represents elimination of the equity accounts of Christopher Thomas.
F-9
3. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED
OCTOBER 31, 2000
(f) Represents the unaudited statement of operations of Greenstone Roberts
for the period of November 1, 1999 to September 28, 2000.
(g) Represents the unaudited statement of operations of CGT for the twelve
months ended October 31, 2000.
(h) Represents the audited statement of operations of Christopher Thomas
for the twelve months ended December 31, 2000.
(i) Represents amortization of goodwill arising from the acquisitions of
Greenstone Roberts and CGT as follows:
Eleven months amortization of goodwill arising from the
acquisition of Greenstone Roberts 111,931
Twelve months amortization of goodwill arising from the
acquisition of CGT 16,430
-------
128,361
(j) Represents interest expense arising from the acquisitions of
Greenstone Roberts, CGT and Christopher Thomas as follows:
Eleven months of interest expenses arising from the
acquisition of Greenstone Roberts 67,500
Twelve months of interest expense arising from the
acquisition of CGT 28,500
Twelve months of interest expense arising from the
acquisition of Christopher Thomas 87,000
Imputed interest expense arising from the eight quarterly
payments of $75,000 owed to the former shareholders
of Christopher Thomas 27,635
-------
210,635
(k) Represents tax benefits related to the losses of Greenstone Roberts
and Christopher Thomas that could be used to offset Kupper Parker's
taxable income. The pro forma effective tax rate differs from the
statutory rate due principally to non-deductible ESOP expense and tax
loss carryforwards that were not tax benefited.
(l) Represents the weighted average number of common shares outstanding
for the period presented after giving effect to the acquisitions.
4. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JULY
31, 2001
(m) Represents the unaudited statements of operations of CGT for the
period from November 1, 2000 through February 22, 2001.
(n) Represents the unaudited statement of operations of Christopher Thomas
for the nine months ended July 31, 2001.
F-10
(o) Represents amortization of goodwill arising from the acquisition of
CGT for the period of November 1, 2000 through February 22, 2001.
(p) Represents interest expense arising from the acquisitions of CGT and
Christopher Thomas as follows:
Four months of interest expense arising from the
acquisition of CGT 9,500
Nine months of interest expense arising from the
acquisition of Christopher Thomas 65,250
Imputed interest expense arising from the eight quarterly
payments of $75,000 owed to the former shareholders
of Christopher Thomas 20,726
-------
95,476
(q) Represents additional tax expense related to the income of Christopher
Thomas, a sub S corporation. The pro forma effective tax rate differs
from the statutory rate due principally to non-deductible goodwill
amortization.
(r) Represents the weighted average number of common shares outstanding
for the period presented after giving effect to the acquisitions.
F-11
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2000 AND 1999
F-12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kupper Parker Communications, Incorporated:
We have audited the accompanying consolidated balance sheets of Kupper Parker
Communications, Incorporated (a New York corporation) and subsidiaries as of
October 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kupper Parker
Communications, Incorporated and subsidiaries as of October 31, 2000 and 1999,
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
St. Louis, Missouri,
January 16, 2001
F-13
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AS OF OCTOBER 31, 2000 AND 1999
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,177,052 $ 538,783
Accounts receivable, net of reserve for bad debts of approximately
$208,000 and $95,000, respectively 7,047,089 7,389,137
Other current assets 1,268,440 432,416
------------ ------------
Total current assets 10,492,581 8,360,336
PROPERTY AND EQUIPMENT, net 1,146,160 746,669
GOODWILL, net of accumulated amortization of approximately $212,000
and $179,000, respectively 2,669,883 234,681
OTHER ASSETS 256,672 154,396
------------ ------------
Total assets $ 14,565,296 $ 9,496,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 64,572 $ 189,761
Short-term bank borrowings 550,000 --
Accounts payable 8,383,471 6,891,516
Deferred revenue 901,537 284,429
Accrued expenses 678,206 819,018
------------ ------------
Total current liabilities 10,577,786 8,184,724
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 166,393 319,010
Other long-term liabilities 1,522,477 178,466
------------ ------------
Total long-term liabilities 1,688,870 497,476
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value; 30,000,000 shares authorized; 5,833,950 and
4,855,950 shares issued 583,395 485,595
Paid-in capital 2,964,520 771,471
Accumulated deficit (637,317) (188,934)
Treasury stock, at average cost; 141,723 and -0- shares, respectively (611,958) --
Unearned ESOP shares -- (254,250)
------------ ------------
Total stockholders' equity 2,298,640 813,882
------------ ------------
Total liabilities and stockholders' equity $ 14,565,296 $ 9,496,082
============ ============
The accompanying notes are an integral part of these
consolidated balance sheets.
F-14
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
2000 1999
------------ ------------
REVENUES $ 12,033,040 $ 10,846,769
------------ ------------
OPERATING EXPENSES:
Salaries and benefits 9,981,015 8,781,833
Office and general 2,336,578 2,002,816
------------ ------------
Total operating expenses 12,317,593 10,784,649
------------ ------------
(Loss) income from operations (284,553) 62,120
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 106,448 67,816
Interest expense (45,365) (75,226)
------------ ------------
Total other income (expense) 61,083 (7,410)
------------ ------------
(Loss) income before income tax provision (223,470) 54,710
INCOME TAX PROVISION 224,913 113,928
------------ ------------
Net loss $ (448,383) $ (59,218)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.09) $ (0.01)
============ ============
WEIGHTED AVERAGE SHARES USED IN BASIC AND DILUTED PER
SHARE COMPUTATION 4,960,749 4,000,300
============ ============
The accompanying notes are an integral part of these
consolidated statements.
F-15
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
Common Stock
---------------------- Paid-In Retained
Shares Amount Capital Earnings
--------- --------- ----------- ---------
BALANCE, November 1, 1998 5,084,850 $ 508,485 $ 688,975 $(129,716)
Shares repurchased (228,900) (22,890) (102,933) -
Shares earned and
released by ESOP - - 185,429 -
Net loss - - - (59,218)
--------- --------- ----------- ---------
BALANCE, October 31, 1999 4,855,950 485,595 771,471 (188,934)
Shares issued 354,250 35,425 224,575 -
Shares repurchased (136,250) (13,625) (111,599) -
Shares earned and
released by ESOP - - 738,106 -
Effect of acquisition as
described in Note 2 760,000 76,000 1,341,967 -
Net loss - - - (448,383)
--------- --------- ----------- ---------
BALANCE, October 31, 2000 5,833,950 $ 583,395 $ 2,964,520 $(637,317)
========= ========= =========== =========
Treasury Stock
------------------- Unearned
Shares Amount ESOP Shares Total
------- --------- ----------- -----------
BALANCE, November 1, 1998 - $ - $ (472,000) $ 595,744
Shares repurchased - - - (125,823)
Shares earned and
released by ESOP - - 217,750 403,179
Net loss - - - (59,218)
------- --------- ------------ -----------
BALANCE, October 31, 1999 - - (254,250) 813,882
Shares issued - - - 260,000
Shares repurchased - - - (125,224)
Shares earned and
released by ESOP - - 254,250 992,356
Effect of acquisition as
described in Note 2 141,723 (611,958) - 806,009
Net loss - - - (448,383)
------- --------- ------------ -----------
BALANCE, October 31, 2000 141,723 $(611,958) $ - $ 2,298,640
======= ========= ============ ===========
The accompanying notes are an integral part of these consolidated statements.
F-16
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (448,383) $ (59,218)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities, net of effects of merger as described in Note 2-
Depreciation and amortization 268,311 227,569
Loss on sale of property and equipment 185 --
Deferred income taxes 40,245 23,040
Bad debt provision 145,237 50,000
Shares earned and released by ESOP 992,356 403,179
Contributions to ESOP, net of interest (254,250) (217,750)
(Increase) decrease in assets-
Accounts receivable 3,013,181 (2,615,664)
Other current assets (677,372) (216,727)
Other assets 49,897 (6,954)
Increase (decrease) in liabilities-
Accounts payable (1,891,657) 2,167,177
Deferred revenue 617,108 (14,396)
Accrued expenses (423,110) 628,993
Other long-term liabilities (44,353) (38,449)
----------- -----------
Total adjustments 1,835,778 390,018
----------- -----------
Net cash provided by operating activities 1,387,395 330,800
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (139,713) (198,969)
Cost of Greenstone Roberts Advertising, Inc., net of cash received (232,204) --
----------- -----------
Net cash used in investing activities (371,917) (198,969)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (61,985) (57,175)
Repurchases of common stock (125,224) (125,823)
Proceeds from issuance of short-term borrowings 1,350,000 --
Payments of short-term borrowings (800,000) --
Proceeds from issuance of common stock 260,000 --
----------- -----------
Net cash provided by (used in) financing activities 622,791 (182,998)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,638,269 (51,167)
CASH AND CASH EQUIVALENTS, beginning of year 538,783 589,950
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,177,052 $ 538,783
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-17
KUPPER PARKER COMMUNICATIONS, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Kupper Parker Communications, Incorporated and its wholly owned subsidiaries
(collectively the Company). All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 2 for a discussion
of the effects of the acquisition of Greenstone Roberts Advertising, Inc. during
2000.
Nature of Operations
The Company is an advertising and marketing communications business. The Company
provides professional promotion services, advertising services, public relations
services, direct marketing services and interactive services through various
forms of media including television, radio, print and the internet. In addition
to its headquarters in St. Louis, Missouri, the Company has satellite offices
located in Melville, New York; Kansas City, Missouri; New Orleans, Louisiana;
Nashville and Memphis, Tennessee; and Louisville, Kentucky. The Company operates
in only one segment.
Use of Estimates
The preparation of these financial statements requires the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition
The Company earns substantially all of its revenues from fees for services
performed and for production of advertisements. The Company also derives
revenues from commissions for the placement of advertisements in various media.
Revenues are recorded net of expenditures billed to clients for the placement of
advertisements. Accounts receivable and accounts payable are recorded gross of
these billings and related expenditures, respectively. Revenue is realized when
the service is performed or the media placement appears, in accordance with the
terms of the contractual arrangement, and collection is reasonably assured.
Salaries and other agency costs are charged to expense at the time incurred.
Deferred revenues represent fees and commissions which have been billed but not
yet earned.
Cash Equivalents
For purposes of balance sheet and statement of cash flow presentation, the
Company considers all highly liquid investments with an original maturity of 90
days or less to be cash equivalents.
Property and Equipment
The Company computes depreciation and amortization using the straight-line
method over the estimated useful life of the related asset as follows:
Equipment 3-5 years
Furniture and fixtures 5-7 years
Leasehold improvements Lease term or useful life,
whichever is shorter
F-18
Goodwill
The Company amortizes goodwill over periods from 10-20 years. Amortization of
goodwill amounted to $32,828 in 2000 and $27,609 in 1999.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and other long-term liabilities approximate fair value
because of the short maturity of those instruments. At October 31, 2000 and
1999, the Company estimates that the fair value of its long-term debt is not
materially different from its financial statement carrying value. The fair value
of long-term debt was estimated using quoted market prices or discounted future
cash flows.
Stock Options
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 at
grant date or other measurement date over the amount an employee must pay to
acquire the stock. The Company makes pro forma disclosures of net income (loss)
and earnings (loss) per share as if the fair value based method of accounting
had been applied as required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
Earnings Per Share
Basic earnings per share is computed by dividing net loss by the weighted
average number of shares outstanding during the year. Diluted earnings per share
is computed by dividing the net loss by the weighted average number of shares
outstanding, unless the calculation is antidilutive.
For all periods presented, the effect of dilutive securities is antidilutive. As
such, the denominator used in determining earnings per share is the same for
both basic and dilutive earnings per share.
Impairment of Assets
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted net cash flows
related to the asset over its remaining life, the carrying value of such asset
is reduced to its estimated fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, which
utilizes the liability method. Under this method, deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities given the provisions of the
enacted tax laws.
2. ACQUISITION OF GREENSTONE ROBERTS ADVERTISING, INC.:
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
F-19
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), $806,000
of stock, and $158,000 of acquisition costs.
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
years ended October 31, 2000 and 1999, assuming that the acquisition of
Greenstone was consummated on November 1, 1998.
2000 1999
----------- -----------
Revenues $14,809,812 $14,724,765
Loss before taxes (1,790,133) (628,911)
Net loss (1,790,133) (628,911)
Basic and diluted net loss per share (0.33) (0.14)
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, 1998, or which may result in the future.
3. RESERVE FOR BAD DEBTS:
Changes in the Company's reserve for bad debts for the years ended October 31,
2000 and 1999, were as follows:
Greenstone Roberts
Balance at Reserve at Date Provision for Write-Offs, Net Balance at
Year Beginning of Year of Acquisition Doubtful Accounts of Recoveries End of Year
---- ----------------- ------------------- ------------------ --------------- ------------
2000 $95,000 $135,000 $145,237 $(166,882) $208,355
1999 45,000 - 88,365 (38,365) 95,000
4. OTHER CURRENT ASSETS:
At October 31, 2000 and 1999, other current assets consisted of:
2000 1999
------------ ---------
Expenditures billable to clients $ 903,667 $ 262,774
Deferred income taxes 93,296 38,000
Prepaid expenses and other 271,477 131,642
------------ ---------
$ 1,268,440 $ 432,416
============ =========
F-20
5. PROPERTY AND EQUIPMENT, net:
At October 31, 2000 and 1999, property and equipment, net, consisted of:
2000 1999
------------ ------------
Equipment $ 937,162 $ 891,380
Furniture and fixtures 896,957 703,375
Leasehold improvements 284,523 27,714
------------ ------------
2,118,642 1,622,469
Less- Accumulated depreciation (972,482) (875,800)
------------ ------------
$ 1,146,160 $ 746,669
============ ============
6. LINE-OF-CREDIT AND LONG-TERM DEBT:
In September 2000, the Company borrowed $1,350,000 from a bank with a two-month
maturity to finance the acquisition of Greenstone. Borrowings under this
short-term borrowing arrangement are secured by accounts receivable and the
assignment of a $500,000 interest in a key-man life insurance policy that the
Company maintains on its chief executive officer. Interest on borrowings under
this arrangement are payable monthly at the prime rate. During October 2000, the
Company repaid $800,000 of this loan and repaid the balance in November 2000. At
October 31, 2000, the interest rate on this short-term bank borrowing was 9.5%.
The Company has a $1,000,000 revolving line-of-credit with a bank. Borrowings
under this agreement are secured by accounts receivable and assignment of a
$500,000 interest in a key-man life insurance policy that the Company maintains
on its chief executive officer. Interest on any borrowings under this agreement
is payable monthly at a rate of prime less 0.5%. This line-of-credit expires on
May 25, 2001. During 2000 and 1999, the Company did not use this line-of-credit.
At October 31, 2000 and 1999, long-term debt consisted of:
2000 1999
----------- ---------
Term loans $ - $ 254,250
Subordinated debt 230,965 254,521
------------ ----------
230,965 508,771
Less- Current maturities (64,572) (189,761)
----------- ---------
$ 166,393 $ 319,010
=========== =========
Scheduled maturities of long-term debt are $64,572, $105,828 and $60,565 in
2001, 2002 and 2003, respectively.
During the year ended October 31, 1994, the Company established a leveraged
Employee Stock Ownership Plan ("ESOP"). An employee stock ownership trust (the
"Trust") was established to fund the plan. The Trust purchased 2,730,450 shares
of the Company's stock with the proceeds of a $1,250,000 loan from a bank. This
loan, scheduled to be repaid on August 22, 2002, called for monthly principal
payments
F-21
of $12,000 plus interest at prime less 0.5%. The ESOP repaid this loan on May
28, 1999, from proceeds from the issuance of another $388,459 bank term loan.
The term loan, scheduled to be repaid on May 20, 2002, calls for monthly
principal payments of $10,750 plus interest at prime less 0.5%. The term loan is
secured by the Company's accounts receivable and assignment of a $500,000
interest in a key-man life insurance policy that the Company maintains on its
chief executive officer. Under the terms of both of these loans, the Company
guaranteed repayment of the loans and shares held by the Trust but not allocated
to participants were pledged as collateral. As a result, the outstanding trust
debt under these loans is reflected as debt of the Company and the shares
pledged as collateral against these loans is reported as "Unearned ESOP Shares"
as a contra equity account. On July 13, 2000, the Company paid off this loan.
The terms of the subordinated promissory note call for 120 equal monthly
payments of principal and interest of $6,217 at a 6.1% interest rate.
7. CONTINGENCIES:
The Company is involved in various claims and legal actions incidental to its
business. It is not possible at the present time to estimate the ultimate
liability, if any, of the Company with respect to such litigation; however,
management believes that any ultimate outcome will not have material effect on
the Company's results of operations or financial position.
8. STOCK OPTIONS:
The Company grants stock options to certain employees and directors. Options
have vesting periods that range from immediate vesting at the date of grant to a
period of one year after the date of grant. Options are generally exercisable up
to 6 years after the date of grant. Exercise prices range from $0.0002 to $2.38
for options outstanding at October 31, 2000. The weighted average remaining
contractual life for options outstanding at October 31, 2000, was 4.5 years.
A summary of the status of the Company's stock options for 2000 and 1999 and
changes during the years then ended is presented in the table below:
2000 1999
-------------------------------- -------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Outstanding at beginning of year 185,300 $0.0002 185,300 $0.0002
Granted - -
Assumed in acquisition (see Note 2) 65,300 $2.2500 -
Lapsed/canceled - -
---------- ----------
250,600 $0.5865 185,300 $0.0002
========== ==========
Options exercisable at end of year 231,850 185,300
========== ==========
F-22
SFAS No. 123 requires the Company to provide pro forma information regarding net
income (loss) and earnings (loss) per share as if compensation cost for the
Company's stock options 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. There were no options granted in 2000 and 1999. If the Company had
adopted the provisions of SFAS No. 123, the impact on reported net income (loss)
and earnings (loss) per share would be immaterial, therefore, no pro forma
information is disclosed.
9. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS:
The Company has two 401(k) plans and an employee stock ownership plan. The
Company's annual contribution to the 401(k) plans are discretionary, but may not
exceed the amount permitted as deductible expense under the Internal Revenue
Code. During 2000 and 1999, the Company did not make a contribution to these
plans.
During fiscal 1994, the Company established a leveraged Employee Stock Ownership
Plan ("ESOP") covering all employees who meet minimum age and length of service
requirements (see Note 6). Under the terms of the plan, the Company makes cash
contributions that may be no less than the required related debt service. The
ESOP shares were initially pledged as collateral for its debt. Shares are
released from collateral and allocated to participants, based on the portion of
debt service paid, as the related debt is repaid. The Company accounts for its
ESOP in accordance with SOP 93-6. The Company records, as compensation expense,
the fair value, as determined in the independent stock valuation report, of
shares released to participants, and the shares become outstanding for
earnings-per-share computations. During 2000, the Company terminated the ESOP
and paid off the related debt. During 2000 and 1999, the Company made cash
contributions of $265,828 and $247,919, respectively, to the ESOP and recorded
related compensation and interest expense of $992,356 and $11,578 in 2000 and
$403,179 and $30,169 in 1999, respectively. Following is a summary of the ESOP
shares at October 31, 2000 and 1999:
2000 1999
---------- ----------
Allocated shares 2,201,800 1,760,350
Shares allocated during year 468,700 441,450
Unreleased shares - 468,700
---------- ----------
Total ESOP shares 2,670,500 2,670,500
========== ==========
Fair value of unreleased shares $ - $ 430,000
========== ==========
10. LEASE OBLIGATIONS:
The Company leases all of its office facilities under operating leases. Rental
expense on these leases was $844,205 in 2000 and $595,058 in 1999.
The future minimum rental obligations for these leases are as follows:
Year Amount
---------- ----------
2001 $ 955,833
2002 969,828
2003 902,746
2004 913,381
2005 907,421
Thereafter 3,621,721
F-23
11. FEDERAL AND STATE INCOME TAXES:
In connection with the acquisition described in Note 2, the Company acquired net
operating loss carryforwards originating from operating losses previously
incurred at Greenstone. Due to the change in control that occurred as a result
of the acquisition, the Internal Revenue Code established certain annual
limitations on the amount of these net operating loss carryforwards that can be
used by the Company to reduce its taxable income in any one given year. This
annual limitation is approximately $138,000. These federal and state
carryforwards expire in various years through 2019.
Valuation allowances are established, based on the weight of available evidence,
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
The income tax provision consisted of the following:
2000 1999
-------- --------
Currently payable:
Federal $145,180 $ 85,113
State 39,488 5,775
-------- --------
184,668 90,888
-------- --------
Deferred:
Federal 31,033 18,673
State 9,212 4,367
-------- --------
40,245 23,040
-------- --------
$224,913 $113,928
======== ========
The tax effect of significant temporary differences representing deferred tax
assets (liabilities) as of October 31, 2000 and 1999, were as follows:
2000 1999
----------- --------
Current deferred:
Reserve for bad debts $ 81,302 $ 38,000
Charitable contribution carryover 23,231 -
Other 11,994 -
Valuation allowance (23,231) -
----------- --------
$ 93,296 $ 38,000
=========== ========
Long-term deferred:
Net operating loss carryforwards $ 1,285,852 $ -
Deferred compensation 591,422 71,386
Goodwill 168,533 -
Compensation expense related to stock options 44,961 44,961
Property and equipment (88,016) (73,496)
Valuation allowance (1,872,883) -
----------- --------
$ 129,869 $ 42,851
=========== ========
F-24
The reconciliation of the U.S. statutory rate to the effective income tax rate
is as follows:
2000 1999
------------ ------------
Provision for federal income taxes at the statutory rate $ (75,980) $ 18,601
State taxes, net of federal tax benefit 32,141 6,694
Impact of nondeductible ESOP compensation expense 250,956 63,046
Impact of nondeductible goodwill amortization 11,162 9,387
Nondeductible travel and entertainment 5,739 9,975
Other 895 6,225
------------ ------------
$ 224,913 $ 113,928
============ ============
12. SUPPLEMENTAL CASH FLOW DATA:
Interest and income taxes paid in 2000 and 1999 were as follows:
2000 1999
---------- ----------
Interest $ 48,256 $ 63,273
Income taxes 194,415 49,236
13. ACCOUNTING STANDARDS NOT YET IMPLEMENTED:
The Company is required to adopt Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," and Emerging Issues Task Force Issue
99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent," in the
fourth quarter of its fiscal year ending October 31, 2001. These pronouncements
establish accounting and reporting standards requiring the recognition of
revenue based on either the gross amount billed to a customer because it has
earned revenue from the sale of goods or services or the net amount retained
(that is, the amount billed to a customer less the amount paid to a supplier)
because it has earned a commission or fee based on certain facts and
circumstances. The Company has not yet quantified the impact, if any, of
adopting these pronouncements on the consolidated financial statements nor has
the Company determined the timing of their adoption.
14. SUBSEQUENT EVENTS:
On November 13, 2000, the Company acquired all of the outstanding capital stock
of Chameleon Design, Inc. ("Chameleon"), a Missouri corporation that specializes
in interactive design and development, in exchange for 62,000 shares of its
common stock. Under the terms of the acquisition agreement, the Company will
issue an additional 61,680 shares of its common stock to the former Chameleon
shareholders if Chameleon meets certain future revenue targets.
In November 2000, the Company purchased a 12% interest in The Communications in
Business Group Limited, a London-based communications agency, for $80,674.
On January 16, 2001, the Company signed a stock purchase agreement to acquire
all of the outstanding shares of CGT (UK) Limited, a London-based strategic
marketing communications agency, in exchange for $475,000 in cash and up to
570,000 shares of common stock. The stock payout will be over two years, based
on performance goals stipulated in the stock purchase agreement.
F-25
KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-26
KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
July 31, October 31,
2001 2000
---- ----
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
------------ ------------
Total Current Assets 8,011,196 10,492,581
------------ ------------
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
------------ ------------
Total Assets $ 12,610,487 $ 14,565,296
============ ============
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
------------ ------------
Total Current Liabilities 8,753,719 10,577,786
------------ ------------
Noncurrent Liabilities
Long-term debt, less current maturities 129,188 166,393
Other long-term liabilities 1,416,767 1,522,477
------------ ------------
Total Noncurrent Liabilities 1,545,955 1,688,870
------------ ------------
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) -
------------ ------------
Total Shareholders' Equity 2,310,813 2,298,640
------------ ------------
Total Liabilities and Shareholders' Equity $ 12,610,487 $ 14,565,296
============ ============
See accompanying notes to condensed consolidated financial statements.
F-27
KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THREE MONTHS ENDED JULY 31,
-------------------------------
2001 2000
---- ----
REVENUES $ 3,076,615 $ 3,000,599
----------- -----------
OPERATING EXPENSES:
Salaries and Benefits 2,473,760 2,927,615
Office and General 954,443 622,599
----------- -----------
Total Operating Expenses 3,428,203 3,550,214
----------- -----------
Operating Income (Loss) (351,588) (549,615)
OTHER INCOME (EXPENSE):
Interest income 5,692 28,252
Interest expense (19,246) (8,143)
----------- -----------
(13,554) 20,109
----------- -----------
Pretax Income (Loss) (365,142) (529,506)
PROVISION FOR TAXES (120,829) (26,399)
----------- -----------
NET INCOME (LOSS) $ (244,313) $ (503,107)
=========== ===========
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.04) $ (0.10)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-28
KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR NINE MONTHS ENDED JULY 31,
------------------------------
2001 2000
---- ----
REVENUES $ 9,955,374 $ 9,051,211
------------ ------------
OPERATING EXPENSES:
Salaries and Benefits 7,683,230 7,722,251
Office and General 2,669,969 1,681,223
------------ ------------
Total Operating Expenses 10,353,199 9,403,474
------------ ------------
Operating Income (Loss) (397,825) (352,263)
OTHER INCOME (EXPENSE):
Interest income 50,405 74,685
Interest expense (51,297) (29,252)
------------ ------------
(892) 45,433
------------ ------------
Pretax Income (Loss) (398,717) (306,830)
PROVISION FOR TAXES
(97,077) 185,529
------------ ------------
NET INCOME (LOSS) $ (301,640) $ (492,359)
============ ============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.05) $ (0.10)
============ ============
See accompanying notes to condensed consolidated financial statements.
F-29
KUPPER PARKER COMMUNICATIONS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31,
----------------------------------
2001 2000
---- ----
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
----------------- -------------------
Net Cash (Used) Provided by Operating Activities (375,570) 2,086,171
----------------- -------------------
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) -
----------------- -------------------
Net Cash Used By Investing Activities (683,288) (99,382)
----------------- -------------------
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) -
----------------- -------------------
Net Cash Provided by Investing Activities 89,736 (164,698)
----------------- -------------------
Impact of foreign currency on cash (6,171) -
----------------- -------------------
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
----------------- -------------------
Cash and cash equivalents, at end of period $ 1,201,759 $ 2,360,874
================= ===================
See accompanying notes to condensed consolidated financial statements.
F-30
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 elsewhere
in this Form SB-1. 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,
------------------ ------------------
2001 2000 2001 2000
------------ ------------ ------------ -------------
Net income (loss) $ (244,313) $ (503,107) $ (301,640) $ (492,359)
Foreign currency translation (7,437) -- (7,437) --
------------ ------------ ------------ -------------
Comprehensive income (loss) $ (251,750) $ (503,107) $ (309,077) $ (492,359)
============ ============ ============ =============
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,
------------------ -----------------
2001 2000 2001 2000
------------- ------------ ------------- -------------
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
F-31
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) $806,000 of equity, and $158,000 of acquisition costs.
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
------------- -------------
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.
6. 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. The Company is 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.
F-32
CONSOLIDATED FINANCIAL STATEMENTS OF
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
AS OF OCTOBER 31, 1999 AND 1998
F-33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Greenstone Roberts Advertising, Inc.
We have audited the accompanying consolidated balance sheets of Greenstone
Roberts Advertising, Inc. and subsidiary as of October 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greenstone Roberts
Advertising, Inc. and subsidiary at October 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
two years then ended, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Melville, New York
January 10, 2000
F-34
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
1999 1998
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,985,070 $ 1,753,681
Accounts receivable, net of allowance for bad debts
of $998,723 in 1999 and $986,723 in 1998 4,035,734 3,797,631
Billable production orders in process, at cost 126,413 249,858
Other current assets 116,886 73,487
----------- -----------
TOTAL CURRENT ASSETS 6,264,103 5,874,657
Furniture, equipment and leasehold improvements,
less accumulated depreciation and amortization 632,141 761,119
Deferred income taxes 194,120 194,120
Cost in excess of net assets acquired and other assets, net of
accumulated amortization of $97,041 in 1999 and
$80,323 in 1998 2,257 18,977
----------- -----------
TOTAL ASSETS $ 7,092,621 $ 6,848,873
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,834,686 $ 4,637,295
TOTAL CURRENT LIABILITIES ----------- -----------
4,834,686 4,637,295
Other liabilities 94,070 52,450
----------- -----------
TOTAL LIABILITIES 4,928,756 4,689,745
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares
Authorized, no shares issued or outstanding - -
Common stock, $.10 par value, 3,000,000 shares
authorized, 1,060,000 shares issued 106,000 106,000
Additional paid-in capital 3,343,793 3,600,692
Accumulated deficit (673,969) (179,956)
Less: treasury stock, 141,723 and 316,723 shares at cost (611,959) (1,367,608)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 2,163,865 2,159,128
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,092,621 $ 6,848,873
=========== ===========
See accompanying notes to consolidated financial statements
F-35
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31,
1999 1998
---- ----
Commissions and fees $ 3,877,996 $ 5,651,599
Expenses:
Salaries and employee-related expenses 2,894,914 3,961,639
Office and general expenses 1,535,595 2,343,506
----------- -----------
4,430,509 6,305,145
----------- -----------
(552,513) (653,546)
Interest income 58,500 79,647
Equity in operations and provision for loss on
amounts due from investee company - (378,102)
----------- -----------
Loss before income taxes (494,013) (952,001)
Federal income tax benefit - 13,153
----------- -----------
Net Loss $ (494,013) $ (938,848)
=========== ===========
Net loss per common share-basic and diluted $ (0.61) $ (1.26)
=========== ===========
Weighted average common shares outstanding-
Basic and diluted 812,813 743,277
=========== ===========
See accompanying notes to consolidated financial statements.
F-36
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
Common Stock Additional Treasury Stock
------------ Paid-in Retained --------------
Shares Amount Capital Earnings Shares Amount Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - OCTOBER 31, 1997 1,060,000 $ 106,000 $ 3,600,692 $ 758,892 316,723 $(1,367,608) $ 3,097,976
Net loss - - - (938,848) - - (938,848)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - OCTOBER 31, 1998 1,060,000 106,000 3,600,692 (179,956) 316,723 (1,367,608) 2,159,128
Treasury stock issued (256,899) (175,000) 755,649 498,750
Net loss (494,013) (494,013)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - OCTOBER 31, 1999 1,060,000 $ 106,000 $ 3,343,793 $ (673,969) 141,723 $ (611,959) $ 2,163,865
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-37
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net loss $ (494,013) $ (938,848)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 229,940 354,223
Provision for amounts due from investee company
and equity in operations - 378,102
Provision for bad debts 12,000 -
Changes in operating assets and liabilities:
Accounts receivable (250,103) 356,991
Billable production orders in process, at cost 123,445 245,854
Recoverable income taxes and other current assets (43,399) 48,122
Other assets - 12,311
Accounts payable and accrued liabilities 239,011 (1,128,069)
----------- -----------
Net cash used in operating activities (183,119) (671,314)
----------- -----------
INVESTING ACTIVITIES:
Purchases of furniture, equipment and leasehold
improvements (84,242) (438,443)
Advances to investee company, net - (125,932)
----------- -----------
Net cash used in investing activities (84,242) (564,375)
----------- -----------
FINANCING ACTIVITIES:
Sale of treasury stock 498,750 -
----------- -----------
Net cash provided by financing activities 498,750 -
----------- -----------
Net increase (decrease) in cash and cash equivalents 231,389 (1,235,689)
Cash and cash equivalents at beginning of year 1,753,681 2,989,370
----------- -----------
Cash and cash equivalents at end of year $ 1,985,070 $ 1,753,681
=========== ===========
SUPPLEMENTAL NON CASH ACTIVITY:
In 1998, Notes Payable, which related to an acquisition, totaling $250,000 were
written off against related goodwill
See accompanying notes to consolidated financial statements
F-38
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Greenstone Roberts Advertising, Inc. and its wholly-owned subsidiary, Greenstone
Roberts Advertising Florida, Inc. ("Florida"), (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Nature of Business:
The Company is a full service advertising agency which analyzes and provides
advertising for its clients, and plans and creates advertising for dissemination
through various media such as television, radio, newspapers, magazines and
billboards. The Company operates in only one segment.
Recognition of Commission and Fee Revenue
Substantially all revenues are derived from commissions for placement of
advertisements in various media and fees for production of advertisements and
marketing materials. Such revenues are recognized as earned. Billings are
generally rendered upon insertion date for media and as costs are incurred for
production. Fee revenue is recognized when services are rendered. Accounts
receivable include both the income recognized, as well as the actual media and
production costs which are paid for by the Company and rebilled to clients at
the Company's cost plus agreed upon commissions.
Concentration of Credit Risk
The Company provides advertising and marketing services to a wide range of
clients who operate in many industry sectors and are principally located in the
Northeast. The Company grants credit to all qualified clients and generally does
not require collateral. The Company does not believe it is exposed to any undue
concentration of credit risk to any significant degree.
(see Note 7.)
Reclassifications
Certain amounts as previously reported have been reclassified to conform to
current year classifications.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents, including commercial
paper, certificates of deposit and money market mutual funds. Cash equivalents
as of October 31, 1999 and 1998 were approximately $1,985,000 and $1,750,000,
respectively.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method, over the estimated useful lives of the
related assets as follows:
Furniture 5 - 7 years
Equipment 5 - 7 years
Leasehold improvements Lease term or useful life, whichever is shorter
F-39
Long Lived Assets
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable through the estimated undiscounted future
cash flows from the use of these assets. When such an impairment exists, the
related assets will be written down to fair value. No impairment losses have
been necessary through October 31, 1999.
Income Taxes
The Company accounts for income taxes on the liability method. Under the
liability method, deferred income taxes are provided on the differences in bases
of assets and liabilities between financial reporting and tax returns using
enacted tax rates.
Earnings (Loss) Per Share
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect, in
periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options. For fiscal 1999 and 1998, all options
outstanding were anti-dilutive. These options expire in 2005.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles required the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company reviews all significant estimates affecting the financial statements on
a recurring basis and records the effect of any adjustments when necessary.
Stock-based Compensation
The Company accounts for its stock option awards under the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income (loss) and earnings (loss) per share as if the fair value based method of
accounting had been applied as required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses are reasonable estimates of their fair value because of the short
maturity of these items.
2. INVESTMENT IN INVESTEE COMPANY:
On August 8, 1996, the Company acquired a 49% interest in the Gothard Group,
Inc., a Miami-based public relations agency. The Company merged its existing
public relations business and its Hispanic Division into the Gothard Group, Inc.
and renamed the new company Gothard/Greenstone Roberts, Inc. ("Gothard"). The
Company accounted for its interest in Gothard using the equity method of
accounting. The excess of the purchase price over the net assets of the acquired
interest was being amortized over ten years.
In July 1998 the Company filed a lawsuit against Gothard seeking among other
things, damages under a certain management agreement and repayment of certain
loans made by the Company to Gothard. (See note 9). In December 1998, Gothard
filed for Chapter 7 bankruptcy protection and all assets were placed in trust.
During 1998, the Company advanced Gothard approximately $126,000 ($75,000 of
F-40
which represented the payment of an outstanding bank loan for which the Company
was a guarantor). In connection with Gothard filing for Chapter 7, the Company
fully reserved approximately $126,000 of accounts receivable and $186,000 of
advances due from Gothard at October 31, 1998. Also, for the year ended October
31, 1998, the Company recorded an equity loss of $66,258 representing its
proportionate share of Gothard's losses up to the Company's remaining investment
in Gothard. No additional loss of Gothard will be recognized as the Company has
no plans to support the operations of Gothard.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements are summarized as follows:
October 31, October 31,
1999 1998
---- ----
Office equipment $ 1,613,469 $ 1,584,159
Furniture and fixtures 182,083 172,596
Leasehold improvements 324,902 279,456
----------- -----------
2,120,454 2,036,211
Less accumulated depreciation and amortization (1,488,313) (1,275,092)
----------- -----------
$ 632,141 $ 761,119
=========== ===========
Depreciation expense totaled approximately $213,000 and $387,000 for the years
ended October 31, 1999 and 1998, respectively.
4. LINE OF CREDIT AGREEMENT:
The Company has available a $500,000 line of credit with a bank, which expires
April 30, 2000. Borrowings against this line bear interest at the prime rate, as
defined. The prime rate approximated 8.0% at October 31, 1999. The Company did
not have any amounts outstanding to the bank at October 31, 1999. The Company
intends to renew its line of credit in April 2000.
5. INCOME TAXES:
As a result of losses from operations, the Company has available a Federal net
operating loss carryforward of approximately $1,265,000 which expires in various
years through 2019, a New York State net operating loss carryforward of
approximately $972,000 which expires in various years through 2018, and a
Florida state net operating loss carryforward of approximately $2,007,000 which
expires in various years through 2018.
F-41
The components of the Company's net deferred tax assets are as follows:
October 31, October 31,
1999 1998
---- ----
Deferred tax liability:
Fixed assets $ (23,000) $ (9,000)
Other - (24,000)
----------- -----------
Total deferred tax liability (23,000) (33,000)
----------- -----------
Net Deferred tax assets:
Net operating loss carryforwards 487,000 344,000
Accounts receivable reserves 456,000 452,000
Amortization of excess of purchase price
over net assets acquired 169,000 141,120
Other 33,120 -
----------- -----------
Total deferred tax assets 1,145,120 937,120
----------- -----------
Valuation allowance for deferred tax assets (928,000) (710,000)
----------- -----------
Net deferred tax assets $ 194,120 $ 194,120
=========== ===========
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
The following table reconciles the Federal statutory rate to the Company's
effective rate:
October 31, October 31,
1999 1998
---- ----
(Benefit)provision for Federal income
taxes at the statutory rate (34.0)% (34.0)%
State income taxes, net of Federal
Income tax benefit (4.5) -
Non-deductible expenses 1.0 2.7
Other - 1.1
Increase in valuation allowance 37.5 28.8
---------- ----------
-% (1.4)%
========== ==========
Income taxes paid during the years ended October 31, 1999 and 1998 were
approximately $0 and $10,000, respectively.
6. SAVINGS PLAN:
The Company maintains a 401(k) Savings Plan ("Savings Plan") that covers all
employees with one or more years of service. The Company matches employee
contributions utilizing a percentage determined at the discretion of management.
Such percentage was 15% of employee contributions for the years ended October
31, 1999 and 1998. The Company's matching contribution to the Savings Plan was
approximately $14,000 and $17,000 for the years ended October 31, 1999 and 1998,
respectively.
7. SIGNIFICANT CUSTOMERS:
For the year ended October 31, 1999, five customers represented 17%, 17%, 12%,
11% and 11% of the Company's revenues. For the year ended October 31, 1998,
revenues from four customers represented 19%, 16%, 13% and 12% of the Company's
revenues. For the year ended October 31, 1999, two customers represented 50% and
28% of the Company's Accounts Receivable. For the year ended October 31, 1998
three customers represented 26%, 25% and 21% of the Company's Accounts
Receivable.
F-42
8. STOCK OPTION PLAN:
In December 1988, the Board of Directors approved the adoption of the 1988 Stock
Option Plan (the "Plan"). The Plan was amended in 1990 to increase the number of
common shares reserved for issuance to key employees, including officers and
directors who are also employees, from 60,000 to 90,000 shares. All options are
granted at no less than 100% of the fair market value on the date of grant.
Options expire from two to six years from the date of grant, and are exercisable
one year from the date of grant. Options that are unexercised are canceled
immediately if the holder ceases to be an employee of the Company.
At a meeting on January 26, 1998, the Board of Directors elected to amend the
Plan to permit the granting of stock options to non-employee directors. In
addition, the Board of Directors voted to issue 4,000 shares of common stock to
each of the non-employee directors. The fair value of the options granted was
not material. The Board also voted to grant to all members of the Board of
Directors who are not employees of the Company an additional 2,000 options to
purchase shares of stock of the Company on each anniversary that such individual
is a member of the Board of Directors. The amendment of the Company's Stock
Option Plan to provide for the issuance of the Stock Options to non-employee
members of the Board of Directors was voted upon and approved at the Company's
annual meeting on April 8, 1998.
The following table summarizes stock option activity:
Shares Weighted-Average
Under Option Exercise Price
------------ --------------
BALANCE, October 31, 1997 at exercise price of $2.25 76,850 $ 2.25
Options canceled at exercise price of $2.25 (20,600) $ 2.25
Options granted at exercise price of $2.75 12,300 $ 2.75
-------- --------
BALANCE, October 31, 1998 at exercise prices from $2.25 to $2.75 68,550 $ 2.34
Options canceled at exercise price of $2.75 (300) $ 2.75
Options canceled at exercise price of $2.25 (4,000) $ 2.25
Options granted at exercise price of $1.28 2,500 $ 1.28
Options granted at exercise price of $1.00 15,000 $ 1.00
======== ========
BALANCE, October 31, 1999 at exercise prices 81,750 $ 2.05
======== ========
The weighted-average fair value of options granted during the years ended
October 31, 1999 and 1998 was $0.46 and $1.52, respectively. At October 31, 1999
and 1998, 8,250 and 21,450 shares respectively were available for grant.
The following table summarizes information about stock options outstanding at
October 31, 1999:
Options Outstanding Options Exercisable
---------------------------------------------------------------- -----------------------------------
Exercise Number outstanding Weighted average Number exercisable
prices at 10/31/99 remaining contractual life at 10/31/99
$ 2.25 52,250 3.75 52,250
$ 2.75 12,000 4.33 12,000
$ 1.281 2,500 5.00 2,500
$ 1.00 15,000 5.50 --
----------------------------------------------------------------------------------------------------------------------------
81,750 4.19 66,750
F-43
SFAS No. 123,"Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants;dividend yield of zero for both years; expected
volatility of 46.0% in 1999 and 58.0% in 1998; risk-free interest rates of
ranging from 4.5% to 5.5% in 1999 and 5.45% in 1998; and expected lives of five
years for both years.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
and earning (loss) per share would have been reduced to the pro forma amounts
indicated below:
1999 1998
----------------------------------------------------------------------------------------
Net income (loss)
As reported $ (494,013) $ (938,848)
Pro forma (502,013) (959,000)
Net income (loss) per common
share-basic and diluted
As reported $ (0.61) $ (1.26)
Pro forma (0.62) (1.29)
9. COMMITMENTS AND CONTINGENCIES:
Leases
At October 31, 1999, the Company was committed under operating leases,
principally for office space, through fiscal 2008.
Rent expense was approximately $364,000 and $605,000, for the years ended
October 31, 1999 and 1998, respectively. Future minimum rents under the
remaining terms of existing operating leases are as follows:
Fiscal
------
2000 $ 284,136
2001 $ 299,658
2002 $ 335,163
2003 $ 342,606
Thereafter $1,887,003
Employment Agreements
Effective January 1, 1998, the Company renewed its employment agreement with its
chief executive officer. The agreement provides for annual compensation of
$275,000 and incentive compensation of an amount equivalent to 10% of income
before provision for income taxes and expires on December 31, 2000. The
agreement provides for, upon termination, a one time payment equal to the
current annual salary then being paid for a one year non-compete agreement.
In December 1999, the Company and its President agreed that his employment will
be on an "at will" basis, with a salary of $225,000 and fringe benefits, as
defined. The Company or the employee may terminate such employee's employment
with 30 days written notice upon which time a lump sum payment of $225,000 will
be paid.
Consulting Agreement
On June 9, 1999 a third party purchased 175,000 of the Company's common shares
for the sum of $498,750. The shares were sold from the Company's existing
treasury stock. At the same time, the Company entered into a consulting
agreement with such third party, for a term of four years, at a fee of $50,000
per annum.
F-44
Litigation
Various claims, suits and complaints arise in the ordinary course of the
Company's business. In the opinion of the Company, all such pending matters are
without merit, covered by insurance or of such kind, or involve such amounts, as
would not have a material adverse effect on the financial statements of the
Company if disposed of unfavorably.
In June 1997, a former client of the Company filed a civil claim against the
Company and Gothard. The former client sought, among other remedies, to be
relieved of its obligation to pay outstanding bills due and owing the Company
and to collect damages. The Company and Gothard filed a counterclaim against the
former client seeking payment of amounts due for advertising and public
relations services and expenses. Accordingly, related accounts receivable were
reserved for at October 31, 1997. In February 1998, the Company obtained
judgment against the former client in the total amount of $1,196,000. Efforts to
collect the judgment have, thus far, been unsuccessful. On September 20, 1999
the former client filed for Chapter 7 Bankruptcy in United States Bankruptcy
Court, Middle District of Florida, Tampa Division. The Company is filing its
claim as a creditor with the bankruptcy trustee.
Greenstone Roberts Advertising Florida, Inc., a wholly-owned subsidiary of the
Company, The Gothard Group d/b/a Gothard/Greenstone Roberts, an entity which is
49% owned by Greenstone Roberts Advertising Florida, Inc. and Ronald Greenstone,
Chairman of the Board, Chief Executive Officer and Director of the Company were
named defendants in litigation filed by Barbara W. Gothard in Circuit Court in
Miami-Dade County, Florida on April 21, 1998. The action arises from a dispute
between the Company and Barbara Gothard concerning the management and operation
of the Gothard Group. The action seeks, among other things, the dissolution of
and the appointment of a receiver over the Gothard Group, an accounting,
injunctive relief and damages. The Company is vigorously defending the claims
against it and this case has been consolidated, under court order, with an
earlier filed action between Greenstone Roberts Florida, Inc. against The
Gothard Group and Barbara W. Gothard in which the Company seeks, among other
things, damages for breaches of contract and breaches of fiduciary duty. Written
discovery has commenced and each side has filed motions to dismiss, which have
not yet been heard by the Court. Pursuant to the agreement of the parties, the
Court has appointed a receiver for The Gothard Group. On December 15, 1998, a
Chapter 7 bankruptcy was filed on behalf of The Gothard Group, Inc. by Barbara
Gothard and a bankruptcy trustee has been appointed. Management believes that
the outcome of such litigation will not have a material adverse effect on its
financial condition or annual results of operations.
Barbara Gothard, The Gothard Group, Inc., d/b/a Gothard/Greenstone Roberts were
named defendants in litigation filed by Centurion Capital Corp in Circuit Court
in Miami-Dade County Florida on April 29, 1998. This action asserts a claim
against the defendants in the amount of approximately $60,000 based on alleged
claims of breach of contract, money lent, conversion and account stated. The
Company is vigorously defending the claims. Management believes that the outcome
of such litigation will not have a material effect on its financial condition or
annual results of operations.
F-45
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 2000 AND 1999
F-46
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED)
JULY 31, OCTOBER 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,261,096 $ 1,985,070
Accounts receivable, net of allowance for bad debts
of $21,000 in 2000 and $998,723 in 1999 2,053,844 4,035,734
Billable production orders in process, at cost 172,456 126,413
Other current assets 63,336 116,886
----------- -----------
TOTAL CURRENT ASSETS 3,550,732 6,264,103
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of
$716,004 in 2000 and $1,488,313 in 1999 527,828 632,141
Deferred income taxes 194,120 194,120
Other assets 113,625 2,257
----------- -----------
TOTAL ASSETS $ 4,386,305 $ 7,092,621
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 2,540,437 $ 4,834,686
----------- -----------
TOTAL CURRENT LIABILITIES 2,540,437 4,834,686
----------- -----------
Other liabilities 123,255 94,070
----------- -----------
TOTAL LIABILITIES 2,663,692 4,928,756
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.10 par value, 30,000,000 shares
authorized, 1,060,000 shares issued 106,000 106,000
Additional paid-in capital 3,343,793 3,343,793
Accumulated deficit (1,115,221) (673,969)
Less: treasury stock, 141,723 shares at cost (611,959) (611,959)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,722,613 2,163,865
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,386,305 $ 7,092,621
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-47
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THREE MONTHS ENDED JULY 31, FOR NINE MONTHS ENDED JULY 31,
------------------------------- ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
COMMISSIONS AND FEES $ 647,023 $ 700,643 $ 2,366,813 $ 2,870,958
----------- ----------- ----------- -----------
EXPENSES:
Salaries and employee related expenses 661,906 722,445 1,858,611 2,294,439
Office and general expenses 328,242 381,538 1,010,749 1,150,927
----------- ----------- ----------- -----------
Total operating expenses 990,148 1,103,983 2,869,360 3,445,366
----------- ----------- ----------- -----------
Loss from operations (343,125) (403,340) (502,547) (574,408)
Interest income 18,197 13,627 61,295 42,070
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (324,928) (389,713) (441,252) (532,338)
----------- ----------- ----------- -----------
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (324,928) $ (389,713) $ (441,252) $ (532,338)
=========== =========== =========== ===========
LOSS PER COMMON
SHARE; BASIC AND DILUTED $ (0.35) $ (0.46) $ (0.48) $ (0.68)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTING LOSS PER
COMMON SHARE, BASIC AND DILUTED 918,277 844,092 918,277 778,277
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-48
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31,
----------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net loss $ (441,252) $ (532,338)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 145,845 175,435
Provision for bad debts 9,000 41,500
Changes in operating assets and liabilities:
Accounts receivable 1,972,890 892,581
Billable production orders in process, at cost (46,043) 157,808
Other current assets 53,550 (49,035)
Other assets (111,368) 14,286
Accounts payable, accrued liabilities and other (2,300,891) (1,603,696)
----------- -----------
Net cash used in operating activities (718,269) (903,459)
----------- -----------
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (5,705) (89,833)
----------- -----------
Net cash used in investing activities (5,705) (89,833)
----------- -----------
FINANCING ACTIVITIES:
Sale of treasury stock -- 498,750
----------- -----------
Net cash provided by financing activities -- 498,750
----------- -----------
Net decrease in cash and cash equivalents (723,974) (494,542)
Cash and cash equivalents at beginning of year $ 1,985,070 1,753,681
----------- -----------
Cash and cash equivalents at end of period $ 1,261,096 $ 1,259,139
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash financing activities - Equipment acquired under capital lease 35,827 0
See accompanying notes to condensed consolidated financial statements.
F-49
GREENSTONE ROBERTS ADVERTISING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation have
been included. It is suggested that the financial statements be read in
conjunction with the Company's consolidated audited financial
statements and footnotes thereto contained elsewhere in this Form SB-1.
Operating results for the three and nine month periods ended July 31,
2000 are not necessarily indicative of the results that may be expected
for the full fiscal year ended October 31, 2000.
2. The condensed consolidated financial statements include the accounts of
the Company and its subsidiary. All significant inter-company balances
and transactions have been eliminated.
3. 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.
4. On August 16, 2000, in anticipation of the merger with Kupper Parker
Communications, Inc. ("KPC"), St. Louis, Missouri, as discussed in Note
5 below, and new directors being appointed by the Board of Directors on
the effective date of the merger, directors Anthony V. Curto, Monsignor
Thomas Hartman, Richard Projain, and Victor Trizzino resigned (and as
Secretary in the case of Mr. Curto) and Ronald Greenstone, Chairman of
the Board and CEO of Greenstone Roberts was elected Secretary. In
addition, on August 16, 2000, Herman Fialkov was appointed by the Board
of Directors of the Company to replace the board seat previously held
by Anthony Curto.
5. On August 25, 2000 the Company announced that it had signed a
definitive merger agreement with KPC. This merger is subject to
shareholder approval. Greenstone Roberts has filed with the SEC a
preliminary prospectus/proxy statement included in a form S-4
concerning the planned merger. Under the proposed terms, shares of the
privately held Kupper Parker stock will be exchanged for 5,073,950 new
shares of Greenstone Roberts. In addition, 300,000 existing Greenstone
Roberts shares would be repurchased by the merged entity for cash at
$4.50 per share. At July 31, 2000, $107,585 in costs relating to this
merger have been deferred and are included as prepaid merger costs in
Other Assets.
F-50
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
DIRECTORS' REPORT
AND
FINANCIAL STATEMENTS
31 MARCH 2000
COMPANY NUMBER: 3304518
F-51
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
DIRECTORS
J L Coleman
R M Thackery
D I Thatcher
SECRETARY AND REGISTERED OFFICE
D I Thatcher
15 Station Road
St Ives
Cambridgeshire
PE27 5BH
REPORT OF THE DIRECTORS
The directors submit their report and the financial statements for the year
ended 31 March 2000.
ACTIVITIES AND REVIEW
The company's principal activity during the year was as an advertising agency.
On 16 March 2000 the company changed its name to CGT (UK) Limited.
RESULTS AND DIVIDENDS
The results for the year are shown on page 4 to the accounts. The directors
propose the payment of a dividend of (POUND) 200,000 for the year (1999 :
(POUND) 102,000 paid).
DIRECTORS AND THEIR INTERESTS
The directors who held office during the year under review were as named above.
The directors have the following interest in the share capital of the company.
ORDINARY SHARES
2000 1999
NO NO
J L Coleman 2,080 2,080
R M Thackery 2,080 2,080
D I Thatcher 1,040 1,040
DATE RECOGNITION
The directors have assessed the risks to our business resulting from
date-recognition issues. We do not envisage any such problems and hence foresee
no costs being incurred as a result.
We have also assessed the possibility of date-recognition related failures in
our significant suppliers, who inform us that they have adequately addressed
these problems.
It is impossible to guarantee that no date-recognition problems will remain.
However, the directors believe that the company will be able to deal promptly
with any failures that might occur.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution for the
re-appointment of Edwards as auditors of the company is to be proposed at the
forthcoming Annual General Meeting.
F-52
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
REPORT OF THE DIRECTORS CONTINUED
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
- prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time, the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. The directors are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
In preparing this report advantage has been taken of the special exemptions
conferred by Part VII of the Companies Act 1985 relating to small companies.
BY ORDER OF THE BOARD
16 JANUARY 2001 D I THATCHER
D I THATCHER
SECRETARY
F-53
[EDWARDS CHARTERED ACCOUNTANTS LETTERHEAD]
REPORT OF THE AUDITORS TO THE MEMBERS OF
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
We have audited the financial statements on pages four to eleven.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors are responsible for preparing the directors' report and, as
described on page 2, the financial statements in accordance with applicable
United Kingdom law and accounting standards. Our responsibilities, as
independent auditors, are established in the United Kingdom by statute, the
Auditing Practices Board and by our profession's ethical guidance.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act. We
also report to you if, in our opinion, the directors' report is not consistent
with the financial statements, if the company has not kept proper accounting
records, if we have not received all the information and explanations we require
for our audit, or if information specified by law regarding directors'
remuneration and transactions with the company is not disclosed.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the preparation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 March 2000 and of the results for the year
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985.
16 JANUARY 2001 EDWARDS
EDWARDS
REGISTERED AUDITORS
F-54
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2000
2000 1999
NOTES (POUND) (POUND)
TURNOVER 1 2,081,868 1,671,729
Cost of sales (1,168,369) (979,530)
----------- ----------
GROSS PROFIT 913,499 692,199
Administrative expenses (655,779) (476,976)
----------- ----------
OPERATING PROFIT 2 257,720 215,223
Investment income and interest receivable 3,978 4,220
----------- ----------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 261,698 219,443
Taxation 3 (55,816) (47,029)
----------- ----------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION 205,882 172,414
Dividends 5 (200,000) (102,000)
----------- ----------
RETAINED PROFIT FOR THE YEAR (POUND) 5,882 (POUND) 70,414
----------- ----------
CONTINUING OPERATIONS
Turnover and operating profit derive wholly from continuing operations for the
above two financial years.
TOTAL RECOGNISED GAINS AND LOSSES
There were no recognised gains or losses either in the current or preceding year
other than those recorded in the profit and loss account.
HISTORICAL PROFITS AND LOSSES
Historical profit is the same as shown above.
F-55
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
BALANCE SHEET
AS AT 31 MARCH 2000
2000 1999
NOTES (POUND) (POUND) (POUND) (POUND)
FIXED ASSETS
Tangible assets 6 64,332 54,107
Investments 7 15,000 -
------- -------
79,332 54,107
CURRENT ASSETS
Stocks 32,745 51,996
Debtors 8 399,283 378,231
Cash at bank and in hand 44,449 178,171
------ ------
476,477 608,398
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR 9 (439,795) (552,373)
------ ------
NET CURRENT ASSETS 36,682 56,025
------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES (POUND) 116,014 (POUND) 110,132
------- -------
CAPITAL AND RESERVES
Called up share capital 11 5,200 5,200
Profit and loss account 12 110,814 104,932
------- -------
SHAREHOLDERS' FUNDS 13 (POUND) 116,014 (POUND) 110,132
------- -------
In the opinion of the directors, for the year ended 31 March 2000, the company
was entitled to the exemptions under Part VII of the Companies Act 1985 and the
accounts have been prepared in accordance with the special provisions of the Act
relating to small companies.
These financial statements were approved by the board of directors on 16 January
2001 and were signed on its behalf by:
J L COLEMAN
J L COLEMAN
DIRECTOR
F-56
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
STATEMENTS OF CASHFLOWS
FOR THE YEAR ENDED 31 MARCH 2000
2000 1999
(POUND) (POUND) (POUND) (POUND)
CASHFLOWS FROM OPERATING ACTIVITIES
Net profit 5,882 117,664
------- -------
Adjustments to reconcile net profit to net cash provided
by operating activities
Depreciation and amortisation 22,220 11,734
(Increase)/decrease in assets
Accounts receivable (40,095) (238,166)
Other current assets 38,294 (43,732)
Other assets (15,000) (25,333)
Increase/(decrease) in liabilities
Accounts payable (228,979) 224,603
Accrued expenses 116,401 100,576
------- -------
Total adjustments (107,159) 29,682
------- -------
Net cash provided by operating activities (101,277) 147,346
------- -------
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (32,445) (42,878)
------- -------
Net (decrease)/increase in cash and cash equivalents (133,722) 104,468
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 178,171 73,703
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR (POUND) 44,449 (POUND) 178,171
------- -------
F-57
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2000
1 ACCOUNTING POLICIES
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
company's financial statements:
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
TURNOVER
Turnover represents sales invoiced net of Value Added Tax and is
derived wholly from within the United Kingdom.
TANGIBLE FIXED ASSETS
Tangible fixed assets acquired by the company have been capitalised at
cost.
LEASED ASSETS
Assets which have been funded through finance leases are recorded as
tangible fixed assets and are depreciated over their estimated useful
lives. Further lease obligations, net of finance charges are included
in creditors. Rentals payable are apportioned between the finance
element which is charged to the profit and loss account and the capital
element which reduces outstanding lease obligations. All other leases
are operating leases and the rental charges are taken to profit and
loss account over the life of the lease.
DEPRECIATION
Depreciation is provided on tangible fixed assets at rates calculated
to write off the cost less estimated residual value over the estimated
useful life as follows:-
Plant and machinery - 25%/33% on cost
Fixtures, fittings and equipment - 25% on cost
STOCKS
Stocks are valued at the lower of cost and net realisable value. Cost
comprises the purchase cost plus the cost incurred in bringing each
product to its present location or condition. Net realisable value is
based on estimated selling price and further costs expected to be
incurred to completion, sale and distribution.
FINANCE LEASES AND HIRE PURCHASE CONTRACTS
Assets held under finance leases and hire purchase contracts are
capitalised as tangible fixed assets and depreciated in accordance with
the policies outlined above. Lease obligations are included as
creditors, with the interest being charged against profit over the
period of the lease.
OPERATING LEASES
Rentals under operating leases are charged against profits as they are
incurred.
DEFERRED TAXATION
No provision has been made for deferred taxation, as, in the opinion of
the directors, the likelihood of the liability crystallising in the
foreseeable future is remote.
PENSION COSTS
The company operates a money purchase (defined contribution) pension
scheme. Contributions payable to this scheme are charged to the profit
and loss account in the period to which they relate. These
contributions are invested separately from the company's assets.
TAXATION
The taxation charge is based on the profit for the year and takes into
account the taxation deferred because of timing differences on certain
items. Provision is only made for deferred taxation if it is probable
that an actual liability will arise.
GENERALLY ACCEPTED ACCOUNTING PRACTICE (GAAP)
There are no material differences between United Kingdom GAAP and USA
GAAP relating to the preparation of the company's financial statements.
F-58
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2000
2 OPERATING PROFIT 2000 1999
(POUND) (POUND)
This is stated after charging:
Depreciation of fixed assets 22,220 11,735
Auditors' remuneration 4,250 3,500
Operating lease rentals
Land and buildings 44,584 34,960
------- -------
3 TAXATION
UK Corporation Tax at 20% (1999: 24%) (POUND) 55,816 (POUND) 47,029
------- -------
4 INFORMATION ON DIRECTORS AND EMPLOYEES
DIRECTORS' EMOLUMENTS
Emoluments including pension contributions to money
purchase (defined contribution) schemes (POUND) 193,408 (POUND) 207,934
------- -------
2000 1999
NO NO
During the year the following number of directors
accrued benefits under money purchase (defined
contribution) pension schemes 1 1
------- -------
5 DIVIDENDS
Ordinary dividend on equity shares final proposed/paid (POUND) 200,000 (POUND) 102,000
------- -------
F-59
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2000
6 TANGIBLE FIXED ASSETS FIXTURES,
PLANT FITTINGS
AND AND
MACHINERY EQUIPMENT TOTAL
COST (POUND) (POUND) (POUND)
At 1 April 1999 58,405 11,488 69,893
Additions 31,683 762 32,445
------ ------ -------
At 31 March 2000 90,088 12,250 102,338
------ ------ -------
Depreciation
At 1 April 1999 14,009 1,777 15,786
Charge for the year 19,209 3,011 22,220
------ ------ -------
At 31 March 2000 33,218 4,788 38,006
------ ------ -------
Net Book Values
At 31 March 2000 56,870 7,462 64,332
------ ------ -------
At 31 March 1999 (POUND) 44,396 (POUND) 9,711 (POUND) 54,107
------ ------ -------
The net book value of tangible fixed assets held under hire purchase
contracts at 31 March 2000 amounted to: (POUND) Nil (1999:
(POUND) 31,828).
7 INVESTMENTS
2000 1999
(POUND) (POUND)
Listed securities in Flag Technologies 15,000 -
------- -------
8 DEBTORS 2000 1999
(POUND) (POUND)
Trade debtors 374,594 334,499
Other debtors 18,843 26,858
Prepayments and accrued income 5,846 16,874
------- -------
(POUND) 399,283 (POUND) 378,231
------- -------
9 CREDITORS: AMOUNTS FALLING DUE 2000 1999
WITHIN ONE YEAR (POUND) (POUND)
Trade creditors 79,627 308,606
Corporation tax 61,356 72,750
Other taxes and social security 35,762 21,314
Other creditors 36,502 111,884
Accruals and deferred income 26,548 37,819
Proposed equity dividend 200,000 -
------- -------
(POUND) 439,795 (POUND) 552,373
------- -------
F-60
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2000
10 COMMITMENTS
At the year end the company was committed to making the following
payments during the next year in respect of operating leases with
expiry dates as follows:
LAND AND BUILDINGS OTHER
2000 1999 2000 1999
(POUND) (POUND) (POUND) (POUND)
More than five years (POUND) 44,000 (POUND) 44,000 (POUND) - (POUND) -
------ ------ ------ ------
11 SHARE CAPITAL 2000 1999
(POUND) (POUND)
AUTHORISED
50,000 Ordinary shares of(POUND) 1 each (POUND) 50,000 (POUND) 50,000
------- -------
ALLOTTED, CALLED UP AND FULLY PAID
5,200 Ordinary shares of (POUND) 1 each (POUND) 5,200 (POUND) 5,200
------- -------
12 PROFIT AND LOSS ACCOUNT
Retained profits at 1 April 1999 104,932 34,518
Retained profit for the year 5,882 70,414
------- -------
Retained profits at 31 March 2000 (POUND) 110,814 (POUND) 104,932
------- -------
F-61
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2000
13 RECONCILIATION OF MOVEMENTS IN 2000 1999
SHAREHOLDERS' FUNDS (POUND) (POUND)
Net profit for the year 205,882 172,414
Dividends (200,000) (102,000)
-------- --------
Net addition to shareholders' funds 5,882 70,414
Opening shareholders' funds 110,132 39,718
-------- --------
Closing shareholders' funds (POUND) 116,014 (POUND) 110,132
-------- --------
REPRESENTED BY:-
Equity interests (POUND) 116,014 (POUND) 110,132
-------- --------
14 PENSION COSTS
MONEY PURCHASE (DEFINED CONTRIBUTION) PENSION SCHEME
The company operates a money purchase (defined contribution) pension
scheme. The assets of the scheme are held separately from those of the
company in an independently administered fund. The pension cost charge
represents contributions payable by the company to the fund and
amounted to (POUND) Nil (1999: (POUND) Nil).
F-62
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
COMPANY NUMBER: 3304518
F-63
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
UNAUDITED PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 31 DECEMBER 2000
2000 1999
NOTES (POUND) (POUND)
TURNOVER 1,148,007 1,623,180
Cost of sales (408,900) (927,218)
---------- ---------
GROSS PROFIT 739,107 695,962
Administrative expenses (559,001) (478,305)
---------- ---------
OPERATING PROFIT 2 180,106 217,657
Investment income and interest receivable 1,085 604
---------- ---------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 181,191 218,261
Taxation (36,238) (43,651)
---------- ---------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION 144,953 174,610
Dividends 3 (15,000) (150,000)
---------- ---------
RETAINED PROFIT FOR THE YEAR (pound) 129,953 (pound) 24,610
========== =========
CONTINUING OPERATIONS
Turnover and operating profit derive wholly from continuing operations for the
above two financial periods.
TOTAL RECOGNISED GAINS AND LOSSES
There were no recognised gains or losses either in the current or preceding year
other than those recorded in the profit and loss account.
HISTORICAL PROFITS AND LOSSES
Historical profit is the same as shown above.
F-64
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
UNAUDITED BALANCE SHEET
AS AT 31 DECEMBER 2000
2000 1999
NOTES (POUND) (POUND) (POUND) (POUND)
FIXED ASSETS
Tangible assets 44,574 72,044
Investments 4 15,000 -
------- -------
59,574 72,044
CURRENT ASSETS
Stocks 56,897 23,289
Debtors 5 374,001 347,811
Cash at bank and in hand 55,966 233,464
-------- --------
486,864 604,564
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR 6 (300,470) (541,866)
-------- --------
NET CURRENT ASSETS 186,394 62,698
------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES (pound)245,967 (pound)134,742
------- -------
CAPITAL AND RESERVES
Called up share capital 7 5,200 5,200
Profit and loss account 8 240,767 129,542
------- -------
SHAREHOLDERS' FUNDS 9 (pound)245,967 (pound)134,742
------- -------
F-65
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
UNAUDITED STATEMENTS OF CASHFLOWS
FOR THE NINE MONTHS ENDED 31 DECEMBER 2000
2000 1999
(POUND) (POUND) (POUND) (POUND)
CASHFLOWS FROM OPERATING ACTIVITIES
Net profit 129,953 24,610
------- -------
Adjustments to reconcile net profit to net cash provided
by operating activities
Depreciation and amortisation 18,819 15,533
(Increase)/decrease in assets
Accounts receivable 92,226 30,420
Other current assets (66,946) 28,707
Other assets (24,152) -
Increase/(decrease) in liabilities
Accounts payable 76,123 (37,621)
Accrued expenses (215,446) 27,114
------- -------
Total adjustments (119,376) 64,153
------- -------
Net cash provided by operating activities 10,577 88,763
------- -------
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase/sale of property and equipment 940 (33,470)
------- -------
Net (decrease)/increase in cash and cash equivalents 11,517 55,293
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 44,449 178,171
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR (pound)55,966 (pound)233,464
------- -------
F-66
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED 31 DECEMBER 2000
1 ACCOUNTING POLICIES
These unaudited interim financial statements have been prepared by the
Company under United Kingdom Generally Accepted Accounting Principles
("GAAP"). Certain information and disclosures normally included in
financial statements prepared in accordance with United Kingdom GAAP
have been condensed or omitted. It is therefore suggested that these
unaudited interim financial statements be read inconjunction with the
company's audited financial statements for the year ended March 31,
2000 included elsewhere in this Form SB-1. Results of operations for
interim periods are not necessarily indicative of annual results.
GENERALLY ACCEPTED ACCOUNTING PRACTICE (GAAP)
There are no material differences between United Kingdom GAAP and USA
GAAP relating to the preparation of the company's financial statements.
2 OPERATING PROFIT 2000 1999
(POUND) (POUND)
This is stated after charging:
Depreciation of fixed assets 18,819 15,533
Auditors' remuneration - -
Operating lease rentals
Land and buildings 33,122 33,000
------- -------
3 DIVIDENDS
Ordinary dividend on equity shares final proposed/paid (pound) 15,000 (pound)150,000
------- -------
4 INVESTMENTS
2000 1999
(POUND) (POUND)
Listed securities in Flag Technologies 15,000 -
------- -------
5 DEBTORS 2000 1999
(POUND) (POUND)
Trade debtors 282,367 310,171
Other debtors 58,402 18,032
Prepayments and accrued income 33,232 19,608
------- -------
(pound)374,001 (pound)347,811
------- -------
6 CREDITORS: AMOUNTS FALLING DUE 2000 1999
WITHIN ONE YEAR (POUND) (POUND)
Trade creditors 155,750 270,985
Corporation tax 97,595 43,874
Other taxes and social security 4,544 18,365
Other creditors 19,114 195,686
Accruals and deferred income 23,467 12,956
Proposed equity dividend - -
------- -------
(pound)300,470 (pound)541,866
------- -------
F-67
CGT (UK) LIMITED (FORMERLY ABERCRAFT LIMITED)
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED 31 MARCH 2000
7 SHARE CAPITAL 2000 1999
(POUND) (POUND)
AUTHORISED
50,000 Ordinary shares of (pound)1 each (pound) 50,000 (pound) 50,000
------- -------
ALLOTTED, CALLED UP AND FULLY PAID
5,200 Ordinary shares of(pound)1 each (pound) 5,200 (pound) 5,200
------- -------
8 PROFIT AND LOSS ACCOUNT
Retained profits at 1 April 2000 110,814 104,932
Retained profit for the period 129,953 24,610
------- -------
Retained profits at 31 December 2000 (pound)240,767 (pound)129,542
------- -------
9 RECONCILIATION OF MOVEMENTS IN 2000 1999
SHAREHOLDERS' FUNDS (POUND) (POUND)
Net profit for the period 144,953 174,610
Dividends (15,000) (150,000)
------- -------
Net addition to shareholders' funds 129,953 24,610
Opening shareholders' funds 116,014 110,132
------- -------
Closing shareholders' funds (pound)245,967 (pound)134,742
------- -------
REPRESENTED BY:-
Equity interests (pound)245,967 (pound)134,742
------- -------
F-68
CHRISTOPHER THOMAS ASSOCIATES, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
TOGETHER WITH AUDITORS' REPORT
F-69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Christopher Thomas Associates, Inc.:
We have audited the accompanying balance sheets of Christopher Thomas
Associates, Inc. (a New York Corporation) as of December 31, 2000 and 1999, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Christopher Thomas Associates,
Inc. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Melville, New York
May 19, 2001
F-70
CHRISTOPHER THOMAS ASSOCIATES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
----------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 622,040 $ 1,008,772
Accounts receivable, less allowance for doubtful accounts of approximately
$105,000
3,860,508 2,900,982
Prepaid expenses and other current assets 144,592 145,466
----------- -----------
Total current assets 4,627,140 4,055,220
PROPERTY AND EQUIPMENT, net 497,067 466,819
----------- -----------
Total assets $ 5,124,207 $ 4,522,039
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,715,064 $ 3,014,833
Accrued expenses 873,566 741,369
Current portion of long-term debt 15,978 11,412
Advanced billings 985,479 889,213
Other current liabilities 25,576 15,919
----------- -----------
Total current liabilities 5,615,663 4,672,746
LONG-TERM DEBT 92,436 43,755
----------- -----------
Total liabilities 5,708,099 4,716,501
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $100 per share without par value; authorized; 1,000 shares;
issued and outstanding; 50 shares 5,000 5,000
Accumulated deficit (588,892) (199,462)
----------- -----------
Total stockholders' equity (deficit) (583,892) (194,462)
----------- -----------
Total liabilities and stockholders' equity $ 5,124,207 $ 4,522,039
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-71
CHRISTOPHER THOMAS ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
-------------- ---------------
NET REVENUES $ 4,000,280 $ 4,168,843
OPERATING EXPENSES:
Salaries and related costs 3,315,288 3,147,422
General and administrative expenses 988,914 862,958
Depreciation and amortization 88,400 91,168
-------------- ---------------
4,392,602 4,101,548
(Loss) income from operations (392,322) 67,295
OTHER INCOME (EXPENSE):
Interest expense (7,855) (37,770)
Interest income 26,967 37,791
Other income 9,474 8,599
-------------- ---------------
(Loss) income before provision for income taxes (363,736) 75,915
Provision for income taxes 1,712 2,698
-------------- ---------------
Net (loss) income $ (365,448) $ 73,217
=============== ===============
The accompanying notes are an integral part of these statements.
F-72
CHRISTOPHER THOMAS ASSOCIATES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Accumulated
Stock Deficit Total
--------- --------- ---------
BALANCE, December 31, 1998 $ 5,000 $(272,605) $(267,605)
Distributions to stockholders - (74) (74)
Net income for the period - 73,217 73,217
--------- --------- ---------
BALANCE, December 31, 1999 5,000 (199,462) (194,462)
Distributions to stockholders - (23,982) (23,982)
Net loss for the period - (365,448) (365,448)
--------- --------- ---------
BALANCE, December 31, 2000 $ 5,000 $(588,892) $(583,892)
========= ========= =========
The accompanying notes are an integral part of these statements.
F-73
CHRISTOPHER THOMAS ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (365,448) $ 73,217
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization 88,400 91,168
Loss on sale of property, plant and equipment - (8,529)
Changes in operating assets and liabilities:
Accounts receivable (959,526) 365,799
Prepaid expenses and other current assets 874 (11,217)
Accounts payable 700,231 (6,288)
Accrued expenses 132,197 115,119
Advance billings 96,266 (261,141)
Other current liabilities 9,657 (2,586)
--------------- ---------------
Net cash (used in) provided by operating activities (297,349) 355,542
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (118,648) (164,628)
Proceeds from sale of property, plant and equipment - 56,203
--------------- ---------------
Net cash used in investing activities (118,648) (108,425)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 68,400 55,167
Repayment of long-term debt (15,153) (248,762)
Distributions to stockholders (23,982) (74)
--------------- ---------------
Net cash provided by (used in) financing activities 29,265 (193,669)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (386,732) 53,448
CASH AND CASH EQUIVALENTS, beginning of year 1,008,772 955,324
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 622,040 $ 1,008,772
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Taxes $ 1,131 $ 991
=============== ===============
Interest $ 8,855 $ 892
=============== ===============
The accompanying notes are an integral part of these statements.
F-74
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. ORGANIZATION AND BUSINESS
Christopher Thomas Associates, Inc. ("CTA NJ") was incorporated on March 17,
1975 in the State of New Jersey. On August 22, 1988, CTA NJ was merged into
Christopher Thomas Associates, Inc. (the "Company"), a New York State
corporation formed on December 6, 1986.
The Company operates as an advertising and public relations firm, with offices
in Melville, NY; Boston, MA; and Stamford, CT. The Company takes an active role
in developing a marketing strategy for a broad base of customers around the
United States.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company earns its revenues from fees for services performed for production
of advertisements and from commissions for the placement of advertisements in
various media. Revenues are recorded, net of expenditures billed to clients, for
the placement of advertisements. Accounts receivable and accounts payable are
recorded gross of these billings and related expenditures, respectively. Revenue
is realized when the service is performed or the media placement appears, in
accordance with the terms of the contractual arrangement, and when collection is
reasonably assured. Salaries and other agency costs are charged to expense at
the time incurred.
In December 1999, the SEC staff released Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition," which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
explains the SEC staff's general framework for revenue recognition, including
the criteria that need to be met in order to recognize revenue, as well as
required disclosures related to revenue recognition. The Company believes that
it is currently recognizing revenue in accordance with SAB No. 101.
Accounts receivable includes fees recognized, project costs, and media and
productions costs incurred on behalf of clients, which are paid for by the
Company and billed to clients.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company performs ongoing credit evaluations, generally does not
require collateral, and establishes an allowance for doubtful accounts, if
necessary, based upon factors surrounding the credit risk of customers,
historical trends and other information.
For the year ended December 31, 2000, three customers accounted for 12%, 10% and
10% of total revenue, respectively. As of December 31, 2000, two customers
accounted for 14% and 11% of total accounts receivable, respectively. For the
year ended December 31, 1999, two customers accounted for 29% and 10% of total
revenue, respectively. As of December 31, 1999, two customers accounted for 15%
and 13% of total accounts receivable, respectively.
F-75
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Billable Production Orders in Process, at cost
Billable production orders consists principally of costs incurred in producing
marketing communications to be billed to clients. Such amounts will be billed to
clients at either a defined stage of the project or when production is complete,
and are included in prepaid expenses and other current assets in the
accompanying balance sheets.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are computed using both accelerated
and straight-line methods over the following periods:
Leasehold improvements Lesser of lease term or useful life
Furniture and fixtures 7 years
Machinery and equipment 3 to 5 years
Automobiles 3 to 5 years
Computer equipment 3 to 5 years
Expenditures for maintenance and repairs that do not materially prolong the
normal useful life of an asset are charged to operations as incurred.
Improvements that substantially extend the useful lives of the assets are
capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the accounts and the
resulting gain or loss, if any, is reflected in the statement of operations.
Accounting for Long-Lived Assets
The Company observes the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement requires the Company to review long-lived assets, including
certain intangibles and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management believes there is no impairment to any long-lived assets
as of December 31, 2000 and 1999, respectively.
Fair Value of Financial Instruments
The Company observes the provisions of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." This pronouncement requires that the Company
calculate the fair value of financial instruments and include this additional
information in the notes to financial statements when the fair value is
different than the book value of those financial instruments. At December 31,
2000, the carrying value of all financial instruments approximated fair value.
Advance Billings
Advance billings consists of progress billings for production jobs that are not
completed, and prebilled media placements.
Income Taxes
The Company has elected to have its income taxes under the provisions of
Subchapter S of the Internal Revenue Code (the "Code"). Under the provisions of
the Code, the Company is not subject to Federal corporate income taxes on its
taxable income. The stockholders include their pro rata share of the Company's
income in their personal income tax returns. The Company is, however, subject to
certain corporate level state income taxes.
F-76
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Comprehensive Income
The Company observes the provisions of SFAS No. 130, "Reporting Comprehensive
Income", which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and distribution to
owners, in a financial statement for the period in which they are recognized.
Comprehensive income is the total of net income and all other non-owner changes
in equity (or other comprehensive income) such as unrealized gains/losses on
securities available-for-sale, foreign currency translation adjustments and
minimum pension liability adjustments. Comprehensive and other comprehensive
income must be reported on the face of the annual financial statements. The
Company's operations did not give rise to items includable in comprehensive
(loss) income which were not already included in net (loss) income. Accordingly,
the Company's comprehensive (loss) income is the same as its net (loss) income
for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000 and will not
require retroactive restatement of prior period financial statements. This
statement requires the recognition of all derivative instruments as either
assets or liabilities in the balance sheet measured at fair value. Derivative
instruments will be recognized as gains or losses in the period of change. If
certain conditions are met where the derivative instrument has been designated
as a fair value hedge, the hedged item may also be marked to market through
earnings, thus creating an offset. If the derivative is designed and qualifies
as a cash flow hedge, the changes in fair value of the derivative instrument may
be recorded in comprehensive income. The Company does not presently make use of
derivative instruments. Accordingly, the adoption of SFAS No. 133 on January 1,
2001 did not affect the Company's financial position or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2000 and
1999:
2000 1999
------------ -------------
Land $ 71,368 $ 71,368
Leasehold improvements 139,556 139,556
Furniture and fixtures 221,473 167,800
Machinery and equipment 162,318 154,671
Automobiles 83,004 83,004
Computer equipment 220,507 189,496
------------- -------------
898,226 805,895
Less: accumulated depreciation and amortization 401,159 339,076
------------- -------------
$ 497,067 $ 466,819
============= =============
Depreciation and amortization expense for the years ended December 31, 2000 and
1999 amounted to approximately $88,400 and $91,168, respectively.
F-77
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
4. ACCRUED EXPENSES
Major components of accrued expenses as of December 31, 2000 and 1999 are as
follows:
2000 1999
------------- -------------
Media placements $ 278,316 $ 277,182
Advertising production costs 472,335 348,405
Employee benefits 62,422 77,566
Other 60,493 38,216
------------- -------------
$ 873,566 $ 741,369
============= =============
5. DEBT
In October 1999, the Company entered into a note with Chase Manhattan Bank for
an automobile loan for a term of 5 years. The monthly payment of $1,170 includes
principal and interest.
In February 2000, the Company entered into a note with First National Litchfield
Bank for an officer loan for a term of 15 years. The monthly payment of $694
includes principal and interest.
At December 31, 2000, future annual minimum principal repayments on the
outstanding loans are as follows:
2001 $ 15,978
2002 15,978
2003 15,978
2004 14,076
2005 and thereafter 46,404
-------------
108,414
Less: Current portion 15,978
-------------
$ 92,436
=============
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into various leases for property. Leases are payable in
monthly or quarterly installments, and are accounted for on a straight-line
basis over the term of the lease.
The following is a schedule of the minimum annual lease payments due:
2001 $ 401,642
2002 401,642
2003 401,642
2004 163,481
2005 and thereafter 167,988
Total rent expense incurred for the years ended December 2000 and 1999 was
approximately $395,298 and $334,449, respectively.
F-78
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Defined Contribution Plans
The Company has a defined contribution plan (the "Contribution Plan") that is
intended to qualify under Section 401(k) of the Code. All domestic employees,
except those who have not attained the age of 21 and/or hourly employees, are
eligible to participate in the Contribution Plan. Participants may contribute,
through payroll deductions, up to 15% of their base compensation, not to exceed
Code limitations. The Company matches up to 5% of salary for participating
employees. For the years ended December 31, 2000 and 1999 the Company
contributed $77,566 and $62,422, respectively.
The Company also sponsors two other plans intended to qualify under Section 125
of the Code. The Flexible Spending plan, which allows employees to pay for
unreimbursed medical and dental expenses and/or dependent care expenses using
pre-tax contributions. The Cafeteria Plan, which allows employees to pay for
health and dental insurance premiums with pre-tax contributions.
Litigation
In the normal course of business, the Company is a party to various claims
and/or litigation. Management believes that the settlement of all such claims
and/or litigation, considered in the aggregate will not have a material adverse
effect on the Company's financial position and results of operations.
7. SUBSEQUENT EVENTS
In February 2001, the Company signed a letter of intent to be acquired by Kupper
Parker Communication, Inc. ("KPC"), a global integrated marketing communications
firm. KPC is an advertising and marketing company located in St. Louis, Missouri
that provides promotional, public relations, direct marketing and interactive
services through various forms of media including television and radio.
F-79
CHRISTOPHER THOMAS ASSOCIATES, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AS OF JULY 31, 2001 AND 2000
F-80
CHRISTOPHER THOMAS ASSOCIATES, INC.
CONDENSED BALANCE SHEETS
AS OF JULY 31, 2001 AND DECEMBER 31, 2000
(Unaudited) (Audited)
----------- ---------
July 31, Dec. 31,
-------- --------
ASSETS 2001 2000
------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 364,267 $ 622,040
Accounts receivable, less allowance for doubtful accounts of approximately
$105,000 3,679,481 3,860,508
Prepaid expenses and other current assets 85,702 144,592
-------------- --------------
Total current assets 4,129,450 4,627,140
PROPERTY AND EQUIPMENT, net 415,440 497,067
-------------- --------------
Total assets $ 4,544,890 $ 5,124,207
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,284,227 $ 3,715,064
Accrued expenses 1,393,150 873,566
Current portion of long-term debt 61,999 15,978
Advanced billings 1,082,846 985,479
Other current liabilities 13,993 25,576
-------------- --------------
Total current liabilities 4,836,215 5,615,663
LONG-TERM DEBT - 92,436
-------------- --------------
Total liabilities 4,836,215 5,708,099
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $100 per share without par value; authorized; 1,000 shares;
issued and outstanding; 50 shares 5,000 5,000
Accumulated deficit (296,325) (588,892)
-------------- --------------
Total stockholders' equity (deficit) (291,325) (583,892)
-------------- --------------
Total liabilities and stockholders' equity $ 4,544,890 $ 5,124,207
============== ==============
The accompanying notes are an integral part of these balance sheets.
F-81
CHRISTOPHER THOMAS ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTHS ENDED JULY 31, 2001 AND 2000
2001 2000
-------------- ---------------
NET REVENUES $ 3,066,592 $ 2,712,790
OPERATING EXPENSES:
Salaries and related costs 2,169,292 2,081,460
General and administrative expenses 554,674 602,413
Depreciation and amortization 42,780 51,567
-------------- ---------------
2,766,746 2,735,440
(Loss) income from operations 299,846 (22,650)
OTHER INCOME (EXPENSE):
Interest expense (9,040) (4,582)
Interest income 12,573 16,336
Other income (8,769) -
--------------- ---------------
(Loss) income before provision for income taxes 294,610 (10,896)
Provision for income taxes 2,043 999
-------------- ---------------
Net (loss) income $ 292,567 $ (11,895)
============== ===============
The accompanying notes are an integral part of these statements.
F-82
CHRISTOPHER THOMAS ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 2001 AND 2000
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 292,567 $ (11,895)
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization 42,780 51,567
Loss on sale of property, plant and equipment - -
Changes in operating assets and liabilities:
Accounts receivable 181,027 (819,053)
Prepaid expenses and other current assets 58,890 510
Accounts payable (1,430,837) 408,469
Accrued expenses 519,584 56,155
Advance billings 97,367 (622,108)
Other current liabilities (11,583) 5,633
---------------- ---------------
Net cash (used in) provided by operating activities (250,205) (930,722)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment - (69,211)
Proceeds from sale of property, plant and equipment 38,847 -
--------------- ---------------
Net cash provided by (used in) investing activities 38,847 (69,211)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - -
Repayment of long-term debt (46,415) (8,839)
Distributions to stockholders - -
--------------- ---------------
Net cash provided by (used in) financing activities (46,415) (8,839)
---------------- ---------------
Net (decrease) increase in cash and cash equivalents (257,773) (1,008,772)
CASH AND CASH EQUIVALENTS, beginning of year 622,040 1,008,772
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 364,267 $ -
=============== ===============
The accompanying notes are an integral part of these statements.
F-83
CHRISTOPHER THOMAS ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JULY 31, 2001 AND 2000
1. These unaudited interim financial statements 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 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 December 31, 2000 included elsewhere in this Form SB-1. Results of
operations for interim periods are not necessarily indicative of annual results.
2. These statements include 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 has elected to have its income taxes under the provisions of
Subchapter S of the Internal Revenue Code (the "Code"). Under the provisions of
the Code, the Company is not subject to Federal corporate income taxes on its
taxable income. The stockholders include their pro rata share of the Company's
income in their personal income tax returns. The Company is, however, subject to
certain corporate level state income taxes.
F-84
----------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY SHARES OF KUPPER PARKER COMMUNICATIONS, INCORPORATED
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THIS
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF
THE COMPANY'S COMMON STOCK.
----------------------------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.............................................................................................1
RISK FACTORS...................................................................................................1
USE OF PROCEEDS................................................................................................6
CAPITALIZATION.................................................................................................6
DIVIDEND POLICY................................................................................................7
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS.....................................................................7
BUSINESS.......................................................................................................7
MANAGEMENT DISCUSSION AND ANALYSIS.............................................................................13
MANAGEMENT.....................................................................................................18
PRINCIPAL AND SELLING STOCKHOLDERS.............................................................................23
DESCRIPTION OF SECURITIES......................................................................................24
PLAN OF DISTRIBUTION...........................................................................................25
LEGAL MATTERS..................................................................................................25
EXPERTS........................................................................................................25
ADDITIONAL INFORMATION.........................................................................................26
INDEX TO FINANCIAL STATEMENTS................................................................................F-1
PART II--INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law ("BCL") permits a
corporation to indemnify a director or officer, made a party to an action by
reason of the fact that he or she was a director or officer of the corporation,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, if such director or officer acted in good faith, for
a purpose which he or she reasonably believed to be in the best interests of the
corporation.
Our Certificate of Incorporation includes limitations on the liability of
officers and directors, except for liability pursuant to a judgment or other
final adjudication adverse to such director which establishes that his or her
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he or she gained personally in fact a financial
profit or other advantage to which he or she was not entitled or his acts
violated Section 719 of the BCL. Our Board of Directors has authorized us to
provide a general indemnification of its officers, directors and employees
regarding any claims or liabilities incurred in the course of their employment,
subject to the foregoing provisions.
We also maintain insurance, that we believe to be adequate, covering all of our
directors and officers against certain liabilities and reimbursing us for
obligations for which we incur as a result of its indemnification of such
directors, officers and employees. At present, there is no pending litigation or
proceeding involving any officer, director or agent of ours where
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions) all of which are being paid by the Registrant:
SEC registration fee................................................... $ 310
Printing and engraving expenses........................................ 4,000
Accountant's fees and expenses......................................... 8,000
Legal fees and expenses................................................ 5,000
Miscellaneous.......................................................... 1,000
-------
Total............................................................ $18,310
*All amounts are estimates except for the SEC registration fee.
ITEM 3. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes as follows:
(i) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement to include any material
information with respect to the plan of distribution
not previously
II-1
disclosed in the registration statement or any
material change to such information in the
registration statement.
(ii) That, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(iii) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such
issue.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
The following is information concerning all unregistered securities sold by the
Registrant between October 1, 2000 and the date of this Registration Statement.
(a) On November 13, 2000, we issued 31,000 shares of our common
stock to Tom Tham and 31,000 such shares to Jeff Stein in
connection with our acquisition of Chameleon Design, Inc. Such
shares were issued in reliance upon the exemption contained in
Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
(b) On February 23, 2001, we issued 14,000 shares of our common
stock to David Ian Thatcher, 28,000 such shares to Robert M.
Thackery and 28,000 such shares to John Lionel Coleman in
connection with our acquisition of CGT (UK) Limited. Such
shares were issued in reliance upon the exemption contained in
Section 4(2) of the Securities Act.
II-2
(c) On October ____, 2001, we issued 700,700 shares of our common
stock and five year warrants to purchase an additional 350,500
shares to certain of the selling stockholders as described
herein. Such shares and warrants were issued in reliance upon
the exemption contained in Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
ITEM 5. INDEX TO EXHIBITS.
The following is a list of exhibits filed as part of this Registration Statement
and also serves as the Exhibit Index:
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 23, 2000 between GRAI and KPCI - Filed
as an exhibit to the Company's Registration Statement on Form S-4 (File No. 333-44476)
and incorporated herein by reference.
3.1 Certificate of Incorporation, as amended - Filed as an exhibit to the Company's
Registration Statement on Form S-18 (File No. 33-26372NY) and incorporated herein by
reference.
3.2 Amendment to Certificate of Incorporation - Filed as an exhibit to the Company's Form
8-K on July 29, 1997 and incorporated herein by reference.
3.3 Amendment to Certificate of Incorporation - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
3.4 Amended and Restated Bylaws - Filed as an exhibit to the Company's Registration
Statement on Form S-18 (File No. 33-26372NY) and incorporated herein by reference.
3.5 Amendment to Bylaws - Filed as a exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 2000 and incorporated herein by reference.
4* Form of warrant.
5* Opinion of Armstrong Teasdale LLP regarding legality of securities being registered.
10.1 1998 Stock Option Plan - Filed as an exhibit to the Company's Registration Statement on
Form S-18 (File No. 33-26372NY) and incorporated herein by reference.
10.2 Amendment Number 1 to 1988 Stock Option Plan - Filed as an exhibit to the Company's
Registration Statement on Form S-18 (File. No. 33-26372NY) and incorporated herein by
reference.
10.2 Amendment Number 2 to 1988 Stock Option Plan - Filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 2000 and
incorporated herein by reference.
10.3 Employment Agreement of Ronald Greenstone - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
10.4 Employment Agreement of Gary Roberts - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
II-3
October 31, 2000 and incorporated herein by reference.
10.5 Employment Agreement of Bruce Kupper - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of BDO Seidman LLP
23.3* Consent of Edwards.
23.4* Consent of Arthur Andersen LLP.
23.5* Consent of Armstrong Teasdale LLP (contained in Exhibit 5).
24* Powers of Attorney (see the signature page of this Registration Statement).
* Filed herewith
II-4
SIGNATURES
Pursuant to the requirements of the securities act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Louis, state of Missouri on October 12, 2001.
Kupper Parker Communications, Incorporated
By: /s/ Bruce Kupper
---------------------------------------
Bruce Kupper
Chief Executive Officer
(Principal Executive Officer)
By: /s/ John Rezich
---------------------------------------
John Rezich
Chief Financial Officer
(Chief Accounting Officer)
Each person whose signature appears below hereby appoints Bruce Kupper his/her
true and lawful attorney-in-fact, with power to act and with full power of
substitution, in any and all capabilities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement and file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he/she might or could do in persons, hereby ratifying
and confirming all that said attorney-in-fact and agents, or their substitutes,
may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the securities act of 1933, this Registration
statement has been signed by the following persons on October 12, 2001.
SIGNATURE TITLE
/s/ Bruce Kupper Chief Executive Officer and Director
-----------------------------------------------------
Bruce Kupper
Chief Financial Officer and Director
/s/ John Rezich (Principal Financial Officer)
-----------------------------------------------------
John Rezich
/s/ Mary De Hahn Chief Operating Officer and Director
-----------------------------------------------------
Mary De Hahn
/s/ S. Lee Kling Director
-----------------------------------------------------
S. Lee Kling
/s/ James Saitz Director
-----------------------------------------------------
James Saitz
/s/ Ronald Greenstone Director
-----------------------------------------------------
Ronald Greenstone
/s/ Gary Roberts Director
-----------------------------------------------------
Gary Roberts
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 23, 2000 between GRAI and KPCI - Filed
as an exhibit to the Company's Registration Statement on Form S-4 (File No. 333-44476)
and incorporated herein by reference.
3.1 Certificate of Incorporation, as amended - Filed as an exhibit to the Company's
Registration Statement on Form S-18 (File No. 33-26372NY) and incorporated herein by
reference.
3.2 Amendment to Certificate of Incorporation - Filed as an exhibit to the Company's Form
8-K on July 29, 1997 and incorporated herein by reference.
3.3 Amendment to Certificate of Incorporation - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
3.4 Amended and Restated Bylaws - Filed as an exhibit to the Company's Registration
Statement on Form S-18 (File No. 33-26372NY) and incorporated herein by reference.
3.5 Amendment to Bylaws - Filed as a exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 2000 and incorporated herein by reference.
4* Form of warrant.
5* Opinion of Armstrong Teasdale LLP regarding legality of securities being registered.
10.1 1998 Stock Option Plan - Filed as an exhibit to the Company's Registration Statement on
Form S-18 (File No. 33-26372NY) and incorporated herein by reference.
10.2 Amendment Number 1 to 1988 Stock Option Plan - Filed as an exhibit to the Company's
Registration Statement on Form S-18 (File. No. 33-26372NY) and incorporated herein by
reference.
10.2 Amendment Number 2 to 1988 Stock Option Plan - Filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 2000 and
incorporated herein by reference.
10.3 Employment Agreement of Ronald Greenstone - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
10.4 Employment Agreement of Gary Roberts - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
10.5 Employment Agreement of Bruce Kupper - Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 2000 and incorporated
herein by reference.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of BDO Seidman LLP
23.3* Consent of Edwards
23.4* Consent of Arthur Andersen LLP
23.5* Consent of Armstrong Teasdale LLP (contained in Exhibit 5).
24* Powers of Attorney (see the signature page of this Registration Statement).
* Filed herewith