United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE POSTAL DELIVERY, INC.
(Exact name of small business issuer as specified in its charter)
Michigan 38-2841197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Ionia, SW, Suite 300, Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
616-235-0698 FAX 616-235-3405
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_
No___
As of November 12, 1996, 4,022,894 shares of the issuer's common stock were
outstanding.
This report contains 13 pages.
ALTERNATE POSTAL DELIVERY, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Consolidated Balance Sheet - September 30, 1996,
and September 30, 1995. . . . . . . . . . . . . . . . . . 3 & 4
Consolidated Statement of Operations - three
months ended September 30, 1996 and 1995 and the
Nine months ended September 30, 1996 and 1995 . . . . . . . . 5
Consolidated Statement of Cash Flows - nine
months ended September 30, 1996 and 1995 . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . 8 - 10
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .11
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Part I. Financial Information
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
(unaudited) (unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and equivalents $ 2,228,313 $ 3,391,065
Accounts receivable, net 1,910,987 2,446,225
Prepaid expenses and other assets 234,959 456,263
------------ ------------
Total current assets 4,374,259 6,293,553
Notes receivable, less current portion 72,043 97,149
Property and equipment:
Furniture and equipment 886,934 821,758
Less accumulated depreciation and
amortization 626,794 537,255
------------ ------------
260,140 284,503
Computer software, net of accumulated
amortization 45,739 62,458
Goodwill, net of accumulated amortization 1,238,269 814,078
0ther assets 38,491 5,158
------------ ------------
$ 6,028,941 $ 7,556,899
============ ============
</TABLE>
See accompanying notes.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
September 30, December 31,
1996 1995
(unaudited) (unaudited)
------------ ------------
Current liabilities:
<S> <C> <C>
Notes payable, bank $ 248,162 $ 294,239
Notes payable, others 105,313 0
Current portion of capitalized lease
obligations 33,353 29,736
Current portion of long-term notes
payable 147,098 44,596
Accounts payable 973,082 1,072,872
Accrued liabilities 369,070 362,608
Deferred revenue 87,075 493,449
------------ ------------
Total current liabilities 1,963,153 2,297,500
Long-term notes payable, less current portion 243,966 1,051,101
Capitalized lease obligations, less current
portion 13,917 33,362
SHAREHOLDERS' EQUITY
Preferred stock-no par value, authorized
2,000,000 shares, no shares issued and
outstanding
Common stock-no par value, voting, authorized
8,000,000 shares; 4,022,894 shares issued and
outstanding 9,677,530 9,418,780
Accumulated losses, as S corporation (Note 4) (1,291,039) (1,291,039)
------------ ------------
Total common stock 8,386,491 8,127,741
Accumulated losses, as C corporation (Note 4) (4,578,586) (3,952,805)
------------ ------------
Total shareholders' equity 3,807,905 4,174,936
------------ ------------
$ 6,028,941 $ 7,556,899
============ ============
</TABLE>
See accompanying notes.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $3,880,014 $3,447,094 $14,929,748 $13,109,881
Cost of sales 2,947,121 2,718,412 11,215,967 10,086,748
---------- ---------- ----------- -----------
Gross profit 932,893 728,682 3,713,781 3,023,133
Selling, general and
administrative expenses 1,391,655 1,002,901 4,315,827 3,115,261
---------- ---------- ----------- -----------
Income (loss) from
operations ( 458,762) ( 274,219) ( 602,046) ( 92,128)
Other income (expense) 23,842 ( 465,232) ( 17,305) ( 592,493)
---------- ---------- ----------- -----------
Income (loss) before
taxes ( 434,920) ( 739,451) ( 619,351) ( 684,621)
Provision for taxes 0 0 6,430 0
---------- ---------- ----------- -----------
Net income (loss) ($ 434,920) ($ 739,451) ($ 625,781) ($ 684,621)
========== ========== =========== ===========
Income (loss) per share
(Exhibit 11.1)
Primary ($ .12) ($ .28) ($ .16) ($ .27)
========== ========== =========== ===========
Fully diluted ($ .12) ($ .23) ($ .18) ($ .21)
========== ========== =========== ===========
Weighted average number
of shares outstanding:
(Exhibit 11.1)
Primary 3,606,046 2,625,583 3,838,049 2,516,027
========== ========== =========== ===========
Fully diluted 3,516,838 3,037,225 3,511,729 2,960,952
========== ========== =========== ===========
</TABLE>
See accompanying notes.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities ($ 366,208) $ 167,622
------------ ------------
Cash flows from investing activities ( 77,118) ( 87,191)
------------ ------------
Cash flows from financing activities ( 719,426) 4,119,558
------------ ------------
Net increase (decrease) in cash and
cash equivalents ( 1,162,752) 4,199,989
Cash and cash equivalents, beginning
of period 3,391,065 419,045
------------ ------------
Cash and cash equivalents, end of
period $ 2,228,313 $ 4,619,034
============ ============
</TABLE>
See accompanying notes.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the results
for the interim periods. The financial statements included herein have been
prepared by the Company 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
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading.
2. The organization and business of the Company, accounting policies
followed by the Company and other information are contained in the notes to
the Company's financial statements filed as part of the Company's Form 10-KSB.
This quarterly report should be read in conjunction with the Form 10-KSB.
3. Income (loss) per share calculation has been determined assuming exercise
of all outstanding options and warrants.
Fully diluted loss per share for the three months ended September 30,
1995 and the nine months ended September 30, 1995 further assumes that the
Convertible Notes were converted to common stock according to the terms of the
Convertible Notes at the beginning of the period reported on. This adjustment
also includes the elimination of the related interest expense attributable to
the Convertible Notes.
The results of these transactions and the impact on the net income (loss)
and primary and fully diluted income (loss) per share are provided in Exhibit
11.1.
4. Shareholders' equity represents combined equity after the pooling of
interests on March 29, 1996. Accumulated losses, as S corporation, represent
the losses and capital of the company during the period of time it was a
subchapter S corporation. All other losses of the combined entities are
presented under Accumulated losses, as C corporation.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
In the third quarter of 1996, the Company began to feel the effects of
several outside forces which caused the Company to fall below financial
expectations. These outside forces included the United States Postal Service
(USPS) reclassification case, new competition in the sampling area, and the
impact of the World Wide Web and new software on newspaper ROP advertising.
The Company acknowledged this impact and commenced implementation of a plan to
open up new opportunities for its four business divisions, listed below, which
combined reach over 50 million households.
Address Specific Network (Formerly Magazines and Newspaper Sales) Reaches
approximately 22% of covered households.
Direct Network (Company-owned Affiliates-Formerly called Delivery
Implementation) Reaches approximately 8% of covered households.
Associate Network (Formerly called Distribution Marketing-Sampling)
Reaches approximately 40% of covered households.
Suburban Network (Newspaper Advertising Space-ROP) Reaches approximately
30% of covered households.
The recent USPS reclassifications that went into effect on July 1, 1996,
have proven to have a negative impact on certain of the Company's magazine
publisher volume in the Address Specific Network. The reclassification offers
discounts to large volume mailers and increased rates to small volume mailers
who cannot take advantage of the discounts. The increase in revenue from
smaller volume magazine publishers has not offset the significant decrease in
revenue experienced from the larger volume magazine publishers.
Due to the above, the Company made a decision to place the magazine
portion of the Address Specific Network on a maintenance level until the next
USPS rate case, which is expected in 1998.
Furthermore, as part of the final transition of the Company's acquisition
of National Home Delivery, Inc., the sales and operations of the Address
Specific Network will be combined with the Associate Network. This will
provide national advertisers with address specific capabilities and also lower
selling, general and administrative expenses.
Newspaper sampling has grown in recent years primarily due to the
innovation of the "pouchbag" delivery introduced through the Company's
associate network. However, new competition arose in this area, most notably
Valassis Communications, Inc.(NYSE: VCI). The Company formed a strategic
alliance with News America FSI, a division of News Corp. (NYSE ADRS: NWS) in
response to the growth in competition.
During the third quarter of 1996, the Company performed "test" sample
deliveries but no large sample programs. The Company expects the financial
impact of the News America FSI alliance to begin in the second quarter of
1997.
The Company is in dialogue with other national companies to leverage the
suburban (ROP) and software areas of its business.
Results of Operations
Net sales were up during the quarter ended September 30, 1996 and for the
nine months ended September 30, 1996, as compared to the same periods in 1995.
Revenues fluctuate from quarter to quarter based upon the timing of revenues
derived from the Associate Network. In addition, there is some seasonality of
revenues. In general, February, March, April, September, October, and
November are better advertising months in the industry and produce better
revenue results for the Company. Net sales for the three months ended
September 30, 1996 increased 12.6% over the same quarter of the previous year.
Net sales for the nine months ended September 30, 1996 increased 13.9% over
the same nine month period in 1995. The source of this growth is largely
derived from the Direct Network.
The gross margin increased from 21.1% for the three months ended
September 30, 1995 to 24.0% for the three months ended September 30, 1996.
The gross margin increased from 23.1% for the nine months ended September 30,
1995 to 24.9% for the nine months ended September 30, 1996. This increase is
largely attributable to the increase in revenues derived from the Direct
Network. This source of revenue generates a higher gross margin, but also
adds to the selling, general and administrative expenses.
Selling, general and administrative expenses increased $388,754 during
the 1996 quarter over the previous year's quarter, and $1,200,566 during the
nine month period of 1996 over the same period in the previous year. This was
attributable to business acquisitions in the Company's Direct Network area of
business.
The loss from operations increased $184,543 during the quarter ending
September 30, 1996 as compared to the same period of the previous year due
largely to the increase in selling, general and administrative expenses
offsetting the increase in revenue and gross profit for the additional Direct
Network markets.
Other income (expense) consists of interest income, interest expense, and
one-time non-recurring charges. Interest income earned during the quarter
ended September 30, 1996 was $36,710, which is up from $11,591 for the quarter
ending September 30, 1995. Interest income for the nine months ending
September 30, 1996 and 1995 was $126,089 and $38,018 respectively. This
increase was largely due to the invested funds from the Company's initial
public offering completed in September 1995. Interest expense for the quarter
ending September 30, 1996 and 1995 was $20,098 and $71,460, respectively.
Interest expense for the nine months ending September 30, 1996 and 1995 was
$92,196 and $225,148 respectively. The decrease is attributable to the
elimination of the interest expense on the Convertible Notes which were paid
off or converted to Common Stock at the Company's initial public offering and
the pay down on long-term notes. During the nine months ending September 30,
1996, the Company incurred costs of $59,248, as costs for the pooling of
interest transaction which were not attributable to the ongoing operations of
the Company. In addition, the Company incurred one-time expenses attributable
to the Home Mall business investment which the Company chose to discontinue.
For the nine months ended September 30, 1996, these costs amounted to
$194,974. During the three months ended June 30, 1996, the Company
implemented a debt reduction strategy whereby it offered to pay sixty cents on
the dollar to existing noteholders and allowed them an immediate cash recovery
instead of the existing payment schedule which was tied to cash flow under the
terms of the notes. The Company recorded a gain on the forgiveness of debt in
the amount of $216,376 reflected in the nine months ending September 30, 1996
from the noteholders that accepted the reduced amount. For the three months
and the nine months ended September 30, 1995, the Company recorded a
conversion charge and a deferred financing fee write-off for the conversion
the notes payable at the Company's initial public offering in September 1995.
These amounts were $375,000 and $30,363, respectively.
Liquidity and Capital Resources
The Company continues to have a strong cash position after the two
acquisitions and the debt reduction strategy in the first nine months of 1996.
Cash and cash equivalents totaled $2,228,313 at September 30, 1996 and
$3,391,065 at December 31, 1995.
Cash used for the additions to property and equipment for the nine months
ended September 30, 1996 and 1995, was $84,359 and $31,582, respectively.
Cash used for net reduction of notes payable for the nine months ended
September 30, 1996 and 1995 was $429,023 and $391,972, respectively. In
addition, the Company received net proceeds from its initial public offering
in September 1995 of $4,529,062. Other changes in cash position were largely
attributable to working capital fluctuations.
The Company believes that cash flows from operations along with its
current cash balance will be sufficient to fund its current growth plans as
well as meet its presently anticipated capital requirements for the next
twelve months.
Outlook for Remainder of 1996
The Company intends to focus on the synergism of the two acquisitions
made in the first quarter of 1996 and to follow up on the momentum created by
the Company's Associate Network's marketing program and alliance with News
America FSI. In addition, the Company will begin to recognize efficiencies
from the combining of the previous acquisitions into the existing
infrastructure and lower the selling, general and administrative expenses from
the post acquisition second quarter.
The Company is seeking out strategic alliances for its other areas of
business enabling it to leverage its infrastructure and capacity. The Company
will also be seeking potential candidates for acquisition.
Forward-looking Statement
Except for historical information contained herein, the matters set forth
in this management discussion are forward-looking statements based on current
expectations. Actual results may differ materially. These forward-looking
statements involve a number of risks and uncertainties including, but not
limited to, the effectiveness of the marketing program and the Company's
success in capitalizing on its strategic alliances.
PART II. Other Information:
Item 6. Exhibits and Reports on form 8-K.
Exhibit 11.1 Computation of income (loss) per share. Page 13.
During the period of this report, there were no required filings on Form 8-K.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALTERNATE POSTAL DELIVERY, INC.
Date: November 12, 1996 By: Phillip D. Miller
Phillip D. Miller
President and Chief Executive Officer
By: Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
[DESCRIPTION] COMPUTATION OF INCOME (LOSS) PER SHARE
Exhibit 11.1
Computation of Income (Loss) Per Share
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
(unaudited) (unaudited)
Primary income(loss) per share:
Adj. To net income(loss):
<S> <C> <C> <C> <C>
Net income (loss) ($ 434,920) ($ 739,451) ($ 625,781) ($ 684,621)
---------- ---------- ----------- -----------
Adjd. Net income(loss) ($ 434,920) ($ 739,451) ($ 625,781) ($ 684,621)
Adj. To shares outstanding:
Actual weighted average
Shares outstanding 4,022,894 2,627,260 4,017,785 2,518,460
Net additional shares
issuable upon conversion
of warrants and options (416,848) ( 1,677) (179,736) ( 2,433)
--------- --------- ---------- -----------
Adj. shares outstanding 3,606,046 2,625,583 3,838,049 2,516,027
Primary income (loss)
per share ($ .12) ($ .28) ($ .16) ($ .27)
========= ========= ========= ===========
Fully diluted income(loss) per share:
Adj. To net income(loss):
Net income (loss) ($ 434,920) ($ 739,451) ($ 625,781) ($ 684,621)
Elimination of interest
expense on convertible
notes 33,827 104,448
Elimination of deferred
financing fees 1,066 ( 33,027)
---------- ---------- ----------- -----------
Adjd. Net income(loss) ($ 434,920) ($ 704,558) ($ 625,781) ($ 613,200)
Adj. To shares outstanding:
Actual weighted average
shares outstanding 4,022,894 2,627,260 4,017,785 2,518,460
Conversion of convertible
notes into 15% of common
stock outstanding 391,060 422,679
Pre-emptive shares 20,582 22,246
Net additional shares
issuable upon conversion
of warrants and options (506,056) ( 1,677) (506,056) ( 2,433)
--------- --------- ---------- -----------
Adj. Shares outstanding 3,516,838 3,037,225 3,511,729 2,960,952
Fully diluted income (loss)
per share ($ .12) ($ .23) ($ .18) ($ .21)
========= ========= ========= ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1996 (unaudited) and the
Consolidated Statement of Operations for the nine months ended September 30,
1996 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,228
<SECURITIES> 0
<RECEIVABLES> 1,997
<ALLOWANCES> 86
<INVENTORY> 0
<CURRENT-ASSETS> 4,374
<PP&E> 887
<DEPRECIATION> 627
<TOTAL-ASSETS> 6,029
<CURRENT-LIABILITIES> 1,963
<BONDS> 0
0
0
<COMMON> 8,386
<OTHER-SE> (4,579)
<TOTAL-LIABILITY-AND-EQUITY> 6,029
<SALES> 0
<TOTAL-REVENUES> 14,930
<CGS> 0
<TOTAL-COSTS> 11,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> (619)
<INCOME-TAX> 6
<INCOME-CONTINUING> (626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (626)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.18)
</TABLE>
