United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-26624
Alternate Postal Delivery, Inc.
______________________________________________________________________________
(Name of small business issuer in its charter)
Michigan 38-2841197
______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
One Ionia S.W., Suite 300, Grand Rapids, Michigan 49503
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (616) 235-0698
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
no par value.
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $18,442,056
State the total number of pages included in this report: 35.
The Exhibit index is on page: 34.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $1,857,495, based on 1,485,996 shares held by non-affiliates as of
March 13, 1998, and the average of the closing bid and asked prices for said
shares in the Nasdaq Small-Cap Market as of such date.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,030,127 shares of Common
Stock, as of March 15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy materials to be filed on or about April 6, 1998
are incorporated by reference in Part III of this Form 10-KSB. In addition
certain exhibits identified in Part III, Item 12 are incorporated by reference
to said exhibits as filed with (i) Form SB-2 Registration Statement
(Commission File No. 33-95332C), (ii) Report on Form 10-KSB for the fiscal
year ended December 31, 1995, and (iii) Reports on Form 8-K (dated April 11,
1996) and Form 8-K/A (dated April 4, 1996).
TABLE OF CONTENTS
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 6
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 5. Market for the Common Equity and Related Stockholder Matters
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . 7
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 32
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . 32
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 32
Item 11. Security Ownership of Certain Beneficial Owners and Management. . 32
Item 12. Certain Relationships and Related Transactions . . . . . . . . . 32
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 32
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 32
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART I
Item 1. DESCRIPTION OF BUSINESS
OVERVIEW
During the past two fiscal years, Alternate Postal Delivery, Inc. (the
"Company")has evolved from a delivery company to a marketing services company.
In 1998, the Company began using the dba Alternate Marketing Networks to more
accurately reflect the Company's shift in strategic direction. The Company
plans to officially change its name to "Alternate Marketing Networks, Inc."
upon ratification by the shareholders at the annual meeting in April 1998.
The Company has built unique and powerful marketing networks for national
advertisers who wish to deliver their message to targeted consumer households
throughout the United States and believes that it is now positioned as the in-
home target marketing specialist and a consolidator in the fast growing
marketing services industry. The Company's current networks are primarily
comprised of private delivery and newspaper delivery systems, augmented by
utilization of mailing services, for a total reach of approximately 100
million households nationwide. The Company distributes samples, suburban
newspaper advertisements, free standing inserts, phone directories and
specialty catalogs to targeted households throughout the United States.
The mix of these unique networks (Mixed Media TM), plus the Company's
proprietary database system (Media Optimizer TM)and an experienced management
team offers national advertisers and publishers:
- Unrestricted Reach
- Unequaled Access
- Unduplicated Delivery
The Company currently markets its services under the following brand
names:
- APD Direct-to-Door Sampling
- APD In-Pac TM Inserts
- APD Billboard Pouch Bag
- U.S. Suburban Press (USSPI)
- Alternate Postal Direct
Targeting the Consumer Message/Database Marketing
In 1997, the Company invested in the development of the Media Optimizer
TM, a sophisticated database system combining targeting systems,
comprehensive delivery capabilities, contract rates negotiated by the Company,
and a proprietary tracking system known as End to End Tracking TM. This
database system, which is now substantially complete, allows for the Company
to analyze customer needs and provide them with the most cost efficient Mixed
Media TM. In addition, the Media Optimizer TM contains features for
accounting, shipping and quality control purposes. The Company intends to
update this database monthly and add enhancements to keep the system
comprehensive and leading edge.
The Media Optimizer TM provides a functional integration of PRIZM and
Pro*Filer , two separate data platforms utilized by the Company when targeting
an advertisers' needs. PRIZM (which the Company utilizes through a license
agreement with Claritas, Inc.) provides geo-demographic consumer profiles
which identify zip codes containing households with a propensity to buy a
particular product or service. Using a custom-built software program, the
Company is able to match these zip codes of targeted consumers, to the
newspaper delivery database covering the same targeted area. Mapping
capabilities are also an important feature of the PRIZM software.
The Company's own proprietary program known as Pro*Filer, allows the
Company to target, profile and analyze geo-demographic and psychographic data
from either R.L. Polk or Metromail considered to contain the most accurate
and robust consumer information available in the U.S. Pro*Filer software
performs fast segmentation analysis, identifies the appropriate recipients for
specific products; generates "look-alikes" from a customer list; and targets
individuals, households, block groups, carrier routes and zip codes by using
multiple data formats. This enables advertisers to increase the efficiency of
their sales and marketing dollars by identifying the most likely prospects for
their products.
DESCRIPTION OF OPERATIONS
During the year, management consolidated the operations of its previous
four operating areas. This consolidation reduced the annual operating
expenses to $4,738,167 compared to $5,831,111 in 1996. The consolidation
occurred as management realized that customers need not be limited to the
marketing services offered by one area of the Company's business as opposed to
another. Management encouraged its sales people to offer their customers the
flexibility of choosing from all of the services offered by the Company,
rather than only those products which the sales person had been used to
offering. This consultative approach to selling has allowed the Company to
operate more effectively. In addition, the Company was able to reduce the
number of employees due to the implementation of an outsourcing agreement with
Media Passage. The Company believes it can increase revenues in 1998 without
increasing overhead due to the implementation of the Media Optimizer TM
system.
PRINCIPAL CUSTOMERS
During the years ended December 31, 1997 and 1996, the Company had no
single customer which accounted for 10% or more of the Company's revenues for
either period.
ACQUISITIONS AND STRATEGIC ALLIANCES
Although the Company made no acquisitions during 1997, it intends to
continue efforts to identify complementary businesses for acquisitions.
In the fourth quarter of 1997, the Company signed an extension to its
News America FSI (News Corp.) Agreement through June 30, 1998. At that time,
the Company will review the agreement with News America.
Also in the fourth quarter of 1997, the Company entered into an alliance
with Supermarket Promotions, Inc. The alliance will enable the Company to
offer additional complementary services to its product sample customers.
COMPETITION
The Company's primary competitor for newspaper sample deliveries is
Valassis Communications, Inc. (NYSE:VCI). Its primary competitors for
representing suburban newspapers are Landon and Associates, and Pappert and
Associates. Its primary competitors for direct delivery of telephone
directories are Product Development Corporation and Directory Distributing
Associates (DDA). The Company has no primary competitors that offer a
combination (Mixed Media TM) of direct delivery, newspaper delivery and mail
delivery.
EMPLOYEES
As of December 31, 1997, the Company had 40 full-time employees,
including 11 in sales and sales support, 16 in operations, 4 in computer
systems, and 9 in general and administrative support. In addition, as of
December 31, 1997, the Company had approximately 25 part-time employees in
operations, which number varies from month to month. The Company does not
foresee any material changes to the current number of employees.
SERVICE MARKS, TRADEMARKS, AND PATENTS
The Alternate Postal Delivery, Inc. Plus Design mark was registered with
the U.S. Patent and Trademark Office on May 10, 1994, as Reg. No. 1,835,717,
for private mail delivery services. This registration is owned by Alternate
Postal Delivery, Inc.
The Alternate Postal Direct mark was registered with the U.S. Patent and
Trademark Office on March 10, 1998 and was assigned Reg. No. 2,143,361 for
private mail delivery services. This registration is owned by Alternate
Postal Direct, Inc.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases its principal executive offices in Grand
Rapids, Michigan at a monthly base rent of approximately $2,440 and sales
office space in New York City, New York at a monthly base rent of $2,867. In
addition, one of the Company's wholly-owned subsidiaries Alternate Postal
Direct, Inc., rents warehouse space in Minneapolis, Minnesota at a monthly
rent of $1,407; warehouse and office space in St.Petersburg, Florida at a
monthly rent of $3,210; and office and warehouse space in San Francisco,
California pursuant to two leases at an aggregate monthly rent of $2,340.
Another wholly-owned subsidiary, National Home Delivery, Inc. (d/b/a USSPI)
rents sales office space in Schaumburg, Illinois, at an aggregate monthly rent
of $2,496. The Company does not deem any of these leases to be material,
since all of these facilities could be replaced with substantially equivalent
facilities at similar cost without great difficulty.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the quarterly high and low bid prices in
the market for the Company's Common Stock (which is its only class of security
outstanding), as reported in the Nasdaq Small-Cap Market, for the last two
years. The Company's Common Stock is traded under the symbol "ALTD."
Following the Company's change of name to Alternate Marketing networks, Inc.,
which is anticipated to occur on or about April 30, 1998, the Company intends
to apply for a change in its symbol to "ALTM" or another symbol which reflects
its new name. Such quotations represent interdealer prices, without retail
markup, markdown or commission, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Closing Bid Price
Low High
Year ended December 31, 1997:
<S> <C> <C>
First quarter . . . . . . . . . . . . . . . 3 3
Second quarter . . . . . . . . . . . . . . 2 3/4 2 3/4
Third quarter . . . . . . . . . . . . . . 2 2
Fourth quarter . . . . . . . . . . . . . . 1 1 1/4
Year ended December 31, 1996
First quarter . . . . . . . . . . . . . . . 5 1/4 6
Second quarter . . . . . . . . . . . . . . 4 5 1/8
Third quarter . . . . . . . . . . . . . . . 3 1/4 4
Fourth quarter . . . . . . . . . . . . . . 2 3/4 3 1/2
</TABLE>
As of March 10, 1998, the Company's Common Stock was held of record by 28
holders. Registered ownership includes nominees who may hold securities on
behalf of multiple beneficial owners. The Company estimates that the number
of beneficial owners as of March 10, 1998 is approximately 300.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for use in its operations and
does not anticipate paying cash dividends in the foreseeable future. Future
dividend policy will be determined by the Company's Board of Directors based
upon the Company's earnings, if any, its capital needs and other relevant
factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters set forth
in this management discussion are forward-looking statements based on current
expectations. These forward-looking statements involve a number of risks and
uncertainties including, but not limited to competition; timing of receipt and
fulfillment of customer orders; the results of marketing efforts; the expense
and time required to complete research, and marketing efforts; and the
integration of acquired businesses.
THE YEAR IN REVIEW
During 1997, the Company continued with the integration of the
acquisitions made in the previous year. All corporate, accounting, and
administrative functions were consolidated in the corporate office in Grand
Rapids, Michigan.
A major focus during the year was development of the Media Optimizer TM.
This comprehensive database system represents a combination of the separate
database systems previously used by the Company's personnel. The result is a
database which provides sales employees with all of the tools necessary to
give knowledgeable, efficient client proposals, and which provides operational
and quality control employees with the tools necessary to track and monitor a
contracted job from beginning to end (i.e. End to End Tracking TM). In
conjunction with the implementation of the combined, more efficient database,
the Company initiated an outsourcing agreement with Media Passage for one
order-one bill for suburban newspaper Run-of-Press (ROP) advertisements.
RESULTS OF OPERATIONS
Results of operations for the years ended December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $18,442,056 $19,937,151
Cost of sales . . . . . . . . . . . . 13,709,762 14,972,771
----------- -----------
Gross profit. . . . . . . . . . . . . 4,732,294 4,964,380
----------- -----------
Selling, general and
administrative expenses. . . . . . . 4,738,167 5,578,338
Other operating expenses. . . . . . . 252,773
----------- -----------
Operating loss. . . . . . . . . . . .( 5,873) ( 866,731)
----------- -----------
Extraordinary gain from early
extinguishment of debt . . . . . . . 38,145 232,909
----------- -----------
Net profit (loss) . . . . . . . . . . $ 87,806 ($ 603,543)
=========== ===========
Profit (loss) per share:
Basic. . . . . . . . . . . . . . . $0.02 ( $0.15)
=========== ===========
Diluted . . . . . . . . . . . . . $0.02 ( $0.18)
=========== ===========
Weighted average number of shares
outstanding:
Basic. . . . . . . . . . . . . . . . 4,022,894 4,019,069
Diluted . . . . . . . . . . . . . . 4,022,894 3,343,825
</TABLE>
The following table sets forth selected consolidated earnings data of the
Company expressed as a percentage of sales for the years ended December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . 100.0 % 100.0 %
Gross profit. . . . . . . . . . . . . 25.7 % 24.9 %
Operating expenses. . . . . . . . . . 25.7 % 29.2 %
Operating loss. . . . . . . . . . . . ( 0.0)% ( 4.3)%
Net profit(loss). . . . . . . . . . . 0.5 % ( 3.0)%
======== ========
</TABLE>
Net Sales. The net sales for 1997 decreased slightly compared to those
of 1996 primarily due to a $2.8 million decrease in the specific address
delivery of magazines and catalogs resulting from the USPS Rate
Reclassification case, which encouraged mail deliveries of these items.
Revenues for deliveries of product samples increased approximately $3 million.
Revenues for the placement of suburban newspaper space advertising decreased
approximately $1.7 million, largely due to changes in the automotive industry.
Revenues for the placement of inserts into suburban newspapers increased
approximately $300,000. Other decreases occurred in the local delivery of
newspaper TMC (total market coverage) products, while increases occurred in
revenues from the delivery of telephone directories.
Gross Profit. The gross profit percentage increased in 1997 due to a
change in the mix of revenues. Magazine deliveries revenues, which decreased
in 1997, generally produce lower margins than other sources of revenue.
Selling, general and administrative expenses. Operating expenses
decreased approximately $1.1 million as management consolidated functions to
gain efficiencies. The Company reduced full-time employees by 10 people which
decreased overall expenses by approximately $600,000. In addition, during
1996 the Company incurred one-time expenses of $252,773 in connection with the
start up of a project which it chose not to pursue. There were no similar
expenses of this type in 1997.
Operating profit (loss). Due to the savings in operating expenses which
the Company achieved in 1997, operating profit improved by over $800,000, even
though the revenues decreased compared with the prior year.
Extraordinary gain. The Company recorded extraordinary gains on the
early retirement of debt in the amount of $38,145 in 1997 and $232,909 in
1996.
Net income (loss). The net income (loss) for both 1997 and 1996 was
positively affected by the interest income and interest expense. Interest
income and interest expense for the year ended December 31, 1997 were $81,256
and $20,756 respectively. Interest income and interest expense in 1996 were
$153,397 and $103,336, respectively.
FOURTH QUARTER RESULTS:
The results of the fourth quarter of 1997 as compared to the same period
in 1996 are summarized as follows:
<TABLE>
<CAPTION>
Quarter ending December 31,
1997 1996
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $ 4,615,834 $ 5,007,403
Cost of sales . . . . . . . . . . . . 3,461,347 3,756,804
----------- -----------
Gross profit. . . . . . . . . . . . . 1,154,487 1,250,599
Selling, general and
Administrative expenses. . . . . . . 1,146,079 1,262,511
Other operating expenses. . . . . . . ( 1,449)
----------- -----------
Operating profit(loss). . . . . . . . 8,408 ( 10,463)
----------- -----------
Net profit . . . . . . . . . . . . . $ 22,250 $ 22,238
=========== ===========
</TABLE>
The decrease in revenue for the fourth quarter of 1997 as compared to the
fourth quarter of 1996 is principally attributable to the decrease of $443,614
(45%)in revenues from the delivery of magazines and catalogs. Other revenue
sources fluctuate based on the timing of orders. During the fourth quarter of
1997 as compared to the fourth quarter of 1996, increases in the deliveries of
product samples offset decreases from the deliveries of newspaper space
advertising and newspaper TMC deliveries.
Operating results during the fourth quarter of 1997 were positively
affected by the reduction in operating expenses.
Net profit for the fourth quarters of 1997 and 1996 was approximately the
same due to the fourth quarter 1996 recognition of an extraordinary gain of
$16,533 on the early retirement of debt. There was no corresponding gain in
the fourth quarter of 1997. Interest income and interest expense for the
fourth quarter of 1997 were $15,186 and $2,596 respectively. Interest income
and interest expense for the fourth quarter of 1996 were $27,308 and $11,140,
respectively.
INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
SEASONALITY AND OTHER BUSINESS FLUCTUATIONS
Although the Company experiences some seasonality in operations
corresponding with holiday advertising, such variations are not material to
overall annual results of operations.
The events from the national economy that impact the Company include
employment levels, postal regulations, and newsprint and coated paper price
changes. An increase in employment levels affect, to some degree, the
available pool of contract carriers that make the deliveries for the Company's
distribution network. This usually increases the cost of recruitment for the
private delivery and newspaper networks, including the Alternate Postal
Direct, Inc. subsidiary, and may contribute subtle pressure on negotiated
delivery costs.
YEAR 2000 READINESS
The Company believes that the impact of the Year 2000, will not have a
major impact on any future results and plans to have all of its internal
systems Year 2000 compliant by December 31, 1998. The Company has upgraded
its accounting system to be Year 2000 compliant and the Media Optimizer TM
was developed with Year 2000 compliant software. All other software and
hardware are being analyzed to be certain that each is or can be Year 2000
compliant prior to year 2000. Any additional upgrades will be non-material
and part of the normal course of operations. In addition, the Company has
contacted its suppliers and customers to request verification of compliance.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company was able to fund its operations with available
funds from the Company's initial public offering completed in September 1995.
The Company has established a bank line of credit for $500,000 to assist in
future cash flow needs. Cash and equivalents decreased by $800,057 to
$1,057,898 at December 31, 1997.
SUMMARY OF CASH FLOWS
Cash flows from operating activities. Cash provided from (used in)
operating activities was $59,720 in 1997 compared to ($771,074) in 1996. This
change was largely attributable to the improvement in the Company's net income
(loss).
Cash flows from investing activities. During 1997 the Company made
expenditures for property and equipment and computer software of $189,815 as
compared to $35,070 in 1996. Most of the purchases in 1997 were for computer
equipment and upgrades and the development of the Media Optimizer TM. In 1996
the Company made cash payments of $197,621 for costs of the acquisition of
Preferred Customer Delivery, Inc.
Cash flows from financing activities. During 1996, the Company
implemented a debt reduction strategy whereby it offered to pay long-term
noteholders of National Home Delivery, Inc. 60% of the principal balance due
upon an early retirement of the debt. The offer was continued during 1997,
except that the Company offered 75% rather than 60% of the principal balance.
The Company paid down this debt by $488,257 and recognized a gain on early
retirement of debt of $232,909 in 1996. It paid down this debt by $336,386 in
1997 and recognized a gain on early retirement of debt of $38,145.
The Company believes that cash flows from operations, along with the
balance of the proceeds of the public offering will be adequate to fund its
current growth plans and meet its presently anticipated capital expenditure
requirements for the next twelve months.
OUTLOOK FOR THE FUTURE
The Company intends to transform itself into a pure marketing services
business in 1998. Due to this transformation, the Company will discontinue
revenue streams with limited potential growth, aggressively seek out revenue
streams with higher growth potential from sources that complement the
Company's current client base, and continue integration of all of the
marketing services offered to the Company's customers.
With this transformation in mind, the Company intends to suspend its
monthly magazine delivery business by July 1, 1998. While monthly magazine
delivery was the major portion of address specific revenue, the Company will
continue to work with its magazine publisher clients to offer other creative
services such as subscription promotions.
The Company also intends to develop mail capabilities throughout the
United States to bundle with its private delivery and newspaper capabilities.
This service will complement the Company's existing services, especially in
less populated C & D counties. The Company believes that this development,
which is expected to take place in the third quarter of 1998, represents a
growth areas for the Company and that it will replace the revenue loss from
monthly magazine deliveries.
During 1998, the Company plans to maintain tight controls of its
operating expenses. In addition, it will continue to add options and
versatility to its Media Optimizer TM to enhance its ability to identify the
best target markets for its clients and track activity for improved quality
control. The Company will continue working with its core suppliers to
implement "Good Manufacturing Practices" and achieve maximum cost efficiency.
The Company also intends to analyze packaging options to improve polybag
production and cost.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants 13
Consolidated Balance Sheets 14-15
Consolidated Statements of Operations 16
Consolidated Statements of Changes in
Shareholders' Equity 17
Consolidated Statements of Cash Flows 18-19
Notes to Consolidated Financial Statements 20-31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Alternate Postal Delivery, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Alternate
Postal Delivery, Inc. and Subsidiaries as of December 31, 1997 and 1996, 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Alternate Postal Delivery, Inc. and Subsidiaries as of December 31, 1997
and 1996, and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Grand Rapids, Michigan
March 20, 1998
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,057,898 $ 1,857,955
Accounts receivable, trade, less
allowance of $103,800 and $100,000 in
1997 and 1996, respectively 2,392,855 2,511,361
Notes receivable, current portion 37,375
Prepaid expenses and other assets 164,902 255,863
------------ ------------
Total current assets 3,615,655 4,662,554
Notes receivable, less current portion 36,005 34,595
Property and equipment:
Computer equipment 562,741 508,813
Furniture and fixtures 411,087 383,020
------------ ------------
973,828 891,833
Accumulated depreciation and
amortization (780,450) (658,877)
------------ ------------
193,378 232,956
Computer software, net 126,486 43,151
Intangible assets, net 1,138,876 1,220,490
Other assets 7,241 32,241
------------ ------------
$ 5,117,641 $ 6,225,987
============ ============
</TABLE>
Continued
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
December 31, 1997 and 1996
<TABLE>
<CAPTION>
LIABILITIES
1997 1996
------------ ------------
Current liabilities:
<S> <C> <C>
Notes payable, bank $ $ 300,000
Accounts payable 630,792 760,389
Accounts payable, related parties 76,993 100,321
Accrued liabilities 315,644 416,947
Deferred revenue 68,369 302,096
Current portion of capitalized lease
obligations 7,116 27,802
Current portion of long-term debt 97,500 153,348
------------ ------------
Total current liabilities 1,196,414 2,060,903
Long-term debt, less current portion 324,933
Capitalized lease obligations, less current
portion 3,278 10,008
Commitments and contingencies (Note A)
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized, no shares issued and outstanding
Common stock-no par value, voting, 8,000,000
authorized shares; 4,022,894 shares issued
and outstanding 9,677,530 9,677,530
Accumulated losses, through
September 30, 1993 (Note A) (1,291,039) (1,291,039)
------------ ------------
Total common stock 8,386,491 8,386,491
Accumulated losses, since
October 1, 1993 (Note A) (4,468,542) (4,556,348)
------------ ------------
Total shareholders' equity 3,917,949 3,830,143
------------ ------------
$ 5,117,641 $ 6,225,987
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales $18,442,056 $19,937,151
Cost of sales 13,709,762 14,972,771
----------- -----------
Gross profit 4,732,294 4,964,380
Selling, general and
administrative expenses 4,738,167 5,578,338
Other operating expenses (Note H) 252,773
----------- -----------
4,738,167 5,831,111
----------- -----------
Loss from operations ( 5,873) ( 866,731)
Other income, net (Note K) 59,751 36,709
----------- -----------
Income (loss) before income taxes
and extraordinary gain 53,878 ( 830,022)
Income tax expense 4,217 6,430
----------- -----------
Income (loss) before extraordinary gain 49,661 ( 836,452)
Extraordinary gain from early
retirement of debt 38,145 232,909
----------- -----------
Net income (loss) $ 87,806 ($ 603,543)
=========== ===========
Net income (loss) per share: (Note F)
Basic:
Income (loss) before extraordinary gain $ .01 ($ .21)
Extraordinary gain .01 .06
----------- -----------
Net income (loss) $ .02 ($ .15)
=========== ===========
Diluted:
Income (loss) before extraordinary gain $ .01 ($ .25)
Extraordinary gain .01 .07
----------- -----------
Net income (loss) $ .02 ($ .18)
=========== ===========
Weighted average number of shares
outstanding: (Note F)
Basic 4,022,894 4,019,069
=========== ===========
Diluted 4,022,894 3,343,825
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated Accumulated Total
Common Losses, through Losses, since Shareholders'
Stock September 30, 1993 October 1, 1993 Equity
------ ------------------ --------------- -------------
Balances,
<S> <C> <C> <C> <C>
December 31, 1995 9,418,780 ( 1,291,039) ( 3,952,805) 4,174,936
Issuance of
Common Stock 258,750 258,750
Net loss ( 603,543) ( 603,543)
---------- ------------ ------------ ------------
Balances,
December 31, 1996 $9,677,530 ($1,291,039) ($4,556,348) $3,830,143
Net income 87,806 87,806
---------- ------------ ------------ ------------
Balances,
December 31, 1997 $9,677,530 ($1,291,039) ($4,468,542) $3,917,949
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 87,806 ($ 603,543)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation 124,599 137,837
Amortization 128,073 115,333
Extraordinary gain on settlement of debt ( 38,145) ( 232,909)
(Gain) loss on sale of assets ( 1,500) 7,140
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 118,506 ( 66,786)
Prepaid and other assets 128,336 221,030
(Decrease) increase in:
Accounts payable ( 152,925) ( 212,162)
Accrued liabilities ( 101,303) 44,339
Deferred revenue ( 233,727) ( 181,353)
------------ ------------
Net cash provided by (used in) operating
activities 59,720 ( 771,074)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ( 85,021) ( 32,085)
Proceeds from sale of equipment 1,500 1,500
Purchases of software ( 104,794) ( 2,985)
Payment for business acquisition ( 197,621)
Payments received for notes receivable 12,002 3,864
Issuance of notes receivable ( 13,412)
------------ ------------
Net cash used in investing activities ( 189,725) ( 227,327)
------------ ------------
Cash flows from financing activities:
Payments on notes payable,bank ( 1,740,000) ( 7,169,239)
Proceeds from borrowings on notes
payable, bank 1,440,000 7,175,000
Principal payments on long-term debt
and lease obligations ( 370,052) ( 540,470)
------------ ------------
Net cash used in financing
activities ( 670,052) ( 534,709)
------------ ------------
</TABLE>
Continued
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net decrease in cash and cash equivalents ( 800,057) ( 1,533,110)
Cash and cash equivalents, beginning of year 1,857,955 3,391,065
------------ ------------
Cash and cash equivalents, end of year $ 1,057,898 $ 1,857,955
============ ============
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ 4,217 $ 6,430
============ ============
Interest paid $ 48,818 $ 103,325
============ ============
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
During the year ended December 31, 1996, capital lease obligations of
$8,454 were incurred when the Company entered into leases for new equipment.
In addition, in connection with the acquisition of certain assets of Preferred
Customer Delivery, Inc.(Note B), the Company assumed a note payable in the
amount of $110,000 and issued 50,000 shares of its common stock valued at
$258,750.
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies:
The following is a summary of significant accounting policies followed in
the preparation of the financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Alternate
Postal Delivery, Inc. (APD) and its wholly-owned subsidiaries Alternate Postal
Direct, Inc., Newspaper Marketing Solutions, Inc., and National Home Delivery,
Inc.(NHD)(collectively referred to as the Company). All significant
intercompany transactions have been eliminated.
Business
The Company is a consolidator in the direct marketing services industry
and provides delivery of targeted sales and marketing materials to the home by
means that can be more flexible and less expensive than delivery by the United
States Postal Service (USPS). The Company provides its services throughout
the United States. The Company's customers are comprised of advertising
agencies, magazine publishers, catalogers, newspaper publishers, and packaged
goods manufacturers. Decreases in USPS rates could negatively impact the
direct marketing services industry and, because barriers to enter local
markets are not significant, positive changes may attract additional
competitors to the industry.
Revenue Recognition
Revenues for delivery services are recognized at the time of delivery.
Revenues for advertising in newspapers are recognized when the ads run in the
newspapers. Revenues for software sales are recognized at the time of
installation. Revenues for affiliate activation fees are deferred until such
time as the affiliates are no longer eligible for a refund.
During the years ended December 31, 1997 and 1996, the Company had no
customers which accounted for 10 percent or more of the Company's revenues.
Cash Equivalents
The Company considers all highly liquid instruments to be cash
equivalents.
Property and Equipment
Property and equipment are recorded at cost. Upon sale or retirement,
the cost and related accumulated depreciation are eliminated from the
respective accounts and the resulting gain or loss is included in operations.
Maintenance and repairs which do not improve or extend the lives of the
respective assets are charged to expense as incurred.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
Depreciation and amortization are computed over the estimated useful
lives of the assets using the straight-line and accelerated methods:
Computer equipment 5 years
Furniture and fixtures 5 to 7 years
Property and equipment includes computer equipment and furniture and
fixtures under capital leases of $119,159 at December 31, 1997 and 1996 and
accumulated amortization of $92,657 and $68,529 respectively.
Computer Software
Purchased computer software is recorded at cost and is amortized over the
estimated useful lives of the assets. Computer software developed for
internal use is amortized over the estimated useful life of the asset. The
costs which are capitalized include external direct costs of materials and
services incurred in the developing or obtaining internal-use software. At
December 31, 1997 and 1996, accumulated amortization was $123,051 and
$101,593, respectively.
Intangible Assets
Intangible assets consist of the excess cost over fair market value of
net assets of acquired businesses and are being amortized ratably over 20
years. The carrying value of goodwill is periodically reviewed to determine
if an impairment has occurred.
At December 31, 1997 and 1996, accumulated amortization of goodwill was
$521,774 and $440,160, respectively.
Income taxes
Since inception the Company had been an S Corporation, whereby income or
loss was included in the federal income tax returns of the shareholders. On
October 1, 1993 the Company formed a wholly-owned subsidiary, which caused a
change in the Company's tax status from an S Corporation to a C Corporation
(see Income Taxes Note). As a result of this change, accumulated losses at
September 30, 1993 were reclassified to reduce common stock to zero with the
remaining balance presented as a separate component of shareholders' equity.
Advertising
The cost of advertising and marketing programs are charged to operations
in the year incurred. Advertising expense was $116,441 and $208,749 for the
years ended December 31, 1997 and 1996, respectively.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
Financial Instruments
At December 31, 1997 and 1996, the Company has cash and cash equivalents,
notes receivable, and debt which are considered financial instruments. The
market value of these financial instruments, as determined through information
obtained from banking sources and management estimates, approximate the
carrying value reported in the balance sheet.
Income (loss) Per Share
The Company implemented Statement of Financial Accounting Standards No.
128, "Earnings per Share", for financial statements for the year ended
December 31, 1997. This Statement simplifies the standards for computing
earnings per share, replacing the presentation of primary earnings per share
with a presentation of basic earnings per share. SFAS No. 128 also requires
dual presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share is computed similarly to fully diluted
earnings per share pursuant to APB Opinion No.15, "Earnings per Share", which
is superseded by this Statement. Loss per share for 1996 has been restated to
conform to SFAS No. 128. Adoption of this standard did not have a material
effect on reported income per share in 1997 and 1996.
Basic income (loss) per share is determined by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding.
Diluted income (loss) per share is determined by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding
while giving effect to all dilutive potential common shares.
Recent Accounting Pronouncement
In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display
of comprehensive income and its components within the financial statements.
Comprehensive income includes items such as foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. This statement is effective for
fiscal years beginning after December 15, 1997, with reclassification of prior
periods required.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information." This statement
establishes standards for the way in which public entities report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement requires that general-purpose
financial statements include selected information reported on a single basis
of segmentation. This statement is effective for fiscal years beginning after
December 15, 1997, with restatement of comparative information for earlier
years being required.
Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management 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 periods. Actual results could differ from those estimates.
B. Acquisitions:
On January 29, 1996, the Company acquired certain assets of Preferred
Customer Delivery, Inc.(PCD) in a transaction accounted for by the purchase
method. The purchase price included a cash payment of $165,000, $110,000
assumption of debt and the issuance of 50,000 shares of the Company's common
stock valued at $258,750. The Company recorded goodwill of approximately
$477,000 as a result of this acquisition. The results of operations of PCD
are included in the consolidated financial statements from the date of
acquisition. PCD's results of operations were not significant to the
consolidated financial statements for the period in 1996 prior to the
acquisition.
On March 29, 1996, the Company acquired National Home Delivery, Inc. in a
transaction accounted for by the pooling-of-interests method. The Company
issued 700,000 shares of its common stock for all of the outstanding shares of
NHD. Additionally, stock options outstanding under NHD's plan were exchanged
for 129,069 stock options of the Company. The options were issued at an
exercise price of $5.02 (in January 1997, the options were repriced - see Note
J). In June 1994, the U.S. Bankruptcy Court approved a reorganization plan
for NHD. At the date of the pooling, certain notes payable were still
outstanding and subject to the provisions of the reorganization plan. The
Company recognized an extraordinary gain of $38,145 and $232,909 on the
settlement of notes payable for the years ended December 31, 1997 and 1996,
respectively. (Note D)
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
B. Acquisitions, continued:
The following table sets forth the unaudited pro forma results of
operations for the period ended December 31, 1996 as if the acquisition were
consummated at the beginning of the period. This pro forma information does
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
Revenue:
Pre-merger:
<S> <C>
APD $ 2,249,577
NHD 3,613,911
PCD --
Post-merger 14,073,663
-----------
$19,937,151
===========
Net income (loss):
Pre-merger:
APD ($ 276,223)
NHD 22,165
PCD --
Post-merger ( 349,485)
-----------
($ 603,543)
===========
</TABLE>
C. Retirement Plan:
On September 1, 1996, the Company established a qualified 401(k)
retirement plan covering all employees who have met certain requirements as to
age and date of service. The plan allows for employees to make contributions
by salary reductions. Company contributions are determined annually at the
discretion of the Board of Directors. Company contributions for the years
ended December 31, 1997 and 1996 were $14,172 and $4,331, respectively.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
D. Debt:
Debt consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Note payable to shareholder, interest
at 7.5 percent, due June 1997, collateralized
<S> <C> <C>
by accounts receivable - $140,000
Notes payable, unsecured, in settlement of trade
and other claims, interest at 8 percent
- 227,433
Note payable, non interest bearing,
payable in monthly installments of $521,
with the remaining balance due August 1, 1998. $ 97,500 103,750
Other - 7,098
--------- ---------
97,500 478,281
Less current maturities 97,500 153,348
--------- ---------
$ - $324,933
========= ==========
</TABLE>
During 1997, the Company retired approximately $336,000 of unsecured
notes payable at a discount. The Company paid 75 cents on the dollar for
certain notes and accordingly recognized an extraordinary gain on early
retirement of the debt of $38,145. During 1996, the Company retired
approximately $488,000 of unsecured notes payable at a discount. The Company
paid 60 cents on the dollar and accordingly recognized an extraordinary gain
on early retirement of the debt of $232,909.
The Company has a line of credit agreement with a bank, providing for
borrowings not to exceed $500,000, based upon a percentage of eligible
accounts receivable. The agreement, which expires November 30, 1998, bears
interest at one-half percent over the bank's prime rate. At December 31, 1997
the Company had no outstanding balance on the line of credit.
E. Common Stock:
The Company has an Outside Directors Deferred Compensation Plan (the
"Deferred Compensation Plan") which provides for the deferral of directors
fees and, ultimately the issuance of common stock in lieu of the deferred cash
fee. In connection with this plan, the Company has reserved 50,000 shares of
common stock.
At December 31, 1997, the Company has outstanding warrants aggregating
354,875 shares of Common Stock exercisable at $6 per share. These warrants
are exercisable through September 2000.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
F. Net Income (Loss) Per Share Calculation:
1997 1996
------------ ------------
Income (Numerator):
<S> <C> <C>
Income (loss) before extraordinary gain $ 49,661 ($ 836,452)
Extraordinary gain from early
retirement of debt 38,145 232,909
----------- -----------
Net income (loss) $ 87,806 ($ 603,543)
=========== ===========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average shares outstanding 4,022,894 4,019,069
=========== ===========
Basic income (loss) per share:
Income (loss) before extraordinary gain $ .01 ($ .21)
Extraordinary gain .01 .06
----------- -----------
Net income (loss) per share $ .02 ($ .15)
=========== ===========
Shares (Denominator):
Diluted income (loss) per share:
Actual weighted average shares outstanding 4,022,894 4,019,069
Net reduction in shares upon conversion of
warrants and options * ( 675,244)
------------ ------------
Adjusted shares outstanding 4,022,894 3,343,825
============ ============
Diluted income (loss) per share:
Income (loss) before extraordinary gain $ .01 ($ .25)
Extraordinary gain .01 .07
------------ ------------
Net income (loss) per share $ .02 ($ .18)
============ ============
</TABLE>
*Net reduction of shares of 667,335 is anti-dilutive and therefore not
presented.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
G. Leases:
The Company leases certain office facilities, warehouse facilities, and
equipment used in its operations. Future minimum rental payments required
under leases that have initial or remaining terms in excess of one year at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Capital Operating
<C> <C> <C>
1998 $ 8,409 $110,166
1999 3,548 41,082
2000 18,543
--------- ----------
11,957 $169,791
==========
Less amount representing
imputed interest 1,563
---------
10,394
Less current portion 7,116
---------
$ 3,278
=========
</TABLE>
Rental expense for facilities, transportation vehicles and equipment for
the years ended December 31, 1997 and 1996 was approximately $273,900 and
$300,900, respectively.
H. Other Operating Expenses:
In 1996, the Company incurred start-up expenses for a project which the
Company chose not to pursue in the amount of $193,525. In addition, the
Company incurred acquisition expenses of $59,248 in connection with the
pooling-of-interest transaction completed on March 29, 1996.
I. Income Taxes:
Deferred income taxes are recognized for the temporary differences
between the tax bases of assets and liabilities and their financial reporting
amounts. The income tax provision is the tax payable/recoverable for the
period and the change during the period in deferred tax assets and
liabilities.
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
I. Income Taxes, continued:
Income tax expense for the years ended December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996
--------- ---------
Federal:
<S> <C> <C>
Deferred expense (benefit) $ 59,000 ($183,000)
Change in valuation allowance ( 59,000) 183,000
State: 4,217 6,430
-------- --------
$ 4,217 $ 6,430
======== ========
Major components of the Company's deferred taxes are as follows:
December 31,
1997 1996
-------- ---------
Receivable allowance $ 35,000 $ 34,000
Vacation accrual 43,000 50,000
Deferred compensation 11,000
Net operating loss carryforward 1,662,000 1,726,000
Valuation allowance (1,751,000) (1,810,000)
---------- ---------
$ - $ -
========== =========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $4,900,000, which are available to reduce future taxable income.
These carryforwards expire in 2005 to 2010. The net operating loss
carryforwards include approximately $3,100,000 which relate to the operations
of NHD prior to the pooling of interest and are subject to certain
limitations.
J. Stock Options:
The Company has a Long-Term Incentive Stock Option Plan (the "Incentive
Plan") and an Outside Directors and Advisors Stock Option Plan (the "Directors
& Advisors Plan"), to encourage stock ownership by employees, officers,
directors and other individuals as determined by the Board of Directors or a
committee appointed by the Board of Directors. Options granted under the
Incentive Plan may be either incentive stock options as defined by the
Internal Revenue Code, or nonqualified stock options. All options under the
Directors & Advisors Plan are nonqualified options. Options granted under the
Directors and Advisors Plan are vested when granted and have a term of 10
years. Options granted under the Incentive Plan have a vesting period of 6
months to 5 years with terms ranging from 5 to 10 years. In connection with
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
J. Stock Options, continued:
these plans, the Company has reserved a total of 450,000 shares of common
stock. Options were not granted at less than the fair market value of the
Company's common stock on the date of grant, therefore, no compensation
expense has been recognized in 1997 or 1996.
In conjunction with the acquisition in 1996 of National Home Delivery,
Inc., stock options of National Home Delivery, Inc. were exchanged for 129,069
incentive options of the Company. As of December 31, 1997, these options are
outstanding and exercisable.
In January 1997, the Company's Stock Option Committee elected to reprice
certain stock options as an incentive for retention and motivation of the
Company's personnel, including certain options granted to executive officers.
The Committee believed that outstanding stock options with an exercise price
substantially in excess of the current market price no longer served to
encourage employee retention or to motivate high levels of performance.
Eligible employees were permitted to exchange all eligible outstanding
options, whether vested or unvested, on a one-for-one basis for new options
under the Company's Incentive Plan and options issued in connection with the
acquisition of National Home Delivery, Inc. The exercise price of all of the
repriced options is equal to the closing price on the Nasdaq Small Cap market
on January 21, 1997 of $3.125. All options previously vested were exchanged
for options with a new one year vesting. All options not previously vested
were issued with a two year vesting.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the
Company's stock based plans been determined based on the fair value at the
1997 and 1996 grant dates, consistent with the method prescribed by the
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", the Company's net income (loss) and income (loss) per
share would have been adjusted to the proforma amounts indicated in the
following table:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996
----------- -----------
Net Income (Loss)
<S> <C> <C>
As Reported $ 87,806 ($603,543)
Pro Forma ($187,935) ($856,163)
Income (Loss) Per Share
As Reported
Basic $0.02 ($0.15)
Diluted $0.02 ($0.18)
Pro Forma
Basic ($0.05) ($0.21)
Diluted ($0.06) ($0.26)
</TABLE>
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
J. Stock Options, continued:
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
for December 31, 1997 and 1996; risk free rate of six percent; no dividend
yield for all years; expected life 5 years; and volatility of 41 percent.
Option valuation models, like the stock price Black-Scholes model, require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock options.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------- ---------------------
Options Weighted- Options Weighted-
Avg. Avg.
Exercise Exercise
Price Price
--------- --------- --------- ---------
Outstanding-beginning
<S> <C> <C> <C> <C>
of year 298,546 $5.07 235,569 $5.00
Granted 64,800 $2.78 84,927 $5.24
Forfeited 20,627 $5.38 9,150 $5.10
Expired 7,850 $5.07 12,800 $5.00
Repriced 224,096 $3.15
Outstanding-end of year 334,869 $3.42 298,546 $5.07
Exercisable at end of
year 47,500 $4.01 227,019 $5.01
Weighted-average fair
value of options granted
during the year $1.23 $2.35
</TABLE>
Options outstanding as of December 31, 1997 are described below:
<TABLE>
<CAPTION>
Weighted Avg Weighted Avg
Range of Prices Options Exercise Price Remaining Term
---------------- ------- -------------- ---------------
<S> <C> <C> <C>
$2.500 to $2.625 37,500 $2.53 9.41 years
$2.626 to $3.625 249,869 $3.19 7.34 years
$3.626 to $5.875 47,500 $5.35 8.08 years
---------------- ------- ----- ----------
$2.500 to $5.875 334,869 $3.42 7.68 years
</TABLE>
ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
K. Other Income, net:
<TABLE>
<CAPTION>
Other income, net consists of the following:
1997 1996
----------- -----------
<S> <C> <C>
Interest income $ 81,256 $ 153,397
Interest expense ( 20,756) ( 103,336)
Loss on sale of assets ( 749) ( 13,352)
----------- -----------
$ 59,751 $ 36,709
=========== ===========
</TABLE>
L. Related Party Transactions:
Amounts due for the delivery of materials by private delivery affiliates
that are affiliated through common shareholders are presented in accounts
payable, related parties on the accompanying consolidated balance sheet.
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or about April 6, 1998.
Item 10. Executive Compensation
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or about April 6, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or about April 6, 1998.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or about April 6, 1998.
Item 13. Exhibits and Reports on Form 8-K
Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the
last quarter of the fiscal year ended December 31, 1997.
None. SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALTERNATE POSTAL DELIVERY, INC.
Dated: March 30, 1998 By:/s/Phillip D. Miller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Dated
/s/Phillip D. Miller March 30, 1998
Phillip D. Miller, Chief Executive Officer and
President (Principal executive officer) and Chairman of the
Board of Directors
/s/Sandra J. Smith March 30, 1998
Sandra J. Smith, Chief Financial Officer and
Treasurer (Principal accounting and financial officer)
/s/Stan Henry March 30, 1998
Stan Henry, Director
/s/Thomas Hiatt March 30, 1998
Thomas Hiatt, Director
/s/Harry Edelson March 30, 1998
Harry Edelson, Director
INDEX TO EXHIBITS
Index No. Description Page#
2.1 Asset Purchase Agreement with Preferred Customer Delivery, Inc.
dated January 24, 1996 (3)
2.2 Acquisition Agreement with National Home Delivery, Inc.
dated March 29, 1996 (4)
3.1 Amended and Restated Articles of Incorporation of
the Company (1)
3.2 Bylaws of the Company, as amended (1)
4.1 Form of Stock Certificate evidencing Common Stock,
no par value (1)
4.2 Form of Lock-Up Agreement executed by certain
shareholders (1)
4.3 1995 Long-Term Incentive and Stock Option Plan (1)
4.4 1995 Outside Directors and Advisors Stock Option Plan (1)
4.5 Outside Directors Deferred Compensation Plan (1)
4.6 Form of Noteholder Warrant (1)
4.7 Form of Registration Rights Agreement with Noteholders(1)
10.1 Forms of Agreement with Newspaper Affiliates (1)
10.2 Form of Agreement with Magazine Publishers (1)
10.3 Employment Agreement dated July 21, 1995 between the
Company and Phillip D. Miller (1)
10.4 Agreement dated July 21, 1995 between the Company and
D.B. Krieger regarding his role as Chairman (1)
10.5 Form of Software License Agreement (1)
10.7 Financial Services Agreement dated October 21, 1994
between the Company and Carnegie Hill Company, and
amendment dated January 3, 1995 (1)
10.8 Lease Renewal dated August 8, 1995 for Grand Rapids,
MI Executive Offices (2)
10.9 Lease for Santa Rosa, CA warehouse and office space (2)
10.10 Lease for Concord, CA warehouse and office space (2)
10.11 Lease for San Leandro, CA warehouse and office space (2)
10.12 Sublease for San Leandro, CA warehouse and office space (2)
10.13 Lease for St. Petersburg, FL warehouse sites (2)
10.14 Lease for St. Petersburg, FL warehouse and office space (2)
21.1 List of Subsidiaries of the Company (5) 35
________________________
(1) Incorporated by reference to said exhibit included in Registration
Statement on form SB-2, Commission File No. 33-95332C.
(2) Incorporated by reference to said exhibit filed with the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
(3) Incorporated by reference to Form 8-K/A (dated April 4, 1996)
(4) Incorporated by reference to Form 8-K (dated April 11, 1996)
(5) Filed herewith.
(6) All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are either included within the financial statements, not required under
the related instruction, or are not applicable and, therefore, have been
omitted.
[DESCRIPTION] SUBSIDIARIES OF THE COMPANY
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of
Incorporation
Alternate Postal Direct, Inc. Michigan
Newspaper Marketing Solutions, Inc. Michigan
National Home Delivery, Inc. Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000949244
<NAME> ALTERNATE POSTAL DELIVERY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,058
<SECURITIES> 0
<RECEIVABLES> 2,497
<ALLOWANCES> 104
<INVENTORY> 0
<CURRENT-ASSETS> 3,616
<PP&E> 974
<DEPRECIATION> 780
<TOTAL-ASSETS> 5,118
<CURRENT-LIABILITIES> 1,196
<BONDS> 0
0
0
<COMMON> 8,386
<OTHER-SE> (4,469)
<TOTAL-LIABILITY-AND-EQUITY> 5,118
<SALES> 0
<TOTAL-REVENUES> 18,442
<CGS> 0
<TOTAL-COSTS> 13,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 54
<INCOME-TAX> 4
<INCOME-CONTINUING> 50
<DISCONTINUED> 0
<EXTRAORDINARY> 38
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at 12/31/96,(9/30/96, 6/30/96 & 3/31/96)(unaudited)
and the Consolidated Statements of Operations for the year ended 12/31/96,
(nine months ended 9/30/96, six months ended 6/30/96 & three months ended
3/31/96) (unaudited)and is qualified in its entirety by ref. to such financial
statements.
</LEGEND>
<RESTATED>
<CIK> 0000949244
<NAME> ALTERNATE POSTAL DELIVERY, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 1,858 2,228 2,658 2,945
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,611 1,997 2,193 2,104
<ALLOWANCES> 100 86 54 52
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 4,663 4,374 4,975 5,232
<PP&E> 892 887 891 910
<DEPRECIATION> 659 627 600 572
<TOTAL-ASSETS> 6,226 6,029 6,691 7,023
<CURRENT-LIABILITIES> 2,061 1,963 2,045 1,892
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 8,386 8,386 8,386 8,386
<OTHER-SE> (4,556) (4,579) (4,144) (4,207)
<TOTAL-LIABILITY-AND-EQUITY>6,226 6,029 6,691 7,023
<SALES> 0 0 0 0
<TOTAL-REVENUES> 19,937 14,930 11,050 5,863
<CGS> 0 0 0 0
<TOTAL-COSTS> 14,973 11,216 8,269 4,482
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 103 92 72 42
<INCOME-PRETAX> (830) (619) (184) (251)
<INCOME-TAX> 6 6 6 3
<INCOME-CONTINUING> (836) (626) (191) (254)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 233 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (604) (626) (191) (254)
<EPS-PRIMARY> (.15) (.16) (.05) (.06)
<EPS-DILUTED> (.18) (.18) (.05) (.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at (9/30/97, 6/30/97, 3/31/97)(unaudited) and the
Consolidated Statements of Operations for the (nine months ended 9/30/97, the
six months ended 6/30/97, and the three months ended 3/31/97)(unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000949244
<NAME> ALTERNATE POSTAL DELIVERY, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 1,242 1,344 2,001
<SECURITIES> 0 0 0
<RECEIVABLES> 2,679 2,736 3,027
<ALLOWANCES> 70 64 102
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 4,136 4,213 5,259
<PP&E> 995 936 895
<DEPRECIATION> 742 713 686
<TOTAL-ASSETS> 5,655 5,744 6,791
<CURRENT-LIABILITIES> 1,755 1,764 2,772
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 8,386 8,386 8,386
<OTHER-SE> (4,491) (4,507) (4,546)
<TOTAL-LIABILITY-AND-EQUITY> 5,655 5,744 6,791
<SALES> 0 0 0
<TOTAL-REVENUES> 13,826 9,398 4,046
<CGS> 0 0 0
<TOTAL-COSTS> 10,248 6,965 2,893
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 18 16 11
<INCOME-PRETAX> 27 9 (31)
<INCOME-TAX> (1) (2) (3)
<INCOME-CONTINUING> 28 11 (28)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 38 38 38
<CHANGES> 0 0 0
<NET-INCOME> 66 49 10
<EPS-PRIMARY> .02 .01 .00
<EPS-DILUTED> .02 .01 .00
</TABLE>
