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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE MARKETING NETWORKS, INC.
formerly 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 October 28, 1998, 3,888,627 shares of the issuer's common stock were
outstanding.
This report contains 14 pages.
ALTERNATE MARKETING NETWORKS, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - September 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
and nine months ended September 30, 1998 and 1997 . . . . . . .5
Condensed Consolidated Statements of Cash Flows - nine
months ended September 30, 1998 and 1997. . . . . . . . . . . .6
Notes to Condensed Consolidated Financial Statements. . . . 7 & 8
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . 9 - 12
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .13
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 97,234 $ 1,057,898
Accounts receivable, trade, less
allowance of $87,000 and $103,800
at September 30 and December 31
respectively 4,736,689 2,392,855
Notes receivable, current portion 35,899
Prepaid expenses and other assets 161,580 164,902
----------- -----------
Total current assets 5,031,402 3,615,655
Notes receivable, less current portion 36,005
Property and equipment:
Computer equipment 324,485 562,741
Furniture and fixtures 347,072 411,087
----------- -----------
671,557 973,828
Accumulated depreciation and
amortization (431,307) (780,450)
----------- -----------
240,250 193,378
Computer software, net 174,286 126,486
Intangible assets, net 1,076,089 1,138,876
0ther assets 7,241
----------- -----------
$ 6,522,027 $ 5,117,641
=========== ===========
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
September 30, December 31,
1998 1997
(unaudited)
----------- -----------
Current liabilities:
<S> <C> <C>
Note payable, bank $ 675,000 $
Accounts payable 1,306,220 630,792
Accounts payable, related parties 1,320 76,993
Accrued liabilities 301,821 315,644
Deferred revenue 352,582 68,369
Current portion of capitalized lease
obligations 4,574 7,116
Current portion of long-term debt 93,854 97,500
--------- ---------
Total current liabilities 2,735,371 1,196,414
Capitalized lease obligations, less current
portion 3,278
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized shares, no shares issued and
outstanding
Common stock-no par value, voting, 8,000,000
authorized shares; 3,943,627 shares issued and
outstanding at September 30, 1998 and 4,022,894
at December 31, 1997 9,623,167 9,677,530
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
--------- ---------
Total common stock 8,332,128 8,386,491
Accumulated losses, since October 1, 1993
(Note 4) (4,545,472) (4,468,542)
--------- ---------
Total shareholders' equity 3,786,656 3,917,949
--------- ---------
$ 6,522,027 $ 5,117,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1998 1997 1998 1997
(unaduited) (unaudited)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $5,432,796 $4,428,190 $14,448,103 $13,826,222
Cost of sales 4,135,520 3,283,659 11,040,361 10,248,415
--------- ---------- ----------- -----------
Gross profit 1,297,276 1,144,531 3,407,742 3,577,807
Selling, general and
administrative expenses 1,289,134 1,139,713 3,495,858 3,599,183
---------- ---------- ----------- -----------
Income (loss) from operations 8,142 4,818 ( 88,116)( 21,376)
Other income (expense), net 2,565 12,866 13,836 47,910
---------- ---------- ----------- -----------
Income (loss) before income
taxes and extraordinary gain 10,707 17,684 ( 74,280) 26,534
Income tax expense(benefit) 1,283 2,650 ( 877)
---------- ---------- ----------- -----------
Income (loss) before
extraordinary gain 10,707 16,401 ( 76,930) 27,411
Extraordinary gain from early
retirement of debt 38,145
---------- ---------- ----------- -----------
Net income (loss) $ 10,707 $ 16,401 ($ 76,930) $ 65,556
========== ========== ========== ===========
Income (loss) per share (Note 3)
Basic:
Income (loss) before
extraordinary gain $ .00 $ .00 ($ .02) $ .01
Extraordinary gain .00 .00 .00 .01
---------- ---------- ----------- -----------
Net income (loss) $ .00 $ .00 ($ .02) $ .02
========== ========== =========== ===========
Diluted:
Income (loss) before
extraordinary gain $ .00 $ .00 ($ .02) $ .01
Extraordinary gain .00 .00 .00 .01
---------- ---------- ----------- -----------
Net income (loss) $ .00 $ .00 ($ .02) $ .02
========== ========== =========== ===========
Weighted average number of shares
outstanding: (Note 3)
Basic 3,994,306 4,022,894 4,014,946 4,022,894
========== ========== =========== ===========
Diluted 3,994,306 4,022,894 4,014,946 4,022,894
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1998 1997
(unaudited)
------------ ------------
<S> <C> <C>
Net cash flows from operating activities ($1,359,369) $ 225,437
---------- ----------
Net cash flows from investing activities ( 190,767) ( 138,177)
---------- ----------
Net cash flows from financing activities 589,472 ( 703,114)
---------- ----------
Net decrease in cash and
cash equivalents ( 960,664) ( 615,854)
Cash and cash equivalents, beginning
of period 1,057,898 1,857,955
---------- ----------
Cash and cash equivalents, end of
period $ 97,234 $1,242,101
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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
of operations 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. The results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results of operations expected for
the year ended December 31, 1998.
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. Net Income (Loss) Per Share Calculation:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
Income (Numerator):
Income (loss) before
<S> <C> <C> <C> <C>
extraordinary gain $ 10,707 $ 16,401 ($ 76,930) $ 27,411
Extraordinary gain from early
retirement of debt 38,145
---------- ---------- ----------- -----------
Net income (loss) $ 10,707 $ 16,401 ($ 76,930) $ 65,556
========== ========== ========== ===========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average
shares outstanding 3,994,306 4,022,894 4,014,946 4,022,894
========== ========== ========== ===========
Basic income (loss) per share:
Loss before extraordinary
gain $ .00 $ .00 ($ .02) $ .01
Extraordinary gain .00 .00 .00 .01
---------- ---------- ---------- ----------
Net income (loss) per share $ .00 $ .00 ($ .02) $ .02
========== ========== ========== ==========
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
3. Net Income (Loss) Per Share Calculation, continued:
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
<TABLE>
<CAPTION>
Diluted income (loss) per share:
Actual weighted average
<S> <C> <C> <C> <C>
shares outstanding 3,994,306 4,022,894 4,014,946 4,022,894
Shares upon conversion of
warrants and options * * * *
---------- --------- --------- -----------
3,994,306 4,022,894 4,014,946 4,022,894
========== ========== ========== ===========
Diluted income (loss) per share:
Loss before extraordinary
gain $ .00 $ .00 ($ .02) $ .01
Extraordinary gain .00 .00 .00 .01
---------- ---------- ---------- ----------
Net income (loss) per share $ .00 $ .00 ($ .02) $ .02
========== ========== ========== ==========
</TABLE>
* The incremental shares are not included in the computation due to the loss
before extraordinary gain and the exercise prices of the warrants and
options exceeding the average market price of the common stock.
4. Accumulated losses, through September 30, 1993, represent the losses and
capital of the Company during the period of time it was a subchapter S
corporation. All subsequent losses of the combined entities are presented
under Accumulated losses, since October 1, 1993.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
The Company's clients include national advertisers who place Run of Press
(ROP) or insert advertisements into newspapers, packaged goods clients who
desire a sample to be delivered to a targeted household audience, and
telephone directory publishers who wish to have their directories delivered to
the households of communities across the nation. The Company believes it
offers these clients unrestricted reach, unequaled access and unduplicated
delivery to approximately 100 million households nationally.
During the quarter ended September 30, 1998, the Company experienced sales
growth even with the suspension of its traditional magazine business. The
growth was fueled by implementation of a new sales structure which involved
relocation of the Company's sampling sales office from New York City to
Norwalk, Connecticut, where the Company occupies leased offices adjacent to
its alliance partner, News America Marketing. This shift in location was also
accompanied by a significant change in sales personnel, new collateral material
and sales tools, and a new sales tracking system to improve the productivity of
the sales personnel. In addition, the Company formed a Client Services
Department located primarily in the Grand Rapids, Michigan office. The Client
Services Department works closely with sales, operations and finance to ensure
a smooth execution for the Company's clients. Finally, the Company gave its
clients access to its proprietary End to End Tracking TM Intranet site which
enables them to have more timely and tighter control of their schedules and
products.
During the quarter ended September 30, 1998, the Company also completed
Version I of its proprietary Media Optimizer TM database. The Media Optimizer
TM offers sophisticated targeting and information on the most efficient
distribution method for a client's advertising. The Company believes that the
efficiency of the Media Optimizer TM will enable it to grow its revenues in
1999 without incurring a proportionate growth in overhead.
The Company's Media Optimizer TM database stores data on the various
delivery vehicle options which the Company has available to it as follows:
Marketing Service Delivery Options
----------------- ----------------
Product Sampling Metro Newspapers
Suburban Newspapers
Private Delivery
Mail
ROP and Inserts Suburban Newspapers
Telephone Directories Alternate Postal Direct subsidiary
Private Delivery
Mail
Results of Operations
The third quarter of 1998 posted revenues 23% higher than the same period
of the previous year. This was primarily due to a substantial increase in
product sampling revenues. For the nine month period ended September 30,
1998, there was a 5% increase in revenues over the same period last year.
Product sampling revenues and ROP and insert business revenues have made up
for the loss in revenues from the discontinuation of the magazine business.
With the new focus on sales efforts, the Company incurred a 13% increase
in operating expenses in the third quarter of 1998 as compared to the third
quarter of 1997. The increased cost in personnel, travel expense, and
advertising is an investment for the future revenue and profit growth of
the Company.
Interest income for the three months ended September 30, 1998 and 1997
was $5,833 and $15,505, respectively. The decrease in interest income is
primarily due to the reduction in cash which was caused by the increase in
accounts receivable balances. Interest expense for the three months ended
September 30, 1998 and 1997 was $3,268 and $2,639, respectively. Interest
income for the nine months ended September 30, 1998 and 1997 was $25,382 and
$66,070, respectively. Interest expense for the nine months ended September
30, 1998 and 1997 was $7,069 and $18,160, respectively.
Due primarily to the timing of product sample programs, the Company's
revenues may fluctuate from quarter to quarter and in comparison to last year.
Liquidity and Capital Resources
During the first nine months of 1998, the Company's cash balance
decreased $960,664. This was primarily attributable to the increase in
accounts receivable. Accounts receivable have increased primarily because
the Company has been executing large product sampling programs which are
billed at the end of the program, and many of these occurred at the end of the
quarter. In contrast, sales for the Company's magazine business, which was
discontinued, were prepaid by the Company's customers. During the same
period in 1997, the Company's cash balance decreased by $615,854. This was
primarily due to debt reduction.
Cash used for additions to property, equipment, and software for the nine
months ended September 30, 1998 and 1997 were approximately $201,000 and
$135,000, respectively.
The Company has a bank line of credit for $1,000,000 to assist in future
cash flow needs. The interest rate is 1/2 percent over bank prime and the line
of credit is collateralized by accounts receivable. As of September 30, 1998,
$675,000 is outstanding with a maturity date of June 30, 1999. The Company is
planning to increase this bank line of credit in anticipation of future
revenue growth. The Company believes that this line of credit along with its
current cash balance will enable it to fund its current growth plans as well
as meet its presently anticipated capital requirements for the next twelve
months.
Year 2000 Update
In early 1998, the Company implemented a plan to evaluate the impact of
the Year 2000 on the computer systems it uses which addresses three areas:
outside supplier software; suppliers and vendors; and internal operating
systems and hardware.
For outside supplier software, and suppliers and vendors, questionnaires
were sent out to request verification of the status of Year 2000 compliance.
The Company has been accumulating those responses and plans to review the
responses during the fourth quarter of 1998. For any of the Company's
distributors who are not in compliance, the Company will evaluate the market
for alternative sources for delivering advertising materials. In addition,
the Company will be reviewing the responses of vendors other than distributors
to determine those not deemed to be in compliance.
For the internal systems and hardware, the Company will be testing these
systems during the fourth quarter as well. The Company's Media Optimizer TM
system has been developed in a Year 2000 compliance format. This system will
be tested along with the other internal systems during the fourth quarter of
1998.
The expected costs to the Company are not expected to exceed $20,000 and
are not considered to be material since necessary upgrades to internal
operating systems and hardware are already part of the ongoing operations of
the Company. Some of these costs will be incurred late in 1998 and the
balance will be incurred in 1999.
The Company believes that its largest risk is the possible failure of its
Media Optimizer TM system on January 1, 2000. This is the software which the
Company uses in many facets of its business including cost analysis, price
quoting, media placement, targeting, and calculations for billing and
payments. In addition, the Company uses spreadsheet and word processing
software for many of its analyses and client presentations. If the Company's
computer systems were to fail, the Company might be unable to provide quotes
to clients and could lose potential business as a result.
The Company intends to develop a contingency plan in early 1999 after it
has completed its analysis of its own state of readiness and that of its
suppliers.
Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-
party suppliers, the Company is unable to determine at this time whether the
consequences of the Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The
Company believes that timely completion of its planned evaluations will reduce
the possibility of significant interruptions of normal operations.
Outlook for the Future
The Company expects the fourth quarter to be "breakeven" due to a late
cancellation of one significant sample program and a delay in implementation
of another sample contract to the first quarter of 1999. The Company expects
significant improvement in operating results for the first half of 1999 as
compared to the fourth quarter of 1998, due to the contract delay, described
above, and an award of a significant distribution program scheduled for the
second quarter of 1999 from a major national advertiser.
Forward-looking Statements
Except for historical information contained herein, the matters set forth
in this management discussion and analysis 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, competition, the timing of receipt of orders,
the implementation of the Company's reorientation as a marketing services
company, the effectiveness of the marketing program, the Company's success in
developing and capitalizing on strategic alliances, and the unknown impact of
the Year 2000.
PART II. Other Information:
Item 5. Other Information.
The Company's Board of Directors had previously authorized the repurchase from
time to time, of up to 150,000 shares of the Company's common stock on the
open market or in privately negotiated transactions, consistent with overall
market and financial conditions. During the quarter ended September 30, 1998,
the Company proceeded to repurchase 76,500 shares of the Company's common
stock, and subsequent to the end of the quarter repurchased an additional
55,000 shares. To date the company has repurchased 131,500 shares of its
stock. The Company felt that at current price levels, the stock represented
an attractive investment opportunity and was also acting to enhance
shareholder value.
Item 6. Exhibits and Reports on Form 8-K.
During the period of this report, there were no 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 MARKETING NETWORKS, INC.
Date: November 3, 1998 By: /s/Phillip D. Miller
Phillip D. Miller
President and Chief Executive
Officer
By: /s/Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000949244
<NAME> ALTERNATE MARKETING NETWORKS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 4,824
<ALLOWANCES> 87
<INVENTORY> 0
<CURRENT-ASSETS> 5,031
<PP&E> 672
<DEPRECIATION> 431
<TOTAL-ASSETS> 6,522
<CURRENT-LIABILITIES> 2,735
<BONDS> 0
0
0
<COMMON> 8,332
<OTHER-SE> (4,545)
<TOTAL-LIABILITY-AND-EQUITY> 6,522
<SALES> 0
<TOTAL-REVENUES> 14,448
<CGS> 0
<TOTAL-COSTS> 11,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (74)
<INCOME-TAX> 3
<INCOME-CONTINUING> (77)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
