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 June 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 August 1, 1998, 4,020,127 shares of the issuer's common stock were
outstanding.
This report contains 12 pages.
ALTERNATE MARKETING NETWORKS, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - June 30, 1998,
and December 31, 1997. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
and six months ended June 30, 1998 and 1997 . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - six
months ended June 30, 1998 and 1997. . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . 7 & 8
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . 9 & 10
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 510,120 $ 1,057,898
Accounts receivable, trade, less
allowance of $86,950 and $103,800
at June 30 and December 31 respectively 3,813,668 2,392,855
Notes receivable, current portion 30,789
Prepaid expenses and other assets 149,315 164,902
----------- -----------
Total current assets 4,503,892 3,615,655
Notes receivable, less current portion 36,005
Property and equipment:
Computer equipment 311,196 562,741
Furniture and fixtures 271,581 411,087
----------- -----------
582,777 973,828
Accumulated depreciation and
amortization (411,087) (780,450)
----------- -----------
171,690 193,378
Computer software, net 163,370 126,486
Intangible assets, net 1,097,018 1,138,876
0ther assets 5,158 7,241
----------- -----------
$ 5,941,128 $ 5,117,641
=========== ===========
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
June 30, December 31,
1998 1997
(unaudited)
----------- -----------
Current liabilities:
<S> <C> <C>
Notes payable, bank $ 250,000 $
Accounts payable 952,482 630,792
Accounts payable, related parties 16,242 76,993
Accrued liabilities 232,897 315,644
Deferred revenue 537,314 68,369
Current portion of capitalized lease
obligations 5,320 7,116
Current portion of long-term debt 94,375 97,500
--------- ---------
Total current liabilities 2,088,630 1,196,414
Capitalized lease obligations, less current
portion 487 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; 4,020,127 shares issued and
outstanding at June 30, 1998 and 4,022,894
at December 31, 1997 9,699,229 9,677,530
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
--------- ---------
Total common stock 8,408,190 8,386,491
Accumulated losses, since October 1, 1993
(Note 4) (4,556,179) (4,468,542)
--------- ---------
Total shareholders' equity 3,852,011 3,917,949
--------- ---------
$ 5,941,128 $ 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 Six months ended
June 30, June 30,
---------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $4,776,411 $5,352,123 $9,015,307 $ 9,398,032
Cost of sales 3,698,902 4,071,619 6,904,841 6,964,756
--------- ---------- ----------- -----------
Gross profit 1,077,509 1,280,504 2,110,466 2,433,276
Selling, general and
administrative expenses 1,070,990 1,262,924 2,206,724 2,459,470
---------- ---------- ----------- -----------
Income (loss) from operations 6,519 17,580 ( 96,258) ( 26,194)
Other income (expense), net ( 610) 22,614 11,271 35,044
---------- ---------- ----------- -----------
Income (loss) before income
taxes and extraordinary gain 5,909 40,194 ( 84,987) 8,850
Income tax expense(benefit) 900 1,300 2,650 ( 2,160)
---------- ---------- ----------- -----------
Income (loss) before
extraordinary gain 5,009 38,894 ( 87,637) 11,010
Extraordinary gain from early
retirement of debt 38,145
---------- ---------- ----------- -----------
Net income (loss) $ 5,009 $ 38,894 ($ 87,637) $ 49,155
========== ========== ========== ===========
Income (loss) per share (Note 3)
Basic:
Income (loss) before
extraordinary gain $ .00 $ .01 ($ .02) $ .00
Extraordinary gain .00 .00 .00 .01
---------- ---------- ----------- -----------
Net income (loss) $ .00 $ .01 ($ .02) $ .01
========== ========== =========== ===========
Diluted:
Income (loss) before
extraordinary gain $ .00 $ .01 ($ .02) $ .00
Extraordinary gain .00 .00 .00 .01
---------- ---------- ----------- -----------
Net income (loss) $ .00 $ .01 ($ .02) $ .01
========== ========== =========== ===========
Weighted average number of shares
outstanding: (Note 3)
Basic 4,021,127 4,022,894 4,025,466 4,022,894
========== ========== =========== ===========
Diluted 4,021,127 4,022,894 4,025,466 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>
Six months ended
June 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Net cash flows from operating activities ($ 703,105) ($ 180,931)
---------- ----------
Net cash flows from investing activities ( 86,961) ( 87,297)
---------- ----------
Net cash flows from financing activities 242,288 ( 246,126)
---------- ----------
Net increase (decrease) in cash and
cash equivalents ( 547,778) ( 514,354)
Cash and cash equivalents, beginning
of period 1,057,898 1,857,955
---------- ----------
Cash and cash equivalents, end of
period $ 510,120 $1,343,601
========== ==========
</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 six months ended June 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 Six months ended
June 30, June 30,
---------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
Income (Numerator):
Income (loss) before
<S> <C> <C> <C> <C>
extraordinary gain $ 5,009 $ 38,894 ($ 87,637) $ 11,010
Extraordinary gain from early
retirement of debt 38,145
---------- ---------- ----------- -----------
Net income (loss) $ 5,009 $ 38,894 ($ 87,637) $ 49,155
========== ========== ========== ===========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average
shares outstanding 4,021,127 4,022,894 4,025,466 4,022,894
========== ========== ========== ===========
Basic income (loss) per share:
Loss before extraordinary
gain $ .00 $ .01 ($ .02) $ .00
Extraordinary gain .00 .00 .00 .01
---------- ---------- ---------- ----------
Net income (loss) per share $ .00 $ .01 ($ .02) $ .01
========== ========== ========== ==========
</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 Six months ended
June 30, June 30,
---------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
<TABLE>
<CAPTION>
Diluted income (loss) per share:
Actual weighted average
<S> <C> <C> <C> <C>
shares outstanding 4,021,127 4,022,894 4,025,466 4,022,894
Shares upon conversion of
warrants and options * * * *
---------- --------- --------- -----------
4,021,127 4,022,894 4,025,466 4,022,894
========== ========== ========== ===========
Diluted income (loss) per share:
Loss before extraordinary
gain $ .00 $ .01 ($ .02) $ .00
Extraordinary gain .00 .00 .00 .01
---------- ---------- ---------- ----------
Net income (loss) per share $ .00 $ .01 ($ .02) $ .01
========== ========== ========== ==========
</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
During the quarter ended June 30, 1998, the Company ratified the change of
its name from Alternate Postal Delivery, Inc. to Alternate Marketing Networks,
Inc. at its annual meeting. The name change reflects a change in strategic
direction which was further implemented during the quarter by the suspension
of the Company's traditional magazine delivery business, and increased focus
on product sampling, suburban newspaper advertising and telephone directory
deliveries. This quarter completes the transformation of the Company from a
private postal system to a marketing services company.
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.
At the end of this quarter, the Company entered into a new chapter with
its marketing alliance partner News America Marketing (previously News America
FSI). While the Company will continue its marketing relationship with News
America Marketing, the new relationship will reflect the changes that occurred
due to News America's acquisition of the In-Store coupon and sampling company
Act Media earlier this year as well as the Company's strategic change,
described above.
The Company also began operations of its new packaging capability with
Admiral Packaging, a division of Union Industries. This initiative will
afford the Company's newspaper sampling clients improved services and pricing.
Results of Operations
The second quarter of 1998 showed an approximate 12 percent increase in
revenue over the first quarter and an approximate 12 percent decrease in
revenue from the same period in 1997. The decrease from the same period in
1997 primarily resulted from the decrease in magazine deliveries. The Company
completed several national product sample programs during the 1998 second
quarter and currently has three national programs scheduled for the third
quarter.
The six month period ended June 30, 1998 generated revenues slightly
below those of the previous year as increased revenues from suburban newspaper
advertising fell short of the decreases in areas such as magazine deliveries.
During the quarter, the Company decreased operating expenses by
approximately $190,000 over the same quarter in the previous year due to
efficiencies. These same efficiencies from the first quarter have allowed the
Company to recognize a decrease of over $250,000 over the previous year for the
same six month period.
Interest income for the three months ended June 30, 1998 and 1997 was
$6,969 and $27,024 respectively. Interest expense for the three months ended
June 30, 1998 and 1997 was $3,102 and $4,410 respectively.
Due to the timing of primarily 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 six months of 1998, the Company's cash balance decreased
by approximately $550,000 primarily due to working capital fluctuations.
Accounts receivable increased approximately $1.4 million during this period as
the magazine delivery business, which was prepaid, was replaced by other
revenues with longer payment terms. In addition, the Company used
approximately $90,000 to purchase computer and office equipment and to enhance
the capabilities of its software and database system, the Media Optimizer TM.
During the same period in 1997, the Company's cash balance decreased by
approximately $500,000. Approximately half of this was used for debt
reduction. The Company used approximately $80,000 to purchase computer and
office equipment and programming for its software and database system, the
Media Optimizer TM.
The Company has a bank line of credit for $500,000 to assist in future
cash flow needs. The interest rate is 1/2 percent over bank prime and the line
of credit is secured by accounts receivable. As of June 30, 1998, $250,000 is
outstanding with a maturity date of November 30, 1998. 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.
Outlook for the Future
The Company's financial outlook for 1998 remains essentially the same as
reported in the first quarter. To summarize, the Company expects an increase
in net sales for 1998 even with the suspension of its traditional magazine
delivery revenue. The Company also expects a positive operating profit of
approximately one percent of revenues.
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, and the Company's success
in developing and capitalizing on strategic alliances.
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual shareholders meeting on April 30, 1998.
Votes were cast for the election of directors as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Phillip D. Miller 3,803,293 2,900
Stan Henry 3,803,293 2,900
Harry Edelson 3,803,293 2,900
Thomas Hiatt 3,803,293 2,900
</TABLE>
Votes were cast to amend the Company's Restated Articles of Incorporation to
change the name of the Company to Alternate Marketing Networks, Inc. as
follows:
FOR AGAINST ABSTAIN
3,798,393 300 7,500
Votes were cast for the appointment of PricewaterhouseCoopers, LLP, formerly
Coopers & Lybrand, LLP, as the Company's certified public accountants for the
fiscal year ending December 31, 1998 as follows:
FOR AGAINST ABSTAIN
3,797,873 20 8,300
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: August 7, 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 JUNE 30, 1998 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 510
<SECURITIES> 0
<RECEIVABLES> 3,901
<ALLOWANCES> 87
<INVENTORY> 0
<CURRENT-ASSETS> 4,504
<PP&E> 583
<DEPRECIATION> 411
<TOTAL-ASSETS> 5,941
<CURRENT-LIABILITIES> 2,089
<BONDS> 0
0
0
<COMMON> 8,408
<OTHER-SE> (4,556)
<TOTAL-LIABILITY-AND-EQUITY> 5,941
<SALES> 0
<TOTAL-REVENUES> 9,015
<CGS> 0
<TOTAL-COSTS> 6,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (85)
<INCOME-TAX> 3
<INCOME-CONTINUING> (88)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
