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 March 31, 1999
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 May 5, 1999, 3,809,677 shares of the issuer's common stock were
outstanding.
This report contains 13 pages.
ALTERNATE MARKETING NETWORKS, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - March 31, 1999,
and December 31, 1998. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
months ended March 31, 1999 and 1998. . . . . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - three
months ended March 31, 1999 and 1998 . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . 7-8
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . . 9-11
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .12
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 644,996 $ 222,590
Accounts receivable, trade, less
allowance of $275,000 at March 31
and December 31 4,962,675 4,542,858
Prepaid expenses and other assets 559,445 267,782
------------ ------------
Total current assets 6,167,116 5,033,230
Notes receivable, less current portion 27,690 29,536
Property and equipment:
Computer equipment 379,194 331,008
Furniture and fixtures 366,750 363,914
------------ ------------
745,944 694,922
Accumulated depreciation and
amortization (500,473) (475,754)
------------ ------------
245,471 219,168
Computer software, net 180,379 175,975
Intangible assets, net 1,034,231 1,055,161
------------ ------------
$ 7,654,887 $ 6,513,070
============ ============
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
March 31, December 31,
1999 1998
(unaudited)
------------ ------------
Current liabilities:
<S> <C> <C>
Note payable, bank $ 1,575,000
Accounts payable $ 1,570,388 790,067
Accrued liabilities 265,488 253,838
Deferred revenue 2,201,314 366,240
Current portion of capitalized lease
obligations 1,917 3,278
------------ ------------
Total current liabilities 4,039,107 2,988,423
Commitments and contingencies
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; 3,819,677 shares issued and
outstanding at March 31, 1999 and 3,873,227
at December 31, 1998 9,495,435 9,554,454
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
------------ ------------
Total common stock 8,204,396 8,263,415
Accumulated losses, since October 1, 1993
(Note 4) (4,588,616) (4,738,768)
------------ ------------
Total shareholders' equity 3,615,780 3,524,647
------------ ------------
$ 7,654,887 $ 6,513,070
============ ============
</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
March 31,
----------------------------
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Net sales $6,934,811 $4,238,896
Cost of sales 5,479,841 3,205,939
------------ ------------
Gross profit 1,454,970 1,032,957
Selling, general and administrative expenses 1,298,241 1,135,734
------------ ------------
Income (loss) from operations 156,729 ( 102,777)
Other income (expense), net (4,688) 11,881
------------ ------------
Income (loss) before income taxes 152,041 ( 90,896)
Income tax expense 1,889 1,750
------------ ------------
Net income (loss) $ 150,152 ($ 92,646)
============ ============
Net income (loss) per share: (Note 3)
Basic $ .04 ($ .02)
============ ============
Diluted $ .04 ($ .02)
============ ============
Weighted average number of shares
outstanding: (Note 3)
Basic 3,838,396 4,029,806
============ ============
Diluted 3,838,396 4,029,806
============ ============
</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>
Three months ended
March 31,
--------------------------
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Net cash flows from operating activities $ 2,126,748 ($ 289,292)
------------ ------------
Net cash flows from investing activities ( 68,962) ( 26,573)
------------ ------------
Net cash flows from financing activities ( 1,635,380) ( 3,954)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 422,406 ( 319,819)
Cash and cash equivalents, beginning
of period 222,590 1,057,898
------------ ------------
Cash and cash equivalents, end of
period $ 644,996 $ 738,079
============ ============
</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 three months ended March 31,
1999 are not necessarily indicative of the results of operations expected for
the year ending December 31, 1999.
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
March 31,
---------------------------
1999 1998
------------ ------------
Income (Numerator):
<S> <C> <C>
Net income (loss) $ 150,152 ($ 92,646)
============ ============
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average shares outstanding 3,838,396 4,029,806
============ ============
Basic income (loss) per share $ .04 ($ .02)
============ ============
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
3. Net Income (Loss) Per Share Calculation, continued:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1999 1998
------------ ------------
Diluted income (loss) per share:
<S> <C> <C>
Actual weighted average shares outstanding 3,838,396 4,029,806
Shares upon conversion of warrants and
options * *
------------ ------------
Adjusted shares outstanding 3,838,396 4,029,806
============ ============
Diluted income (loss) per share $ .04 ($ .02)
============ ============
</TABLE>
* The incremental shares are not included in the computation due to the
exercise prices of the warrants and options exceeding the average market price
of the common stock in 1999 and 1998 and the net loss in 1998.
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 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 March 31, 1999, the Company experienced the
positive impact of its initiatives implemented in 1998. The most obvious
evidence of this is the increase in revenue compared to the same period last
year. In addition, the Company reported its first significant quarterly
profit since it changed strategic direction in 1997.
The Company also implemented a comprehensive fraud protection and
detection program for sampling. This program is intended to assure that
sample products reach the intended consumers. The program was developed in
conjunction with an unaffiliated private firm specializing in fraud prevention
and investigation.
In addition, The Newspaper Network (TNN) was appointed as the Company's
new supplier for newspaper run-of-press advertising placement (ROP) and
billing. This service was formerly done by Media Passage. The Company
believes TNN's comprehensive approach to customer service will assist in
growing its newspaper advertising business. Partially related to this
transition, the Company felt it prudent to increase its doubtful account
reserve and included this adjustment in its year-end financial statements
dated December 31, 1998.
The Company's quality operation has been recognized with a quality award
for the second time in a row by Procter & Gamble as a result of its annual
operations audit this quarter. The Company believes its commitment to
continuous quality improvement will enhance its future revenue potential with
national advertisers.
Results of Operation
The first quarter of 1999 showed an overall increase in revenues of
approximately 64% over the same period in 1998. The 1999 quarter included an
increase in size and quantity of sampling jobs over the previous year, as well
as increased revenues from ROP advertising. The gross profit percentage of
21% for the quarter ended March 31, 1999 was down from 24.4% for the previous
year due to mix of revenues and jobs completed during the quarter.
During this quarter, the selling, general and administrative expenses
increased approximately 14% over the same period last year. This was largely
due to changes in personnel and travel and meeting expenses.
Other income and (expense), net consists of interest income and interest
expense. Interest income for the three months ended March 31, 1999 and 1998
was $5,481 and $12,580, respectively. Interest expense for the three months
ended March 31, 1999 and 1998 was $10,169 and $699, respectively. The
increase in interest expense was attributable to money borrowed on the line of
credit during the quarter to finance accounts receivable.
Due to the timing of sample programs, the Company's revenues may
fluctuate from quarter to quarter and in comparison to the same quarter in
prior years.
Liquidity and Capital Resources
During the first quarter of 1999, the Company realized an increase in
cash of $422,406. This was largely due to receipt of prepaid sampling
revenues in excess of funds used to pay on the line of credit and amounts paid
for prepaid sampling expenses. Accounts receivable increased approximately
$420,000 during the first quarter, and deferred revenue increased by
approximately $1,835,000, largely due to the timing of sample and phone
directory deliveries (revenue is recognized when deliveries are made). These
funds were used to pay off the line of credit balance of $1,575,000. These
two revenue sources fluctuate from quarter to quarter.
During the same quarter of 1998, the Company realized a decrease in cash
of $319,819 largely attributable to working capital fluctuations and the net
loss for the quarter.
Cash used for additions to property, equipment, and software for the
three months ended March 31, 1999 and 1998 was approximately $71,000 and
$30,000, respectively. In addition, during the 1999 quarter the Company used
cash to repurchase 53,550 shares of common stock for $59,019.
The Company has a bank line of credit for $2,500,000 to assist in future
cash flow needs. The line of credit expires June 30, 1999, and the Company
expects to renew it under the same terms. 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.
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.
The Company has sent out questionnaires with respect to outside supplier
software, and suppliers and vendors, requesting verification of the status of
Year 2000 compliance. The Company has been accumulating those responses and
reviewed the responses during the fourth quarter of 1998 and the first quarter
of 1999. The Company has also identified alternative sources for delivering
advertising materials to cover any of the Company's distributors who are not
in compliance. In addition, the Company has reviewed the responses of vendors
other than distributors to determine those not in compliance.
The Company has begun testing all of the systems in each of the office
locations. In the process, it is preparing an inventory of all of the
equipment. Completion of the testing and the inventory will be done during
the second quarter of 1999.
The Company currently feels that it will remain under its expected costs
of $20,000 for remediation and replacement of non-compliant systems. This
amount is not considered to be material since necessary upgrades to internal
operating systems and hardware are already part of the ongoing operations of
the Company. Costs for remediation and replacement will be incurred in the
first and second quarter of 1999.
The Company believes that its largest risk is the possible failure of its
Media Optimizer TM system. 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 or fully
perform on its contracts with clients, resulting in loss of potential business
and claims for nonperformance.
The Company's contingency plan would be to rely on historical printed
information to facilitate the many functions of its computers. While this
method would be time consuming and labor intensive, it would enable the
Company to continue its services to its clients.
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 revenue and profit growth to continue in the
second quarter. This is in large part due to a significant sample
distribution program taking place in the second quarter. This increase in
revenue without a significant increase in overhead will result in improved net
profit for the second quarter of 1999 when compared to the same period last
year.
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 300,000 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 March 31, 1999, the
Company proceeded to repurchase 53,550 shares of the Company's common stock,
and subsequent to the end of the quarter repurchased an additional 10,000
shares. To date the company has repurchased 210,450 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: May 11, 1999 By: /s/Phillip D. Miller
Phillip D. Miller
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 MARCH 31, 1999 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999 (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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 645
<SECURITIES> 0
<RECEIVABLES> 5,238
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 6,167
<PP&E> 746
<DEPRECIATION> 501
<TOTAL-ASSETS> 7,655
<CURRENT-LIABILITIES> 4,039
<BONDS> 0
0
0
<COMMON> 8,204
<OTHER-SE> (4,589)
<TOTAL-LIABILITY-AND-EQUITY> 7,655
<SALES> 0
<TOTAL-REVENUES> 6,935
<CGS> 0
<TOTAL-COSTS> 5,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 152
<INCOME-TAX> 2
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
