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, 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 July 27, 1999, 3,809,677 shares of the issuer's common stock were
outstanding.
This report contains 13 pages.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - June 30, 1999,
and December 31, 1998. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
and six months ended June 30, 1999 and 1998 . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - six
months ended June 30, 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
June 30, December 31,
1999 1998
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,850 $ 222,590
Accounts receivable, trade, less
allowance of $275,000 at June 30
and December 31 4,819,224 4,542,858
Prepaid expenses and other assets 1,015,742 267,782
----------- -----------
Total current assets 5,838,816 5,033,230
Notes receivable, less current portion 23,706 29,536
Property and equipment:
Computer equipment 384,748 331,008
Furniture and fixtures 368,275 363,914
----------- -----------
753,023 694,922
Accumulated depreciation and
amortization (526,105) (475,754)
----------- -----------
226,918 219,168
Computer software, net 176,069 175,975
Intangible assets, net 1,013,303 1,055,161
----------- -----------
$ 7,278,812 $ 6,513,070
=========== ===========
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
June 30, December 31,
1999 1998
(unaudited)
----------- -----------
Current liabilities:
<S> <C> <C>
Notes payable, bank $ 1,100,000 $1,575,000
Accounts payable 1,710,060 790,067
Accrued liabilities 318,477 253,838
Deferred revenue 121,900 366,240
Capitalized lease obligations 487 3,278
--------- ---------
Total current liabilities 3,250,924 2,988,423
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; 3,809,677 shares issued and
outstanding at June 30, 1999 and 3,873,227
at December 31, 1998 9,484,494 9,554,454
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
--------- ---------
Total common stock 8,193,455 8,263,415
Accumulated losses, since October 1, 1993
(Note 4) (4,165,567) (4,738,768)
--------- ---------
Total shareholders' equity 4,027,888 3,524,647
--------- ---------
$ 7,278,812 $ 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 Six months ended
June 30, June 30,
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $7,943,037 $4,776,411 $14,877,848 $ 9,015,307
Cost of sales 6,082,371 3,698,902 11,562,212 6,904,841
--------- ---------- ----------- -----------
Gross profit 1,860,666 1,077,509 3,315,636 2,110,466
Selling, general and
administrative expenses 1,431,345 1,070,990 2,729,586 2,206,724
---------- ---------- ----------- -----------
Income (loss) from operations 429,321 6,519 586,050 ( 96,258)
Other income (expense), net ( 6,272) ( 610) ( 10,960) 11,271
---------- ---------- ----------- -----------
Income (loss) before income
taxes 423,049 5,909 575,090 ( 84,987)
Income tax expense 900 1,889 2,650
---------- ---------- ----------- -----------
Net income (loss) $ 423,049 $ 5,009 $ 573,201 ($ 87,637)
========== ========== ========== ===========
Income (loss) per share (Note 3)
Basic:
Net income (loss) $ .11 $ .00 $ .15 ($ .02)
========== ========== =========== ===========
Diluted:
Net income (loss) $ .11 $ .00 $ .15 ($ .02)
========== ========== =========== ===========
Weighted average number of shares
outstanding: (Note 3)
Basic 3,810,611 4,021,127 3,824,427 4,025,466
========== ========== =========== ===========
Diluted 3,810,611 4,021,127 3,824,427 4,025,466
========== ========== =========== ===========
</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,
--------------------------
1999 1998
------------ ------------
(unaudited)
Net cash provided by (used in) operating
<S> <C> <C>
activities $ 412,978 ($ 703,105)
---------- ----------
Net cash used in investing activities ( 83,967) ( 86,961)
---------- ----------
Net cash provided by (used in) financing
activities ( 547,751) 242,288
---------- ----------
Net decrease in cash and cash
equivalents ( 218,740) ( 547,778)
Cash and cash equivalents, beginning
of period 222,590 1,057,898
---------- ----------
Cash and cash equivalents, end of
period $ 3,850 $ 510,120
========== ==========
</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 and six months
ended June 30, 1999 are not necessarily indicative of the results of
operations expected for the year ended 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
for the fiscal year ended December 31, 1998. 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,
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Income (Numerator):
<S> <C> <C> <C> <C>
Net income (loss) $ 423,049 $ 5,009 $ 573,201 ($ 87,637)
========== ========== ========== ===========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average
shares outstanding 3,810,611 4,021,127 3,824,427 4,025,466
========== ========== ========== ===========
Basic income (loss) per share:
Net income (loss) per share $ .11 $ .00 $ .15 ($ .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 Six months ended
June 30, June 30,
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Diluted income (loss) per share:
Actual weighted average
<S> <C> <C> <C> <C>
shares outstanding 3,810,611 4,021,127 3,824,427 4,025,466
Shares upon conversion of
warrants and options * * * *
---------- --------- ---------- ----------
3,810,611 4,021,127 3,824,427 4,025,466
========== ========== ========== ===========
Diluted income (loss) per share:
Net income (loss) per share $ .11 $ .00 $ .15 ($ .02)
========== ========== ========== ==========
</TABLE>
* The incremental shares are not included in the computation because the
exercise prices of the warrants and options exceeded 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 packaged goods clients who desire a sample
to be delivered to a targeted household audience, national advertisers who
place Run of Press (ROP) or insert advertisements into newspapers, 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 in the United States.
The Company utilizes its Media Optimizer TM database, Internet based End
to End TM tracking, and direct delivery capabilities, to execute high quality,
large marketing campaigns, more efficiently and thoroughly, in accordance with
clients' specifications.
In July 1999, the Company was named the preferred vendor for in-home
sampling events by the Kellogg Company. The Company also announced the
addition of newspaper media veteran, Celeste Lavezzari, to its management
team.
Results of Operations
During the second fiscal quarter ended June 30, 1999, the Company
continued experiencing the positive impact of initiatives implemented in 1998.
In both the first and second quarters of 1999, the Company experienced an
increase in revenue compared to the same period in 1998. In addition, the
Company reported a profit in both 1999 quarters.
The second quarter of 1999 showed an overall increase in revenues of
approximately 66% over the same period in 1998. The 1999 quarter included an
increase in the size of sampling jobs over the previous year as well as
increased revenue from ROP advertising. The gross profit percentage of 23.4%
for the quarter ended June 30, 1999 was up from 22.6% for the previous year
quarter due to the mix of revenues during each quarter.
During this quarter, selling, general and administrative expenses
increased approximately 34% over the same period last year. This was
partially due to an increase in personnel and travel expenses associated with
obtaining, servicing and executing larger marketing campaigns. In addition,
the Company wrote off certain accounts receivable due to managements'
decreased expectations of collectability.
Interest income for the three months ended June 30, 1999 and 1998 was
$9,021 and $6,969 respectively. Interest expense for the three months ended
June 30, 1999 and 1998 was $15,293 and $3,102 respectively.
Due to the timing of primarily product sample programs, the Company's
revenues may fluctuate from quarter to quarter and from year to year.
Liquidity and Capital Resources
During the first six months of 1999, the Company's cash balance decreased
by approximately $222,600 primarily due to working capital fluctuations.
During 1999, accounts receivable increased approximately $276,000, prepaid
expenses increased approximately $748,000, deferred revenue decreased
approximately $244,000, and accounts payable increased approximately $920,000.
During the same period in 1998, the Company's cash balance decreased by
approximately $550,000 also due to working capital fluctuations. During the
six months in 1998, accounts receivable increased approximately $1,411,000,
deferred revenue increased approximately $469,000, and accounts payable
increased approximately $261,000. These changes are the results of the timing
of billing and payments for revenues and expenses of product sample
distributions. In addition, in the 1999 six month period, 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.
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, 2000. As of June 30,
1999, $1,100,000 is outstanding. The Company believes that this line of
credit along with its current cash flows 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 its computer systems. The plan addresses three areas:
outside supplier software; suppliers and vendors; and internal operating
systems and hardware.
The Company sent out questionnaires to suppliers of externally obtained
software, and to other suppliers and vendors (including distributors of
samples and advertising materials), requesting verification of the status of
Year 2000 compliance. The Company has accumulated the responses and reviewed
them during the fourth quarter of 1998 and the first quarter of 1999. All
responses from suppliers of externally obtained software have indicated Year
2000 compliance. The Company will complete its own testing during the third
quarter of 1999. The Company has 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 also begun testing all of the systems in each of its
office locations. In the process, it is preparing an inventory of all of the
equipment. The testing and the inventory was approximately 90% complete at
the end of June, 1999. To date, there have been no unanticipated problems
with the hardware and software. Completion of the testing and the inventory
will be done during the third quarter of 1999.
The Company has remained 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 were incurred in the first and
second quarter of 1999. Costs associated with identifying and utilizing
alternative vendors and suppliers are not considered to be material.
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. The Company
believes that this software program is in compliance and will complete its
testing during the third quarter of 1999. 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 is to rely on historical printed
information to facilitate the many functions of its computers. Prior to the
development of the Company's Media Optimizer TM, all planning and delivery
capabilities were analyzed in this manner. While this method is 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 third quarter of 1999 to closely track with the
financial results of the first half of 1999, resulting in revenue and profit
increases over the same period last year. In addition, the Company continues
to believe in the necessity of investing in resources for planning for its
clients marketing and advertising campaigns for next year. Due to the timing
of marketing campaigns, the quarterly revenue and profits could fluctuate.
Forward-looking Statements
Except for historical information contained herein, the matters set forth
in this management's 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 May 12, 1999. Votes
were cast for the election of directors as follows:
FOR WITHHELD
Phillip D. Miller 2,855,150 1,100
Stan Henry 2,855,150 1,100
Harry Edelson 2,855,150 1,100
Thomas Hiatt 2,855,150 1,100
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, 1999 as follows:
FOR AGAINST ABSTAIN
2,812,050 37,700 6,500
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 10,1999 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 JUNE 30, 1999 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 5,094
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 5,839
<PP&E> 753
<DEPRECIATION> 526
<TOTAL-ASSETS> 7,279
<CURRENT-LIABILITIES> 3,251
<BONDS> 0
0
0
<COMMON> 8,193
<OTHER-SE> (4,166)
<TOTAL-LIABILITY-AND-EQUITY> 7,279
<SALES> 0
<TOTAL-REVENUES> 14,878
<CGS> 0
<TOTAL-COSTS> 11,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 575
<INCOME-TAX> 2
<INCOME-CONTINUING> 573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 573
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
