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, 1998
[ ] 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 Marketing Networks, Inc.(formerly 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: $20,133,191
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: $1,410,485, based on 1,330,646 shares held by non-affiliates as of
March 10, 1999, 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: 3,824,677 shares of Common
Stock, as of March 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy materials to be filed on or before April 30,
1999 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 . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 6
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 5. Market for the Common Equity and Related Stockholder Matters
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . 7
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 11
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 29
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . 29
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 29
Item 11. Security Ownership of Certain Beneficial Owners and Management. . 29
Item 12. Certain Relationships and Related Transactions . . . . . . . . . 29
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 29
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PART I
Item 1. DESCRIPTION OF BUSINESS
OVERVIEW
Alternate Marketing Networks, Inc. (formerly Alternate Postal Delivery,
Inc.) has built unique and powerful marketing networks for national
advertisers who wish to deliver their message to targeted consumer households
throughout the United States. The Company believes that it is now positioned
as the in-home target marketing specialist and a consolidator in the fast
growing marketing services industry. While the full transition to a marketing
company from an alternate delivery provider took more resources and more time
than expected, the Company believes that its ability to grow both revenue and
profits has been strengthened.
The Company's transition has included the recruitment in 1997 of a
seasoned marketing executive, Ruth Ann Carroll, who subsequently was appointed
president of the Company on January 1, 1999. Ms. Carroll implemented a new
sales structure in 1998 which contributed significantly to revenue growth in
the second half of the year.
The Company's current networks are comprised primarily of private
delivery and newspaper delivery systems, augmented by utilization of mailing
services, for a total reach of approximately 100 million households nationwide
in the United States. The Company distributes samples, suburban newspaper
advertisements, free standing inserts, telephone directories, and specialty
catalogs to targeted households throughout the United States and provides
process accountability and verification of results through its End to End
Tracking TM system.
The mix of these unique networks (Mixed Media TM), plus the Company's
recently enhanced proprietary database system (Media Optimizer TM) is marketed
to national advertisers and publishers 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
DESCRIPTION OF OPERATIONS
During 1998, management implemented a new sales structure that included
replacing its New York sales office with a Connecticut office in the same
building as its alliance partner, News America Marketing. In addition, the
Company's new president, Ruth Ann Carroll, recruited three sales executives
and developed and staffed a client service team. These changes, plus new
collateral material and the implementation of a consultative selling approach,
resulted in sales growth during the year. These changes also increased
overall selling, general and administrative expenses in the second half.
During the second quarter of 1999, the Company will be transitioning from
Media Passage for outsourcing of operations of its USSPI placement of
newspaper advertising (ROP) to a new supplier, The Newspaper Network (TNN).
The Company believes that this change to TNN will be beneficial to its USSPI
customers. The Company continues to utilize outsourcing, core supplier
programs and its proprietary systems to control overhead costs. The Company
believes that its results for fiscal 1999 will reflect a disproportionately
small increase in overhead compared to expected sales growth.
PRINCIPAL CUSTOMERS
During the year ended December 31, 1998, the Company had two customers
which each accounted for 10% of the Company's revenues for the year. During
the year ended December 31, 1997, the Company had no single customer which
accounted for 10% or more of the Company's revenues.
STRATEGIC ALLIANCES AND ACQUISITIONS
Although the Company made no acquisitions during 1998, it intends to
continue efforts to identify complementary businesses for acquisitions. The
Company continues to work with News America Marketing in a marketing alliance
for its in-home sampling business.
COMPETITION
The Company's primary competitor for in-home sample deliveries is
Valassis Communications, Inc. (NYSE:VCI). Its primary competitor for suburban
newspaper advertisements is Landon 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, 1998, the Company had 40 full-time employees,
including 15 in sales and sales support, 15 in operations, 1 in computer
systems, and 9 in general and administrative support. In addition, as of
December 31, 1998, 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 Company's 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.
The Company's 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases its principal executive offices in Grand
Rapids, Michigan at a monthly base rent of approximately $2,630, pursuant to a
lease which expires August, 2002. The Company leases a sales office in
Norwalk, Connecticut at a monthly base rent of $3,819, pursuant to a lease
which expires May, 2001. In addition, one of the Company's wholly-owned
subsidiaries, Alternate Postal Direct, Inc., rents warehouse space in
Minneapolis, Minnesota on a month to month basis at a monthly rent of $1,300;
and warehouse and office space in St.Petersburg, Florida at a monthly rent of
$3,261, pursuant to a lease which expires December, 1999. Another wholly-
owned subsidiary, National Home Delivery, Inc. (d/b/a USSPI) rents sales
office in Schaumburg, Illinois, at an aggregate monthly rent of $2,571,
pursuant to a lease which expires July, 2000, and, on a month to month basis,
office space in New York City, New York at a monthly base rent at $1,543. 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 SmallCap Market, for the last two
years. The Company's Common Stock is traded under the symbol "ALTM."
<TABLE>
<CAPTION>
Closing Bid Price
Low High
Year ended December 31, 1998:
<S> <C> <C>
First quarter . . . . . . . . . . . . . . . 1 6/32 1 6/32
Second quarter . . . . . . . . . . . . . . 1 1
Third quarter . . . . . . . . . . . . . . 1 1
Fourth quarter . . . . . . . . . . . . . . 0 22/32 0 22/32
Year ended December 31, 1997
First quarter . . . . . . . . . . . . . . . 3 3
Second quarter . . . . . . . . . . . . . . 2 3/4 2 3/4
Third quarter . . . . . . . . . . . . . . . 2 2
Fourth quarter . . . . . . . . . . . . . . 1 1 1/4
</TABLE>
As of March 10, 1999, the Company's Common Stock was held of record by 36
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, 1999 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's 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 1998, the Company's major focus was to strengthen its client-
driven strategy. This was accomplished through the recruitment of a seasoned
sales executive for the Company's president, development of a client services
department and the hiring of new sales executives. The Company also continued
its commitment to improve features such as End to End Tracking TM to place
information in the hands of its clients in a user friendly format.
RESULTS OF OPERATIONS
Results of operations for the years ended December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $20,133,191 $18,442,056
Cost of sales . . . . . . . . . . . . 15,348,126 13,709,762
----------- -----------
Gross profit. . . . . . . . . . . . . 4,785,065 4,732,294
----------- -----------
Selling, general and
administrative expenses (Note 1) . . 5,054,162 4,738,167
----------- -----------
Operating loss. . . . . . . . . . . .( 269,097) ( 5,873)
----------- -----------
Extraordinary gain from early
extinguishment of debt . . . . . . . 38,145
----------- -----------
Net income (loss) . . . . . . . . . .($ 270,226) $ 87,806
=========== ===========
Income (Loss) per share:
Basic . . . . . . . . . . . . . .( $0.07) $0.02
=========== ===========
Diluted. . . . . . . . . . . . . .( $0.07) $0.02
=========== ===========
Weighted average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . 3,982,309 4,022,894
Diluted . . . . . . . . . . . . . . 3,982,309 4,022,894
(Note 1) Includes year end adjustment for increase in estimate of
allowance for doubtful accounts receivable of $175,000.
</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,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . 100.0 % 100.0 %
Gross profit. . . . . . . . . . . . . 23.8 % 25.7 %
Operating expenses. . . . . . . . . . 25.1 % 25.7 %
Operating loss. . . . . . . . . . . . ( 1.3)% ( 0.0)%
Net profit(loss). . . . . . . . . . . ( 1.3)% 0.5 %
======== ========
</TABLE>
Net Sales: The net sales for 1998 increased slightly compared to those of
1997. The discontinuance of revenues from the delivery of magazines was
offset by increases in revenues from the other marketing services offered by
the Company.
Gross Profit: The gross profit percentage decreased in 1998 due to a
change in the mix of revenues.
Selling, general and administrative expenses: Operating expenses
increased primarily as a result of increased travel costs associated with the
Company's focus on sales growth, including the addition of new sales staff.
In addition, at year end, the Company recorded an increase of $175,000 in the
estimate of allowance for doubtful accounts receivable. This was due in part
to the termination of the Company's existing ROP outsourcing supplier and
transition to a new provider.
Extraordinary gain: The Company recorded an extraordinary gain on the
retirement of debt in 1997 in the amount of $38,145. There was no
extraordinary gain or loss in 1998.
Net loss: The net income (loss) for both 1998 and 1997 was positively
affected by net interest income. Interest income and interest expense for the
year ended December 31, 1998 were $30,633 and $25,392, respectively. Interest
income and interest expense in 1997 were $81,256 and $20,756, respectively.
FOURTH QUARTER RESULTS:
The results of the fourth quarter of 1998 as compared to the same period
in 1997 is summarized as follows:
<TABLE>
<CAPTION>
Quarter ending December 31,
1998 1997
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $ 5,685,088 $ 4,615,834
Cost of sales . . . . . . . . . . . . 4,307,765 3,461,347
----------- -----------
Gross profit. . . . . . . . . . . . . 1,377,323 1,154,487
Selling, general and
Administrative expenses (Note 1) . . 1,558,304 1,146,079
----------- -----------
Operating profit(loss). . . . . . . .( 180,981) 8,408
----------- -----------
Net profit (loss) . . . . . . . . . .($ 193,296) $ 22,250
=========== ===========
Income (Loss) per share:
Basic . . . . . . . . . . . . . .( $0.05) $0.01
=========== ===========
Diluted. . . . . . . . . . . . . .( $0.05) $0.01
=========== ===========
Weighted average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . 3,885,462 4,022,894
Diluted . . . . . . . . . . . . . . 3,885,462 4,022,894
(Note 1) Includes year end adjustment for increase in estimate of
allowance for doubtful accounts receivable of $175,000.
</TABLE>
The increase in revenue for the fourth quarter of 1998 as compared to the
fourth quarter of 1997 is due to the increase of approximately $760,000 from
the delivery of telephone directories and an increase of approximately
$950,000 in suburban newspaper revenues over the previous year. These revenue
increases offset the loss in 1998 from revenues from the delivery of magazines
($540,000 in 1997).
Operating results were negatively impacted in the fourth quarter of 1998
compared to the fourth quarter of 1997 due to the increased operating expenses
incurred in connection with increased marketing and sales and the increase in
the allowance for doubtful accounts receivable.
Net profit (loss) for the fourth quarter of 1998 was negatively impacted
by interest expense of $18,323 in excess of interest income of $5,251
resulting in a net expense of $13,072. Interest income and interest expense
for the fourth quarter of 1997 were $15,186 and $2,596, respectively,
resulting in a net income of $12,590.
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 results of operations.
The events from the national economy that impact the Company include
employment levels, postal regulations, and newsprint and coated paper price
increases. 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
In early 1998, the Company implemented a plan to evaluate the impact of
the Year 2000 on the computer systems it uses. The Company's plan 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 deemed to be in compliance.
The Company had planned testing to be done for internal systems and
hardware during the fourth quarter of 1998. However, the testing is now
planned for the second quarter of 1999 after its new hardware is fully
installed.
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 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 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company was able to fund its operations with available
funds from the Company's initial public offering completed in September 1995.
The Company also has established a bank line of credit for $2,500,000 to
assist in future cash flow needs. The terms include interest at one-half
percent over the bank's prime rate. Borrowings are based upon a percentage of
eligible accounts receivable. The agreement expires June 30, 1999. Upon
expiration, the Company expects to renew the line of credit under the same
terms. Cash and equivalents decreased by $835,308 to $222,590 at December 31,
1998.
SUMMARY OF CASH FLOWS
Cash flows from operating activities. Cash provided from (used in)
operating activities was ($1,928,445) in 1998 compared to $59,720 in 1997.
This change was largely attributable to the increase in accounts receivable
and prepaid and other assets.
Cash flows from investing activities. The cash used in investing
activities in 1998 was $232,472 compared to $189,725 in 1997. The majority of
the usage in 1998 was for the purchase of property and equipment and the
development of software.
Cash flows from financing activities. The Company obtained cash from
financing activities in 1998 in the amount of $1,325,609 compared to a use of
cash in 1997 of $670,052. The primary source of funds in 1998 was a line of
credit agreement with the bank.
The Company believes that cash flows from operations, along with the bank
line of credit, will be adequate to fund its operations and meet its presently
anticipated capital expenditure requirements for the next twelve months.
OUTLOOK FOR THE FUTURE
The Company intends to focus on growing sales in its three basic revenue
streams with the newly implemented sales structure. In addition, it will
continue tight controls on total selling, general and administrative costs.
The Company will also seek to acquire or partner with complementary
marketing and advertising services to leverage its infrastructure by expanding
client services.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants 12
Consolidated Balance Sheets 13-14
Consolidated Statements of Operations 15
Consolidated Statements of Changes in
Shareholders' Equity 16
Consolidated Statements of Cash Flows 17-18
Notes to Consolidated Financial Statements 19-28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Alternate Marketing Networks, Inc.
and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Alternate
Marketing Networks, Inc. (formerly Alternate Postal Delivery, Inc.) and
Subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Grand Rapids, Michigan
March 22, 1999
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 222,590 $ 1,057,898
Accounts receivable, trade, less
allowance of $275,000 and $103,800 in
1998 and 1997, respectively 4,542,858 2,392,855
Prepaid expenses and other assets 267,782 164,902
------------ ------------
Total current assets 5,033,230 3,615,655
Note receivable 29,536 36,005
Property and equipment:
Computer equipment 331,008 562,741
Furniture and fixtures 363,914 411,087
------------ ------------
694,922 973,828
Accumulated depreciation and
amortization (475,754) (780,450)
------------ ------------
219,168 193,378
Computer software, net 175,975 126,486
Intangible assets, net 1,055,161 1,138,876
Other assets 7,241
------------ ------------
$ 6,513,070 $ 5,117,641
============ ============
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
December 31, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES
1998 1997
------------ ------------
Current liabilities:
<S> <C> <C>
Notes payable $ 1,575,000 $ 97,500
Accounts payable 790,067 630,792
Accounts payable, related parties 76,993
Accrued liabilities 253,838 315,644
Deferred revenue 366,240 68,369
Current portion of capitalized lease
obligations 3,278 7,116
------------ ------------
Total current liabilities 2,988,423 1,196,414
Capitalized lease obligations, less current
portion 3,278
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; 3,873,227 and 4,022,894
shares issued and outstanding in 1998 and 1997,
respectively 9,554,454 9,677,530
Accumulated losses, through
September 30, 1993 (Note A) (1,291,039) (1,291,039)
------------ ------------
Total common stock 8,263,415 8,386,491
Accumulated losses, since
October 1, 1993 (Note A) (4,738,768) (4,468,542)
------------ ------------
Total shareholders' equity 3,524,647 3,917,949
------------ ------------
$ 6,513,070 $ 5,117,641
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $20,133,191 $18,442,056
Cost of sales 15,348,126 13,709,762
----------- -----------
Gross profit 4,785,065 4,732,294
Selling, general and
administrative expenses 5,054,162 4,738,167
----------- -----------
Loss from operations ( 269,097) ( 5,873)
Other income, net (Note I) 764 59,751
----------- -----------
Income (Loss) before income taxes
and extraordinary gain ( 268,333) 53,878
Income tax expense 1,893 4,217
----------- -----------
Income (Loss) before extraordinary gain ( 270,226) 49,661
Extraordinary gain from early
retirement of debt 38,145
----------- -----------
Net income (loss) ($ 270,226) $ 87,806
=========== ===========
Net income (loss) per share:
Basic:
Income (Loss) before extraordinary gain ($ .07) $ .01
Extraordinary gain .01
----------- -----------
Net income (loss) ($ .07) $ .02
=========== ===========
Diluted:
Income (loss) before extraordinary gain ($ .07) $ .01
Extraordinary gain .01
----------- -----------
Net income (loss) ($ .07) $ .02
=========== ===========
Weighted average number of shares
outstanding:
Basic 3,982,309 4,022,894
=========== ===========
Diluted 3,982,309 4,022,894
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Accumulated Total
Common Stock Losses, through Losses, since Shareholders
Shares Amount September 30, 1993 October 1, 1993 Equity
------- ---------- ------------------ --------------- ----------
Balances,
<S> <C> <C> <C> <C> <C>
December 31, 1996 4,022,894 $9,677,530 ($1,291,039) ($4,556,348) $3,830,143
Net income 87,806 87,806
--------- ---------- ----------- ------------ ----------
Balances,
December 31, 1997 4,022,894 9,677,530 ($1,291,039) ($4,468,542) $3,917,949
Repurchase of
Common Stock ( 146,900)( 144,775) ( 144,775)
Common Stock
issued as
compensation 7,233 31,699 31,699
Common Stock exchange
through Asset Sale( 10,000)( 10,000) ( 10,000)
Net loss ( 270,226) ( 270,226)
---------- ----------- ----------- ----------- ----------
Balances,
December 31, 1998 3,873,227 $9,554,454 ($1,291,039) ($4,738,768) $3,524,647
========== ========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ($ 270,226) $ 87,806
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 104,957 124,599
Amortization 140,970 128,073
Increase in allowance for doubtful accounts
receivable 175,000
Extraordinary gain on settlement of debt ( 38,145)
Loss (gain) on sale of assets 4,477 ( 1,500)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ( 2,325,003) 118,506
Prepaid and other assets ( 108,666) 128,336
(Decrease) increase in:
Accounts payable 82,282 ( 152,925)
Accrued liabilities ( 30,107) ( 101,303)
Deferred revenue 297,871 ( 233,727)
------------ ------------
Net cash provided by (used in)
operating activities ( 1,928,445) 59,720
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ( 149,688) ( 85,021)
Proceeds from sale of equipment 250 1,500
Purchases of software ( 99,503) ( 104,794)
Payments received for notes receivable 16,469 12,002
Issuance of notes receivable ( 13,412)
------------ ------------
Net cash used in
investing activities ( 232,472) ( 189,725)
------------ ------------
Cash flows from financing activities:
Repurchase of common stock ( 144,775)
Payments on note payable, bank ( 1,225,000) ( 1,740,000)
Proceeds from issuance of note
payable, bank 2,800,000 1,440,000
Principal payments on other notes payable
and lease obligations ( 104,616) ( 370,052)
------------ ------------
Net cash provided by (used in)
financing activities 1,325,609 ( 670,052)
------------ ------------
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net decrease in cash and cash equivalents ( 835,308) ( 800,057)
Cash and cash equivalents, beginning of year 1,057,898 1,857,955
------------ ------------
Cash and cash equivalents, end of year $ 222,590 $ 1,057,898
============ ============
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ 1,893 $ 4,217
============ ============
Interest paid $ 25,392 $ 48,818
============ ============
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
During the year ended December 31, 1998, the Company sold certain assets
in exchange for a $10,000 note receivable and 10,000 shares of the Company's
stock valued at $1.00 per share. In addition, the Company issued 7,233 shares
of Common Stock in exchange for $31,699 of compensation under the Outside
Directors Deferred Compensation Plan.
The accompanying notes are an integral part of the consolidated financial
statements.
ALTERNATE MARKETING NETWORKS, 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
Marketing Networks, Inc. (formerly Alternate Postal Delivery, Inc.) and its
wholly-owned subsidiaries Alternate Postal Direct, Inc., Newspaper Marketing
Solutions, Inc., and National Home Delivery, Inc.(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 composed 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. It is impracticable to separately disclose revenues for these
products and services during the years ended December 31, 1998 and 1997, due
to the changing nature of the Company's revenue streams.
During the year ended December 31, 1998, the Company had two customers
which each accounted for 10 percent of the Company's revenues. During the
year ended December 31, 1997, 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 MARKETING NETWORKS, 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, 1998 and 1997 and
accumulated amortization of $107,887 and $92,657, respectively.
Computer Software
Purchased computer software is recorded at cost. External direct costs
of materials and services incurred in the developing or obtaining internal-use
software are capitalized. The recorded costs of purchased software and the
capitalized costs of developed internal use software are amortized over the
estimated useful life of the respective assets. At December 31, 1998 and
1997, accumulated amortization was $93,065 and $123,051 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, 1998 and 1997, accumulated amortization was $610,647 and
$521,774, respectively.
Income taxes
From inception through October 1, 1993 the Company was 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 $136,086 and $116,441 for the
years ended December 31, 1998 and 1997, respectively.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
Financial Instruments
At December 31, 1998 and 1997, the Company had cash and cash equivalents,
note receivable and notes payable classified as financial instruments. The
market value of these financial instruments, based upon information obtained
from banking sources and management estimates, approximated the carrying
values reported in the balance sheets.
Income (loss) Per Share
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 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for fiscal years beginning after June 15, 1999,
without retroactive application to prior periods. The Company has not yet
determined the impact of this statement on the consolidated financial
statements.
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. 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, 1998 and 1997 were $12,660 and $14,172, respectively.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
C. Financing:
Financing consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note payable, bank, described below $1,575,000
Note payable, non interest bearing,
payable in monthly installments of $521 $ 97,500
--------- ---------
1,575,000 97,500
Less current maturities 1,575,000 97,500
--------- ---------
$ -- $ --
========= =========
</TABLE>
The note payable, bank, is a line of credit agreement, providing for
borrowings not to exceed $2,500,000, based upon a percentage of eligible
accounts receivable. The agreement, which expires June 30, 1999, bears
interest payable monthly at one-half percent over the bank's prime rate. The
agreement is collateralized by all accounts receivable.
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.
D. 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 of which 7,233 shares have been issued.
At December 31, 1998, the Company has outstanding warrants aggregating
354,875 shares of Common Stock exercisable at $6 per share. These warrants
are exercisable through September 2000.
In 1998, the Company began acquiring shares of its common stock in
connection with a stock repurchase program. The program authorizes the
Company to purchase up to 300,000 common shares from time to time on the open
market or in privately negotiated transactions. The Company purchased 146,900
shares of common stock in 1998 at an aggregate cost of $144,775. The purpose
of the stock repurchase program is to assist the Company in enhancing
shareholder value.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
E. Net Income (Loss) Per Share Calculation:
1998 1997
---------- ----------
Income (Numerator):
<S> <C> <C>
Income (loss) before extraordinary gain ($ 270,226) $ 49,661
Extraordinary gain from early
retirement of debt 38,145
---------- ----------
Net income (loss) ($ 270,226) $ 87,806
========== ==========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average shares outstanding 3,982,309 4,022,894
========== ==========
Basic income (loss) per share:
Income (loss) before extraordinary gain ($ .07) $ .01
Extraordinary gain .01
---------- ----------
Net income (loss) per share ($ .07) $ .02
========== ==========
Shares (Denominator):
Diluted income (loss) per share:
Actual weighted average shares outstanding 3,982,309 4,022,894
Net reduction in shares upon conversion of
warrants and options * *
---------- ----------
Adjusted shares outstanding 3,982,309 4,022,894
========== ==========
Diluted income (loss) per share:
Income (loss) before extraordinary gain ($ .07) $ .01
Extraordinary gain .01
---------- ----------
Net income (loss) per share ($ .07) $ .02
========== ==========
</TABLE>
*Shares are not included in the computation due to the net loss and the
exercise prices of the warrants and options exceeding the average market price
of the common stock.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
F. 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, 1998 are as follows:
<TABLE>
<CAPTION>
Year Capital Operating
<S> <C> <C>
1999 $ 3,508 $ 147,766
2000 96,331
2001 53,268
2002 21,840
--------- ---------
3,508 $ 319,205
=========
Less amount representing
imputed interest 230
---------
3,278
Less current portion 3,278
---------
$ -
=========
</TABLE>
Rental expense for facilities, transportation vehicles and equipment for
the years ended December 31, 1998 and 1997 was approximately $266,110 and
$273,900, respectively.
G. 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.
Income tax expense for the years ended December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
--------- ---------
Federal:
<S> <C> <C>
Deferred expense $101,000 $ 59,000
Change in valuation allowance ( 101,000) ( 59,000)
State: 1,893 4,217
-------- --------
$ 1,893 $ 4,217
======== ========
Major components of the Company's deferred taxes are as follows:
December 31,
1998 1997
-------- ---------
Receivable allowance $ 94,000 $ 35,000
Vacation accrual 38,000 43,000
Deferred compensation 11,000
Net operating loss carryforward 1,518,000 1,662,000
Valuation allowance (1,650,000) (1,751,000)
---------- ---------
$ - $ -
========== =========
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $4,500,000, which are available to reduce future taxable income.
These carryforwards expire in 2006 to 2013. The net operating loss
carryforwards include approximately $2,900,000 which relate to the operations
of National Home Delivery, Inc. prior to the pooling of interest and are
subject to certain limitations.
H. Stock Options:
The Company has adopted two stock-based incentive plans, the 1995 Long-
Term Incentive Stock Option Plan (the "Incentive Plan") and the Outside
Directors and Advisors Stock Option Plan (the "Directors & Advisors Plan"), to
encourage stock ownership by employees, officers, directors and other
individuals specified 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 these plans, the Company
has reserved a total of 450,000 shares of common stock. As of December 31,
1998, options for 332,900 shares were outstanding. No options have been
exercised. All options granted to date were granted at not 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 1998 or 1997.
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, 1998, 86,046 of 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 officers. The
Committee believed that outstanding stock options with an exercise price
substantially in excess of the current market price no longer served to
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
H. Stock Options, continued:
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
with a price equal to $3.125, which was the closing price on the Nasdaq Small
Cap market on January 21, 1997. 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
1998 and 1997 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,
1998 1997
----------- -----------
Net Income (Loss)
<S> <C> <C>
As Reported ($270,226) $ 87,806
Pro Forma ($332,319) ($187,935)
Income (Loss) Per Share
As Reported
Basic ($0.07) $0.02
Diluted ($0.07) $0.02
Pro Forma
Basic ($0.08) ($0.05)
Diluted ($0.08) ($0.05)
</TABLE>
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, 1998 and 1997; risk free rate of six percent; no dividend
yield for all years; and expected life 5 years. The volatility assumptions
were 36 percent and 41 percent for December 31, 1998 and 1997, respectively.
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.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
H. Stock Options, continued:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------- ---------------------
Options Weighted- Options Weighted-
Avg. Avg.
Exercise Exercise
Price Price
--------- --------- --------- ---------
Outstanding-beginning
<S> <C> <C> <C> <C>
of year 334,869 $3.42 298,546 $5.07
Granted at the money 92,500 $1.05 64,800 $2.78
Granted at a premium 70,000 $3.36
Total granted 162,500 $2.04
Forfeited 10,200 $2.05 20,627 $5.38
Expired 68,223 $4.13 7,850 $5.07
Repriced -- -- 224,096 $3.15
Outstanding-end of year 418,946 $2.80 334,869 $3.42
Exercisable at end of
year 210,746 $3.28 47,500 $4.01
Weighted-average fair
value of options granted
at the money
during the year $0.43 $1.23
Weighted-average fair
value of options granted
at a premium
during the year $0.13
Weighted-average fair
value of options granted
during the year $0.30 $1.23
</TABLE>
Options outstanding as of December 31, 1998 are described below:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------- ----------------------
Weighted Avg Weighted Avg Weighted Avg
Range of Prices Options Exercise Price Remaining Term Options Exercise Price
---------------- ------- -------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$1.04 to $1.16 88,000 $1.05 9.19 years 7,500 $1.16
$2.50 to $3.75 268,446 $3.03 8.07 years 180,746 $1.70
$4.00 to $5.19 62,500 $4.28 8.32 years 22,500 $4.77
---------------- ------- ----- ---------- ------- -----
$1.04 to $5.19 418,946 $2.80 8.34 years 210,746 $3.28
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
I. Other Income, net:
<TABLE>
<CAPTION>
Other income, net consists of the following:
1998 1997
----------- -----------
<S> <C> <C>
Interest income $ 30,633 $ 81,256
Interest expense ( 25,392) ( 20,756)
Loss on sale of assets ( 4,477) ( 749)
----------- -----------
$ 764 $ 59,751
=========== ===========
</TABLE>
J. Related Party Transactions:
Amounts due for the delivery of materials by private delivery affiliates
that are affiliated through common shareholders were presented in accounts
payable, related parties on the accompanying consolidated balance sheet at
December 31, 1997. There were no balances from related parties at December
31, 1998.
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 before April 30, 1999.
Item 10. Executive Compensation
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or before April 30, 1999.
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 before April 30, 1999.
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 before April 30, 1999.
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, 1998.
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 MARKETING NETWORKS, INC.
Dated: March 31, 1999 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 31, 1999
Phillip D. Miller, Chief Executive Officer
(Principal executive officer) and Chairman of the
Board of Directors
/s/Sandra J. Smith March 31, 1999
Sandra J. Smith, Chief Financial Officer and
Treasurer (Principal accounting and financial officer)
/s/Stan Henry March 31, 1999
Stan Henry, Director
/s/Thomas Hiatt March 31, 1999
Thomas Hiatt, Director
/s/Harry Edelson March 31, 1999
Harry Edelson, Director
INDEX TO EXHIBITS
Index
Number 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)
4.3 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)
10.5 Form of Software License Agreement (1)
10.8 Lease Renewal dated August 8, 1995 for Grand Rapids,
MI Executive Offices (2)
10.13 Lease for St. Petersburg, FL warehouse sites (2)
10.14 Lease for St. Petersburg, FL warehouse and office space (2)
10.15 Employment Agreement dated January 1, 1999 between the Company
and Ruth Ann Carroll (5) 32
10.16 Master Demand Business Loan Note with Letter Loan Agreement
and Amendment (5) 37
21.1 List of Subsidiaries of the Company (5) 44
________________________
(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.
[DESCRIPTION] EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between Ruth Ann
Carroll ("Employee") and Alternate Marketing Networks, Inc. ("Company"). In
consideration of the mutual covenants contained in this Agreement, the parties
agree as follows:
1. Employment. Commencing January 1, 1999 ("Effective Date"),
Company employs Employee as President of the Company and Employee accepts such
employment. Employee shall report to the Company's Chief Executive Officer
(the "CEO") and Board of Directors and devote her full time, attention and
efforts to the performance of her duties which shall include without
limitation overall responsibility for the day-to-day management and operations
of the Company and all reasonable duties assigned to her by the CEO. Those
responsibilities include but are not limited to the following:
a. Achieve corporate revenue and profit goals as set by the CEO.
b. Oversee quality execution of the Company's operation inside the
approved budget.
c. Refine Company's marketing strategy to position the Company for
continuing growth.
2. Term. The term of the Agreement shall be from January 1, 1999
through December 31, 1999, unless earlier terminated as provided below. This
Agreement shall automatically renew for additional one-year terms unless
either party provides written notice of termination in accordance with
Paragraph 17 on or before December 1, 1999, or December 1 of any subsequent
year in which the Agreement is in effect. Employee acknowledges that certain
duties set forth in this Agreement (including without limitation the
obligations set forth in paragraphs 8, 9, and 10) survive termination of this
Agreement.
3. Base Salary. Company will pay Employee a gross salary of $140,000
per year (minus all deductions authorized by law) ("Base Salary") in
substantially equal periodic installments in accordance with its practices for
payment of salary to management employees.
(a) Long-Term Incentive-Cash Bonus.
$15,000 for meeting 1999 sample revenue budget of $14,000,000.
This can be paid as early as the third quarter 1999 if YTD sales
and the sales tracking sheet give appropriate substantiation.
An additional $30,000 for a total of $45,000 for meeting 1999
Company-approved budget for operating profit. This can be paid as
early as the fourth quarter 1999 if the financials and projections
substantiate.
An additional $15,000 for a total of $60,000 for exceeding 1999
approved budget for operating profit by 15% or more. This can be
paid as early as the first quarter 2000 if financials
substantiate.
The 1999 budget is attached that was approved by the CEO and Board
of Directors.
(b) Long-Term Incentive-Stock Options
30,000 shares granted April 16, 1998 at $1.04 per share with a
two-year graded vesting period.
30,000 shares granted April 30, 1998 at $2.50 per share with a
four-year graded vesting period.
40,000 shares granted April 30, 1998 at $4.00 per share with a
four-year graded vesting period.
If your employment is terminated prior to completion of the
vesting period, options will be pro-rated.
In case the Company is acquired by another firm, all options
granted will become immediately vested and exercisable at the time
of acquisition.
4. Fringe Benefits. Employee may participate in all benefit plans
and programs offered to the Company's management or supervisory employees.
Such benefits (including eligibility requirements) are governed by the terms
of the plan documents (where applicable) and the Company's standard policies
and practices. Nothing in this Agreement shall prevent or limit the Company's
right to terminate or modify any employee benefit plan or program in its sole
discretion. The Company also agrees to an annual $5,000 auto allowance which
will be disbursed in 12 equal monthly payments and added to the employees W-2
form as is required by law.
5. Vacation. Employee shall be entitled to three weeks paid
vacation. Vacation shall be taken as mutually agreed by Employee and Company.
6. Expenses. The Company shall reimburse Employee for reasonable
expenses incurred in the performance of her duties under this Agreement,
provided that Employee provides the Company with adequate documentation and
reports regarding such expenditures in accordance with Company policies. The
Company will provide a corporate credit card for company purposes only.
7. Additional Compensation. Bonus. A discretionary cash bonus may
be granted annually as set forth by the Board of Directors for the executive
management team.
8. Confidential Information. (a) The term "Confidential
Information" means information and data not generally known outside the
Company (unless as a result of a breach of any of the obligations imposed by
this Agreement) concerning the Company's business and technical information,
including, without limitation, information relating to: (i) the identities of
its customers and their purchasing habits, needs, credit histories, contact
personnel and other information; (ii) suppliers' and vendors' costs, products,
discounts, margin discounts, financial and marketing data and plans, personnel
and compensation, budgets forecasts and business plans; and (iii) the
Company's research, manufacturing activities, data bases, techniques, software
codes, strategies, licenses, inventions, processes, and equipment. Employee
acknowledges that Confidential Information is solely the property of the
Company.
(b) Except as otherwise herein provided, Employee agrees that during
the period of her employment, and thereafter, she will hold in strictest
confidence and will not use or disclose to any person or entity without the
written authorization of the Company's CEO, any of the Company's Confidential
Information, except as such use or disclosure may be required in connection
with her work for the Company or to the extent that such information becomes
known in the public or trade other than as a result of Employee's actions or
failure to act. In the event Employee is legally compelled to disclose any
Confidential Information, Employee agrees to immediately notify the Company
(prior to such disclosure if possible) so that the Company may seek such
protective order or other remedy as it deems necessary. Employee understands
that this Agreement applies to art work, computerized and written information
and to other information, whether or not in written form.
(c) Employee agrees that she will not take with her any Confidential
Information, whether in written, computerized, machine readable, model,
sample, or other form capable of physical delivery, upon or after the
termination for any reason of her employment with the Company, without the
prior written consent of the Company's CEO. Employee also agrees that upon
the termination for any reason of her employment with the Company or at any
other time that the Company may request, she shall deliver promptly and return
to the Company all such documents and materials, along with any other
Confidential Information and all other property of the Company and property
relating to the Company's suppliers, customers and business, in her possession
or control.
9. Restrictive Covenants. (a) Employee agrees that during the term
of this agreement and for four months following, she shall not, without the
prior written consent of the Company's CEO, directly or indirectly, engage in,
represent, consult with, be employed by, assist or have any interest in any
business or entity that is in competition; provided however, that nothing in
this Agreement shall prevent employee from owning one percent or less of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Employee does not participate in the conduct of the business of such
corporations.
(b) Employee agrees, that during the term of her employment with the
Company and for a period of one year following the termination of her
employment with the Company for any reason, she will not on her own behalf or
on behalf of any other person or entity, without the express written consent
of the Company's CEO, solicit or attempt to solicit any then current employee
or representative of the Company to terminate or modify his or her employment
or business relationship with the Company.
(c) Given the sensitive nature of Employee's position with the
Company, the Confidential Information to which Employee shall have access, and
the company's permanent or near-permanent relationship with its customers, the
parties acknowledge that the limitations contained in Paragraphs 8 and 9 are
reasonable. Employee further acknowledges that any violation of Paragraphs 8
and/or 9 will result in irreparable injury to the Company for which there is
no adequate remedy at law. In the event of a breach of Paragraph 8 and/or 9,
the Company shall be entitled to injunctive relief in addition to any other
remedies which may be available to it.
10. Inventions. Employee will, during the period of her employment,
disclose to the Company promptly and fully all Inventions made or conceived by
the Employee (either solely or jointly with others) including but not limited
to Inventions which relate to the business of the Company or the Company's
actual or anticipate research or development, or result from work performed by
her for the Company. All Inventions and all records related to Inventions,
whether or not patentable, shall be and remain the sole and exclusive property
of the Company. "Inventions" means all inventions, discoveries, processes,
improvements, designs, developments, and ideas, and all know-how related
thereto. Employee hereby assigns and agrees to assign to the Company all her
rights to Inventions and any patents, trademarks, or copyrights which may be
issued with respect to Inventions. Employee further acknowledges that all
work shall be work made for hire. During and after the term of this
Agreement, Employee agrees to assist the Company, without charge to the
Company but at its request and expense, to obtain and retain rights in
Inventions, and will execute all appropriate related documents at the request
of the Company.
Employee understands that this Paragraph 10 shall not apply to any
invention for which no equipment, supplies, facilities, trade secret, or other
confidential information of the Company was used and which was developed
entirely on her own time, and does not relate to the business of the Company,
its actual or anticipated research, and does not result from any work
performed by her for the Company.
11. Termination. (a) The Company may terminate this Agreement for
"cause" effective immediately upon notice to Employee, without any liability
to or upon the Company other than to pay Salary for services rendered prior to
the date of termination. "Cause" shall be defined as: (i) Employee's
conviction of a crime which results in a material injury to the interest,
property, operations, business or reputation of the Company; (ii) gross
negligence or willful misconduct in the performance of Employee's duties;
(iii) Employee's willful neglect of her duties under this Agreement; and/or
(iv) a material breach of this Agreement.
(b) The Company may terminate this Agreement effective immediately
upon notice to Employee, without any liability to or upon the Company other
than to pay Salary for services rendered prior to the date of termination,
upon the "Disability" of Employee or effective upon death, in the event of
death of Employee. "Disability" shall be defined as Employee's inability, as
determined by the Company's CEO in her reasonable discretion, due to illness,
accident, injury, physical or mental incapacity or other disability,
effectively to carry out her duties and obligations under this Agreement for
90 consecutive days or shorter periods aggregating 90 days (whether or not
consecutive) during any one-year period.
(c) In the event that Employee voluntarily resigns her employment with
the Company, she shall not be entitled to any compensation or benefits beyond
her last day of employment, other than any accrued vacation or bonuses earned
but unpaid.
(d) Notwithstanding any provision of this Agreement to the contrary,
the Company may terminate this Agreement at any time during its term, without
Cause, upon giving notice to the Employee. In the event of termination under
this subsection (d), the Company's only obligation shall be to pay four (4)
months of salary, plus any accrued vacation and earned prorata bonuses, to the
Employee based upon her then current Base Salary.
(e) If the Company enters into an agreement to be acquired, the
Employee will have the option of receiving a one-time payment equal to twelve
months of employee's base compensation if Employee chooses not to remain with
acquiring company. Employee must make this decision within fourteen working
days from receiving written notice from the CEO of the Company. If Employee
accepts a position with acquiring company, no one-time payment is due.
12. No Conflicting Contracts. Employee represents and warrants that
she is not subject to any non-compete covenant in any contract and no
contractual or other commitment or covenant exists which would limit, affect
or prevent the Employee's full performance of her duties and responsibilities
under this Agreement.
13. Successors. This Agreement may be assigned by the Company to any
successor or to any person who acquires the Company or substantially all of
its assets.
14. Complete Agreement. This Agreement is the complete agreement
between the parties and supersedes any and all prior agreements or
understandings between them. This Agreement may only be modified in writing
signed by the parties. The waiver of a breach of any provision of this
Agreement shall not serve as a waiver of any subsequent breach by that party.
15. Severability and Modification. (a) If any provision of this
Agreement is declared void, unenforceable or against public policy, such
provision shall be deemed severable and severed from this Agreement and the
balance of this Agreement shall remain in full force and effect.
(b) If a court of competent jurisdiction rules that any restriction of
this Agreement is overboard or unreasonable, the court shall modify or revise
such restriction to include the maximum reasonable restriction allowed by law.
16. Governing Law. This Agreement shall be governed by the laws of
Michigan.
17. Notices. Any notice to be given under this Agreement shall be in
writing, personally delivered or sent by next day overnight delivery or
certified mail, and sent if to the Company to its corporate offices and, if to
Employee to her residence.
ALTERNATE MARKETING NETWORKS, INC. RUTH ANN CARROLL ("Employee")
By: /s/Phillip D. Miller /s/Ruth Ann Carroll
Title: Chairman/CEO Date: 1/27/99
Date: 1/29/99
Master Demand Business Loan Note
______________________________________________________________________________
Due on Demand $2,500,000.00
No. 0042450 Date November 25, 1998
Promise to Pay. For value received, Alternate Marketing Networks, Inc. (the
"Borrower") promises to pay On Demand to NBD Bank (the "Bank"), or order, at
any office of the Bank in the State of Michigan, the sum of Two Million Five
Hundred Thousand and no/100 DOLLARS ($2,500,000.00), or such lesser sum as is
indicated on Bank records, plus interest computed on the basis of the actual
number of days elapsed in a year of 360 days at the rate of:
1/2 % per annum above the rate announced from time to time by the Bank as
its "prime" rate (the "Note Rate"), which rate may not be the lowest rate
charged by the Bank to any of its customers, until maturity, whether by
demand, acceleration or otherwise, and at the rate of 3% per annum above
the Note Rate on overdue principal from the date when due until paid.
Each change in the "prime" rate will immediately change the Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law;
any interest payment which would for any reason be deemed unlawful under
applicable law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of
each borrowing.
The Borrower will pay this sum on demand. Until demand, the Borrower will pay
consecutive monthly installments of interest only commencing December 30,
1998.
Late Fee. If any payment is not received by the Bank within fifteen days
after its due date, the Bank may assess and the Borrower agrees to pay a late
fee equal to the lesser of five percent of the past due amount or $350.00.
Master Demand Note. The Bank has authorized a discretionary credit facility to
the Borrower in a principal amount not to exceed the face amount of this note.
The credit facility is in the form of loans made from time to time by the Bank
to the Borrower at the Bank's sole discretion. This note evidences the
Borrower's obligation to repay those loans. The aggregate principal amount of
debt evidenced by this note shall be the amount reflected from time to time in
the records of the Bank but shall not exceed the face amount of this note.
The Borrower acknowledges and agrees that no provision of this note and no
course of dealing by the Bank shall commit the Bank to make loans to the
Borrower and that notwithstanding any provision of this note or any other
instrument or document, all loans evidenced by this note are due and payable
on demand, which may be made by the Bank at any time, whether or not any event
of acceleration then exists.
Credit Agreement. This note evidences a debt under the terms of a Credit
Authorization Agreement between the Bank and the Borrower dated August 28,
1998 and any amendments.
Security. To secure the payment of this note and any other present or future
liability of the Borrower, whether several, joint, or joint and several, the
Borrower pledges and grants to the Bank a continuing security interest in the
following described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later acquired
("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute security
for any past, present or future liability of the Borrower to the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: A First Lien position in Accounts
Receivable, plus those of Guarantors, National Home Delivery, Inc.,
Alternate Postal Direct, Inc., and Newspaper Marketing Solutions, Inc.
Bank's Right to Setoff. The Bank shall have the right at any time to apply
its own debt or liability to the Borrower or to any other party liable on this
note in whole or partial payment of this note or other present or future
liabilities, without any requirement of mutual maturity.
Representations by Borrower. Each Borrower represents: (a) that the
execution and delivery of this note and the performance of the obligations it
imposes do not violate any law, conflict with any agreement by which it is
bound, or require the consent or approval of any governmental authority or any
third party; (b) that this note is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons to
which they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and adversely
since those dates. Each Borrower, other than a natural person, further
represents: (a) that it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b) that the execution
and delivery of this note and the performance of the obligations it imposes
(i) are within its powers and have been duly authorized by all necessary
action of its governing body; and (ii) do not contravene the terms of its
articles of incorporation or organization, its by laws, or any partnership,
operating or other agreement governing its affairs.
Events of Default/Acceleration. If any of the following events occurs, this
note shall be due immediately without notice at the Bank's option whether or
not the Bank has made demand.
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay when
due any amount payable under this note or under any agreement or
instrument evidencing debt to any creditor;
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this note) such that the
creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this note, or any guaranty of the loan evidenced by this note
becomes unenforceable in whole or in part, or any Guarantor fails to
promptly perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of the
Borrower or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its debts
as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit of
creditors; (b) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent of
the party against which the appointment is made and is not removed within
60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under any
bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement of
such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor;
10. The Borrower or any Guarantor dies;
11. The Borrower or any Guarantor, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party, (c) leases,
sells or otherwise conveys a material part of its assets or business
outside the ordinary course of business, (d) leases, purchases or
otherwise acquires a material part of the assets of any other corporation
or business entity except in the ordinary course of business, or (e)
agrees to do any of the foregoing (notwithstanding the foregoing, any
subsidiary may merge or consolidate with any other subsidiary, or with the
Borrower so long as the Borrower is the survivor);
12. The loan-to-value ratio of any pledged securities at any time exceeds
N/A %, and such excess continues for five (5) days after notice from the
Bank to the Borrower;
13. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
14. The Bank in good faith deems itself insecure.
Remedies. If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the
Bank sends the notice to the Borrower at least seven (7) days prior to the
date of sale, disposition or other event giving rise to the required notice.
The Bank is authorized to cause all or any part of the Collateral to be
transferred to or registered in its name or in the name of any other person,
firm or corporation, with or without designation of the capacity of such
nominee. The Borrower shall be liable for any deficiency remaining after
disposition of any Collateral. The Borrower is liable to the Bank for all
reasonable costs and expenses of every kind incurred in the making or
collection of this note, including, without limitation, reasonable attorneys'
fees and court costs. These costs and expenses shall include, without
limitation, any costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
Waiver. Each endorser and any other party liable on this note severally
waives demand, presentment, notice of dishonor and protest, and consents to
any extension or postponement of time of its payment without limit as to the
number or period, to any substitution, exchange or release of all or part of
the Collateral, to the addition of any party, and to the release or discharge
of, or suspension of any rights and remedies against, any person who may be
liable for the payment of this note. No delay on the part of the Bank in the
exercise of any right or remedy shall operate as a waiver. No single or
partial exercise by the Bank of any right or remedy shall preclude any other
future exercise of it or the exercise of any other right or remedy. No waiver
or indulgence by the Bank of any default shall be effective unless in writing
and signed by the Bank, nor shall a waiver on one occasion be construed as a
bar to or waiver of that right on any future occasion.
Miscellaneous. The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank
shall include any holder of this note. This note is delivered in the State of
Michigan and governed by Michigan law. Section headings are for convenience
of reference only and shall not affect the interpretation of this note.
Waiver of Jury Trial. The Bank and the Borrower knowingly and voluntarily
waive any right either of them have to a trial by jury in any proceeding
(whether sounding in contract or tort) which is in any way connected with this
or any related agreement, or the relationship established under them. This
provision may only be modified in a written instrument executed by the Bank
and the Borrower.
Address: Borrower:
One Ionia, S.W. Alternate Marketing Networks, Inc.
Suite 300
Grand Rapids, Michigan 49503-4145 By: /s/ Sandra J. Smith
Sandra J. Smith, Chief Financial Officer
NBD Bank
200 Ottawa Avenue N.W.
Grand Rapids, Michigan 49503-2468
Telephone: (616) 771-7395
Fax: (616) 771-7440
William A. Bruinsma
Vice President
August 28, 1998
Ms. Sandra J. Smith
Chief Financial Officer
Alternate Marketing Networks, Inc.
1 Ionia, S.W.
Suite 300
Grand Rapids, MI 49503-4145
Dear Sandy:
I am pleased to inform you that NBD Bank (hereafter called "NBD") has approved
a $1,000,000 short-term credit facility for Alternate Marketing Networks, Inc.
The terms and conditions of this loan facility are as follows:
Borrower: Alternate Marketing Networks, Inc.
Loan Amount: $1,000,000 short-term credit facility (hereafter called "Loan").
Use of Loan Proceeds: Borrowings under the Loan shall be used to support the
working capital needs of the Borrower.
Interest Rate: One-half percent (1/2%) over NBD's prime rate, as it is
announced from time to time.
Fees: None.
Collateral: First lien position in all accounts receivable of Borrower,
National Home Delivery, Inc., Alternate Postal Direct, Inc. and Newspaper
Marketing Solutions, Inc.
Advance Formula: Amounts outstanding under the Loan shall not exceed the
lesser of $1,000,000 or 70% of acceptable accounts receivable. Acceptable
accounts receivable are defined as the collective receivables of the Borrower,
National Home Delivery, Inc., Alternate Postal Direct, Inc. and Newspaper
Marketing Solutions, Inc. aged less than 90 days from date of invoice, not
from an affiliated person or entity, not foreign, not from the U.S.
government, not in dispute, and not subject to offset.
Supporting Documentation: Corporate guarantees of National Home Delivery,
Inc., Alternate Postal Direct, Inc. and Newspaper Marketing Solutions, Inc.
Loan Repayment: NBD shall require monthly interest-only payments on amounts
borrowed.
Expiry: June 30, 1999.
Servicing Requirements:
1. Monthly accounts receivable and accounts payable agings and listings of
Borrower and guarantors.
2. Quarterly financial statements of Alternate Marketing Networks, Inc., and
subsidiaries.
3. Annual audited financial statements of Alternate Marketing Networks, Inc.,
and subsidiaries.
Sandy, if the aforementioned terms and conditions are as agreeable to you as
they are to us, please sign, date, and return the enclosed copy of this letter
in the envelope provided. Upon receipt of this letter, I will work at putting
together the revised loan documentation reflecting the new loan amount in
addition to the name changes that have taken place during the past year.
Yours truly,
/s/ Bill Bruinsma
Accepted and Agreed to this 31st day of August, 1998.
Alternate Marketing Networks, Inc.
By: /s/ Sandra J. Smith
Its: CFO
Enclosures
NBD Bank
200 Ottawa Avenue N.W.
Grand Rapids, Michigan 49503-2468
Telephone: (616) 771-7395
Fax: (616) 771-7440
William A. Bruinsma
Vice President
November 24, 1998
Ms. Sandra J. Smith
Chief Financial Officer
Alternate Marketing Networks, Inc.
1 Ionia, S.W.
Suite 300
Grand Rapids, MI 49503-4145
Dear Sandy:
Please use this letter as an amendment to the Letter Loan Agreement between
NBD Bank and Alternate Marketing Networks, Inc., dated August 28, 1998. More
specifically, the Loan Amount of Alternate Marketing Networks, Inc.'s short-
term credit facility has been increased from $1,000,000 to $2,500,000.
Commensurate with this increase is a change in the Advance Formula to read:
"Amounts outstanding under the Loan shall not exceed the lesser of $2,500,000
or 70% of acceptable accounts receivable. All other terms and conditions of
the Letter Loan Agreement dated August 28, 1998, will remain unchanged.
Sandy, if the aforementioned amendment is as agreeable to you as it is to us,
please sign, date, and return the enclosed copy of this letter, as well as the
new note in the envelope provided.
Yours truly,
/s/ Bill Bruinsma
Enclosure
Agreed to and accepted this 1st
day of December, 1998
ALTERNATE MARKETING NETWORKS, INC.
By: /s/ Sandra J. Smith
Sandra J. Smith
Its: Chief Financial Officer
[DESCRIPTION] SUBSIDIARIES OF THE COMPANY
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of
Incorporation
Alternate Postal Direct, Inc. Michigan
National Home Delivery, Inc. Illinois
Newspaper Marketing Solutions, Inc.* Michigan
*Dissolved effective 12/31/98
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ALTERNATE MARKETING NETWORKS, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 223
<SECURITIES> 0
<RECEIVABLES> 4,818
<ALLOWANCES> 275
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<CURRENT-ASSETS> 5,033
<PP&E> 695
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<COMMON> 8,263
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<TOTAL-LIABILITY-AND-EQUITY> 6,513
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<TOTAL-REVENUES> 20,133
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> (268)
<INCOME-TAX> 2
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