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, 1999
[ ] 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. [X]
State issuer's revenues for its most recent fiscal year: $28,576,334
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: $3,744,331, based on 1,316,572 shares held by non-affiliates as of
March 6, 2000, and the average of the closing bid and asked prices for said
shares in the Nasdaq SmallCap 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: 4,122,993 shares of Common
Stock, as of March 6, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy materials to be filed on or before April 10,
2000 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, (iii) Reports on Form 8-K (dated April 11, 1996)
and Form 8-K/A (dated April 4, 1996), (iv) Report on Form 10-KSB for the
fiscal year ended December 31, 1998, (v) Report on form 10-QSB for the
quarterly period ended September 30, 1999, and (vi) Report on 8-K (dated
February 17, 2000).
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 . . . . . . . . . . . . . . . . . . . . . . 30
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . 30
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 30
Item 11. Security Ownership of Certain Beneficial Owners and Management. . 30
Item 12. Certain Relationships and Related Transactions . . . . . . . . . 30
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 30
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 30
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PART I
Item 1. DESCRIPTION OF BUSINESS
OVERVIEW
Alternate Marketing Networks, Inc. is a national marketing services
company that provides advertising, marketing, and Internet-based logistics
services for national advertisers and publishers throughout the United States.
The Company's objective is to become a total marketing solutions provider for
clients in the e-commerce, automotive, consumer package goods,
telecommunications and other industries.
The Company's strategic advantage is its proprietary database, the Media
Optimizer TM, and its Internet based End-To-End TM tracking system. Through
use of these systems, the Company is able to match client targeting requests,
offer efficient media capabilities, and provide sophisticated Internet
tracking systems.
DESCRIPTION OF OPERATIONS
The Company offers the following general product categories and services
to its clients: suburban newspaper advertising, consumer product sampling,
telephone directory distribution, and logistics services with Internet
tracking capabilities. All of these services (described below) are provided
on a national basis.
Suburban Newspaper Advertising - The Company markets this service under
the trade name "U.S. Suburban Press" or "USSPI." The service provides
comprehensive national representation to over 900 suburban newspapers for run-
of-press (ROP) advertising and pre-printed circulars that are inserted into
the newspaper. Examples of the clients that have utilized this service
include Ameritech, General Motors and travelocity.com.
Consumer Product Sampling - The Company markets this service under the
trade name "APD In-Home Sampling." The service provides a total solution for
national advertisers to target their samples and coupons to select households
throughout the United States. This is accomplished by the production of a
six-color processed flexo-printed poly bag that is distributed either by
newspapers or private delivery companies. Examples of the clients that have
utilized this service include Procter & Gamble, Kellogg, Kraft and America
Online.
Telephone Directory Distribution - The Company markets this service under
the trade name "Alternate Postal Direct." The service provides nationwide
distribution of telephone directories and marketing services such as the
selling of advertising ride-alongs for some of these clients. Examples of the
clients that have utilized this service include GTE, Transwestern Publishing
and Sunshine Pages.
Logistics and Tracking Services - The Company markets these services to
clients using one or more of the Company's other services (i.e., sampling,
USSPI, and telephone directory distribution). Logistics and tracking are
offered under the trade names "Total Logistics" and "itrackfreight.com" and
comprise logistic support, brokering of freight and Internet tracking of
clients' shipments.
PRINCIPAL CUSTOMERS
During the year ended December 31, 1999, the Company had one customer
which accounted for approximately 21% of the Company's revenues for the year.
During the year ended December 31, 1998, the Company had two single customers
which each accounted for approximately 10% of the Company's revenues.
STRATEGIC ALLIANCES AND ACQUISITIONS
The Company made no acquisitions during 1999. In February 2000, the
Company acquired certain assets and operations of Total Logistics, Inc., a
logistics planning and transportation brokering company, for a purchase price
of approximately $900,000, consisting of $800,000 cash and 40,816 shares of
the Company's common stock. The purchase agreement provides for contingent
additional consideration of a maximum of $900,000 cash if certain profit
levels are achieved during the three years following closing. This acquisition
expands the Company's presence through the introduction of a new Internet
tracking system. The new tracking service, itrackfreight.com, allows
customers to track the movement of their products across the nation to insure
high quality and timely service.
The Company intends to continue efforts to identify complementary
businesses for acquisitions, alliances or joint ventures.
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 is Product Development
Corporation. The Company has no primary competitors that offer a combination
of direct delivery, newspaper delivery and mail delivery, or that provides
comprehensive services of logistics planning, freight brokering, and Internet
tracking.
EMPLOYEES
As of December 31, 1999, the Company had 46 full-time employees,
including 15 in sales and sales support, 18 in operations, 3 in computer
systems, and 10 in general and administrative support. In addition, as of
December 31, 1999, 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 in 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 in 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 $1,350;
and warehouse and office space in St.Petersburg, Florida on a month to month
basis at a monthly rent of $3,317. Another wholly-owned subsidiary, National
Home Delivery, Inc. (d/b/a USSPI) rents a sales office in Schaumburg,
Illinois, at an aggregate monthly rent of $4,787, pursuant to a lease which
expires in December, 2002, and, office space in New York City, New York on a
month to month basis, at a monthly base rent at $1,635. 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 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>
Bid Price
Low High
Year ended December 31, 1999:
<S> <C> <C>
First quarter . . . . . . . . . . . . . . . 0 25/32 1 3/8
Second quarter . . . . . . . . . . . . . . 1 1 1/4
Third quarter . . . . . . . . . . . . . . 1 2 15/16
Fourth quarter . . . . . . . . . . . . . . 1 2 1/2
Year ended December 31, 1998
First quarter . . . . . . . . . . . . . . . 1 1/8 1 1/2
Second quarter . . . . . . . . . . . . . . 0 7/8 1 1/2
Third quarter . . . . . . . . . . . . . . . 0 5/8 1 1/4
Fourth quarter . . . . . . . . . . . . . . 0 3/8 1 1/8
</TABLE>
As of March 3, 2000, 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 3, 2000 is approximately 490.
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.
ISSUANCE OF UNREGISTERED SECURITIES
As reported in the Company's Form 10-QSB report for the quarter ended
September 30, 1999, on September 10, 1999, the Company issued 350,000 shares
of its common stock to The Times Mirror Company for an aggregate purchase
price of $1,050,000. No underwriters were involved in the sale. The sale of
the securities was made without registration under the Securities Act of 1933
(the "Act") in reliance upon the exemptions contained in Sections 4(2) and
4(6) of the Act.
In November 1999 the Company issued 3-year warrants for purchase of an
aggregate of 55,000 shares of Common Stock, exercisable at $3.00 per share, to
certain underwriters of a prior public offering in exchange for (a)
cancellation of 5-year warrants for purchase of an aggregate of 110,000 shares
of Common Stock, exercisable at $6.00 per share, and (b) certain consulting
and investment banking services. These securities were issued without
registration under the Act in reliance upon the exemptions contained in
Sections 4(2) and 4(6) of the Act.
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 1999, the Company's major focus was to continue to strengthen its
client-driven strategy. 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, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $28,576,334 $20,133,191
Cost of sales . . . . . . . . . . . . 21,707,261 15,348,126
----------- -----------
Gross profit. . . . . . . . . . . . . 6,869,073 4,785,065
----------- -----------
Selling, general and
administrative expenses. . . . . . . 5,860,692 5,054,162
----------- -----------
Operating income (loss) . . . . . . . 1,008,381 ( 269,097)
----------- -----------
Net income (loss) . . . . . . . . . . $ 1,047,771 ($ 270,226)
=========== ===========
Income (Loss) per share:
Basic . . . . . . . . . . . . . . $0.27 ( $0.07)
=========== ===========
Diluted. . . . . . . . . . . . . . $0.27 ( $0.07)
=========== ===========
Weighted average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . 3,910,162 3,982,309
Diluted . . . . . . . . . . . . . . 3,934,586 3,982,309
</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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . 100.0 % 100.0 %
Gross profit. . . . . . . . . . . . . 24.0 % 23.8 %
Operating expenses. . . . . . . . . . 20.5 % 25.1 %
Operating income(loss). . . . . . . . 3.5 % ( 1.3)%
Net income(loss). . . . . . . . . . . 3.7 % ( 1.3)%
======== ========
</TABLE>
Net sales: The net sales increase for 1999 as compared to 1998 was
primarily due to the increase in revenue from in-home sampling and value added
services offered to sampling clients such as freight logistics. In addition,
suburban newspaper revenues increased by more than $1 million, an 11% increase
over the previous year.
Gross profit: The gross profit percentage increased in 1999 due to a
change in the mix of revenues and the Company's efforts to reduce direct costs
by expanding its core supplier network.
Selling, general and administrative expenses: Operating expenses
increased in 1999 primarily as a result of increased personnel costs. Also,
increased travel costs associated with the Company's focus on sales growth,
including the addition of new sales staff, contributed to the higher costs in
1999.
Other income: Other income consists of interest income and interest
expense. Interest income and interest expense for the year ended December 31,
1999 were $67,616 and $26,822, respectively. Interest income and interest
expense in 1998 were $30,633 and $25,392, respectively.
FOURTH QUARTER RESULTS:
The results of the fourth quarter of 1999 as compared to the same period
in 1998 is summarized as follows:
<TABLE>
<CAPTION>
Quarter ending December 31,
1999 1998
------ ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . $ 7,690,412 $ 5,685,088
Cost of sales . . . . . . . . . . . . 5,786,143 4,307,765
----------- -----------
Gross profit. . . . . . . . . . . . . 1,904,269 1,377,323
Selling, general and
administrative expenses. . . . . . . 1,718,761 1,558,304
----------- -----------
Operating income(loss). . . . . . . . 185,508 ( 180,981)
----------- -----------
Net income (loss) . . . . . . . . . . $ 220,516 ($ 193,296)
=========== ===========
Income (Loss) per share:
Basic . . . . . . . . . . . . . . $0.05 ( $0.05)
=========== ===========
Diluted. . . . . . . . . . . . . . $0.05 ( $0.05)
=========== ===========
Weighted average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . 4,099,432 3,885,462
Diluted . . . . . . . . . . . . . . 4,141,649 3,885,462
</TABLE>
Net sales: The increase in revenue for the fourth quarter of 1999 as
compared to the fourth quarter of 1998 is primarily due to the increase from
in-home sampling revenues and freight logistics, as well as modest increases
in revenues from the delivery of telephone directories and suburban newspaper
revenues.
Selling, general, and administrative expenses: These expenses increased
in the fourth quarter of 1999 as compared to the fourth quarter of 1998 due to
the increased operating expenses incurred in connection with increased
marketing and travel expenses.
Other income: Interest income for the fourth quarter of 1999 was $34,523
with no interest expense. Interest income and interest expense for the fourth
quarter of 1998 were $5,251 and $18,323, respectively, resulting in a net
expense of $13,072.
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 affects, 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 addressed
three areas: outside supplier software; suppliers and vendors; and internal
operating systems and hardware.
During the period from January 1, 2000 through the date of this report on
Form 10-KSB, the Company has not experienced any significant disruption in its
operations due to Year 2000 failures, and the Company does not expect any
disruptions to occur. The Company estimates its total costs for Year 2000
readiness and remediation as of March 1,2000, at $20,000.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, the Company was able to fund its operations with cash made
available through the operating activities of the year. 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. Available borrowings are based upon a percentage of eligible accounts
receivable. The agreement expires June 30, 2000. Upon expiration, the
Company expects to renew the line of credit under the same terms. Cash and
equivalents increased by $957,882 to $1,180,472 at December 31, 1999.
SUMMARY OF CASH FLOWS
Cash flows from operating activities. Cash provided from (used in)
operating activities was $1,831,658 in 1999 compared to ($1,928,445) in 1998.
This change was largely attributable to the net income and the increase in
accounts payable and accrued liabilities.
Cash flows from investing activities. The cash used in investing
activities in 1998 was $124,605 compared to $232,472 in 1998. The majority of
the usage in 1999 was for the purchase of property and equipment and the
development of software.
Cash flows from financing activities. The Company used cash in
financing activities in 1999 in the amount of $749,171 compared to obtaining
cash in 1998 of $1,325,609. During 1999, the Company received $1,050,000 in
cash from the issuance of 350,000 shares of Common Stock. The primary use of
funds in 1999 was to pay off the line of credit agreement with the bank.
During 1998, the Company borrowed $1,575,000 on its line of credit to fund its
operating activities.
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 foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted two Statements of Position
(SOP) issued by the Accounting Standards Executive Committee of the American
Institute of Public Accountants. SOP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" provides guidance on
the classification of software project costs between expense and capital. SOP
98-5 "Reporting on Costs of Start-up Activities" prescribes that the costs of
opening a new facility, commencing business in a new market, or similar start-
up activities must be expensed as incurred. SOP 98-1 has been applied on a
prospective basis from January 1, 1999. The initial application of SOP 98-5
was to be reported as a cumulative effect of a change in accounting principle,
if material. The adoption of these SOPs did not have a significant impact on
the Company's financial results during 1999.
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 established
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 was to be effective for fiscal years beginning after June 15,
1999. In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Financial Instruments and Hedging Activites-Deferrel of the Effective Date of
FASB Statement No. 133". SFAS No. 137 delays the effective date of SFAS No.
133 by one year. The Company will adopt SFAS No. 133 on January 1, 2001.
Management does not expect the adoption to have a significant impact on the
Company's financial results.
OUTLOOK FOR THE FUTURE
During the first half of 2000, the Company will continue to add
additional capabilities. With the recent acquisition of the assets and
operations of Total Logistics, Inc., the Company will be expanding the
services offered to its clients to include freight logistics and tracking
(itrackfreight.com). The Company also intends to expand its Internet presence
into other areas by internal development and acquisitions. As an expansion to
its Internet based End-to-End TM tracking system, the Company will be adding a
geographic information system that will allow clients to access a wide array
of mapping functions to view their marketing programs.
The Company will also be developing a targeted co-op program for its APD
In-Home Sampling division for its door hang program, and a Metro standby
program for its newspaper advertising clients.
The Company currently believes that the financial results for the first
quarter of 2000 will reflect lower revenues due to softness in revenues from
consumer package goods sampling, although this category is anticipated to be a
stronger performer during the remainder of the year. This could result in
lower sales volume and earnings for the first quarter of 2000 as compared to
1999.
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 19-29
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. and Subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States, 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 13, 2000
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,180,472 $ 222,590
Accounts receivable, trade, less
allowance of $300,000 and $275,000 in
1999 and 1998, respectively 4,479,290 4,542,858
Prepaid expenses and other assets 584,038 267,782
------------ ------------
Total current assets 6,243,800 5,033,230
Note receivable 13,974 29,536
Property and equipment:
Computer equipment 418,225 331,008
Furniture and fixtures 376,993 363,914
------------ ------------
795,218 694,922
Accumulated depreciation and
amortization (587,141) (475,754)
------------ ------------
208,077 219,168
Computer software, net 150,300 175,975
Intangible assets, net 971,446 1,055,161
------------ ------------
$ 7,587,597 $ 6,513,070
============ ============
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
December 31, 1999 and 1998
<TABLE>
<CAPTION>
LIABILITIES
1999 1998
------------ ------------
Current liabilities:
<S> <C> <C>
Notes payable $ 1,575,000
Accounts payable $1,366,347 790,067
Accrued liabilities 545,383 253,838
Deferred revenue 264,342 366,240
Current portion of capitalized lease
obligations 3,278
------------ ------------
Total current liabilities 2,176,072 2,988,423
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; 4,082,177 and 3,873,227
shares issued and outstanding in 1999 and 1998,
respectively 10,393,561 9,554,454
Accumulated losses, through
September 30, 1993 (Note A) (1,291,039) (1,291,039)
------------ ------------
Total common stock 9,102,522 8,263,415
Accumulated losses, since
October 1, 1993 (Note A) (3,690,997) (4,738,768)
------------ ------------
Total shareholders' equity 5,411,525 3,524,647
------------ ------------
$ 7,587,597 $ 6,513,070
============ ============
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales $28,576,334 $20,133,191
Cost of sales 21,707,261 15,348,126
----------- -----------
Gross profit 6,869,073 4,785,065
Selling, general and
administrative expenses 5,860,692 5,054,162
----------- -----------
Income (loss) from operations 1,008,381 ( 269,097)
Other income, net 40,794 764
----------- -----------
Income (loss) before income taxes 1,049,175 ( 268,333)
Income tax expense 1,404 1,893
----------- -----------
Net income (loss) $ 1,047,771 ($ 270,226)
=========== ===========
Net income (loss) per share:
Basic:
Net income (loss) $ .27 ($ .07)
=========== ===========
Diluted:
Net income (loss) $ .27 ($ .07)
=========== ===========
Weighted average number of shares
outstanding:
Basic 3,910,162 3,982,309
=========== ===========
Diluted 3,934,586 3,982,309
=========== ===========
</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, 1999 and 1998
<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>
January 1, 1998 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
Repurchase of
Common Stock ( 146,050) ( 226,449) ( 226,449)
Warrants issued
to non-employees 10,000 10,000
Common Stock
options exercised 5,000 5,556 5,556
Common Stock
issued 350,000 1,050,000 1,050,000
Net Income 1,047,771 1,047,771
----------- ---------- ----------- ----------- ----------
Balances,
December 31, 1999 4,082,177 $10,393,561 ($1,291,039) ($3,690,997) $5,411,525
=========== =========== ============ ============ ==========
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,047,771 ($ 270,226)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 111,387 104,957
Amortization 149,261 140,970
Loss on sale of assets 4,477
Other non-cash charges 10,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 63,568 ( 2,150,003)
Prepaid and other assets ( 316,256) ( 108,666)
(Decrease) increase in:
Accounts payable 576,280 82,282
Accrued liabilities 291,545 ( 30,107)
Deferred revenue ( 101,898) 297,871
------------ ------------
Net cash provided by (used in)
operating activities 1,831,658 ( 1,928,445)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ( 100,296) ( 149,688)
Proceeds from sale of equipment 250
Purchases of software ( 39,871) ( 99,503)
Payments received for notes receivable 15,562 16,469
------------ ------------
Net cash used in
investing activities ( 124,605) ( 232,472)
------------ ------------
Cash flows from financing activities:
Issuance of common stock 1,055,556
Repurchase of common stock ( 226,449) ( 144,775)
Payments on note payable, bank ( 1,575,000) ( 1,225,000)
Proceeds from issuance of note
payable, bank 2,800,000
Principal payments on other notes payable
and lease obligations ( 3,278) ( 104,616)
------------ ------------
Net cash provided by (used in)
financing activities ( 749,171) 1,325,609
------------ ------------
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash and cash
equivalents 957,882 ( 835,308)
Cash and cash equivalents, beginning of year 222,590 1,057,898
------------ ------------
Cash and cash equivalents, end of year $ 1,180,472 $ 222,590
============ ============
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ 1,404 $ 1,893
============ ============
Interest paid $ 26,822 $ 25,392
============ ============
</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. and its wholly-owned subsidiaries Alternate Postal
Direct, Inc., Newspaper Marketing Solutions, Inc.(which was dissolved
effective December 31, 1998), and National Home Delivery, Inc.(collectively
referred to as the Company). All significant intercompany transactions have
been eliminated.
Business
The Company is a national marketing services company that provides
advertising, marketing and logistics services for national advertisers and
publishers throughout the United States. The Company offers total marketing
solutions for clients in the e-commerce, automotive, consumer products,
telecommunications and other industries.
The Company's strategic advantage is its proprietary database, the Media
Optimizer TM, and its Internet based End-To-End TM tracking system. Through
use of these systems, the Company is able to match client targeting requests,
offer efficient media capabilities, and provide sophisticated Internet
tracking systems.
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 transportation logistics are recognized at the time
that the load is shipped.
During the year ended December 31, 1999, the Company had one customer
which accounted for approximately 21 percent of the Company's revenues.
During the year ended December 31, 1998, the Company had two customers which
each accounted for approximately 10 percent of the Company's revenues.
Segment Information
Management views the Company as having one reportable operating segment,
advertising and marketing, based upon the means by which operating results are
routinely reviewed by management to evaluate results and allocate resources.
Substantially all of the Company's revenues are generated in the United
States.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
Supplemental product revenues is provided below. It is impractical for
the Company to separately disclose revenues by product for 1998, due to the
changing nature of the Company's product streams.
1999
------
Consumer product sampling and advertising $13,157,689
Suburban newspaper advertising 10,580,699
Telephone directory distribution 3,025,092
Logistics and tracking services 1,812,854
-----------
Total revenues $28,576,334
===========
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.
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, 1999 and 1998 and
accumulated amortization of $117,334 and $107,887, respectively.
Computer Software
Purchased computer software is recorded at cost. External direct costs
of materials and services incurred in 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, 1999 and
1998, accumulated amortization was $158,611 and $93,065 respectively.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
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, 1999 and 1998, accumulated amortization was $694,362 and
$610,647, 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 $211,427 and $136,086 for the
years ended December 31, 1999 and 1998, respectively.
Financial Instruments
At December 31, 1999 and 1998, 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 established
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.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A. Summary of Significant Accounting Policies, continued:
This statement was to be effective for fiscal years beginning after June 15,
1999. In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Financial Instruments and Hedging Activites-Deferrel of the Effective Date of
FASB Statement No. 133". SFAS No. 137 delays the effective date of SFAS No.
133 by one year. The Company will adopt SFAS No. 133 on January 1, 2001.
Management does not expect the adoption to have a significant impact on the
company's financial results.
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, 1999 and 1998 were $11,220 and $12,660, respectively.
C. Financing:
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, 2000, bears
interest payable monthly at one-half percent over the bank's prime rate. The
agreement is collateralized by all accounts receivable. As of December 31,
1998, there were borrowings outstanding of $1,575,000. At December 31, 1999,
there were no borrowings outstanding.
D. Common Stock:
At December 31, 1999, the Company has outstanding warrants aggregating
244,875 shares of Common Stock exercisable at $6 per share and 55,000 shares
exercisable at $3.00 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 and
146,050 shares of common stock in 1999 at an aggregate cost of $226,449. 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
E. Net Income (Loss) Per Share Calculation:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
Income (Numerator):
<S> <C> <C>
Net income (loss) $ 1,047,771 ($ 270,226)
========== ==========
Shares (Denominator):
Basic income (loss) per share:
Actual weighted average shares outstanding 3,910,162 3,982,309
========== ==========
Basic income (loss) per share:
Net income (loss) per share $ .27 ($ .07)
========== ==========
Shares (Denominator):
Diluted income (loss) per share:
Actual weighted average shares outstanding 3,910,162 3,982,309
Net increase in shares upon conversion of
warrants and options 24,424 *
---------- ----------
Adjusted shares outstanding 3,934,586 3,982,309
========== ==========
Diluted income (loss) per share:
Net income (loss) per share $ .27 ($ .07)
========== ==========
</TABLE>
*Shares are not included in the computation for 1998 due to the net loss and
the exercise prices of the warrants and options exceeding the average market
price of the common stock.
F. Leases:
The Company leases certain office facilities, warehouse facilities, and
equipment used in its operations. Future minimum rental payments required
under operating leases that have initial or remaining terms in excess of one
year at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Operating
<S> <C>
2000 $ 153,091
2001 133,884
2002 96,804
2003 8,628
---------
$ 392,407
==========
</TABLE>
Rental expense for facilities, transportation vehicles and equipment for
the years ended December 31, 1999 and 1998 was approximately $318,205 and
$266,110, respectively.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
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, 1999 and 1998
consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
--------- ---------
Federal:
<S> <C> <C>
Deferred expense (benefit) $399,000 ($101,000)
Change in valuation allowance ( 399,000) 101,000
State: 1,404 1,893
-------- --------
$ 1,404 $ 1,893
======== ========
The difference between income tax expense at the U.S. statutory rate and
the Company's actual income tax is as follows:
Year Ended
December 31,
1999 1998
--------- ---------
Income tax at the U.S. statutory rate $356,700 ($ 91,200)
Change in valuation allowance ( 399,000) 101,000
Other 43,704 ( 7,907)
-------- --------
Income tax expense $ 1,404 $ 1,893
======== ========
Major components of the Company's deferred taxes are as follows:
December 31,
1999 1998
-------- ---------
Receivable allowance $ 102,000 $ 94,000
Vacation accrual 47,000 38,000
Deferred compensation
Net operating loss carryforward 1,102,000 1,518,000
Valuation allowance (1,251,000) (1,650,000)
---------- ---------
$ - $ -
========== =========
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
G. Income Taxes, continued:
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $3,200,000, 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 and Warrants:
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 575,000 shares of common stock. As of December 31,
1999, options for 346,700 shares were outstanding. During 1999 two options
were exercised resulting in the issuance of 2,500 shares at a purchase price
of $1.0625 and 2,500 shares at a purchase price of $1.16. 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 1999 or 1998.
The Company has granted warrants to non-employee individuals. During
1999, the Company granted warrants for 55,000 shares of stock and recognized
expense in the amount of $10,000 in connection with services rendered for this
transaction.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
H. Stock Options and Warrants, continued:
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
1999 and 1998 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,
1999 1998
---------- ----------
Net Income (Loss)
<S> <C> <C>
As Reported $1,047,771 ($270,226)
Pro Forma $1,016,638 ($332,319)
Income (Loss) Per Share
As Reported
Basic $0.27 ($0.07)
Diluted $0.27 ($0.07)
Pro Forma
Basic $0.26 ($0.08)
Diluted $0.26 ($0.08)
</TABLE>
The fair value of each option and warrant grant was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions for December 31, 1999 and 1998; risk free rate of six percent; no
dividend yield for all years; and expected life 5 years. The volatility
assumptions were 34 percent and 36 percent for December 31, 1999 and 1998,
respectively.
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 and Warrants, continued:
A summary of the status of the Company's options granted to employees as
of December 31, 1999 and 1998 and the changes during the year ended on those
dates is presented below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Options Weighted- Options Weighted-
Avg. Avg.
Exercise Exercise
Price Price
--------- --------- --------- ---------
Outstanding-beginning
<S> <C> <C> <C> <C>
of year 418,946 $2.80 334,869 $3.42
Granted at the money 37,500 $1.50 92,500 $1.05
Granted at a premium - - 70,000 $3.36
Total granted 37,500 $1.50 162,500 $2.04
Exercised 5,000 $1.11 - --
Forfeited 13,500 $1.04 10,200 $2.05
Expired 91,246 $3.11 68,223 $4.13
Outstanding-end of year 346,700 $2.67 418,946 $2.80
Exercisable at end of
year 212,200 $3.05 210,746 $3.28
Weighted-average fair
value of options granted
at the money
during the year $0.61 $0.43
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 $0.61 $0.30
</TABLE>
Options outstanding as of December 31, 1999 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 $2.05 107,000 $1.24 8.65 years 25,000 $3.26
$2.50 to $3.75 177,200 $3.05 7.02 years 154,700 $3.05
$4.00 to $5.19 62,500 $4.28 7.32 years 32,500 $4.53
- -------------- ------- ----- ---------- ------- -----
$1.04 to $5.19 346,700 $2.67 7.57 years 212,200 $3.04
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
H. Stock Options and Warrants, continued:
A summary of the status of the Company's warrants granted to non-
employees as of December 31, 1999 and 1998 and the changes during the year
ended on those dates is presented below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Options Weighted- Options Weighted-
Avg. Avg.
Exercise Exercise
Price Price
--------- --------- --------- ---------
Outstanding-beginning
<S> <C> <C> <C> <C>
of year 110,000 $6.00 110,000 $6.00
Granted at a premium 55,000 $3.00 - --
Total granted 55,000 $3.00 - --
Exercised - -- - --
Forfeited - -- - --
Expired 110,000 $6.00 - --
Outstanding-end of year 55,000 $3.00 110,000 $6.00
Exercisable at end of
year 55,000 $3.00 110,000 $6.00
Weighted-average fair
value of options granted
at a premium
during the year $1.23 --
Weighted-average fair
value of options granted
during the year $1.23 --
</TABLE>
Warrants outstanding as of December 31, 1999 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>
$3.00 55,000 $3.00 2.84 years 55,000 $3.00
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
I. Other Income, net:
Other income, net consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Interest income $ 67,616 $ 30,633
Interest expense ( 26,822) ( 25,392)
Loss on sale of assets ( 4,477)
----------- -----------
$ 40,794 $ 764
=========== ===========
</TABLE>
J. Subsequent Events:
In February 2000, the Company acquired certain assets and operations of
Total Logistics, Inc., a logistics planning and transportation brokering
company, for a purchase price of approximately $900,000 consisting of $800,000
cash and 40,816 shares of the Company's common stock. The purchase agreement
provides for contingent consideration of a maximum of $900,000 cash if certain
profit levels are achieved.
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 10, 2000.
Item 10. Executive Compensation
Incorporated by reference to the Company's definitive proxy materials to
be filed with the Commission on or before April 10, 2000.
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 10, 2000.
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 10, 2000.
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, 1999.
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 29, 2000 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 29, 2000
Phillip D. Miller, Chief Executive Officer
(Principal executive officer) and Chairman of the
Board of Directors
/s/Sandra J. Smith March 29, 2000
Sandra J. Smith, Chief Financial Officer and
Treasurer (Principal accounting and financial officer)
/s/Stan Henry March 29, 2000
Stan Henry, Director
/s/Thomas Hiatt March 29, 2000
Thomas Hiatt, Director
/s/Louis Sito March 29, 2000
Louis Sito, Director
/s/John McKeon March 29, 2000
John McKeon, 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)
10.4 Addendum to Employment Agreement (7) 33
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)
10.16 Master Demand Business Loan Note with Credit Authorization
Agreement (7) 35
10.17 Times Mirror Stock Purchase Agreement (6)
21.1 List of Subsidiaries of the Company (7) 47
23 Consent of PricewaterhouseCoopers, LLP (7) 48
________________________
(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) Incorporated by reference to said exhibit filed with the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
(6) Incorporated by reference to said exhibit filed with the Registrant's
Form 10-QSB for the quarterly period ended September 30, 1999.
(7) Filed herewith.
[DESCRIPTION] ADDENDUM TO EMPLOYMENT AGREEMENT
ADDENDUM TO
EMPLOYMENT AGREEMENT
This addendum is entered into as of the third day of January 2000 by and
between Alternate Marketing Networks, Inc. (formerly Alternate Postal Delivery,
Inc.), a Michigan corporation ("Company") and Phillip D. Miller ("Executive").
Recitals
Whereas, the Company and the Executive have entered into an Employment
Agreement, dated July 1, 1995 (the Employment Agreement) and
Whereas, the Company and the Executive desire to amend certain terms and
conditions of the Employment Agreement as provided in this Addendum.
Now, therefore, for valuable considerations, the receipt of which is
hereby acknowledged, the Company and the Executive agree as follows:
Section 1 is replaced in its entirety as follows:
1. Employment. The Company hereby employs and engages the service of the
Executive as Chief Executive Officer and Chairman of the Board of Directors
during the term of employment set forth in Section 2 of this Addendum. The
Executive agrees to serve the Company in such position and capacity during the
term of employment.
Section 2 is amended as follows:
2. Term of Employment. The Executive's "Term of Employment" shall be
extended to end on September 10, 2003 per the July 15, 1999 Board of
Directors's meeting resolution.
Section 3 is amended as follows:
3. Position and Duties. The position of President is deleted.
Section 4 is amended as follows:
4.(b) Bonus. A bonus shall be based on annual budget criteria as well as
goals of the Board of Directors, and shall be outlined to the Executive each
January in a memo from the Chairman of the Compensation Committee. The bonus
potential will equal thirty percent (30%) of the base compensation. Of the
total potential, one third will be achieved through a stock appreciation goal,
one third will be achieved through an annual financial performance goal, and
one third will be achieved through annual goals set by the Board of Directors
in consultation with the Executive.
For the fiscal year ending December 31, 2000, the stock appreciation goal
is determined to be an increase of fifty percent (50%) over the price as of
December 31, 1999. The annual financial performance goal is determined to be a
minimum increase in net profit of twenty percent (20%) for the year ending
December 31, 2000 over the net profit for the year ending December 31, 1999.
The annual goal set by the Board of Directors is to successfully complete a
major complementary acquisition(s) or series of acquisitions with combined
annual revenues of $10,000,000 or more, that are accretive to the Company.
The Executive shall be entitled to one-third of the total potential bonus for
each objective which is achieved.
4.(c) Benefit Plans. The Company agrees to pay for the cost of dependancy
coverage included in the Company's group health insurance plan.
4.(d) Disability Insurance. The monthly benefit is increased from
$6,000.00 to $10,500.00.
4.(f) Life Insurance. The face amount of the insurance policy for the
benefit of the Company, shall be reduced from $2,000,000.00 to $1,575,000.00.
All other terms and conditions of the Employment Agreement shall remain
unchanged except as necessary to conform to the terms of this Addendum.
Executed as of the date first written above.
/s/ Amy Barkema ALTERNATE MARKETING NETWORKS, INC.
Witness
By: /s/ Sandra J. Smith
Title: CFO
Date: March 20, 2000
/s/ Phillip D. Miller
Phillip D. Miller (Executive)
Date: March 20, 2000
Master Demand Business Loan Note
Due on Demand $2,500,000.00
No. ___________________ Date: June 21, 1999
Promise to Pay. For value received, Alternate Marketing Networks, Inc. (the
"Borrower") promises to pay On Demand to Bank One, Michigan (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 July 31, 1999.
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 of even date,
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: Accounts Receivable of Borrower and
Guarantors as defined in the Credit Agreement.
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
%, 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, MI 49503-4145 By:/s/Sandra J. Smith
___________________________________ Sandra J. Smith, Chief Financial Officer
Credit Authorization Agreement
Bank One, Michigan (the "Bank"), whose address is 611 Woodward Avenue,
Detroit, Michigan 48226-3947, has approved the credit facilities listed below
(collectively, the "Credit Facilities," and individually, as designated below)
to Alternate Marketing Networks, Inc. (the "Borrower"), whose address is One
Ionia, S.W., Suite 300, Grand Rapids, MI 49503-4145, subject to the terms and
conditions set forth in this agreement.
1.0 Credit Facilities.
1.1 Uncommitted Credit Authorizations. The Bank has approved the
uncommitted credit authorizations listed below (collectively, the
"Credit Authorizations," and individually, as designated below)
subject to the terms and conditions of this agreement and the Bank's
continuing satisfaction with the Borrower's financial status.
Disbursements under the Credit Authorizations are solely at the
Bank's discretion. Any disbursement on one or more occasions shall
not commit the Bank to make any subsequent disbursement.
A. Facility A. The Bank has approved an uncommitted Credit
Authorization to the Borrower in the principal sum not to exceed
$2,500,000.00 in the aggregate at any one time outstanding
("Facility A"). Credit under Facility A shall be in the form of
disbursements evidenced by credits to the Borrower's account and
shall be repayable as set forth in a Master Demand Note executed
concurrently (referred to in this agreement both singularly and
together with any other promissory notes referenced in this
Section 1 as the "Notes"). The proceeds of Facility A shall be
used for the following purpose: working capital. Facility A shall
expire on June 30, 2000 unless earlier withdrawn.
2.0 Conditions Precedent.
2.1 Conditions Precedent to Initial Extension of Credit. Before the
first extension of credit under this agreement, whether by
disbursement of a loan, issuance of a letter of credit, the funding
of a Lease or otherwise, the Borrower shall deliver to the Bank, in
form and substance satisfactory to the Bank:
A. Loan Documents. The Notes, and if applicable, the Leases, the
letter of credit applications, the security agreement, financing
statements, mortgage, guaranties, subordination agreements and any
other loan documents which the Bank may reasonably require to give
effect to the transactions described by this agreement;
B. Evidence of Due Organization and Good Standing. Evidence
satisfactory to the Bank of the due organization and good standing
of the Borrower and every other business entity that is a party to
this agreement or any other loan document required by this
agreement;
C. Evidence of Authority to Enter into Loan Documents. Evidence
satisfactory to the Bank that (i) each party to this agreement and
any other loan document required by this agreement is authorized
to enter into the transactions described by this agreement and the
other loan documents, and (ii) the person signing on behalf of
each party is authorized to do so; and
D. Year 2000 Assessment. If requested by the Bank, information
satisfactory to the Bank regarding the Borrower's plan for
addressing Year 2000 issues. "Year 2000 Issues" means anticipated
costs, problems and uncertainties associated with the inability of
certain computer applications to effectively handle data including
dates on and after January 1, 2000, as such inability affects the
business, operations, and financial condition of the Borrower and
of the Borrower's material customers, suppliers and vendors.
2.2 Conditions Precedent to Each Extension of Credit. Before any
extension of credit under this agreement, whether by disbursement of
a loan, issuance of a letter of credit, the funding of a Lease or
otherwise, the following conditions shall have been satisfied:
A. Representations. The Representations contained in this agreement
shall be true on and as of the date of the extension of credit;
B. No Event of Acceleration. No event of acceleration shall have
occurred and be continuing or would result from the extension of
credit;
C. Continued Satisfaction. The Bank shall have remained satisfied
with the Borrower's managerial and financial status;
D. Additional Approvals, Opinions, and Documents. The Bank shall
have received such other approvals, opinions and documents as it
may reasonably request.
3.0 Borrowing Base/Annual Pay Down.
3.1 Borrowing Base. Notwithstanding any other provision of this
agreement, the aggregate principal amount outstanding at any one time
under Facility A shall not exceed the lesser of the Borrowing Base or
$2,500,000. Borrowing Base means:
A. 70% of the Borrower's and Guarantors' trade accounts receivable in
which the Bank has a perfected, first priority security interest,
excluding accounts more than 90 days past due from the date of
invoice, accounts subject to offset or defense, government,
bonded, affiliate and foreign accounts, accounts from trade
debtors of which more than 50% of the aggregate amount owing from
the trade debtor to the Borrower is more than 90 days past due,
and accounts otherwise unacceptable to the Bank.
4.0 Fees and Expenses.
4.1 Out-of-Pocket Expenses. The Borrower shall reimburse the Bank for
its out-of-pocket expenses and reasonable attorney's fees (including
the fees of in-house counsel) allocated to the Credit Facilities.
5.0 Security.
5.1 Payment of the borrowings and all other obligations under the Credit
Facilities shall be secured by a first security interest and/or real
estate mortgage, as the case may be, covering the following property
and all its additions, substitutions, increments, proceeds and
products, whether now owned or later acquired ("Collateral"):
A. Accounts Receivable. All of the Borrower's and Guarantors'
accounts, chattel paper, general intangibles, instruments, and
documents (as those terms are defined in the Michigan Uniform
Commercial Code), rights to refunds of taxes paid at any time to
any governmental entity, and any letters of credit and drafts
under them given in support of the foregoing, wherever located.
The Borrower shall deliver to the Bank executed security
agreements and financing statements in form and substance
satisfactory to the Bank.
5.2 No forbearance or extension of time granted any subsequent owner of
the Collateral shall release the Borrower from liability.
5.3 Additional Collateral/Setoff. To further secure payment of the
borrowings and all other obligations under the Credit Facilities and
all of the Borrower's other liabilities to the Bank, the Borrower
grants to the Bank a continuing security interest in: (i) 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) and (ii) all balances of deposit
accounts of the Borrower with the Bank. 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 for payment of the obligations under the
Credit Facilities, in whole or partial payment of such obligations or
other present or future liabilities, without any requirement of
mutual maturity.
5.4 Cross Lien. Any of the Borrower's other property in which the Bank
has a security interest to secure payment of any other debt, whether
absolute, contingent, direct or indirect, including the Borrower's
guaranties of the debts of others, shall also secure payment of and
be part of the Collateral for the Credit Facilities.
6.0 Guaranties. Payment of the Borrower's obligations under the Credit
Facilities shall be guaranteed by National Home Delivery, Inc. and
Alternate Postal Direct, Inc., by execution of the Bank's form of
guaranty agreement. The liability of the guarantors, if more than one,
shall be joint and several.
7.0 Subordination. Reserved.
8.0 Affirmative Covenants. So long as any debt or obligation remains
outstanding under the Credit Facilities, the Borrower, and each of its
subsidiaries, if any, shall:
8.1 Insurance. Maintain insurance with financially sound and reputable
insurers covering its properties and business against those
casualties and contingencies and in the types and amounts as shall
be in accordance with sound business and industry practices.
8.2 Existence. Maintain its existence and business operations as
presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under normal
terms, and pay on or before their due date, all taxes, assessments,
fees and other governmental monetary obligations, except as they may
be contested in good faith if they have been properly reflected on
its books and, at the Bank's request, adequate funds or security has
been pledged to insure payment.
8.3 Financial Records. Maintain proper books and records of account, in
accordance with generally accepted accounting principles where
applicable, and consistent with financial statements previously
submitted to the Bank. The Bank retains the right to inspect the
Collateral and business records related to it at such times and at
such intervals as the Bank may reasonably require.
8.4 Notice. Give prompt notice to the Bank of the occurrence of (i) any
Event of Acceleration, and (ii) any other development, financial or
otherwise, which would affect the Borrower's business, properties or
affairs in a materially adverse manner.
8.5 Collateral Audits. Reserved.
8.6 Management. Reserved.
8.7 Financial Reports. Furnish to the Bank whatever information, books,
and records the Bank may reasonably request, including at a minimum:
If the Borrower has subsidiaries, all financial statements required
will be provided on a consolidated and on a separate basis.
A. Within 45 days after each quarterly period, a balance sheet as of
the end of that period and statements of income, cash flows, and
retained earnings from the beginning of that fiscal year to the
end of that period, certified as correct by one of its authorized
agents.
B. Within 90 days after, and as of the end of, each of its fiscal
years, a detailed audit including a balance sheet and statements
of income, retained earnings, and cash flows certified by an
independent certified public accountant of recognized standing.
C. Within 30 days after and as of the end of each calendar month,
the following lists, each certified as correct by one of its
authorized agents:
(1) a list of accounts receivable of Borrower and Guarantors,
aged from date of invoice;
(2) a list of accounts payable of Borrower and Guarantors,
aged from date of receipt.
8.8 Environmental Certificate. Reserved.
8.9 Year 2000 Issues. The Borrower will take all actions reasonably
necessary to assure that Year 2000 Issues will not have a material
adverse effect on the business operations or financial condition of
the Borrower. Upon the Bank's request, the Borrower will provide
the Bank with a description of its plan to address Year 2000 Issues,
including updates and progress reports. Borrower will advise the
Bank of any reasonably anticipated material adverse effect on the
business operations or financial condition of the Borrower as a
result of Year 2000 Issues.
9.0 Negative Covenants. Reserved.
10.0 Representations by Borrower. Each Borrower represents that: (a) the
execution and delivery of this agreement, the Notes, and the Leases and
the performance of the obligations they impose do not violate any law,
conflict with any agreement by which the Borrower is bound, or require
the consent or approval of any governmental authority or other third
party; (b) this agreement, the Notes, and the Leases are valid and
binding agreements, enforceable in accordance with their terms; and (c)
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, if other than a natural person, further
represents that: (a) it is duly organized, existing and in good standing
under the laws of the jurisdiction under which it was organized; and (b)
the execution and delivery of this agreement, the Notes, and the Leases
and the performance of the obligations they impose (i) are within its
powers; (ii) have been duly authorized by all necessary action of its
governing body; and (iii) do not contravene the terms of its articles of
incorporation or organization, its bylaws, or any partnership, operating
or other agreement governing its affairs.
11.0 Acceleration.
11.1 Events of Acceleration. If any of the following events occurs, the
Credit Facilities shall terminate and all borrowings and other
obligations under them shall be due immediately, without notice, at
the Bank's option, whether or not the Bank has made demand.
A. The Borrower or any guarantor of any of the Credit Facilities,
the Notes or the Leases ("Guarantor") fails to pay when due any
amount payable under the Credit Facilities or under any agreement
or instrument evidencing debt to any creditor;
B. The Borrower or any Guarantor (a) fails to observe or perform any
other term of this agreement, the Notes or the Leases; (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 borrowings under the Credit
Facilities) such that the creditor declares the debt due before
its maturity;
C. There is a default under the terms of any loan agreement,
mortgage, security agreement or any other document executed as
part of the Credit Facilities, or any guaranty of the obligations
under the Credit Facilities becomes unenforceable in whole or in
part, or any Guarantor fails to promptly perform under its
guaranty;
D. 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;
E. The Borrower or any Guarantor becomes insolvent or unable to pay
its debts as they become due;
F. 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 it or for a substantial part
of its assets; or (c) commences any proceeding under any
bankruptcy, reorganization, liquidation or similar laws of any
jurisdiction;
G. A custodian, receiver or trustee is appointed for the Borrower or
any Guarantor or for a substantial part of its assets without its
consent and is not removed within 60 days after such appointment;
H. 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;
I. 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;
J. The Borrower or any Guarantor dies;
K. 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);
L. The loan-to-value ratio of any pledged securities at any time
exceeds %, and such excess continues for five (5) days after
notice from the Bank to the Borrower;
M. 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; or
N. The Bank in good faith shall deem itself insecure.
11.2 Remedies. If the borrowings and all other obligations under the
Credit Facilities are not paid at maturity, whether by demand,
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 the Credit
Facilities, including, without limitation, reasonable attorney's
fees and court costs (whether attributable to the Bank's in-house or
outside counsel). 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.
12.0 Miscellaneous.
12.1 Notice from one party to another relating to this agreement shall be
deemed effective if made in writing (including telecommunications)
and delivered to the recipient's address, telex number or fax number
set forth under its name below by any of the following means: (a)
hand delivery, (b) registered or certified mail, postage prepaid,
with return receipt requested, (c) first class or express mail,
postage prepaid, (d) Federal Express, or like overnight courier
service or (e) fax, telex or other wire transmission with request
for assurance of receipt in a manner typical with respect to
communication of that type. Notice made in accordance with this
section shall be deemed delivered upon receipt if delivered by hand
or wire transmission, 3 business days after mailing if mailed by
first class, registered or certified mail, or one business day after
mailing or deposit with an overnight courier service if delivered by
express mail or overnight courier.
12.2 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
12.3 This agreement, the Notes, the Leases and any related loan documents
embody the entire agreement and understanding between the Borrower
and the Bank and supersede all prior agreements and understandings
relating to their subject matter. If any one or more of the
obligations of the Borrower under this agreement, the Notes or the
Leases shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining obligations of the Borrower shall not in any way be
affected or impaired, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity,
legality or enforceability of the obligations of the Borrower under
this agreement, the Notes or the Leases in any other jurisdiction.
12.4 The Borrower, if more than one, shall be jointly and severally
liable.
12.5 This agreement is delivered in the State of Michigan and governed by
Michigan law. This agreement is binding on the Borrower and its
successors, and shall inure to the benefit of the Bank, its
successors and assigns.
12.6 Section headings are for convenience of reference only and shall not
affect the interpretation of this agreement.
13.0 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.
Executed by the parties on: June 21, 1999.
Bank One, Michigan Borrower:
By: /s/ Kevin M. Paul By: /s/ Sandra J. Smith
Kevin M. Paul, First Vice President Sandra J. Smith, Chief Financial Officer
Address for Notices: Address for Notices:
200 Ottawa Ave., N.W. One Ionia, S.W., Suite 300
Grand Rapids, MI 49503 Grand Rapids, MI 49503-4145
Fax/Telex No.(616)771-7231 Fax/Telex No. (616)235-3405
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
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-88129) of Alternate Marketing Networks,
Inc. of our report dated March 13, 2000 relating to the financial statements,
which appear in this Form 10-KSB.
PRICEWATERHOUSECOOPERS, LLP
Grand Rapids, Michigan
March 31, 2000
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ALTERNATE MARKETING NETWORKS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,180
<SECURITIES> 0
<RECEIVABLES> 4,779
<ALLOWANCES> 300
<INVENTORY> 0
<CURRENT-ASSETS> 6,244
<PP&E> 795
<DEPRECIATION> 587
<TOTAL-ASSETS> 7,588
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0
0
<COMMON> 9,103
<OTHER-SE> (3,691)
<TOTAL-LIABILITY-AND-EQUITY> 7,588
<SALES> 0
<TOTAL-REVENUES> 28,576
<CGS> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 1,049
<INCOME-TAX> 1
<INCOME-CONTINUING> 1,048
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<EPS-BASIC> .27
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