United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE MARKETING NETWORKS, INC.
formerly ALTERNATE POSTAL DELIVERY, INC.
(Exact name of small business issuer as specified in its charter)
Michigan 38-2841197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Ionia, SW, Suite 300, Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
616-235-0698 FAX 616-235-3405
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes (X)
No ( )
As of May 5, 2000, 4,122,993 shares of the issuer's common stock were
outstanding.
This report contains 14 pages.
ALTERNATE MARKETING NETWORKS, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - March 31, 2000,
and December 31, 1999. . . . . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Operations - three
months ended March 31, 2000 and 1999. . . . . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - three
months ended March 31, 2000 and 1999 . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . 7-9
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . .10-12
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .13
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .14
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,041,053 $ 1,180,472
Accounts receivable, trade, less
allowance of $300,000 at March 31
and December 31 2,868,641 4,479,290
Prepaid expenses and other assets 461,881 584,038
------------ ------------
Total current assets 4,371,575 6,243,800
Notes receivable 13,883 13,974
Property and equipment:
Computer equipment 444,635 418,225
Furniture and fixtures 400,492 376,993
------------ ------------
845,127 795,218
Accumulated depreciation and
amortization (607,815) (587,141)
------------ ------------
237,312 208,077
Computer software, net 206,211 150,300
Intangible assets, net 1,862,023 971,446
------------ ------------
$ 6,691,004 $ 7,587,597
============ ============
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
Current liabilities:
<S> <C> <C>
Accounts payable $ 749,757 $1,366,347
Accrued liabilities 230,650 545,383
Deferred revenue 191,818 264,342
------------ ------------
Total current liabilities 1,172,225 2,176,072
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized, no shares issued and outstanding
Common stock-no par value, voting, 8,000,000
authorized shares; 4,122,993 and 4,082,177
shares issued and outstanding at March 31, 2000
and December 31, 1999 10,493,561 10,393,561
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
------------ ------------
Total common stock 9,202,522 9,102,522
Accumulated losses, since October 1, 1993
(Note 4) (3,683,743) (3,690,997)
------------ ------------
Total shareholders' equity 5,518,779 5,411,525
------------ ------------
$ 6,691,004 $ 7,587,597
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Net sales $5,269,829 $6,934,811
Cost of sales 3,836,902 5,479,841
------------ ------------
Gross profit 1,432,927 1,454,970
Selling, general and administrative expenses 1,434,432 1,298,241
------------ ------------
(Loss) income from operations ( 1,505) 156,729
Other income (expense), net 13,756 ( 4,688)
------------ ------------
Income before income taxes 12,251 152,041
Income tax expense 4,997 1,889
------------ ------------
Net income $ 7,254 $ 150,152
============ ============
Net income per share:
Basic $ .00 $ .04
============ ============
Diluted $ .00 $ .04
============ ============
Weighted average number of shares
outstanding:
Basic 4,101,464 3,838,396
============ ============
Diluted 4,168,424 3,838,396
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Net cash flows from operating activities $ 801,309 $ 2,126,748
------------ ------------
Net cash flows from investing activities ( 940,728) ( 68,962)
------------ ------------
Net cash flows from financing activities - ( 1,635,380)
------------ ------------
Net (decrease) increase in cash and
cash equivalents ( 139,419) 422,406
Cash and cash equivalents, beginning
of period 1,180,472 222,590
------------ ------------
Cash and cash equivalents, end of
period $1,041,053 $ 644,996
============ ============
</TABLE>
Supplemental disclosure of non cash investing activities:
Additional common stock of $100,000 was issued for the acquisition of a
business.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the results
of operations for the interim periods. The financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results of operations expected for
the year ending December 31, 2000.
2. The organization and business of the Company, accounting policies
followed by the Company and other information are contained in the notes to
the Company's financial statements filed as part of the Company's Form 10-KSB
for the fiscal year ended December 31, 1999. This quarterly report should be
read in conjunction with the Form 10-KSB.
3. Income Taxes:
During the three months ended March 31, 2000, the Company utilized net
operating loss carryforwards.
4. Net Income Per Share Calculation:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
2000 1999
------------ ------------
Income (Numerator):
<S> <C> <C>
Net income $ 7,254 $ 150,152
============ ============
Shares (Denominator):
Basic income per share:
Actual weighted average shares outstanding 4,101,464 3,838,396
============ ============
Basic income per share:
Net income per share $ .00 $ .04
============ ============
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
4. Net Income Per Share Calculation, continued:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
2000 1999
------------ ------------
Diluted income per share:
<S> <C> <C>
Actual weighted average shares outstanding 4,101,464 3,838,396
Shares upon conversion of warrants and
options 66,960 *
------------ ------------
Adjusted shares outstanding 4,168,424 3,838,396
============ ============
Diluted income per share:
Net income per share $ .00 $ .04
============ ============
</TABLE>
* The incremental shares resulting from the conversion of warrants and options
are not included in the computation of earnings per share because the exercise
prices of the warrants and options exceed the average market price of the
common stock and, accordingly, the exercising of such options and warrants
would be anti-dilutive.
5. Accumulated losses, through September 30, 1993, represent the losses and
capital of the Company during the period of time it was a subchapter S
corporation. All subsequent losses of the combined entities are presented
under Accumulated losses, since October 1, 1993.
6. Common Stock:
On February 18, 2000, the Company issued an aggregate of 40,816 shares of
the Company's common stock to Total Logistics, Inc. as part of an acquisition
of the operations and certain fixed assets of Total Logistics, Inc.
7. Acquisition:
See forms 8-K and 8-K/A for more detailed financial and pro-forma
information.
On February 18, 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. Goodwill of $916,606 is being amortized on a
straight-line method over 20 years. This acquisition will be accounted for
using the purchase method.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
7. Acquisition, continued:
The unaudited pro forma combined historical results, as if Total
Logistics, Inc. had been acquired at the beginning of the three months ended
March 31, 2000 and 1999, respectively, are included in the table below.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenue $ 5,604,770 $ 7,421,183
Income from continuing operations 46,453 226,437
Net income 46,453 226,437
Basic and diluted earnings per share $ 0.01 $ 0.06
The pro forma results above include amortization of intangibles. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
Alternate Marketing Networks is a single-source provider of marketing
services, offering a broad range of online and offline products and services.
The Company provides its clients with three complementary types of
comprehensive marketing services, including:
* Offline Advertising and Marketing. The Company has a well-established
network of advertising placement and in-home sampling and coupon programs for
clients such as Kellogg, America Online, travelocity.com and others.
* Internet and Logistics. The Company provides online advertising as
well as tracking capabilities for its offline activities through its
proprietary itrack services, such as itrackfreight.com.
* Directory Marketing. The Company provides delivery and marketing of
telephone directories for regional and national telephone companies such as
GTE/Bell Atlantic and others.
The Company announced three significant events during the first quarter
of 2000.
* First was the acquisition of Total Logistics, thereby adding logistics
capabilities which enable the Company to provide greater services to its
current customer base and strengthen its single-source provider status.
* Second, as a part of this acquisition, the Company introduced
itrackfreight.com, the first in a series of proprietary Internet-based
tracking systems. The Company subsequently announced the addition of
itracksamples.com and itrackdirectories.com. The itrack series was developed
utilizing the Company's proprietary End-to-End TM tracking system and
customizing this "tracking engine" for the unique needs of its client base.
* Third, the Company obtained two large directory contracts valued at
more than $11 million in revenue over three years, consisting principally of a
significant renewal and increase in a contract with GTE/Bell Atlantic. The
positive financial impact of these agreements will begin to be felt in the
second quarter of 2000.
Results of Operation
The first quarter of 2000 showed an overall decrease in revenues as
compared to the same period in 1999. Demand in the Company's offline
advertising and marketing segment by its automotive and dot.com clients was
not enough to offset the softness in orders from consumer package goods
clients. The softness in consumer package goods orders was due to variability
in the timing of sample deliveries, which are not predictable on a quarter by
quarter basis. The Company's advertising and marketing segments generated
revenue of approximately $4.5 million and $6.6 million for the first quarter
of 2000 and 1999, respectively.
The Internet and logistics segment is a new and growing segment developed
as an expansion of services previously offered only to the Company's
advertising and sampling clients in conjunction with their advertising
programs. As a stand alone service, this segment had no activity in 1999 and
generated revenue of approximately $300,000 in 2000.
Revenue from the directory marketing segment was fairly consistent with
that in the previous year. This segment generated revenue of approximately
$440,000 and $375,000 for the first quarters of 2000 and 1999, respectively.
Revenue from this segment varies throughout the year and is typically lowest
in the first quarter.
The gross profit percentage of 27.2% for the quarter ended March 31, 2000
was up 6.2% over the previous year due to mix of revenues and jobs completed
during the quarter. The segments contributed gross profit as follows:
</TABLE>
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Offline Advertising and Marketing 26.0% 19.6%
Internet and Logistics 26.3% -
Directory Marketing 38.9% 45.0%
</TABLE>
During the 2000 quarter, selling, general and administrative expenses
increased approximately 10% over the same period in the prior year. As the
Company continues to seek new products, new clients and potential business
acquisitions, it incurs additional personnel, travel, and legal and
professional fees. In addition, the Company continues to invest in advancing
and improving its operational Internet tracking and quality controls services.
Other income and (expense), net consists of interest income and interest
expense. Interest income for the three months ended March 31, 2000 and 1999
was $13,756 and $5,481, respectively. Interest expense for the three months
ended March 31, 2000 and 1999 was $0 and $10,169, respectively. The decrease
in interest expense and the increase in interest income was attributable to
the Company's ability to fund the business from cash from operations and not
borrow on its line of credit during the first quarter of 2000.
Liquidity and Capital Resources
During the first quarter of 2000, the Company recognized a decrease in
cash of $139,419. During the same quarter of 1999, the Company recognized an
increase in cash of $422,406.
Cash used for additions to property, equipment, and software for the
three months ended March 31, 2000 and 1999 was approximately $124,000 and
$71,000, respectively. In addition, during the 1999 quarter the Company used
cash to repurchase 53,550 shares of common stock for $59,019. During the 2000
quarter, the Company used $816,605 to purchase the assets and operations of
Total Logistics, Inc.
The Company has a bank line of credit for $2,500,000 to assist in future
cash flow needs. The line of credit expires June 30, 2000, and the Company
expects to renew it under the same terms. The Company believes that this line
of credit along with its current cash balance will enable it to fund its
current growth plans as well as meet its presently anticipated capital
requirements.
YEAR 2000 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-QSB, 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 May 1, 2000, at $20,000.
Outlook for the Future
The Company anticipates growth in its directory marketing and its Internet
and logistics segments during the second quarter of 2000 and throughout the
balance of the year as compared to 1999.
In the offline advertising and marketing segment, the Company anticipates
little growth during 2000 due to the softness in the revenues derived from the
Company's consumer package goods clients.
The Company will also continue to invest in and expand its proprietary
online capabilities.
Forward-looking Statements
Except for historical information contained herein, the matters set forth
in this management discussion and analysis are forward-looking statements
based on current expectations. Actual results may differ materially. These
forward-looking statements involve a number of risks and uncertainties
including, but not limited to, competition, the timing of receipt and
fulfillment of orders, the implementation of the Company's reorientation as a
marketing services company (including continuing strategic acquisitions and
in-house development of products and services), the effectiveness of the
Company's marketing programs, the integration of acquired companies, and the
Company's success in developing and capitalizing on strategic alliances.
PART II. Other Information:
Item 2(c). Changes in Securities.
On February 18, 2000, the Company issued an aggregate of 40,816 shares of
Common Stock to Total Logistics, Inc. in exchange for substantially all of the
assets of Total Logistics, Inc. No placement agent, broker, or underwriter
was involved in the transaction and no commissions were paid. The shares were
issued without prior registration under the Securities Act of 1933 in reliance
upon exemption from registration pursuant to Section 4(2) of the Act.
Item 5. Other Information.
The Company changed its SIC code with the Securities and Exchange
Commission from 4210 to 7310 (Advertising Services).
Item 6. Exhibits and Reports on Form 8-K.
During the period of this report, there were two filing as follows:
8-K filed February 28, 2000 for acquisition of assets from Total Logistics,
Inc. for Current Report event dated February 17, 2000.
8-K/A filed April 28, 2000 as amendment to provide the related Financial
Statement and Pro Forma Financial Information applicable to the Current Report
event dated February 17, 2000. The following financial statements were
included:
Total Logistics, Inc. audited financial statements for the year ended
December 31, 1999.
Alternate Marketing Networks, Inc. and Subsidiaries Pro Forma Condensed
Combined Balance Sheet (Unaudited) as of December 31, 1999 and Pro Forma
Condensed Combined Statement of Income (Unaudited) for the year ended
December 31, 1999.
Alternate Marketing Networks, Inc. and Subsidiaries Notes to Pro Forma
Condensed Combined Financial Statements (Unaudited).
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALTERNATE MARKETING NETWORKS, INC.
Date: May 10, 2000 By: /s/Phillip D. Miller
Phillip D. Miller
Chief Executive Officer
By: /s/Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000949244
<NAME> ALTERNATE MARKETING NETWORKS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,041
<SECURITIES> 0
<RECEIVABLES> 3,169
<ALLOWANCES> 300
<INVENTORY> 0
<CURRENT-ASSETS> 4,372
<PP&E> 845
<DEPRECIATION> 608
<TOTAL-ASSETS> 6,691
<CURRENT-LIABILITIES> 1,172
<BONDS> 0
0
0
<COMMON> 9,203
<OTHER-SE> (3,684)
<TOTAL-LIABILITY-AND-EQUITY> 6,691
<SALES> 0
<TOTAL-REVENUES> 5,270
<CGS> 0
<TOTAL-COSTS> 3,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12
<INCOME-TAX> 5
<INCOME-CONTINUING> 7
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
