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 September 30, 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 October 31, 2000, 4,689,105 shares of the issuer's common stock were
outstanding.
This report contains 15 pages.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - September 30, 2000,
and December 31, 1999. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
and nine months ended September 30, 2000 and 1999 . . . . . . .5
Condensed Consolidated Statements of Cash Flows - nine
months ended September 30, 2000 and 1999 . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . .7 - 10
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . .11 - 13
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
(unaudited)
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,207,636 $ 1,180,472
Accounts receivable, trade, less
allowance of $100,000 at September 30
and $300,000 at December 31 5,524,681 4,479,290
Prepaid expenses and other assets 174,512 584,038
----------- -----------
Total current assets 7,906,829 6,243,800
Notes receivable, less current portion 17,865 13,974
Property and equipment:
Computer equipment 239,278 418,225
Furniture and fixtures 137,610 376,993
----------- -----------
376,888 795,218
Accumulated depreciation and
amortization (269,111) (587,141)
----------- -----------
107,777 208,077
Computer software, net 59,757 150,300
Intangible assets, net 2,191,905 971,446
----------- -----------
$10,284,133 $ 7,587,597
=========== ===========
</TABLE>
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES
September 30, December 31,
2000 1999
(unaudited)
----------- -----------
Current liabilities:
<S> <C> <C>
Accounts payable $1,379,706 $1,366,347
Federal Income Taxes payable 760,000
Accrued liabilities 102,992 545,383
Deferred revenue 31,250 264,342
--------- ---------
Total current liabilities 2,273,948 2,176,072
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized shares, no shares issued and
outstanding
Common stock-no par value, voting, 14,000,000
authorized shares; 4,681,605 shares issued and
outstanding at September 30, 2000 and 4,082,177
at December 31, 1999 11,814,547 10,393,561
Accumulated losses, through September 30, 1993
(Note 6) (1,291,039) (1,291,039)
--------- ---------
Total common stock 10,523,508 9,102,522
Accumulated losses, since October 1, 1993
(Note 6) (2,513,323) (3,690,997)
--------- ---------
Total shareholders' equity 8,010,185 5,411,525
--------- ---------
$10,284,133 $ 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 Nine months ended
September 30, September 30,
---------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $6,367,536 $6,008,074 $17,138,051 $20,885,922
Cost of sales 4,811,351 4,358,906 12,843,780 15,921,118
--------- ---------- ----------- -----------
Gross profit 1,556,185 1,649,168 4,294,271 4,964,804
Selling, general and
administrative expenses 1,735,272 1,412,345 4,902,882 4,141,931
Gain on sale of assets(Note 2)3,613,521 3,613,969
---------- ---------- ----------- -----------
Income from operations 3,434,434 236,823 3,005,358 822,873
Other income (expense), net 231 17,231 20,894 6,271
---------- ---------- ----------- -----------
Income before income
taxes 3,434,665 254,054 3,026,252 829,144
Income tax expense 761,815 784,548 1,889
---------- ---------- ----------- -----------
Net income $2,672,850 $ 254,054 $2,241,704 $ 827,255
========== ========== ========== ===========
Income per share (Note 5)
Basic:
Net income $ .58 $ .07 $ .52 $ .22
========== ========== =========== ===========
Diluted:
Net income $ .58 $ .06 $ .52 $ .21
========== ========== =========== ===========
Weighted average number of shares
outstanding: (Note 5)
Basic 4,584,454 3,889,568 4,299,425 3,846,379
========== ========== =========== ===========
Diluted 4,619,849 3,931,406 4,347,698 3,863,663
========== ========== =========== ===========
</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>
Nine months ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
Net cash provided by (used in)
<S> <C> <C>
operating activities ($1,687,842) $2,422,553
---------- ----------
Net cash provided by (used in)
investing activities 2,720,517 ( 90,411)
---------- ----------
Net cash used in financing
activities ( 5,511) ( 598,238)
---------- ----------
Net increase in cash and cash
equivalents 1,027,164 1,733,904
Cash and cash equivalents, beginning
of period 1,180,472 222,590
---------- ----------
Cash and cash equivalents, end of
period $2,207,636 $1,956,494
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the results
of operations for the interim periods. The financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. The results of operations for the three months and nine months
ended September 30, 2000 are not necessarily indicative of the results of
operations expected for the year ending December 31, 2000.
2. Sale of Assets:
On September 19, 2000, the Company sold certain assets relating to its
offline sampling operations to Valassis Private Delivery, Inc., a wholly-owned
subsidiary of Valassis Communications, Inc. for $4,000,000. Assets sold
consisted of contracts; furniture fixtures and equipment; intellectual
property rights; and operations. The Company recognized a gain on the sale of
$3,613,521. The gain on sale of assets resulted in the Company recognizing
related income tax expense of $762,000.
3. 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.
4. Income Taxes:
At September 30, 2000, the Company had net operating loss carryforwards of
approximately $2,400,000, which are available to reduce future taxable income.
Related deferred tax assets are fully reserved for. These carryforwards
expire in 2006 to 2013. The net operating loss carryforwards relate to the
operations of National Home Delivery, Inc. prior to the pooling of interest
and are subject to certain limitations.
The difference between income tax expense at the U.S. statutory rate and
the Company's actual income tax is primarily attributable to the utilization
of deferred tax assets which had previously been fully reserved for.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
5. Net Income (Loss) Per Share Calculation:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
Income (Numerator):
<S> <C> <C> <C> <C>
Net income $2,672,850 $ 254,054 $2,241,704 $ 827,255
========== ========== ========== ===========
Shares (Denominator):
Basic income per share:
Actual weighted average
shares outstanding 4,584,454 3,889,568 4,299,425 3,846,379
========== ========== ========== ===========
Basic income per share:
Net income per share $ .58 $ .07 $ .52 $ .22
========== ========== ========== ===========
Diluted income per share:
Actual weighted average
shares outstanding 4,584,454 3,889,568 4,299,425 3,846,379
Shares upon conversion of
warrants and options 35,395 41,838 48,273 17,284
---------- ---------- ---------- -----------
Adjusted shares outstanding 4,619,849 3,931,406 4,347,698 3,863,663
========== ========== ========== ===========
Diluted income per share:
Net income per share $ .58 $ .06 $ .52 $ .21
========== ========== ========== ===========
</TABLE>
6. 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.
7. 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.
On May 3, 2000, the Company issued an aggregate of 133,000 shares of the
Company's common stock to GoldenGoose Software, Inc. as part of an acquisition
of the operations and certain fixed assets of AdtrackMedia.com, a division of
GoldenGoose Software, Inc. In addition, the Company issued options to
GoldenGoose Software, Inc. to purchase 10,000 shares of the Company's common
stock. The options have a three year term at an exercise price of $2.045 per
share.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
7. Common Stock, continued:
On June 30, 2000 the Company declared a 10% stock dividend to
shareholders of record on June 30, 2000. This transaction was recorded in the
capital accounts on the Balance Sheet in the amount of $1,064,030 relating to
425,612 shares issued on July 21, 2000.
8. Acquisitions:
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 $945,566 is being amortized on a
straight-line method over 20 years. This acquisition was accounted for using
the purchase method.
On May 3, 2000, the Company acquired certain assets and operations of
AdtrackMedia.com, a division of GoldenGoose Software, Inc., an on-line
advertising, marketing, and ad-serving software company, for a purchase price
of approximately $357,000 consisting of $100,000 cash and 133,000 shares of
the Company's common stock. In addition, the company issued options to
GoldenGoose Software, Inc. to purchase 10,000 shares of the Company's common
stock at an exercise price of $2.045 per share expiring May 26, 2003. The
purchase agreement provides for contingent consideration of a maximum of
167,000 shares of the Company's common stock if certain performance levels are
achieved. Goodwill of $371,449 is being amortized on a straight-line method
over 20 years. This acquisition was accounted for using the purchase method.
The unaudited pro forma combined historical results, as if all
acquisitions had been acquired at the beginning of 1999, are included in the
table below.
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenue $17,472,992 $22,345,038
Income from continuing operations 2,280,903 1,056,110
Net income 2,280,903 1,056,110
Basic and diluted earnings per share $ 0.52 $ 0.27
</TABLE>
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
9. Segment Information:
Management has historically viewed 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. In 1999, the Company revised the basis by which
profitability is evaluated and assets and resources are allocated by dividing
its business into three operating segments by product areas: offline
advertising and marketing includes sampling and newspaper advertising; online
marketing includes online advertising and the proprietary Internet tracking
services; and directory marketing includes delivery and marketing of telephone
directories. Substantially all of the Company's revenues are generated in the
United States. The Company measures segment profits and losses by reviewing
gross profits.
Segment analysis is provided in the tables below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
Revenues:
Offline Advertising and
<S> <C> <C> <C> <C>
Marketing $4,252,507 $5,585,456 $12,714,580 $19,237,306
Directory Marketing 1,343,288 436,227 2,845,539 1,737,518
Online Marketing 772,663 1,597,888 -
Intersegment revenues ( 922)( 13,609)( 19,956) ( 88,902)
---------- ---------- ---------- ----------
Total Revenues $6,367,536 $6,008,074 $17,138,051 $20,885,922
========== ========== =========== ===========
Gross Profits:
Offline Advertising and
Marketing $ 899,760 $1,446,126 $ 2,813,668 $ 4,215,018
Directory Marketing 451,236 203,042 1,029,558 749,786
Online Marketing 205,189 451,045 -
---------- ---------- ---------- ----------
Total Gross Profit $1,556,185 $1,649,168 $ 4,294,271 $ 4,964,804
========== ========== =========== ===========
Gross Profit Percentages:
Offline Advertising and
Marketing 21.2% 25.9% 22.1% 21.9%
Directory Marketing 33.6% 46.5% 36.2% 43.2%
Online Marketing 26.6% - 28.2% -
---------- ---------- ---------- ----------
Total Gross Profit 24.4% 27.4% 25.1% 23.8%
========== ========== =========== ===========
</TABLE>
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
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 single-source provider of marketing
solutions that delivers comprehensive services to handle the online and
offline needs of clients in the telecommunications, automotive, tourism,
consumer package goods, e-commerce and other industries.
In September, the Company sold its in-home sampling business to Valassis
Communications, Inc. (NYSE: VCI). The Company had previously reported that
its sampling programs did not provide predictable revenue on a quarter-over-
quarter basis. The sale, which was finalized on September 19, 2000 for $4
million in cash, included:
- In-home sampling operations that provide door-to-door delivery of
targeted consumer goods; and
- Intellectual property rights including a national delivery database
and itracksamples.com.
The Company retained ilikesamples.com, its recently launched online
sampling site.
Alternate Marketing Networks, Inc. now provides its clients with
complementary types of comprehensive marketing services in three primary
areas:
- Online Marketing: The Company provides online advertising, marketing
and tracking capabilities for its offline activities through proprietary
online products. A division, AdPressMedia.com, sells, manages, serves and
tracks advertising campaigns for small- and medium-sized website publishers.
The Company also operates ilikesamples.com, a business to consumer website
that offers pinpoint targeted marketing of samples and coupons to consumers.
- Offline Advertising and Marketing. Through US Suburban Press (USSPI)
the Company has a well-established newspaper network of advertising placement
and pre-print advertising and insert programs for clients such as Sprint,
Verizon, General Motors, AT&T, travelocity.com and others.
- Directory Marketing. The Company provides door-to-door delivery,
marketing and tracking of telephone directories for regional and national
telephone companies such as Verizon (formerly GTE/Bell Atlantic) and others.
The Company uses its proprietary itrackdirectories.com to allow customers to
verify the accurate and timely delivery of their directories.
The Company's strategic advantage lies in its proprietary products, such
as its USSPI database of more than 900 suburban newspapers, its online product
offerings that complement its offline services, and its relationships with
Fortune 500 companies. The Company's clients include packaged goods clients
who desire a sample to be delivered to a targeted household audience, national
advertisers who place Run of Press (ROP) or insert advertisements into
newspapers, and telephone directory publishers who wish to have their
directories delivered to the households of communities across the nation.
Results of Operations - Quarter
During the third fiscal quarter ended September 30, 2000, the Company's
offline advertising and marketing segment continued experiencing softness in
orders from consumer package goods clients, while the directory marketing
segment posted sales more than three times higher than the previous year.
Sales for the third quarter of 2000 were up approximately 16% over the
previous quarter ending June 30, 2000, and were up approximately 6% over the
same period the preceding year. The gross profit for this year's quarter was
down slightly from the previous year (24.4% for 2000 and 27.4% for 1999)as
direct costs were higher than projected due to low unemployment levels,
resulting in a relatively limited available pool of contract carriers for the
Company's telephone directory deliveries.
During the quarter ending September 30, 2000, selling, general and
administrative expenses increased approximately 23% over the same period last
year. This was primarily due to increased overhead expenses associated with
the increase in sales from directory marketing. In addition, during this
period the Company wrote off an accounts receivable relating to a sampling
client which had previously been reserved for in the allowance for doubtful
accounts, thus resulting in a net expense of $92,000.
Interest income for the three months ended September 30, 2000 and 1999
was $9,314 and $18,591 respectively. Interest expense for the three months
ended September 30, 2000 and 1999 was $9,083 and $1,360 respectively. In
addition, during the quarter ended September 30, 2000, the Company recognized
a gain on the sale of the assets of its offline sampling division of
approximately $3,600,000.
Income tax expense for the three and nine months ended September 30, 2000
was effected by the utilization of certain net operating loss carryforwards up
to the maximum amount allowable by certain statutory limitations.
Results of Operations - Nine Months
During the nine month period ended September 30, 2000, the Company
experienced lower sales from consumer package goods clients than in the same
period in the preceding year. Increased sales from directory marketing and
new sales from online advertising were not enough to offset this decrease,
thus resulting in lower than anticipated total sales. Total sales for the
2000 period were down approximately 18% from the same period the preceding
year. The gross profit for the nine months ended September 30, 2000 was up
over the same period the previous year due to the mix of revenues (gross
profit in 2000 was 25.1% and gross profit in 1999 was 23.8%).
During the nine months ending September 30, 2000, selling, general and
administrative expenses increased approximately 18% over the same period last
year. As the Company continues to seek new products, new clients, and
potential business acquisition and alliance partners, it incurs additional
expenses associated with increased personnel, travel, and legal and
professional fees. In addition, the growth associated with directory
marketing generates an increase in overhead. The Company also continues to
invest in improving its operational Internet tracking and quality control
services.
Interest income for the nine months ended September 30, 2000 and 1999 was
$29,977 and $33,093 respectively. Interest expense for the nine months ended
September 30, 2000 and 1999 was $9,083 and $26,822 respectively. During the
nine months ended September 30, 2000, the Company recognized a gain on the
sales of the assets of the offline sampling division of approximately
$3,600,000.
Fluctuation in Revenues
Due to the timing of primarily product sample programs, the Company's
revenues may fluctuate from quarter to quarter and from year to year.
Liquidity and Capital Resources
During the nine months ended September 30, 2000, the Company's cash
balance increased by $1,027,164 primarily due to proceeds from the sale of the
assets of its offline sampling division. During 2000, operating activities
consisted of the net income of $2,241,704, depreciation and amortization
expense of $222,413, a gain on the sale of assets of $3,613,969, and an
increase in working capital of $537,989. During the same period in 1999, the
Company's cash balance increased by $1,733,904 primarily due to the net income
and proceeds from the sale of 350,000 shares of the Company's common stock for
$3.00 per share. During the nine months in 1999, operating activities
included the net profit of $827,255, depreciation and amortization expense of
$188,686, and a decrease in working capital of $1,406,612. In addition, in
the 2000 nine month period, the Company used approximately $223,000 to
purchase computer and office equipment and for the development of its on-line
sampling software.
The Company has a $2,500,000 bank line of credit which expires June 30,
2001. As of September 30, 2000, there was no balance outstanding. The
Company believes that this line of credit along with its current cash flows
will enable it to fund its current growth plans as well as meet its presently
anticipated capital requirements.
Outlook for the Future
As a result of the sale of the operations of the offline sampling
division, the Company anticipates that selling, general and administrative
expenses relating to fixed personnel costs, rents and other overhead expenses
will be reduced starting in the fourth quarter of 2000. Total sales in the
fourth quarter are expected to be about the same as total sales during the
first and second quarter of 2000. The Company expects sales from directory
marketing and the new business segments to increase in the fourth quarter of
2000, replacing the sales from the sampling division, which was sold in the
third quarter. As noted above sales of the sampling division in the first 6
months of 2000 were significantly down from sales in the prior year.
The Company will continue to explore all strategic options to maximize
shareholder value.
Forward-looking Statements
Except for historical information contained herein, the matters set forth
in this management's discussion and analysis are forward-looking statements
based on current expectations. Actual results may differ materially. These
forward-looking statements involve a number of risks and uncertainties
including, but not limited to, competition, the timing of receipt of orders,
the implementation of the Company's reorientation as a marketing services
company, the effectiveness of the marketing program, and the Company's success
in developing and capitalizing on strategic alliances.
Item 6. Exhibits and Reports on Form 8-K.
During the period of this report, there was one Form 8-K filing as follows:
8-K filed October 4, 2000 for the Current Report event dated September 19,
2000 for the disposition of assets of the Company's offline sampling division.
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: November 13, 2000 By: /s/Phillip D. Miller
Phillip D. Miller
Chief Executive Officer
By: /s/Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
