ADX: TSX
TORONTO, May 16 /CNW/ - Advantex Marketing International Inc. (TSX:ADX)
is pleased to report its results for the period ending March 31, 2005, and the
second consecutive quarter of improvement compared to the same period in the
previous year.
- Net results for the quarter improved by 46% or $0.6 million
year-over-year
- Cash flow from operating activities reached breakeven
- Consolidated gross margin improved 14% year over year
- Merchant participation is steadily increasing from the low in 2004
Sales and fees for the third quarter ended March 31, 2005 were
$17.1 million compared with $15.6 million in the same quarter last year. The
$1.5 million increase was principally the result of the upswing in the
Company's Canadian Credit Card Loyalty business. The Company's operating loss
before amortization, interest and income taxes was $0.5 million for Q3 2005,
an improvement of $0.5 million compared to an operating loss of $1.0 million
before amortization, interest and income taxes, in Q3 2004. The Net Loss for
Q3 2005 was $0.7 million ($0.02 per share) compared to a Net Loss of
$1.3 million ($0.02 per share) for Q3 2004, an improvement of 46% or
$0.6 million. Cash and Cash Equivalents at March 31, 2005 were $1.4 million, a
decrease of $0.1 million during the quarter.
"Advantex is a leader in the Canadian loyalty marketing sector, with the
unparalleled ability to build and sustain strong national merchant
coalitions," said G. Randall Munger, Chairman and Chief Executive Officer of
Advantex. "The upward trend in our quarterly results is reflective of the
increased merchant participation in our Canadian loyalty programs, and of
improvements we are making internally to trim costs and streamline operations.
We have improved results significantly over the past two quarters and we
expect this trend to continue."
Outlook
Canada
Plans are in place for the Company to introduce a Merchant Funding
Program that is expected to increase merchant participation. Under the
Merchant Funding Program, participating merchants receive cash advances based
on purchased rights to future credit card sales over an extended period of
time, up to six months. Advances are repaid, and Advantex earns income, as
credit cardholders make purchases at the participating establishments.
Importantly, the Merchant Funding Program substantially improves gross margins
when added to Advantex's current loyalty marketing programs.
Online Shopping Malls
Advantex's Online Shopping Mall business is expected to grow as mall
enrolment and shopping volumes climb and new malls are added. The marketing
audience for the online shopping malls currently consists of approximately
20 million active frequent flyer members, and there are over 250 participating
national brand and boutique e-retailers. Continued improvements in fee rates
earned and increased consumer purchasing are expected to result in improved
divisional contribution year-over-year.
A new Online Shopping Mall platform developed over the past year
increases the Company's speed to market for new customized mall programs and
provides greater flexibility in creating and managing special promotions, both
of which provides the Company with important competitive advantages.
The New York Times
Advantex and The New York Times are developing a major new loyalty
initiative, scheduled for implementation in calendar 2005 and full launch in
early 2006. The new program will be considerably broader in scope than the
current TimesCard program.
Samplex
Samplex continues to focus its efforts on revenue growth through organic
and new business initiatives. Improved pricing strategies, in-store marketing
initiatives and new packaging formats are a few of the strategies being
employed to fuel Samplex growth. In conjunction with revenue growth
initiatives, Samplex is conducting internal analysis, identifying
opportunities to reduce direct operating costs for fiscal 2006.
Strategic Initiatives
Advantex is exploring joint ventures and other forms of strategic
partnerships with a view towards maximizing shareholder value. As part of the
ongoing review of strategic initiatives, the Company may consider selling
Samplex. The Company has engaged Quorum Funding Corporation to assist in
developing strategic alternatives and in arranging financing. Petsky Prunier
LLC of New York has been engaged to assist Quorum.
About Advantex Marketing International Inc.
Advantex Marketing International Inc. is a leading loyalty marketing
firm, specializing in knowledge-based customer loyalty and rewards programs.
Advantex loyalty and rewards programs build new and repeat business for
participating merchants and product marketers, from the most desirable
customers of leading North American companies. The Company offers a
comprehensive range of turn-key marketing services, including: strategic
planning; program design, development and execution; multi-media
communications; Internet and database services; data capture and award
processing interfaces; analytics and reporting; creative design and
production; and customer service. Advantex loyalty partners include Alaska
Airlines, CIBC, Delta Air Lines, The New York Times, United Mileage Plus, US
Airways, and other major North American corporations, as well as a growing
list of restaurants, retailers, golf courses, small inns and resorts. Advantex
is a public company, traded on the Toronto Stock Exchange under the symbol
"ADX". For additional information on Advantex, please visit www.advantex.com.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the period ended MARCH 31, 2005
The accompanying consolidated financial statements have been prepared by
management and approved by the Board of Directors of the Company. Management
is responsible for the information and representations contained in these
consolidated financial statements and other sections of this report.
An auditor has not performed a review of these financial statements.
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ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (unaudited - note 1)
MARCH 31, JUNE 30,
AS AT NOTE 2005 2004
(in thousands) ($) ($)
ASSETS
Current:
Cash and cash equivalents 1,442 2,337
Accounts receivable 1,884 2,108
Purchased receivables 1,914 2,395
Inventory 929 1,803
Prepaid expenses and sundry assets 203 176
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6,372 8,819
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Long term:
Capital and other assets 973 1,106
Deferred financing charges 319 259
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1,292 1,365
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TOTAL ASSETS 7,664 10,184
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LIABILITIES
Current:
Accounts payable and accrued
liabilities 4,277 4,828
Deferred revenue 266 536
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4,543 5,364
Long term:
Convertible debenture payable 3 3,412 3,155
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TOTAL LIABILITIES 7,955 8,519
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SHAREHOLDERS' DEFICIENCY
Capital Stock 4
Class A preference shares 4 4
Common shares 21,463 20,815
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21,467 20,819
Contributed surplus 60 60
Equity portion of convertible debenture 3 880 880
Reserve for issuance of shares - 648
Deficit (22,698) (20,742)
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(291) 1,665
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY 7,664 10,184
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ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF NET LOSS (unaudited - note 1)
Three Months Ended Nine Months Ended
March 31 March 31
(In thousands except net loss 2005 2004 2005 2004
per common share) ($) ($) ($) ($)
REVENUE
Sales and fees 17,068 15,606 56,781 63,051
Direct costs 15,019 13,814 49,781 56,510
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2,049 1,792 7,000 6,541
OPERATING EXPENSES
Selling 1,173 1,335 3,944 4,414
General and administrative 1,327 1,451 4,218 4,006
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2,500 2,786 8,162 8,420
LOSS BEFORE AMORTIZATION
AND INTEREST (451) (994) (1,162) (1,879)
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Amortization 104 110 292 359
Interest 172 154 502 438
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276 264 794 797
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LOSS BEFORE INCOME TAXES (727) (1,258) (1,956) (2,676)
Realization of income tax
benefits - (76) - 1,424
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NET LOSS (727) (1,334) (1,956) (1,252)
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NET LOSS PER COMMON SHARE (0.02) (0.02) (0.04) (0.02)
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CONSOLIDATED STATEMENTS OF DEFICIT (unaudited - note 1)
NINE MONTHS ENDED MARCH 31 2005 2004
(In thousands) ($) ($)
BALANCE AT THE BEGINNING OF THE PERIOD (20,742) (18,918)
Net loss (1,956) (1,252)
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BALANCE AT THE END OF THE PERIOD (22,698) (20,170)
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ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - note 1)
Three Months Ended Nine Months Ended
March 31 March 31
2005 2004 2005 2004
(In thousands) ($) ($) ($) ($)
CASH WAS PROVIDED (USED IN):
OPERATING ACTIVITIES
Net loss (727) (1,334) (1,956) (1,252)
Items not involving cash:
Amortization of capital
assets 104 110 292 359
Accretion charges 45 39 132 85
Amortization of deferred
financing charges 25 17 65 56
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(553) (1,168) (1,467) (752)
Changes in non-cash working
capital items 524 20 732 (438)
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Cash provided by (used in)
operating activities (29) (1,148) (735) (1,190)
FINANCING ACTIVITIES
Obligation to issue shares - (32) - 648
INVESTING ACTIVITIES
Purchase of capital assets (24) (5) (160) (53)
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (53) (1,185) (895) (595)
Cash and cash equivalents at
the beginning of the period 1,495 3,848 2,337 3,258
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CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD 1,442 2,663 1,442 2,663
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ADDITIONAL INFORMATION
Interest paid 203 199 403 401
Notes to Financial Statements
For the nine months ended March 31, 2005 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim unaudited financial statements for the nine months ended
March 31, 2005 have been prepared on a consistent basis with the
Company's annual consolidated financial statements for the year ended
June 30, 2004 and should be read in conjunction with the accounting
policies and other disclosures in those consolidated financial
statements. The enclosed consolidated financial statements do not
include all the disclosures required by generally accepted accounting
principles applicable to annual financial statements.
2. STOCK OPTIONS
During the period, the Company issued 1,500,000 options to certain
directors at an exercise price of $0.25 per common share and
200,000 options to certain non-executive employees at an exercise
price of $0.14. These options expire on July 20, 2009. The options
issued to directors are exercisable at any time.
The Company calculated the fair value of the stock options issued
during the period using the Black-Scholes option pricing model and
determined their value to be immaterial. Accordingly, no expense has
been recorded in these financial statements upon the issue of these
options. The assumptions used in the model were a risk free interest
rate of 4.4%, an expected life of five years, an expected volatility
of 10% and no expected dividends on the common shares.
3. CONVERTIBLE DEBENTURE PAYABLE
The Company met its financial covenants under the convertible
debenture agreement as at March 31, 2005. In July 2004, certain of
the financial covenants under the convertible debenture agreement
were amended in exchange for the issuance of 500,000 warrants to
debenture holders with each warrant entitling the holder to purchase
one Advantex common share at $0.25 per share. The debenture holders
had the right to require the Company to repurchase the warrants for a
payment of $0.25 per warrant ($125,000 in total), exercisable before
November 15, 2004. All of the debenture holders exercised this right.
The Company satisfied its obligation to repurchase the warrants by
increasing the principal amount of the convertible debenture by
$125,000 and increasing Deferred Financing Charges by the same
amount. The conversion price associated with this amount is $0.13 per
common share and the additional number of common shares which may be
issued upon conversion is 961,538; the fair value of the equity
portion of the conversion option was not recorded because the amount
was determined to be nominal.
4. CAPITAL STOCK
In March 2005, the Company exercised its right to purchase all of the
issued and outstanding units of Advantex Systems Limited Partnership
(the "Advantex Partnership") held by Madison Grant Limited
Partnership III (the "MG Partnership"). The units were purchased in
exchange for an assignment of certain promissory notes totalling
$8,760,000 (which had been previously eliminated upon consolidation
of the financial statements) and the issuance of 8,000,000 common
shares of the Company. Upon completion of the acquisition, a
marketing agreement among the Company, the MG Partnership and the
Advantex Partnership was terminated and, accordingly, the Company's
financial commitment for marketing and promotion thereunder was also
terminated. The Company transferred the amount recorded as Reserve
for Issuance of Shares of $648,000 to Common Shares.
Issued Common Shares
Number Amount
Balance as at June 30, 2004 50,493,831 $ 20,814,938
Issue of common shares 8,000,000 648,000
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Balance as at March 31, 2005 58,493,831 $ 21,462,938
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5. SEGMENTED INFORMATION
(A) By geographical distribution (in thousands)
Three Months ended Nine Months ended
March 31 March 31
Consoli- Consoli-
Canada U.S. dated Canada U.S. dated
------ ---- ----- ------ ---- -----
Sales and Fees
2005 16,609 459 17,068 55,635 1,146 56,781
2004 15,131 475 15,606 62,123 928 63,051
(B) By operating group (in thousands)
Three Months ended Nine Months ended
March 31 March 31
Consoli- Consoli-
Advantex Samplex dated Advantex Samplex dated
-------- ------- ----- -------- ------- -----
Sales and Fees
2005 16,569 499 17,068 52,724 4,057 56,781
2004 15,232 374 15,606 58,903 4,148 63,051
Amortization of Capital Assets
2005 103 1 104 288 4 292
2004 108 2 110 354 5 359
Interest and Financing Charges
2005 172 - 172 502 - 502
2004 154 - 154 438 - 438
Net Income (Loss) Before Income Taxes
2005 (469) (258) (727) (1,937) (19) (1,956)
2004 (967) (291) (1,258) (2,719) 43 (2,676)
Realization of Income Tax Benefits
2005 - - - - - -
2004 (76) - (76) 1,424 - 1,424
Total Assets
2005 6,148 1,516 7,664
2004 8,258 1,356 9,614
Expenditures for Capital Assets
2005 24 - 24 160 - 160
2004 5 - 5 53 - 53
The Company allocates expenses between divisions based on use of
resources and funding requirements. As such management fees are
charged and interest and financing costs are allocated to the
divisions on that basis for internal reporting purposes. Senior
management relies on the same segmented information to evaluate
operations. Certain of the comparative figures have been reclassified
to conform with management's basis for evaluation of operations.
6. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
to the presentation adopted in the current year.
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