- Company continuing to make steady progress in core areas on which it
is focusing for future growth in revenue and profitability
- Financings completed late in second quarter and in January will
enable a doubling of the Transaction Credits on the Balance Sheet and
growth of Advance Purchase Marketing Program
- Expects future revenue growth to result from higher Transaction
Credits deployed as more merchants are enrolled in Advance Purchase
Marketing Program
- Conference call and webcast on Friday, February 15 at 8:30 a.m.
(eastern)
ADX: TSX
TORONTO, Feb. 14 /CNW/ - Advantex Marketing International Inc. (TSX:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the fiscal second quarter and six months ended December 31, 2007. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.
Financial Performance - Highlights
(millions of $s, except per share amounts)
-------------------------------------------------------------------------
Three Three Six Six
months months months months
Ended Ended Ended Ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
-------------------------------------------------------------------------
Revenue 3.2 3.4 6.1 5.7
-------------------------------------------------------------------------
Direct expenses 1.4 1.2 2.6 2.0
-------------------------------------------------------------------------
Gross profit 1.8 2.2 3.5 3.7
-------------------------------------------------------------------------
Sales, general, and
administrative expenses 1.8 1.7 3.5 3.4
-------------------------------------------------------------------------
Contribution from operations 0.0 0.5 0.0 0.3
-------------------------------------------------------------------------
Earnings (loss) before
amortization and interest 0.0 (0.7) (0.1) (0.8)
-------------------------------------------------------------------------
Net earnings (loss) (0.3) (1.0) (0.7) (1.3)
-------------------------------------------------------------------------
Net earnings (loss) per
common share ($0.00) ($0.01) ($0.01) ($0.02)
-------------------------------------------------------------------------
"Through the second quarter, we continued to make steady progress in the core areas on which Advantex is focusing to achieve future growth and profitability," said Kelly E. Ambrose, President and Chief Executive Officer. "The extent of the progress that we are making is not fully evident in the reported financial results.
"For example, revenue from our popular Advance Purchase Marketing Program was down in the 2008 second quarter at $1.1 million, compared with $1.7 million a year earlier," Mr. Ambrose continued. "This decline is partially due to our initiative to move merchants already enrolled to either a Marketing Only program or to the Advance Purchase Marketing program with larger advances. This realignment resulted in more of the enrolled merchants being in the Marketing Only program, for which revenue increased 41.0 percent in the quarter compared with a year ago. The second factor for the decline in the Advance Purchase Marketing Program was the funding constraints that we had to manage prior to completing additional financing agreements in December. We continued to attract merchants to our Advance Purchase Marketing program, but these funding constraints meant we were unable to activate them which created a significant backlog of merchants.
"Since completing in late December our new financing for the Advance Purchase Marketing Program, we have been addressing this backlog and a ramp-up in revenue should become evident in future quarters," Mr. Ambrose said. "In addition to our progress in securing financing to grow the Advance Purchase Marketing Program, revenue for our Online operations grew 43.3 percent (in U.S. dollars, the currency of the program; 32.3 percent in Canadian dollars) in the second quarter, compared with a year ago. The growth is mainly the result of increased marketing support and stronger awards promotions offered to online shoppers.
"We operated at approximately breakeven for the quarter and first half of 2008 in terms of Contribution from Operations," Mr. Ambrose noted. "Our profitability was however affected by higher direct expenses which rose 15.1 percent in the second quarter because of higher award costs for the CIBC Advantex business as we increased award levels in selected categories and increased merchant marketing to improve our value proposition and support merchant retention. The special award promotions that helped to increase the Online business were another cost factor. Selling, general and administrative (SG&A) increases were related to our efforts to strength the company's business processes and information technology infrastructure. Apart from focused expenses to support the core programs, we are continuing to control our costs."
On December 18, 2007, the company announced a three-year agreement with Montcap Financial Corporation under which Advantex will be able to draw on at least $1.5 million for immediate deployment as cash advances to merchants participating in the Advance Purchase Marketing Program. Advantex also will have access to up to an additional $3.5 million as it expands the program by offering participation to retailers across Canada. Advantex estimates that there are about 100,000 retailers in Canada that would qualify for the program.
On December 24, 2007 and January 31, 2008, Advantex announced the completion of two tranches, respectively, of a further financing that raised gross proceeds on $2.665 million through the sale Units comprising of $1,000 face value secured non-convertible debentures and a total of 1,975 common share purchase warrants of Advantex. Each warrant is exercisable to acquire one common share of Advantex at $0.06 per share during a three-year period. The debentures will yield 14.0 percent annually, payable quarterly, and mature on December 31, 2010.
"With these financings, the strength of the relationships that we have forged with our business partners, and the positive response that we are continuing to receive from merchants across Canada, we feel confident about the outlook for Advantex. One measure of this should be growth in revenue as the funding enables us to double the level of Transaction Credits on our Balance Sheet with the increasing number of merchants enrolling in our program," Mr. Ambrose said.
Conference Call and Webcast
Advantex will hold a conference call for analysts and investors to discuss its second-quarter results on February 15, 2008 at 8:30 a.m. (Eastern).
Kelly Ambrose, President and Chief Executive Officer, and Mukesh Sabharwal, Vice-President and Chief Financial Officer, will be available to answer questions during the call.
To participate in the call, please dial 416-644-3419 or 1-800-731-6941 at least five minutes prior to the start of the call.
A live audio webcast of the conference call will be available at www.newswire.ca and www.advantex.com.
An archived recording of the call will be available at 416-640-1917 or 1-877-289-8525 (Passcode 21262985 followed by the number sign) from noon on February 15 to 11:59 p.m. on February 22. An archived recording of the webcast will also be available at Advantex's website.
Advantex will file its fiscal 2008 second-quarter statements and management's discussion and analysis with SEDAR and they will be posted on the company's website.
About Advantex Marketing International Inc.
Advantex is a specialist in the marketing services industry, managing white-labeled rewards accelerator programs for major affinity groups through which their members earn bonus frequent flyer miles and/or other rewards on purchases at participating merchants. Under the umbrella of each program, Advantex provides merchants with marketing, customer incentives, and secured future sales through its Advance Purchase Marketing model. Advantex partners include more than 700 restaurants, online retailers, golf courses, small inns and resorts, and major organizations, including CIBC, United Airlines, Delta Airlines, Alaska Airlines, and Lufthansa Airlines. Advantex is traded on the Toronto Stock Exchange under the symbol "ADX". For additional information on Advantex, please visit www.advantex.com.
This press release contains certain "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding financial and business prospects and financial outlook) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks, uncertainties and assumptions that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things, changes in general economic and market conditions, changes to regulations affecting the Company's activities, uncertainties relating to the availability and costs of financing needed in the future, and delays in finalizing retail contract with CIBC. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three month and six month period
Ended December 31, 2007
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.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
DECEMBER 31, JUNE 30,
----------- -------
2007 2007
---- ----
ASSETS
Current:
Cash and cash equivalents $2,259,842 $910,995
Accounts receivable 1,389,410 737,485
Transaction credits 5,413,246 5,390,412
Prepaid expenses and sundry assets 97,794 185,955
------ -------
9,160,292 7,224,847
--------- ---------
Long-term:
Property, plant and equipment and
other assets 925,595 775,733
TOTAL ASSETS $10,085,887 $8,000,580
----------- ----------
----------- ----------
LIABILITIES
Current:
Loan payable $529,160 $ -
Accounts payable and accrued liabilities 3,987,438 3,707,243
--------- ---------
4,516,598 3,707,243
--------- ---------
Long-term:
Other liabilities 272,658 450,856
Non-convertible debenture payable 1,781,355 -
Convertible debenture payable 4,240,064 4,042,335
--------- ---------
6,294,077 4,493,191
--------- ---------
10,810,675 8,200,434
---------- ---------
SHAREHOLDERS' (DEFICIENCY) EQUITY
Capital Stock
Class A preference shares 3,815 3,815
Common shares 24,106,281 24,106,281
---------- ----------
24,110,096 24,110,096
Contributed surplus 444,623 412,223
Equity portion of debentures (note 7) 2,252,986 2,114,341
--------- ---------
Deficit (27,532,493) (26,836,514)
------------ ------------
(724,788) (199,854)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIENCY) EQUITY $10,085,887 $8,000,580
----------- ----------
----------- ----------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF LOSS
(unaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2007 2006 2007 2006
REVENUE 3,236,840 3,415,333 6,081,527 5,677,117
Direct expenses 1,438,816 1,248,881 2,592,049 1,974,526
--------- --------- --------- ---------
GROSS PROFIT 1,798,024 2,166,452 3,489,478 3,702,591
--------- --------- --------- ---------
OPERATING EXPENSES
Selling and marketing 795,594 800,099 1,587,001 1,605,010
General and
administrative 974,789 909,917 1,919,837 1,767,723
------- ------- --------- ---------
1,770,383 1,710,016 3,506,838 3,372,733
CONTRIBUTION FROM
OPERATIONS 27,641 456,436 (17,360) 329,858
Restructuring costs - 1,026,156 - 1,026,156
Stock-based
compensation 16,200 124,975 32,400 136,375
------ ------- ------ -------
PROFIT/(LOSS) BEFORE
AMORTIZATION 11,441 (694,695) (49,760) (832,673)
Amortization of
property, plant
and equipment 72,618 58,936 120,052 114,907
------ ------ ------- -------
PROFIT/(LOSS) BEFORE
INTEREST (61,177) (753,631) (169,812) (947,580)
Interest expense
Loan payable, and Non
convertible debenture 10,167 - 10,167 -
Stated interest on
convertible debenture 158,796 130,646 318,269 226,099
Accretion charge on
convertible debenture
and amortization of
deferred financing
charges 99,552 89,955 197,731 169,814
------ ------ ------- -------
NET LOSS AND
COMPREHENSIVE LOSS
FOR THE PERIOD $(329,692) $(974,232) $(695,979) $(1,343,493)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
NET LOSS PER
COMMON SHARE $(0.00) $(0.01) $(0.01) $(0.02)
------- ------- ------- -------
------- ------- ------- -------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF DEFICIT
(unaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2007 2006 2007 2006
BALANCE AT THE START
OF PERIOD (27,202,801) (24,611,474) (26,836,514) (24,242,213)
Net loss for the
Period (329,692) (974,232) (695,979) (1,343,493)
--------- --------- --------- -----------
BALANCE AT THE END
OF PERIOD (27,532,493) (25,585,706) (27,532,493) (25,585,706)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------- -----------
2007 2006 2007 2006
OPERATING ACTIVITIES
Net loss for the
period $(329,692) $(974,232) $(695,979) $(1,343,493)
Items not
affecting cash
Amortization of
property, plant
and equipment 72,618 58,936 120,051 114,907
Accretion charge on
convertible debenture 78,186 67,561 154,999 121,288
Amortization of
deferred financing
charges 21,366 22,394 42,732 48,526
Stock-based
compensation 16,200 124,975 32,400 136,375
------ ------- ------ -------
(141,322) (700,366) (345,797) (922,397)
Changes in non-cash
working capital items
Accounts receivable (593,573) (591,424) (651,925) (694,962)
Transaction credits (257,278) (1,136,048) (22,834) (2,221,503)
Prepaid expenses and
sundry assets 67,638 (311) 88,161 22,143
Accounts payable and
accrued liabilities 413,808 1,656,657 280,196 1,449,903
------- --------- ------- ---------
(369,405) (71,126) (306,402) (1,444,419)
Decrease in Long-term
other liabilities (64,067) (569,021) (178,200) (569,021)
-------- --------- --------- ---------
Cash utilized in
operating activities (574,794) (1,340,513) (830,399) (2,935,837)
FINANCING ACTIVITIES
Proceeds from
convertible
debenture, net - 1,659,725 - 1,659,725
Proceeds from
non-convertible
debenture, net 1,920,000 - 1,920,000 -
Proceeds from
initial draw of
credit facility 706,490 - 706,490 -
Credit facility
costs (177,330) - (177,330) -
--------- --------- --------- ---------
2,449,160 1,659,725 2,449,160 1,659,725
INVESTING ACTIVITIES
Purchase of property,
plant and equipment (116,904) (129,282) (269,914) (199,664)
MOVEMENT IN CASH AND
CASH EQUIVALENTS
DURING THE PERIOD 1,757,462 189,930 1,348,847 (1,475,776)
Cash and cash
equivalents at the
beginning of the
period 502,380 141,336 910,995 1,807,042
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $2,259,842 $331,266 $2,259,842 $331,266
ADDITIONAL INFORMATION
Interest paid $300,000 $97,000 $300,000 $295,000
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 2007
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements of Advantex Marketing
International Inc. and its subsidiaries ("Advantex" or the "Company")
have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP") for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by Canadian GAAP for annual consolidated financial
statements.
The accompanying financial information reflects all adjustments,
consisting primarily of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of results for
interim periods. Operating results for the six months ended December 31,
2007 are not necessarily indicative of the results that may be expected
for the fiscal year ending June 30, 2008. The accounting policies used in
the preparation of these interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto for fiscal 2007.
These interim financial statements follow the same accounting policies
and methods of application as the consolidated financial statements for
the year ended June 30, 2007, except as described in note 2 below.
Certain prior period amounts have been re-classified to conform to the
current period's presentation.
2. CHANGES IN ACCOUNTING POLICIES
As required by the Canadian Institute of Chartered Accountants ("CICA"),
on July 1, the Company adapted CICA Handbook Section 1530, Comprehensive
Income; Section 3251, Equity; Section 3855, Financial Instruments -
Recognition and Measurement; Section 3861, Financial Instruments -
Disclosure and Presentation; and Section 3865, Hedges. The prospective
adoption of those new standards resulted in changes in the accounting and
presentation for financial instruments. The principal changes in
accounting for financial instruments due to the adoption of these
accounting standards are described in detail in Note 2 to the interim
consolidated financial statements of the Company for the three months
ended September 30, 2007.
3. STOCK OPTIONS
As at December 31, 2007 the maximum number of shares issuable under the
plan was 12,128,858, and there were 9,100,000 employee stock options
outstanding at exercise prices between $0.045 to $0.15, expiring between
July 9, 2008 and September 19, 2012.
During the period 400,000 stock options were forfeited or expired.
The Company has recorded stock option expense of $16,200 and $32,400 for
the three and six months ended December 31, 2007, respectively
4. DEFERRED COSTS
During the period Company continued development of new processing systems
for its CIBC Advantex programs. The costs incurred to date on this
project approximate $448,240 and are included in property, plant and
equipment. Certain modules of the system were implemented during the
current quarter, and the Company commenced amortization on these modules.
An amount of $26,078 is reflected in amortization expense for the three
and six months ended December 31, 2007 related to the new processing
system.
5. LOAN PAYABLE
In December, 2007 Advantex Dining Corporation, a 100% subsidiary of the
Company concluded an agreement with Montcap Financial Corp (Montcap) for
a $5.0 million credit facility. Interest will be calculated daily on the
amount outstanding and charged monthly at the per annum rate of
10 per cent above a certain major Canadian bank's prime rate. First
charge on all amounts due from participating establishments which are
funded from this facility will be provided as security. The agreement is
for three years.
Under the agreement, the facility is to be used exclusively to acquire
transaction credits. Transaction credits can only be acquired from those
establishments that are in industries open to the Company under its
agreement with CIBC. The Company has immediate access to $1.5 million of
the facility. The remaining balance of $3.5 million will be available
once the Company reaches an agreement with CIBC that will allow the
Company to expand its program to retail establishments.
The financing costs of this credit facility are approximately $177,330
and $706,490 was outstanding under this facility at December 31, 2007.
6. NON-CONVERTIBLE DEBENTURE
In December, 2007, the Company issued 2,000 units of non-convertible
debentures for proceeds of $1,920,000, net of $80,000 of transaction
costs. Each unit consists of a $1,000 secured non-convertible debentures
and 1,975 share purchase warrants. The debentures bear interest at 14%
per annum, payable quarterly, and mature on December 31, 2010. Each share
purchase warrant allows the holder to acquire one share of the Company at
$0.06 per share during the three year term of the debenture.
Under the agreement, the proceeds of the debenture are to be used to
acquire transaction credits. In addition, the proceeds of the non-
convertible debentures are to be held in a segregated bank account, set
up by the company. As security, the debenture holders will have first
charge to the balances in the segregated bank accounts as well as all
amounts due from establishments funded by the proceeds of the non-
convertible debentures.
The non-convertible debentures include a financial covenant that requires
the Company to meet a defined level of assets at each quarter end
commencing the quarter ending on March 31, 2008.
In accordance with CICA 3855, the fair value of the new non-convertible
debentures was bifurcated into debt and equity portions and an estimated
fair value was applied to the debt and equity components. Accordingly,
$138,645 was allocated to the equity portion of the share warrants.
The Black-Scholes option pricing model was used to determine the fair
value of the share warrant feature. The following assumptions were used
in the Black-Scholes option pricing model:
Common share price $0.06
Exercise price of share warrant $0.06
Expected life of the share warrant 3 years
Expected Volatility 89%
Risk-free interest rate 3.9%
7. EQUITY PORTION OF DEBENTURES
Equity portion of convertible debenture $2,114,341
Equity portion of non-convertible debenture (note 6) 138,645
-------
$2,252,986
----------
8. SUBSEQUENT EVENT
The closing of the second and final tranche of the non-convertible debt
offering was completed on January 30, 2008. The Company issued an
additional 665 units, for gross proceeds of $665,000. Certain Directors
and officers of the Company participated in second tranche, purchasing
110 units.
%SEDAR: 00004122E