ADX: TSX
TORONTO, May 15 /CNW/ - Advantex Marketing International Inc. (TSX:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the fiscal third quarter and nine months ended March 31, 2008. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.
"The Company continues to evolve into a stronger and more competitive company, with a clear focus on profitable growth in the programs and areas in which it enjoys a leadership position", said Mr. Kelly E. Ambrose, President and Chief Executive Officer.
For the three months ended March 31, which period is historically the weakest trading quarter, Company's Contribution from Operations for the three months ended March 31, 2008 was $112,000 compared with a loss of $33,000 at the Contribution from Operations level in the corresponding period of the previous year. The Company achieved a modest Profit before Interest during the current quarter of $17,000 compared with a loss of $110,000 for the corresponding period of the previous year.
Financial Performance - Highlights
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(millions of $s)
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Three months Three months Nine months Nine months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
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Revenue 2.5 2.7 8.6 8.4
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Gross profit 1.8 1.9 5.3 5.6
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Gross Margin 70.5% 69.8% 61.2% 66.7%
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Contribution from
operations 0.1 0.0 0.1 0.3
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Profit / (Loss) before
amortization and interest 0.1 (0.1) 0.0 (0.9)
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Amortization 0.1 0.1 0.2 0.2
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Interest 0.4 0.2 0.9 0.6
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Net (Loss) (0.4) (0.4) (1.1) (1.7)
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The Company implemented several successful initiatives during the three
months ended March 31, 2008:
(1) Following the closing of debt financings in late December, 2007 and
January, 2008, the Company had access to $4.2 million of funds to
grow the CIBC Advantex Advance Purchase Marketing (APM) program.
During the three months ended March 31, 2008 the Company focused on
enrolling and activating the backlog of merchants waiting to enroll
in its (APM) program, a process that took the better part of this
quarter. As of March 31, 2008 the Company had deployed $4.2 million
of funds as initial advances to new merchants, however the lag
between the access to funds and enrolling / activation process means
that the full impact of funds deployed in the quarter is only
partially evident in the CIBC Advantex APM program revenues of the
three months ended March 31, 2008.
(2) Manpower and SG&A savings have been identified. Measures implemented
from mid-March, 2008 onwards; will be realized partially during the
last quarter of current year, and fully by first quarter of fiscal
2009, and which will save the Company approximately $650,000 over
12 months starting April, 2008.
(3) Online revenues for three months ended March 31, 2008 are up 17.4%
compared with the corresponding period of the previous year when
expressed in USD terms, the currency in which the Company earns its
revenues
(4) New complementary revenue opportunities:
(a) In partnership with CIBC, Advantex is launching a Hotel program
targeted towards select high income credit cardholders. The
program markets the participating hotels to select CIBC
cardholders, and entitles cardholders to special privileges at
participating hotels. Advantex will earn a fee for the marketing
services provided to participating hotels. The initial response
to roll out of this program has been encouraging.
(b) Advantex acts as the exclusive Canadian-based agent across Canada
to sell and market, to small and mid-sized businesses, the
working-capital financing programs offered by Rapid Advance, a
company based in Bethesda, Maryland. After set up of
administrative processes during the current quarter, Advantex has
begun marketing the service, and the response from merchants has
been positive. Advantex earns a fee for marketing the service in
Canada, and does not have exposure to delinquent accounts.
The CIBC Advantex program revenues for the three months ended March 31, 2008 were $1.9 million compared with $2.1 million for the corresponding period of the previous year. The Company's APM program accounted for $1.2 million of the three months ended March 31, 2008 revenue, $0.5 million lower than corresponding period of the previous year, while the Marketing Only program accounted for $0.7 million, $0.3 million higher than corresponding period previous year. During the past periods the Company moved existing merchants either to a Marketing Only program or into its APM program which provides merchants with larger advances. This realignment has resulted in two very distinct programs with more of the existing merchants in the Marketing Only program. During the current quarter the Company enrolled and activated the backlog of merchants waiting to enroll in its Advance Purchase Marketing (APM) program, a process that took the better part of the current quarter, consequently the full impact of the funds deployed in the CIBC Advantex APM program are not realized in the revenue of the three months ended March 31, 2008. The Company continues to drive its Marketing Only program and revenues for this model for the three months ended March 31, 2008 are up 105% compared with the corresponding period of the previous year.
Online revenue for the three months ended March 31, 2008 achieved growth of 17.4% compared with corresponding period in the previous year when expressed in US dollars, the currency in which the Company earns its revenue but was up 2.6% when reported in Canadian Dollars in the consolidated financial statements, a reflection of the strengthening of the Canadian Dollar vs. US Dollar. The growth is mainly attributable to the increased awards promotions offered by the Company to online shoppers.
The Net Loss for the three and nine months ended March 31, 2008 is $390,000 and $1,086,000 respectively compared with $359,000 and $1,702,000 respectively for the corresponding periods of the previous year. For the three months ended March 31, 2008, the increase in interest expense resulting from the new debt financings and the impact from marginally lower revenues ($182,000), a reflection of the merchant enrolling and activation process explained in earlier paragraph, on the Net Loss, was partially offset by lower SG&A ($255,000).
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 nine month period
Ended March 31, 2008
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)
MARCH 31, JUNE 30,
2008 2007
------------- -------------
$ $
ASSETS
Current:
Cash and cash equivalents 762,578 910,995
Accounts receivable 969,908 737,485
Transaction credits 7,361,968 5,390,412
Prepaid expenses and sundry assets 110,474 185,955
------------- -------------
9,204,928 7,224,847
------------- -------------
Long-term:
Property, plant and equipment and
other assets 913,920 775,733
TOTAL ASSETS 10,118,848 8,000,580
------------- -------------
------------- -------------
LIABILITIES
Current:
Loan payable (note 5) 546,353 -
Accounts payable and accrued liabilities 3,598,063 3,707,243
------------- -------------
4,144,416 3,707,243
------------- -------------
Long-term:
Other liabilities 265,955 450,856
Non-convertible debenture payable (note 6) 2,419,907 -
Convertible debenture payable 4,340,877 4,042,335
------------- -------------
7,026,739 4,493,191
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11,171,155 8,200,434
------------- -------------
SHAREHOLDERS' (DEFICIENCY)
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 460,823 412,223
Equity portion of debentures (note 7) 2,299,085 2,114,341
Deficit (27,922,311) (26,836,514)
------------- -------------
(1,052,307) (199,854)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIENCY) 10,118,848 8,000,580
------------- -------------
------------- -------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF LOSS
(unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
2008 2007 2008 2007
$ $ $ $
REVENUE 2,510,016 2,692,237 8,591,543 8,369,354
Direct expenses 740,052 812,668 3,332,101 2,787,194
------------- ------------- ------------- -------------
GROSS PROFIT 1,769,964 1,879,569 5,259,442 5,582,160
------------- ------------- ------------- -------------
OPERATING EXPENSES
Selling and
marketing 692,883 941,359 2,279,884 2,546,369
General and
administrative 965,401 971,538 2,885,238 2,739,262
------------- ------------- ------------- -------------
1,658,284 1,912,897 5,165,122 5,285,631
CONTRIBUTION FROM
OPERATIONS 111,680 (33,328) 94,320 296,529
Re-structuring
costs - - - 1,026,156
Stock-based
compensation 16,200 16,200 48,600 152,575
------------- ------------- ------------- -------------
PROFIT/(LOSS) BEFORE
AMORTIZATION 95,480 (49,528) 45,720 (882,202)
Amortization of
property, plant
and equipment 78,929 60,192 198,981 175,099
------------- ------------- ------------- -------------
PROFIT/(LOSS)
BEFORE INTEREST 16,551 (109,720) (153,261) (1,057,301)
Interest expense
Loan payable, and
non convertible
debenture 119,020 - 129,182 -
Stated interest
on convertible
debenture 149,589 154,416 467,863 380,512
Accretion charge
on convertible
debenture and
amortization of
deferred
financing charges 137,760 94,484 335,491 264,300
------------- ------------- ------------- -------------
NET (LOSS) AND
COMPREHENSIVE LOSS
FOR THE PERIOD (389,818) (358,620) (1,085,797) (1,702,113)
------------- ------------- ---------------------------
------------- ------------- ---------------------------
NET (LOSS) PER
COMMON SHARE (0.01) (0.01) (0.02) (0.02)
--------------------------- ---------------------------
--------------------------- ---------------------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF DEFICIT
(unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
2008 2007 2008 2007
$ $ $ $
BALANCE AT THE
START OF PERIOD (27,532,493) (25,585,706) (26,836,514) (24,242,213)
Net (loss) for the
Period (389,818) (358,620) (1,085,797) (1,702,113)
------------- ------------- ------------- -------------
BALANCE AT THE END
OF PERIOD (27,922,311) (25,944,326) (27,922,311) (25,944,326)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
2008 2007 2008 2007
$ $ $ $
OPERATING
ACTIVITIES
Net loss for the
period (389,818) (359,620) (1,085,797) (1,703,113)
Items not affecting cash
Amortization of
property, plant
and equipment 78,929 60,192 198,981 175,099
Accretion charge
on convertible
debenture 94,872 74,234 249,871 195,522
Amortization of
deferred financing
charges 42,888 20,250 85,620 68,778
Stock-based
compensation 16,200 16,200 48,600 152,575
------------- ------------- ------------- -------------
(156,929) (188,744) (502,725) (1,111,139)
Changes in non-cash
working capital items
Accounts
receivable 419,502 806,278 (232,441) 111,316
Transaction
credits (1,948,722) 5,599 (1,971,556) (2,215,904)
Prepaid expenses
and sundry assets (12,680) 10,036 75,481 32,179
Accounts payable
and accrued
liabilities (389,377) (282,748) (109,163) 29,112
------------- ------------- ------------- -------------
(1,931,277) 539,165 (2,237,679) (2,043,297)
Decrease in
Long-term other
liabilities (6,700) (68,099) (184,900) 500,921
------------- ------------- ------------- -------------
Cash utilized in
operating
activities (2,094,906) 282,322 (2,925,304) (2,653,515)
FINANCING
ACTIVITIES
Proceeds from
convertible
debenture, net - (39,781) - 1,619,944
Proceeds from
non-convertible
debenture, net 662,557 - 2,582,557 -
Proceeds from
draw of credit
facility 3,720 - 710,210 -
Credit facility
fees (1,383) - (178,713) -
------------- ------------- ------------- -------------
664,894 (39,781) 3,114,054 1,619,944
INVESTING ACTIVITIES
Purchase of
property, plant
and equipment (67,252) (56,645) (337,167) (256,309)
MOVEMENT IN CASH
AND CASH
EQUIVALENTS
DURING THE PERIOD (1,497,264) 185,896 (148,417) (1,289,880)
Cash and cash
equivalents at
the beginning of
the period 2,259,842 331,266 910,995 1,807,042
CASH AND CASH
EQUIVALENTS AT
END OF PERIOD 762,578 517,162 762,578 517,162
ADDITIONAL INFORMATION
Interest paid 114,237 - 414,237 295,357
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended March 31, 2008
(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 nine months ended March 31,
2008 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 March 31, 2008 the maximum number of shares issuable under the plan
was 12,128,858, and there were 11,999,356 employee stock options
outstanding at exercise prices between $0.045 to $0.15, expiring between
July 9, 2008 and March 17, 2013.
During the three months ended March 31, 2008, the Company issued
3,024,356 stock options to its employees; on January 10, 300,000 options
at exercise price of $0.05, vesting equally over three years, expiring
January 2012, and on March 17, 2,724,356 options at an exercise price of
$0.045, vesting after a year, expiring March, 2013.
125,000 stock options were forfeited or expired during the three months
ended March 31, 2008.
The Company has recorded stock option expense of $16,200 and $48,600 for
the three and nine months ended March 31, 2008, respectively.
4. DEFERRED COSTS
During the period Company continued development of new processing systems
for its CIBC Advantex programs. The costs incurred for the quarter and to
date on this project are $61,999 and $510,239 respectively and are
included in property, plant and equipment. Certain modules of the system
were implemented during the current year, and the Company commenced
amortization on these modules. An amount of $33,600 and $59,678 is
reflected in amortization expense for the three and nine months ended
March 31, 2008 related to the new processing systems.
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 is 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 are 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 fashion establishments.
The financing fees of this credit facility were $178,713, have been
deferred, and are being amortized over the term of the facility. The
amount outstanding under this facility at March 31, 2008 was $710,210.
The loan payable amount disclosed on the Balance Sheet is net of the
deferred financing fees of $163,857.
6. NON-CONVERTIBLE DEBENTURE
In December, 2007, the Company issued 2,000 units of non-convertible
debentures for gross proceeds of $2,000,000. The closing of the second
and final tranche of the non-convertible debt offering was completed on
January 30, 2008, and the Company issued an additional 665 units, for
gross proceeds of $665,000. Certain Directors and officers of the Company
participated in the second tranche, purchasing 110 units. Financing fees
of $82,442 related to these debentures have been deferred and will be
amortized over the term of the debentures.
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 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 non-convertible
debentures was bifurcated into debt and equity portions based on the
estimated fair value of the debt and equity components. Accordingly,
$184,744 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%
The amount of non-convertible debentures is disclosed under long-term
liabilities:
Gross Proceeds of debentures $2,665,000
Deferred financing fees (75,776)
Accretion charges to date 15,427
Equity portion of debentures (184,744)
------------
Non - convertible debenture payable $2,419,907
------------
7. EQUITY PORTION OF DEBENTURES
As at March 31, 2008
--------------------
Equity portion of convertible debenture $2,114,341
Equity portion of non-convertible debenture (note 6) 184,744
------------
$2,299,085
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%SEDAR: 00004122E