ADX: TSX
TORONTO, Nov. 6 /CNW/ - Advantex Marketing International Inc. (TSX:ADX)
today reported first quarter results for the three months ended September 30,
2006.
For the quarter ended September 30, 2006, Gross Revenue from continuing
operations was $19.0 million, compared with $17.8 million in corresponding
quarter previous year. Net Revenue (defined as Gross Revenue less the Cost of
Purchasing Transaction Credits) for Q1 of the current fiscal year was
$2.3 million versus $1.9 million in the corresponding quarter in the previous
year. Net Revenue from core activities (Canadian Credit Card Loyalty and
Online Shopping Malls) for the quarter increased $0.5 million to $2.3 million.
"This quarter was a point of inflection for the Company," said G. Randall
Munger, Chairman & Chief Executive Officer of Advantex. "The year-over-year
improvements demonstrate the cost reductions implemented and the traction
gained through the introduction of our Advance Purchase Marketing Programs.
The recently announced debt facility is required to enable the Company to
continue this upward momentum, and is expected to deliver improved financial
performance throughout fiscal 2007."
"We are experiencing significant demand for our Advance Purchase
Marketing programs," said Kelly E. Ambrose, President and Chief Operating
Officer of Advantex. "Our programs meet the needs of merchants, securing their
future sales, accelerating cash flow, delivering marketing with customer
rewards, and increasing business intelligence. This approach is proving to be
very popular, resulting in a backlog of merchant funding commitments."
Net Revenue from the Company's Canadian merchant loyalty programs
increased 23% over the corresponding quarter in the previous year, confirming
the positive impact that the Advance Purchase Marketing Programs are having on
the business.
Net Revenue from the Company's Online Shopping Mall programs increased
19% (in US dollars) when compared with the previous year. The Company earns
its revenue in US Dollars from its Online Shopping Malls, reported in Canadian
dollars on the consolidated financial statements. Revenue from Online Shopping
Malls is expected to increase during Q2 2007, reflecting higher customer
purchase activity for the holiday season.
Gross Profit was $1.5 million in the current quarter compared to
$1.3 million in Q1 2006. This growth is principally the result of the
increased revenue generated by the Advance Purchase Marketing program.
The Company's Net Loss was $0.4 million ($nil per share) compared with a
loss of $0.9 million ($0.02 per share) in Q1 of the previous year. The
previous year includes $0.1 million from the sale of the Samplex business,
noted as Earnings from Discontinued Operations. As well Q1 of previous year
was impacted by one-time charges. After adjusting for the abovementioned
factors, results from operations improved by $0.5 million year-over-year.
Working Capital was $3.7 million at the end of June 30, 2006 and
$3.5 million at the end of September 30, 2006. During the three-month period,
the Company deployed available funds to support the growth of its Advance
Purchase Marketing program, resulting in increased revenue for the period.
This course of action is reflected on the Balance Sheet as a decrease in Cash
and Cash Equivalents ($0.1 million at September 30, 2006 compared to $1.8
million at June 30, 2006), and an increase in Transaction Credits ($5.0
million at September 30, 2006 versus $3.9 million the previous year).
Transaction Credits are a good indicator of future profitability.
Financing
The Company's Advance Purchase Marketing Programs are accelerating
merchant participation and delivering increased returns on assets deployed.
The scalability of the Advance Purchase Marketing Programs, however, are
dependent upon the Company's access to capital. Management has been actively
seeking funding avenues to support program growth.
Positive response to the Advance Purchase Marketing Programs among
merchants created a critical and time-sensitive need for additional funds to
deploy to new merchants whose participation in Advantex programs was scheduled
to commence before the holiday season. Failure to purchase the agreed upon
amount of Transaction Credits from these merchants on a timely basis would
result in the cancellation of the new merchant agreements, causing a
significant loss of revenue potential and substantial damage to the Company's
reputation among employees and merchants.
To satisfy this funding requirement, the Company expects to close a
minimum $6.0 million financing on or about November 8, 2006. The financing
takes the form of a convertible debenture, bearing annual interest at 10%
(consistent with the existing debenture), maturing in December 2011, and
convertible at $0.10 per share. The existing convertible debenture with a face
value of $4.0 million, maturing April 2008, will be rolled-over into the new
convertible debenture to be issued pursuant to the financing.
Importantly, the new financing will give the Company access to
approximately $1.7 million (net of issuance costs of approximately
$0.3 million), which will be used to fund its Advance Purchase Marketing
Programs as required. When the additional funds are deployed to merchants,
Transaction Credits will grow to approximately $6.7 million, a 34% increase.
About Advantex Marketing International Inc.
Advantex Marketing International Inc. is a leading marketing services
company, specializing in Advance Purchase Marketing Programs for merchants,
coalition loyalty rewards programs, and Online Shopping Malls. Advantex
loyalty partners include CIBC, United Airlines, Delta Air Lines, The New York
Times, and other major North American corporations, as well as a growing list
of restaurants, retailers, golf courses, boutique hotels, inns, resorts and
spas. Advantex is a public company, traded on the Toronto Stock Exchange under
the symbol "ADX". For additional information on Advantex, please visit
www.advantex.com.
This press release includes statements about expected future events and
financial results that are forward-looking in nature and subject to risks and
uncertainties. Advantex cautions that actual performance may be affected by a
number of factors, many of which are beyond its control. Future events and
results may vary substantially from what Advantex currently foresees.
Discussion of the various factors that may affect future results is contained
in Advantex's recent filings with Canadian securities regulatory authorities.
<<
ADVANTEX MARKETING INTERNATIONAL INC
CONSOLIDATED FINANCIAL STATEMENTS
For the three month period ended September 30, 2006
>>
The accompanying consolidated financial statements have been prepared by
management and approved by the Board of Directors of the Company. Management
is responsible for the information and representations contained in these
consolidated financial statements and other sections of this report.
An auditor has not performed a review of these financial statements.
<<
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(unaudited - note 1)
AS AT
(in thousands) SEPTEMBER 30, JUNE 30,
2006 2006
($) ($)
ASSETS
Current:
Cash and cash equivalents $ 141 $ 1,807
Accounts receivable 1,013 909
Transaction credits 5,002 3,916
Prepaid expenses and sundry assets 132 155
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6,288 6,787
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Long Term:
Capital and other assets 638 624
Deferred financing charges 163 189
------------ ------------
801 813
------------ ------------
TOTAL ASSETS $ 7,089 $ 7,600
------------ ------------
------------ ------------
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 2,915 $ 3,122
Long Term:
Convertible debenture payable 3,572 3,519
------------ ------------
6,487 6,641
------------ ------------
SHAREHOLDERS' EQUITY
Capital Stock
Class A preference shares 4 4
Common shares 24,106 24,106
------------ ------------
24,110 24,110
Contributed surplus 255 243
Equity portion of convertible debenture 848 848
Deficit (24,611) (24,242)
------------ ------------
602 959
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,089 $ 7,600
------------ ------------
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(unaudited - note 1)
(in thousands except net loss per
common share) 2006 2005
------------ ------------
GROSS REVENUE $ 18,990 $ 17,826
Cost of purchasing transaction credits 16,728 15,906
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NET REVENUE 2,262 1,920
Direct expenses 725 647
------------ ------------
GROSS PROFIT 1,537 1,273
OPERATING EXPENSES
Selling 806 716
General and administrative 869 1,274
------------ ------------
1,675 1,990
LOSS BEFORE AMORTIZATION AND INTEREST (138) (717)
Amortization 57 66
Interest expense
Stated interest on convertible debenture 95 104
Accretion on convertible debenture and
amortization of deferred financing charges 79 71
------------ ------------
231 241
------------ ------------
LOSS FROM CONTINUING OPERATIONS (369) (958)
Earnings from discontinued operations - 100
------------ ------------
NET LOSS $ (369) $ (858)
------------ ------------
------------ ------------
EARNINGS (LOSS) PER COMMON SHARE
Continuing Operations $ 0.00 $ (0.02)
Discontinued Operations 0.00 0.00
------------ ------------
NET LOSS PER COMMON SHARE $ 0.00 $ (0.02)
------------ ------------
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(unaudited - note 1)
(in thousands) 2006 2005
------------ ------------
BALANCE AT THE BEGINNING OF PERIOD $ (24,242) $ (21,746)
Net Loss (369) (858)
------------ ------------
BALANCE AT THE END OF PERIOD $ (24,611) $ (22,604)
------------ ------------
------------ ------------
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(unaudited - note 1)
(in thousands) 2006 2005
------------ ------------
OPERATING ACTIVITIES
Net loss from continuing operations $ (369) $ (958)
Items not affecting cash
Amortization of capital assets 57 66
Accretion on convertible debenture 53 45
Amortization of deferred financing charges 26 26
Cost of shares issued to CIBC - 35
Amortization of stock based compensation 12 -
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(221) (786)
------------ ------------
Changes in non-cash working capital items
Accounts receivable (104) 162
Transaction credits (1,086) 345
Prepaid expenses and sundry assets 23 46
Accounts payable and accrued liabilities (207) (546)
------------ ------------
(1,374) 7
------------ ------------
(1,595) (779)
INVESTING ACTIVITIES
Purchase of capital assets (71) (9)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -
CONTINUING OPERATIONS (1,666) (788)
DISCONTINUED OPERATIONS - 100
Cash and cash equivalents at the beginning
of the period 1,807 2,970
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CASH AND CASH EQUIVALENTS AT THE END
OF PERIOD $ 141 $ 2,282
------------ ------------
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ADDITIONAL INFORMATION
Interest paid $ 198 $ 206
------------ ------------
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2006 (un-audited - note 1)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements for the three months
ended September 30, 2006 have been prepared on a consistent basis
with the Company's annual consolidated financial statements for the
year ended June 30, 2006 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. CAPITAL STOCK
Issued common shares
Number Amount
------------ ------------
Balance as at June 30, 2006, and
September 30, 2006 97,030,868 $24,106,281
------------ ------------
------------ ------------
3. CONTRIBUTED SURPLUS
Balance as at June 30, 2006 $ 243,448
Employee Stock Option expense 11,500
------------
Balance as at September 30, 2006 $ 254,948
4. STOCK OPTIONS
As at September 30, 2006 there were 5,505,000 employee stock options
outstanding at exercise prices between $ 0.06 to $ 0.33, expiring
between November 15, 2006 and September 28, 2011.
On September 28, 2006 the Company issued 275,000 stock options to
certain employees at exercise price of $0.06, vesting equally over
four years, and expiring September 28, 2011. The Company calculated
the fair value of the stock options issued using the Black-Scholes
option-pricing model and determined their fair value to be $10,670.
The assumptions used in the model were risk free rate of 5%, an
expected life of 5 years, an expected volatility of 75% and no
expected dividends on the common shares.
During the period 37,500 stock options were forfeited or expired.
The Company has recorded $11,500 of stock option expense in these
financial statements as this quarter's expense with respect to fair
value of stock options issued during Fiscal 2006.
5. DEFERRED COSTS
During the period the Company commenced development of new processing
systems for its Canadian Credit Card Loyalty programs. The costs
incurred to date on this project approximate $50,000 and are included
in capital and other assets. Amortization will commence when systems
are in use.
6. COMPARTIVES
Certain of the comparative figures have been reclassified to conform
to consolidated financial statement presentation adopted in current
period.
7. SUBSEQUENT EVENT
On or about November 8, 2006, the Company intends to close a
$6 million secured convertible debenture. The debenture will bear
interest at 10% per annum payable semi-annually, maturing in December
2011. The debenture will be convertible into common shares at the
holder's option at a price of $0.10 per share. Issuance costs related
to this debenture will include cash commissions of $225,000, and
500,000 warrants that allow for the purchase of Advantex stock at a
price of $0.10 for a period of two years.
The proceeds of the debenture will be used to retire the existing
convertible debenture of the Company, to fund the expansion of the
Company's programs and for general working capital purposes. The
existing debenture had a carrying value at September 30, 2006 of
$3,572,000 and an amount due on maturity in April 2008 of $3,975,000.
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%SEDAR: 00004122E
