ADX: TSX
TORONTO, Feb. 14 /CNW/ - Advantex Marketing International Inc. (TSX:ADX) today reported results for the three and six months ended December 31, 2006. All key performance indicators showed significant improvement year over year as follows:
- Profit from continuing operations: $0.1 million for the quarter
(see chart on Operating Results), an improvement of $0.4 million
compared to corresponding period previous year, and $0.9 million
improvement year-to-date
- Operating Profit: $0.3 million for the quarter (see chart on
Operating Results), an improvement of $0.4 million; $0.9 million
improvement year-to-date
- Gross Profit: up 36.0% to $ 2.2 million for the quarter; 29.2 %
increase year-to-date
- Net Revenue: up 31.5 % to $ 3.4 million for the quarter; 25.7 %
increase year-to-date
- Gross Revenue: up 29.6 % to $ 23.4 million for the quarter; 18.1 %
increase year-to-date
- Transaction Credits (assets deployed to merchants):
up $2.2 million from June 30, 2006 to $6.1 million
On December 5, 2006, G. Randall Munger stepped down from his roles as
Chairman, Chief Executive Officer and director of the Company and Kelly E.
Ambrose was appointed President and Chief Executive Officer.
"Q2 2007 was the first quarter in recent history in which we delivered an
operating profit, a major accomplishment enabled by the growth of our Advance
Purchase Marketing Programs," said Mr. Ambrose. "It is very exciting to note
that we have an established pipeline of merchants waiting to receive funding
and could quickly deploy several more million dollars into the market,
generating an attractive rate of return."
Operating Results
The following chart(x) has been included to provide a more useful
analysis to the reader.
(In millions of dollars) Q2 YTD
F 2007 F 2006 F 2007 F 2006
------ ------ ------ ------
Net Revenue $ 3.4 $ 2.6 $ 5.7 $ 4.5
Direct Expenses (1.3) (1.0) (2.0) (1.6)
----- ----- ----- -----
Gross Profit 2.2 1.6 3.7 2.9
Ongoing selling, general &
administrative expenses (1.8) (1.7) (3.5) (3.6)
----- ----- ----- -----
Operating Profit / (Loss) before
restructuring 0.3 (0.1) 0.2 (0.7)
--- ----- --- -----
Amortization and Interest (0.3) (0.3) (0.5) (0.5)
----- ----- ----- -----
Profit (Loss) before restructuring $ 0.1 $(0.4) $(0.3) $(1.2)
Restructuring Costs (1.0) (0.2) (1.0) (0.3)
----- ----- ----- -----
Net Loss, continuing operations $(1.0) $(0.6) $(1.3) $(1.6)
----- ----- ----- -----
(x) Presentation is not a Canadian GAAP disclosure. Some numbers may not
add due to rounding
Net Revenue (defined as Gross Revenue less the Cost of Purchasing Transaction Credits) for Q2 2007 was $3.4 million, an increase of 31.5% over the corresponding quarter in the previous year. This growth reflects the positive impact of the increase in assets deployed ($4.1 million compared to December 2005) in the Company's Advance Purchase Marketing Programs, leading to an increase in Net Revenue from the Company's CIBC programs of 48.9% over the corresponding quarter in the previous year.
Gross Profit was $2.2 million in the quarter compared to $1.6 million for the same quarter last year. This growth is principally the result of expanding the Advance Purchase Marketing program.
The reported Net Loss of $1.2 million ($0.01 per share) for Q2 2007 and the reported Net Loss of $0.6 million for the same period a year ago reflects the impact of restructuring costs in both periods. Excluding the impact of restructuring costs, the Company delivered a net profit from continuing operations of $0.1 million in Q2 2007 versus a net loss of $0.3 million in Q2 2006, a $0.4 million improvement.
For the six-month period ending December 31, 2006, Net Revenue was $5.7 million, an increase of $1.2 million or 25.7% over the same six-month period a year ago. Gross Profit was $3.7 million, an increase of $0.8 million or 29.2% over the same six-month period a year ago. The year to date Loss before Amortization and Interest was $0.8 million and Net Loss was $1.3 compared to $1.1 million and $1.5. However, excluding restructuring costs in both years and earnings from discontinued operations in 2005, the Company delivered year-to-date earnings of $0.2 million before amortization and interest and a year-to-date net loss of $0.3 million, improvements of $0.9 million and $0.9 million respectively from the same six-month period last year.
Working Capital was $3.7 million at the end of June 30, 2006 and $4.8 million at the end of December 31, 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 ($0.3 million at December 31, 2006 compared to $1.8 million at June 30, 2006), and an increase in Transaction Credits ($6.1 million at December 31, 2006 versus $3.9 million at June 30, 2006). Transaction Credits are a likely indicator of future profitability.
Based on current business levels, the Company expects to report results close to breakeven at the end of the fiscal year, excluding one-time restructuring costs. Quarterly results for the remainder of the fiscal year are expected to reflect the seasonality of consumer purchasing behaviour patterns.
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 and six-month periods
ended DECEMBER 31, 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 DECEMBER 31, 2006 JUNE 30, 2006
(in thousands) ($) ($)
ASSETS
Current:
Cash and cash equivalents $ 331 $ 1,807
Accounts receivable 1,604 909
Transaction credits 6,138 3,916
Prepaid expenses and sundry assets 133 155
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8,206 6,787
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Long term:
Capital and other assets 709 624
Deferred financing charges 398 189
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1,107 813
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TOTAL ASSETS $ 9,313 $ 7,600
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LIABILITIES
Current:
Accounts payable and
accrued liabilities $ 3,436 $ 3,122
Long term:
Other liabilities 569 -
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Convertible debenture payable 4,279 3,519
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4,848 3,519
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TOTAL LIABILITIES 8,284 6,641
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SHAREHOLDERS' EQUITY
Capital Stock:
Class A preference shares 4 4
Common shares 24,106 24,106
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24,110 24,110
Contributed surplus 379 243
Equity portion of
convertible debenture 2,127 848
Deficit (25,587) (24,242)
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1,029 959
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 9,313 $ 7,600
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF NET LOSS (unaudited - note 1)
Three Months Ended Six Months Ended
December 31 December 31
2006 2005 2006 2005
(In thousands except net
loss per common share) ($) ($) ($) ($)
GROSS REVENUE $ 23,455 $ 18,100 $ 42,445 $ 35,926
Cost of purchasing
transaction credits 20,040 15,504 36,768 31,410
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NET REVENUE 3,415 2,596 5,677 4,516
Direct expenses 1,250 1,004 1,975 1,651
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GROSS PROFIT 2,165 1,592 3,702 2,865
OPERATING EXPENSES
Selling and marketing 799 672 1,605 1,388
General and administrative 911 1,032 1,768 2,197
Restructuring costs 1,027 221 1,027 330
Stock based compensation 124 - 136 -
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2,861 1,925 4,536 3,915
(LOSS) BEFORE AMORTIZATION
AND INTEREST (696) (333) (834) (1,050)
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Amortization 58 86 115 152
Interest
Stated interest on
convertible debenture 132 104 227 208
Accretion on convertible
debenture and
Amortization of deferred
financing charges 90 81 169 152
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280 271 511 512
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NET (LOSS) -
CONTINUING OPERATIONS (976) (604) (1,345) (1,562)
NET INCOME -
DISCONTINUED OPERATIONS - - - 100
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NET (LOSS)
FOR THE PERIOD $ (976) $ ( 604) $ (1,345) $ (1,462)
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NET (LOSS)
PER COMMON SHARE
- Continuing Operations $ (0.01) $ (0.01) $ (0.02) $ (0.02)
- Discontinued
Operations $ 0.00 $ 0.00 $ 0.00 $ 0.00
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ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT (unaudited - note 1 )
Three Months Ended Six Months Ended
December 31 December 31
2006 2005 2006 2005
(In thousands) ($) ($) ($) ($)
BALANCE AT THE BEGINNING
OF THE PERIOD $(24,611) $(22,604) $(24,242) $(21,746)
Net (loss) (976) (604) (1,345) (1,462)
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BALANCE AT THE END OF
THE PERIOD $(25,587) $(23,208) $(25,587) $(23,208)
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - note 1)
Three Months Ended Six Months Ended
December 31 December 31
2006 2005 2006 2005
(In thousands) ($) ($) ($) ($)
OPERATING ACTIVITIES
Net loss - continuing
operations $ (976) $ (604) $ (1,345) $ (1,562)
Items not affecting cash:
Amortization of
capital assets 58 86 115 152
Accretion on convertible
debenture 68 55 121 100
Amortization of deferred
financing charges 22 26 48 52
Cost of shares issued
to CIBC - - - 35
Amortization of stock
based compensation 124 - 136 -
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(704) (437) (925) (1,223)
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Changes in non-cash
working capital items (1,207) 206 (2,581) 213
Changes in long term
payables 569 - 569 -
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Cash provided by/(used in)
operating activities (1,342) (231) (2,937) (1,010)
INVESTING ACTIVITIES
Acquisitions of
capital assets (129) (30) (200) (40)
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FINANCING ACTIVITIES
Proceeds from convertible
debenture, net 1,661 - 1,661 -
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NET MOVEMENT IN CASH AND
CASH EQUIVALENTS
CONTINUING OPERATIONS 190 (261) (1,476) (1,050)
DISCONTINUED OPERATIONS - - - 100
Cash and cash equivalents
at the beginning of the
period 141 2,282 1,807 2,971
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CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 331 $ 2,021 $ 331 $ 2,021
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ADDITIONAL INFORMATION
Interest paid $ 97 $ - $ 295 $ 206
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
Notes to Financial Statements
For the six months ended December 31, 2006 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim unaudited financial statements for the six months ended
December 31, 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 97,030,868 $ 24,106,281
December 31, 2006
3. CONVERTIBLE DEBENTURE
In November 2006, the Company revised the terms of its existing
convertible debenture and issued an additional $2,025,000 of
convertible debentures under the new terms. The existing debentures
had an interest rate of 10%, a maturity value of $3,975,000, a
conversion price between $0.15 (a maturity value of $3,850,000) and
$0.13 (a maturity value of $125,000), and matured in April 2008. The
term of the debentures was extended to December 2011 and now allows
the Company, under certain conditions, to obtain additional secured
debt financing. In addition, the conversion price of the debentures
was reduced to $0.10 per common share.
The convertible debentures bear interest at 10% per annum payable
semi-annually in arrears in June and December of each calendar year,
mature on December 9, 2011 and are secured by a general security
interest over assets of the Company and its subsidiaries. The
significant financial covenants of the debentures require the Company
to meet a defined level of working capital at quarter ends commencing
December 31, 2006, and interest coverage commencing the quarter
ending March 31, 2008. During the period ended December 31, 2006 the
Company met its covenants.
Costs related to the revision of the debentures terms and issuance of
additional debentures totalled $365,275 and included $10,000 for
500,000 compensation warrants issued to the financing agent of the
transaction (note 4).
In accordance with the recommendations of the Canadian Institute of
Chartered Accountants, the fair value of the new debentures was
bifurcated into debt and equity portions and a fair value adjustment
was applied to the conversion option of the existing convertible
debentures. Accordingly, $1,386,210 was allocated to the equity
portion of the convertible options. The debt portion of the
convertible debentures will be accreted to its face value at maturity
over the term of the debt by way of a charge to interest expense. In
addition, $107,756 of deferred financing charges was reclassified to
the equity portion of the convertible debentures.
Debt Equity Deferred
portion portion Financing Costs
------- ------- ---------------
Balance June 30, 2006 $ 3,518,706 $ 848,297 $ 189,170
Face value of additional
convertible debt issued 2,025,000 - -
Debt issuance costs - - 365,275
Allocation to the equity
portion of the convertible
debentures (1,386,210) 1,386,210 -
Allocation of issue costs
to the equity portion of
the convertible debentures - (107,756) (107,756)
Amortization of issue costs - - (48,525)
Accretion charge 121,289 - -
Balance December 31, 2006 $4,278,785 $2,126,751 $ 398,164
The Black-Scholes option pricing model was used to determine the fair
value of the conversion feature in the convertible debentures. The
following factors and assumptions were used in the Black-Scholes model:
Common share price $ 0.05
Exercise price of conversion option of $ 0.10
Expected life of conversion option 5 years
Expected volatility 89%
Risk free interest rate 3.75%
4. STOCK OPTIONS AND WARRANTS
As at December 31, 2006 there were 8,100,000 employee stock options
outstanding at exercise prices between $0.05 to $0.25, expiring
between February 2007 and December 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.
On December 21, 2006 the Company issued 2,625,000 stock options to
the external directors of the Company at exercise price of $0.055,
vesting immediately, and expiring December, 2011.
The Company calculated the fair value of the stock options using the
Black-Scholes option pricing model and the following factors and
assumptions.
Options granted Options granted
September 28 December 21
Expected life 5 years 5 years
Expected volatility 75% 89%
Risk free rate 5% 3.75%
Expected dividends Nil Nil
Fair value $10,670 $102,375
The Company has recorded $11,500 and $136,375 of stock based compensation
expense for the three and six months respectively of the current year
(previous year $nil) and contributed surplus has increased by $136,375
since June 30, 2006.
67,500 stock options were forfeited or expired during six months ended
December 31, 2006.
Agent Warrants
As described in Note 3, 500,000 compensation Warrants were issued in
connection with the refinancing of the Company's convertible debentures.
Each compensation Warrant entitles the holder to acquire one common share
of the Company at $0.10 until November 9, 2008. The fair value of these
warrants was determined to be approximately $10,000 using the Black-
Scholes option pricing model and the following assumptions:
Expected life 2 years
Expected volatility 102%
Risk free rate 3.75%
Expected dividends Nil
5. DEFERRED COSTS
Since July 2006, the Company has commenced development of new
processing systems for its Canadian Credit Card Loyalty programs. The
costs incurred to date on this project approximate $129,000 and are
included in capital and other assets. Amortization will commence when
systems are in use.
6. RESTRUCTURING
Restructuring costs for the period ended December 31, 2006 relate to
the severance of terminated employees.
On December 5, 2006, Mr. Randall Munger stepped down as Chairman and
CEO and restructuring costs include $824,250 of his severance package
of which $569,021 is payable between January 2008 and May, 2009 and
is included in other liabilities on the balance sheet.
7. RELATED PARTIES
The following related parties participated in the issuance of
convertible debentures described in note 3.
Principal Amount
Chief Executive Officer $ 50,000
Directors $275,000
Interim CFO $ 40,000
8. COMPARATIVES
Certain of the comparative figures have been reclassified to conform
to consolidated financial statement presentation adopted in current
period.
%SEDAR: 00004122E