ADX: TSX
TORONTO, May 15 /CNW/ - Advantex Marketing International Inc. (TSX:ADX) today reported results for the three and nine months ended March 31, 2007. All key performance indicators continued to show significant improvement compared to the same period in the previous year.
- Net Revenue of $2.7 million; Up $0.8 million or 41.5%
- Gross Profit of $1.9 million; Up $0.5 million or 38.8%
- Net Loss of $0.4 million; An improvement of $0.2 million
- Transaction Credits of $6.1 million; Up $2.2 million compared to
June 30, 2006
- YTD operating profit of $0.2 million for fiscal 2007, a $1.2 million
improvement from the $1.0 million operating loss reported for the same
period in the previous year.
"Q3 is historically our weakest reporting period due to decreases in
consumer spending levels after the December holidays, and yet Advantex
remained on its course towards profitability. Every quarter of this fiscal
year has shown marked improvement over the prior year," said Mr. Kelly
Ambrose, President and Chief Executive Officer of Advantex. "The majority of
our success is attributable to the growth of our Advance Purchase Marketing
Programs and our focus on cost containment."
The Company is following a two-fold plan to continue improving its
financial performance:
1. Maximizing the amount deployed as Transaction Credits under its CIBC
program. Transaction Credits are a good indicator of future revenue.
The Company is actively working to raise additional debt financing to
fund future growth of Transaction Credits.
2. Working with its Airline channel partners to develop the Online
Shopping Mall business further.
The following presentation is not in accordance with Canadian GAAP
disclosures, but has been included to provide a more useful analysis to the
reader.
(In millions of dollars) Q3(x) YTD(x)
--------------------- ---------------------
F 2007 F 2006 F 2007 F 2006
------ ------ ------ ------
Gross Revenue:
CIBC program
Advance Purchase Model $ 22.0 $ 14.7 $ 62.0 $ 48.7
Marketing Only Model 0.4 0.2 1.3 0.7
Online Shopping Malls 0.6 0.5 2.0 1.7
--- --- --- ---
Gross Revenue from Core
Activities 23.0 15.4 65.3 51.1
Other programs 0.0 0.0 0.2 0.2
--- --- --- ---
Total Gross Revenue 23.0 15.4 65.5 51.3
Cost of Purchasing Transaction
Credits (20.3) (13.5) (57.1) (44.9)
------ ------ ------ ------
For Advance Purchase Model
Net Revenue 2.7 1.9 8.4 6.4
Direct Expenses (0.8) (0.5) (2.8) (2.2)
----- ----- ----- -----
Gross Profit 1.9 1.4 5.6 4.2
Ongoing selling, general &
administrative expenses (1.9) (1.6) (5.4) (5.2)
----- ----- ----- -----
Operating Profit (Loss)
before restructuring $ 0.0 $ (0.2) $ 0.2 $ (1.0)
-------- --------- -------- ---------
Amortization and Interest (0.4) (0.3) (0.8) (0.8)
----- ----- ----- -----
Profit (Loss) before
restructuring $ (0.4) $ (0.5) $ (0.6) $ (1.8)
--------- --------- --------- ---------
Restructuring Costs (0.0) (0.0) (1.0) (0.3)
----- ----- ----- -----
Net Loss, continuing
operations $ (0.4) $ (0.5) $ (1.7) $ (2.0)
--------- --------- --------- ---------
Discontinued operations - - - 0.1
-------- -------- -------- --------
Net Loss $ (0.4) $ (0.5) $ (1.7) $ (2.0)
(x)Some numbers may not add due to rounding
Net Revenue (defined as Gross Revenue less the Cost of Purchasing Transaction Credits) for Q3 2007 was $2.7 million, an increase of 41.5% over the corresponding quarter in the previous year. This growth reflects the positive impact of the increase in assets deployed in the Company's Advance Purchase Marketing Programs, leading to an increase in Net Revenue from the Company's CIBC programs of 48.5% over the corresponding quarter in the previous year.
Gross Profit was $1.9 million in the quarter compared to $1.3 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 $359,000 ($ 0.00 per share) for Q3 2007 is an improvement of $182,000 compared to the reported Net Loss of $541,000 for the same period a year ago.
For the six-month period ending March 31, 2007, Net Revenue was $8.4 million, an increase of $2.0 million or 30.4% over the same nine-month period a year ago. Gross Profit was $5.6 million, an increase of $1.4 million or 32.3% over the same nine-month period a year ago. The year-to-date Loss before Amortization and Interest was $0.9 million and Net Loss was $1.7 million versus $1.3 million and $2.0 million respectively in the previous year. However, excluding restructuring costs in both years and earnings from discontinued operations in 2006, the Company shows year-to-date earnings of $0.2 million before amortization and interest and a year-to-date net loss of $0.6 million, both improving $1.1 million from the same nine-month period last year.
Working Capital was $3.7 million at the end of June 30, 2006 and $4.4 million at the end of March 31, 2007. During the nine month period, the Company raised net proceeds of $1.6 million from Convertible Debenture closing and 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 ($0.5 million at March 31, 2007 compared to $1.8 million at June 30, 2006), and an increase in Transaction Credits ($6.1 million at March 31, 2007 versus $3.9 million at June 30, 2006). Transaction Credits are a good indicator of future revenue.
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 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 and uncertainties relating to the availability and costs of financing needed in the future. 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 periods
ended MARCH 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 - note 1)
AS AT MARCH 31, 2007 JUNE 30, 2006
(in thousands) ($) ($)
ASSETS
Current:
Cash and cash equivalents $ 519 $ 1,807
Accounts receivable 797 909
Transaction credits 6,132 3,916
Prepaid expenses and sundry assets 123 155
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7,571 6,787
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Long term:
Capital and other assets 705 624
Deferred financing charges 406 189
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1,111 813
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TOTAL ASSETS $ 8,682 $ 7,600
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LIABILITIES
Current:
Accounts payable and accrued liabilities $ 3,153 $ 3,122
Long term:
Other liabilities 501 -
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Convertible debenture payable 4,353 3,519
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4,854 3,519
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TOTAL LIABILITIES 8,007 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 396 243
Equity portion of convertible debenture 2,115 848
Deficit (25,946) (24,242)
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675 959
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,682 $ 7,600
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(see accompanying notes)
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 2007 2006 2007 2006
per common share) ($) ($) ($) ($)
GROSS REVENUE $ 23,011 $ 15,418 $ 65,455 $ 51,344
Cost of purchasing
transaction credits 20,319 13,515 57,086 44,925
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NET REVENUE 2,692 1,903 8,369 6,419
Direct expenses 813 549 2,787 2,200
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GROSS PROFIT 1,879 1,354 5,582 4,219
OPERATING EXPENSES
Selling and marketing 925 685 2,530 2,073
General and administrative 988 893 2,756 3,090
Restructuring costs - - 1,027 330
Stock based compensation 16 52 153 52
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1,929 1,630 6,466 5,545
(LOSS) BEFORE AMORTIZATION
AND INTEREST (50) (276) (884) (1,326)
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Amortization 60 84 175 236
Interest
Stated interest on
convertible debenture 155 102 381 310
Accretion on convertible
debenture and
Amortization of deferred
financing charges 94 79 264 231
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309 265 820 777
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NET (LOSS) - CONTINUING
OPERATIONS (359) (541) (1,704) (2,103)
NET INCOME - DISCONTINUED
OPERATIONS - - - 100
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NET (LOSS) FOR THE PERIOD $ (359) $ (541) $ (1,704) $ (2,003)
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NET (LOSS) PER COMMON SHARE
- Continuing Operations $ (0.00) $ (0.01) $ (0.02) $ (0.03)
- 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 Nine Months Ended
March 31 March 31
2007 2006 2007 2006
(In thousands) ($) ($) ($) ($)
BALANCE AT THE BEGINNING OF
THE PERIOD $(25,587) $(23,208) $(24,242) $(21,746)
Net (loss) (359) (541) (1,704) (2,003)
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BALANCE AT THE END OF
THE PERIOD $(25,946) $(23,749) $(25,946) $(23,749)
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(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - note 1)
Three Months Ended Nine Months Ended
March 31 March 31
2007 2006 2007 2006
(In thousands) ($) ($) ($) ($)
OPERATING ACTIVITIES
Net loss - continuing
operations $ (359) $ (541) $ (1,704) $ (2,103)
Items not affecting cash:
Amortization of capital
assets 60 84 175 236
Accretion on convertible
debenture 74 53 195 153
Amortization of deferred
financing charges 20 26 69 78
Cost of shares issued
to CIBC - - - 35
Amortization of stock
based compensation 16 52 153 52
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(189) (326) (1,112) (1,549)
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Changes in non-cash working
capital items 540 (1,550) (2,043) (1,237)
Changes in long term payables (68) - 501 -
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Cash provided by/(used in)
operating activities 283 (1,876) (2,654) (2,786)
INVESTING ACTIVITIES
Acquisitions of capital assets (56) (8) (256) (48)
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FINANCING ACTIVITIES
Proceeds from convertible
debenture, net (39) - 1,622 -
Proceeds from issue of common
shares, net - 2,552 - 2,552
Proceeds from sale of assets - 16 - 16
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(39) 2,568 1,622 2,568
NET MOVEMENT IN CASH AND CASH
EQUIVALENTS
CONTINUING OPERATIONS 188 684 (1,288) (266)
DISCONTINUED OPERATIONS - - - -
Cash and cash equivalents at
the beginning of the period 331 2,021 1,807 2,971
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CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 519 $ 2,705 $ 519 $ 2,705
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ADDITIONAL INFORMATION
Interest paid $ 97 $ 206 $ 295 $ 412
(see accompanying notes)
ADVANTEX MARKETING INTERNATIONAL INC.
Notes to Financial Statements
For the nine months ended March 31, 2007 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim unaudited financial statements for the nine months ended
March 31, 2007 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
March 31, 2007 97,030,868 $24,106,281
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 (for maturity value $3,850,000) and
$0.13 (for maturity value $150,000), 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. On May 11, 2007 the working capital covenant
was amended, from fiscal quarter commencing March 31, 2007, to a
current asset test. For the period ended March 31, 2007 the Company
met its covenants.
Costs related to the revision of the debentures terms and issuance of
additional debentures totalled $ 405,052 and included $10,000 for
500,000 compensation warrants issued to the financing agent of the
transaction (note 4). In the quarter $44,000 of legal costs connected
to the financing were received, are included in deferred financing
costs and shown on the cash flow statement.
In accordance with the recommendations of the Canadian Institute of
Chartered Accountants, Handbook section 3861 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, $ 119,492 of deferred financing
charges was reclassified to the equity portion of the convertible
debentures.
Deferred
Equity Financing
Debt portion portion 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 - - 405,052
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 - (119,492) (119,492)
Amortization of issue costs - - (68,770)
Accretion charge 195,523 - -
Balance March 31, 2007 $4,353,019 $2,115,015 $ 405,960
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 March 31, 2007 there were 8,145,000 employee stock options
outstanding at exercise prices between $0.055 to $0.25, expiring
between May 2007 and February 2012.
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.
On February 7, 2007 the Company issued 100,000 stock options to
certain employees and external consultants at exercise price of
$0.115, vesting equally over four years, and expiring February 2012.
The Company calculated the fair value of the stock options using the
Black-Scholes option pricing model and the following factors and
assumptions.
Options Options
granted 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 fair value of the options granted February 7, 2007 is nominal and
accordingly no expense has been recorded.
The Company has recorded $ 16,200 and $ 152,575 of stock based
compensation expense for the three and nine months respectively of
the current year (previous year nine months ended March 2006
$ 51,993) and contributed surplus has increased by $ 152,575 since
June 30, 2006.
122,500 stock options were forfeited or expired during nine months
ended March 31, 2007.
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 $ 142,000 and are
included in capital and other assets. Amortization will commence when
systems are in use.
6. RESTRUCTURING
Restructuring costs for the period ended March 31, 2007 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 $500,922 is payable between April 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 $ 279,683
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