United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE MARKETING NETWORKS, INC.
formerly ALTERNATE POSTAL DELIVERY, INC.
(Exact name of small business issuer as specified in its charter)
Michigan 38-2841197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Ionia, SW, Suite 520, Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
616-235-0698 FAX 616-235-3405
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes (X)
No ( )
As of August 6, 2001, 4,586,005 shares of the issuer's common stock were
outstanding.
This report contains 15 pages.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - June 30, 2001,
and December 31, 2000. . . . . . . . . . . . . . . . . . . 3 & 4
Condensed Consolidated Statements of Operations - three
and six months ended June 30, 2001 and 2000 . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - six
months ended June 30, 2001 and 2000. . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . .7 - 10
Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . .11 - 13
PART II. Other Information:
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
June 30, December 31,
2001 2000
(unaudited)
------------ ------------
Current assets:
<s> <c> <c>
Cash and cash equivalents $2,856,976 $ 3,196,179
Accounts receivable, trade, less
allowance of $100,000 at June 30
and December 31 3,474,194 3,763,937
Prepaid expenses and other assets 151,087 155,655
Refundable federal income tax 28,000 83,000
----------- -----------
Total current assets 6,510,257 7,198,771
Property and equipment:
Computer equipment 267,041 262,371
Furniture and fixtures 147,205 146,869
----------- -----------
414,246 409,240
Accumulated depreciation and
amortization (320,060) (295,368)
----------- -----------
94,186 113,872
Computer software, net 60,308 73,220
Intangible assets, net 2,079,730 2,154,512
----------- -----------
$8,744,481 $ 9,540,375
=========== ===========
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
LIABILITIES
June 30, December 31,
2001 2000
(unaudited)
----------- -----------
Current liabilities:
<s> <c> <c>
Accounts payable $ 924,237 $1,258,353
Accrued liabilities 233,558 150,449
Deferred revenue 22,625 73,301
--------- ---------
Total current liabilities 1,180,420 1,482,103
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized shares, no shares issued and
outstanding
Common stock-no par value, voting, 14,000,000
authorized shares; 4,586,005 and 4,689,105
shares issued and outstanding at June 30, 2001
at December 31, 2000 11,708,282 11,822,347
Accumulated losses, through September 30, 1993
(Note 3) (1,291,039) (1,291,039)
--------- ---------
Total common stock 10,417,243 10,531,308
Accumulated losses, since October 1, 1993
(Note 3) (2,853,182) (2,473,036)
--------- ---------
Total shareholders' equity 7,564,061 8,058,272
--------- ---------
$ 8,744,481 $ 9,540,375
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<s> <c> <c> <c> <c>
Net sales $4,202,135 $5,500,686 $ 7,762,232 $10,770,515
Cost of sales 3,302,604 4,195,527 6,053,523 8,032,429
--------- ---------- ----------- -----------
Gross profit 899,531 1,305,159 1,708,709 2,738,086
Selling, general and
administrative expenses 1,092,725 1,733,178 2,165,981 3,167,610
---------- ---------- ----------- -----------
Loss from operations ( 193,194) ( 428,019) ( 457,272) ( 429,524)
Other income (expense), net 34,441 7,355 80,037 21,111
---------- ---------- ----------- -----------
Loss before income taxes ( 158,753) ( 420,664) ( 377,235) ( 408,413)
Income tax expense 505 17,736 2,911 22,733
---------- ---------- ----------- -----------
Net loss ($ 159,258) ($ 438,400) ($ 380,146) ( $ 431,146)
========== ========== ========== ===========
Loss per share (Note 4)
Basic:
Net loss ($ .03) ($ .09) ($ .08) ($ .09)
========== ========== =========== ===========
Diluted:
Net loss ($ .03) ($ .09) ($ .08) ($ .09)
========== ========== =========== ===========
Weighted average number of shares
outstanding: (Note 4)
Basic 4,601,508 4,634,836 4,640,049 4,580,956
========== ========== =========== ===========
Diluted 4,601,508 4,634,836 4,640,049 4,580,956
========== ========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended
June 30,
--------------------------
2001 2000
------------ ------------
(unaudited)
Net cash provided by (used in) operating
<s> <c> <c>
activities ($ 220,132) $ 56,672
---------- ----------
Net cash used in investing activities ( 5,006) ( 1,155,704)
---------- ----------
Net cash used in financing
activities ( 114,065)
---------- ----------
Net decrease in cash and cash
equivalents ( 339,203) ( 1,099,032)
Cash and cash equivalents, beginning
of period 3,196,179 1,180,472
---------- ----------
Cash and cash equivalents, end of
period $2,856,976 $ 81,440
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the results
of operations for the interim periods. The financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. The results of operations for the three months and six months
ended June 30, 2001 are not necessarily indicative of the results of
operations expected for the year ending December 31, 2001.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The organization and business of
the Company, accounting policies followed by the Company and other information
are contained in the notes to the Company's financial statements filed as part
of the Company's Form 10-KSB for the fiscal year ended December 31, 2000.
This quarterly report should be read in conjunction with the Form 10-KSB.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which was subsequently amended by SFAS Nos. 137 and 138. SFAS 133, as
amended, did not have a material impact on the Company's results of
operations, financial position or cash flows, and did not require the
recording of a transition adjustment upon adoption in January 2001.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Intangible Assets." These Standards provide
guidance on how our company would account for acquired businesses and related
disclosure issues.
These standards eliminate the "pooling of interest" method for
transactions initiated after June 30, 2001, and effective January 1, 2002,
eliminate the amortization of goodwill and certain intangible assets. The
Standards require annual impairment testing and potential loss recognition for
goodwill and non-intangible assets. The change regarding the elimination of
goodwill and other intangible amortization will be made prospectively with the
adoption of the new standard as of January 1, 2002. Prior period financial
results will be not be restated. However, we will also disclose, for
comparison purposes, earnings information for prior periods exclusive of
comparable amortization expense. The Company currently records approximately
$150,000 per year in amortization expense related to goodwill.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
2. Income Taxes:
At June 30, 2001, the Company had net operating loss carryforwards of
approximately $2,980,000, which are available to reduce future taxable income.
Related deferred tax assets are fully reserved for. These carryforwards
expire in 2006 to 2013. Net operating loss carryforwards related to the
operations of National Home Delivery, Inc. prior to the pooling of interest
and are subject to certain annual limitations.
3. Net Loss Per Share Calculations:
The following tables illustrate the calculations of basic income per
share and diluted income per share.
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ----------- ----------
Basic Loss Per Share
<s> <c> <c> <c> <c>
Net loss (Numerator): ($159,258) ($ 438,400) ($380,146) ($ 431,146)
========== ========== ========== ===========
Shares (Denominator):
Actual weighted average
shares outstanding ** 4,601,508 4,634,836 4,640,049 4,580,956
========== ========== ========== ===========
Basic loss per share: ($ .03) ($ .09) ($ .08) ($ .09)
========== ========== ========== ===========
Diluted loss per share:
Net loss (Numerator): ($ 159,258) ($ 438,400) ($380,146) ($ 431,146)
=========== ========== ========== ===========
Shares (Denominator):
Actual weighted average
shares outstanding ** 4,601,508 4,634,836 4,640,049 4,580,956
Shares upon conversion of
warrants and options * * * *
--------- ---------- ---------- -----------
Adjusted shares outstanding 4,601,508 4,634,836 4,640,049 4,580,956
========== ========== ========== ===========
Diluted income (loss)
per share: ($ .03)($ .09) ($ .08) ($ .09)
========== ========== ========== ===========
* The incremental shares are not included in the computation as they are anti-
dilutive.
**Weighted average shares outstanding for 2000 have been restated to reflect
425,612 common shares issued as a stock dividend during 2000.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
4. Accumulated losses, through September 30, 1993, represent the losses and
capital of the Company during the period of time it was a subchapter S
corporation. All subsequent losses of the combined entities are presented
under Accumulated losses, since October 1, 1993.
5. Common Stock:
During the six months ended June 30, 2001, the Company repurchased
103,100 shares of its common stock for an aggregate amount $114,065.
6. Segment Information:
The Company evaluates profitability and allocates assets and resources by
dividing its business into two operating segments by product areas:
* Advertising and Marketing - includes sampling, newspaper advertising,
and online advertising;
* Logistics Marketing - includes the delivery and marketing of telephone
directories, as well as, tracking, verification and transportation services.
Management evaluates segment profitability by reviewing gross profits.
Substantially all of the Company's revenues are generated in the United
States.
Segment analysis is provided in the tables below.
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Revenues:
<s> <c> <c> <c> <c>
Advertising and Marketing $2,505,984 $3,828,827 $4,826,980 $ 8,296,520
Logistics Marketing 1,696,151 1,671,859 2,935,252 2,473,995
---------- ---------- ---------- ----------
Total Revenues $4,202,135 $5,500,686 $7,762,232 $10,770,515
========== ========== ========== ===========
Gross Profits:
Advertising and Marketing $ 406,006 $ 722,878 $ 849,732 $ 1,854,314
Logistics Marketing 493,525 582,281 858,977 883,772
---------- ---------- ---------- ----------
Total Gross Profit 899,531 1,305,159 1,708,709 2,738,086
Selling, general &
administrative expenses 1,092,725 1,733,178 2,165,981 3,167,610
Other income, net 34,441 7,355 80,037 21,111
---------- ---------- ---------- ----------
Loss before income taxes ($ 158,753)($ 420,664)($ 377,235) ($ 408,413)
========== ========== ========== ==========
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
6. Segment Information, continued:
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Gross Profit Percentages:
<s> <c> <c> <c> <c>
Advertising and Marketing 16.2% 18.9% 17.6% 22.3%
Logistics Marketing 29.1% 34.8% 29.2% 35.7%
---------- ---------- ---------- ----------
Total Gross Profit 21.4% 23.7% 22.0% 25.4%
========== ========== =========== ===========
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
Alternate Marketing Networks is a single-source provider of marketing
services. The Company serves the newspaper, consumer package goods,
telecommunications, automotive, tourism and e-commerce industries with both
short-term and long-term contracts. The Company offers comprehensive services
in two primary areas: Advertising and Marketing, and Logistics Marketing.
* Advertising and Marketing Group. This product group consists of U.S.
Suburban Press ("USSPI") and ilikesamples.com. Services provided by this
group include suburban newspaper advertising, Hispanic and college newspaper
network advertising, and deliveries of product samples to targeted consumers
via the Internet.
* Logistics Marketing Group. This product group consists of Alternate
Postal Direct and Total Logistics. Services include the delivery of telephone
directories for regional and national companies, as well as tracking,
verification and transportation of other goods.
Results of Operations - Quarter
Net sales: During the second fiscal quarter ended June 30, 2001, sales
were down approximately 24% from the same period the preceding year, due to
the September 2000 sale of the Company's in-home sampling division. In-home
sampling revenues for the 2000 quarter were approximately $1.3 million. The
ongoing business of the Company recognized total sales for the quarter ending
June 30, 2001 approximately the same as the same period the previous year.
Gross margin: The gross profit for this year's quarter was down slightly
from the same period the previous year (21.4% for 2001 and 23.7% for 2000).
The mix of revenues will cause the gross profit to fluctuate based on gross
profit levels of individual product lines. The gross margins generally range
from 15% to 40%. During the quarter ended June 30, 2001, the Company incurred
a customer penalty resulting from a vendor quality issue which resulted in
revenue reduction and a corresponding reduction in gross profit. Had the
Company not incurred this penalty, the gross profit would have been
approximately 22%.
Selling, general and administrative expenses: During the quarter ending
June 30, 2001, selling, general and administrative expenses decreased
approximately 37% over the same period last year. This was primarily due to
the reduction in the number of employees and related expenses associated with
the Company's in-home sampling division which was sold in September 2000. In
addition, the Company continues to closely monitor overhead items and search
for potential reductions in fixed overhead. The Company has a variable
overhead component relating to the delivery of telephone directories which
causes fluctuations in overhead from quarter to quarter as sales from this
product line increase or decrease.
Other income: Interest income for the three months ended June 30, 2001
and 2000 was $34,441 and $6,907, respectively. The increase is due to the
cash proceeds received from the sale of the in-home sampling division.
Results of Operations - Six Months
Net sales: Net sales decreased approximately 28%, or $3.0 million,
for the six months ending June 30, 2001 as compared to last year. This was
primarily due to the September 2000 sale of the Company's in-home sampling
division. This area of business generated approximately $2.6 million in sales
for this period in the previous year. In addition, the Advertising and
Marketing group had sales of approximately $900,000 less than the previous
year due to a soft advertising environment in the first half of 2001. The
Logistics Marketing group recognized sales of approximately $500,000 more this
year than the previous year due to the acquisitions in 2000 and due to a
larger telephone directory contract which was effective in April of 2000.
Gross margin: For the six month period ending June 30, 2001, the gross
margin decreased by 3.4%, from 25.4% in the previous year to 22.0% in the
current year. The fluctuation in gross profit was a result of a change in the
mix of revenues from individual product lines, whose gross margins generally
range from 15% to 40%. The gross margin from the Advertising and Marketing
group decreased from 22.3% in 2000 to 17.6% in 2001. This decrease is due to
the sale of the in-home sampling division that generated higher margins than
the USSPI business. A soft advertising environment in the first half of 2001
also led to the lower margins. The Logistics Marketing group produced lower
margins during 2001 primarily due to a quality issue which resulted in penalty
payments that reduced gross margins. This issue has been resolved and should
not impact future quarters.
Selling, general and administrative expenses: These expenses decreased
approximately 32% over the previous year. This was primarily due to the
reduction in employee headcount and related expenses associated with the in-
home sampling division that was sold in 2000. In addition, the Company
continues to closely monitor overhead items and search for potential
additional reductions in fixed overhead.
Other income: Interest income for the six months ended June 30, 2001 and
2000 was $80,037 and $20,663, respectively. The increase is due to the cash
proceeds received from the sale of the in-home sampling division.
Income taxes: Income tax expense currently reflects payments to various
state tax agencies.
Liquidity and Capital Resources
During the first six months of 2001, the Company recognized a decrease in
cash of $339,203. During the same period of 2000, the Company recognized a
decrease in cash of $1,099,032.
Cash used in operating activities was the largest use of cash for the
current year six month period. The net loss of $380,146 was partially offset
by working capital fluctuations. Operating activities also included noncash
adjustments for depreciation and amortization expense of $24,692 and $87,694,
respectively. In 2000, operating activities included noncash adjustments for
depreciation and amortization expense of $44,843 and $98,968, respectively.
Cash used for additions to property, equipment and software for the six
months ended June 30, 2001 and 2000 was approximately $5,000 and $197,000,
respectively. In addition, during the 2001 period the Company used cash to
repurchase 103,100 shares of its common stock for $114,065. During the 2000
period, the Company used $960,058 for business acquisitions.
The Company's credit line was not renewed due to the future costs
associated with having the line of credit in place. The Company has not
utilized its line of credit over the past 12 months due to the cash available
on the Company's balance sheet. The Company has no borrowings outstanding as
of June 30, 2001. The Company believes that its current cash balance will be
sufficient to fund its current operating plans as well as meet its anticipated
capital requirements for the foreseeable future.
Outlook for the Future
While management believes the slow down in the national advertising
markets negatively affected its first and second quarter results, second
quarter revenues increased by approximately $640,000 over the first quarter,
and management believes there will be continuing improvements in the third
quarter. This is due to incremental contracts in new categories for the
Advertising and Marketing group and incremental business in the Logistics
Marketing group.
The Company plans to continue to reduce fixed overhead to better reflect
its current operational needs while maintaining strong support for all core
business functions and growth objectives.
In addition, the Company continues to evaluate various strategic options
with the assistance of the media investment banker, Veronis Suhler &
Associates.
Forward-looking Statements
Except for historical information contained herein, the matters set forth
in this management's discussion and analysis are forward-looking statements
based on current expectations. Actual results may differ materially. These
forward-looking statements involve a number of risks and uncertainties
including, but not limited to, competition, the timing of receipt of orders,
the implementation of the Company's reorientation as a marketing services
company, the effectiveness of the marketing program, and the Company's success
in developing and capitalizing on strategic alliances.
PART II. Other Information:
Item 2(c). Changes in Securities.
During the six months ended June 30, 2001, the Company purchased 103,100
shares of its common stock at an aggregate cost of $114,065.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual shareholders meeting on May 17, 2001. Votes
were cast for the election of directors as follows:
FOR WITHHELD
<s> <c> <c>
Phillip D. Miller 3,190,890 3,520
Stan Henry 3,190,890 3,520
Louis Sito 3,190,890 3,520
John McKeon 3,190,890 3,520
Thomas Hiatt 3,190,890 3,520
Votes were cast for the appointment of PricewaterhouseCoopers, LLP, as the
Company's certified public accountants for the fiscal year ending December 31,
2000 as follows:
BROKER
FOR AGAINST ABSTAIN NOT VOTED
<s> <c> <c> <c>
3,183,526 2,882 8,002 None
Item 6. Exhibits and Reports on Form 8-K.
During the period of this report, there were no filings on Form 8-K.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALTERNATE MARKETING NETWORKS, INC.
Date: August 14, 2001 By: /s/Phillip D. Miller
Phillip D. Miller
Chief Executive Officer
By: /s/Sandra J. Smith
Sandra J. Smith
Chief Financial Officer