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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-26624 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 300, 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 12, 1996, 4,022,894 shares of the issuer's common stock were outstanding. This report contains 13 pages. ALTERNATE POSTAL DELIVERY, INC. FORM 10-QSB INDEX Page PART I. Financial Information: No. Consolidated Balance Sheet - June 30, 1996 . . . .3 & 4 Consolidated Statement of Operations - three months ended June 30, 1996 and 1995 and the six months ended June 30, 1996 and 1995 . . . . . . .5 Consolidated Statement of Cash Flows - six months ended June 30, 1996 and 1995 . . . . . . . . .6 Notes to Financial Statements. . . . . . . . . . . . .7 Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . . . . . 8 - 10 PART II. Other Information: Exhibits and Reports on Form 8-K . . . . . . . . . . 11 Signature. . . . . . . . . . . . . . . . . . . . . . 12 PART I. Financial Information ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Consolidated Balance Sheet June 30, 1996 (unaudited) ASSETS Current assets: Cash and cash equivalents $2,657,955 Accounts receivable, net of allowance of $53,600 2,139,331 Prepaid expenses and other assets 177,540 --------------- Total current assets 4,974,826 Notes receivable, less current portion 73,284 Property and equipment: Furniture and equipment 890,994 Less accumulated depreciation and amortization 600,177 ------------ 290,817 Computer software, net of accumulated amortization 51,312 Goodwill, net of accumulated amortization 1,256,048 Other assets 44,741 ------------ $6,691,028 ============ See accompanying notes. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Consolidated Balance Sheet June 30, 1996 (unaudited) LIABILITIES Current liabilities: Notes payable, bank 170,714 Notes payable, others 106,875 Current portion of capitalized lease obligations 37,098 Current portion of long-term notes payable 7,098 Accounts payable 1,281,663 Accrued liabilities 351,620 Deferred revenue 89,826 ------------ Total current liabilities 2,044,894 Long-term notes payable, less current portion 383,966 Capitalized lease obligations, less current portion 19,343 SHAREHOLDERS' EQUITY Preferred stock-no par value, authorized 2,000,000 shares, no shares issued and outstanding Common stock-no par value, voting, authorized 8,000,000 shares; 4,022,894 shares issued and outstanding 9,677,530 Accumulated losses, as S corporation (Note 4) (1,291,039) ------------ Total Common Stock 8,386,491 Accumulated losses, as C corporation (Note 4) (4,143,666) ------------ Total shareholders' equity 4,242,825 ------------ $6,691,028 ============ See accompanying notes. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Consolidated Statement of Operations Three months ended Six months ended June 30, June 30, ---------------------------------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ---------- (unaudited) (unaudited) Net sales $5,186,246 $4,064,977 $11,049,734 $9,662,787 Cost of sales 3,837,045 3,137,114 8,268,846 7,368,336 ----------- ------------ ------------ ----------- Gross profit 1,349,201 927,863 2,780,888 2,294,451 Selling, general and administrative expenses 1,496,240 1,077,395 2,924,172 2,112,360 ------------ ------------ ------------ ---------- Income (loss) from operations(147,039) (149,532) (143,284) 182,091 Other income (expense) 213,356 (64,883) (41,147) (127,261) ------------ ------------ ------------ ---------- Income (loss) before taxes 66,317 (214,415) (184,431) 54,830 Provision for taxes 3,120 0 6,430 0 ------------ ------------ ------------ ---------- Net income (loss) 63,197 (214,415) (190,861) 54,830 ============ ============ ============ ========== Income (loss) per share $0.02 ($0.09) ($0.05) $0.02 ============ ============ ============ =========== Weighted average number of shares outstanding: 4,022,894 2,463,158 4,015,202 2,463,158 ========== ============ ============ ============ See accompanying notes. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS Six months ended June 30, -------------------------- 1996 1995 ----------- ----------- (unaudited) Cash flows from operating activities $126,663 $403,120 ------------ ------------ Cash flows from investing activities (73,632) (46,667) ------------ ------------ Cash flows from financing activities (786,141) (511,081) ------------ ------------ Net increase (decrease) in cash and cash equivalents (733,110) (154,628) Cash and cash equivalents, beginning of period 3,391,065 419,045 ------------ ------------ Cash and cash equivalents, end of period $2,657,955 $264,417 ============ ============ See accompanying notes. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (unaudited) 1. 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 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. 2. 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. This quarterly report should be read in conjunction with the Form 10-KSB. 3. Income (loss) per share calculation has been determined assuming exercise of all outstanding options and warrants. Fully diluted loss per share for the three months ended June 30, 1995 and the six months ended June 30, 1995 further assumes that the Convertible Notes were converted to common stock according to the terms of the Convertible Notes at the beginning of the period reported on. This adjustment also includes the elimination of the related interest expense attributable to the Convertible Notes. The results of these transactions and the impact on the net income (loss) and primary and fully diluted income (loss) per share are provided in Exhibit 11.1. 4. Shareholders' equity represents combined equity after the pooling of interests on March 29, 1996. Accumulated losses, as S corporation, represent the losses and capital of the company during the period of time it was a subchapter S corporation. All other losses of the combined entities are presented under Accumulated losses, as C corporation. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview and Plan of Operation During the second quarter of 1996, the Company began its transition period of integrating the acquisitions of the first quarter. One of the results of the transition period was the consolidating of the previous five areas of business into four areas of business as follows: Address Specific Network (Formerly Magazines and Newspaper Sales) Reaches approximately 22% of covered households. Direct Network (Company-owned Affiliates-Formerly called Delivery Implementation) Reaches approximately 8% of covered households. Associate Network (Formerly called Distribution Marketing) Reaches approximately 40% of covered households. Suburban Network (Newspaper Advertising Space-ROP) Reaches approximately 30% of covered households. By combining the household coverage from these four areas of business and adding the full capabilities of the Associate Network, the Company now has a total household reach of over 50 million households. Results of Operations Net sales were up during the quarter ended June 30, 1996 and for the six months ended June 30, 1996, as compared to the same periods in 1995. Revenues fluctuate from quarter to quarter based upon the timing of revenues derived from the Associate Network. In addition, there is some seasonality of revenues. In general, February, March, April, September, October, and November are better advertising months in the industry and produce better revenue results for the Company. Net sales for the three months ended June 30, 1996 increased 27.6% over the same quarter of the previous year. Net sales for the six months ended June 30, 1996 increased 14.4% over the same six month period in 1995. The source of this growth is largely derived from the Direct Network. The gross margin increased from 22.8% for the three months ended June 30, 1995 to 26.0% for the three months ended June 30, 1996. The gross margin increased from 23.7% for the six months ended June 30, 1995 to 25.2% for the six months ended June 30, 1996. This increase is largely attributable to the increase in revenues derived from the Direct Network. This source of revenue generates a higher gross margin, but also adds to the selling, general and administrative expenses. Selling, general and administrative expenses increased $418,845 during the 1996 quarter over the previous year's quarter, and $811,812 during the six month period of 1996 over the same period in the previous year. This was attributable to business acquisitions in the Company's Direct Network area of business. Income (loss) from operations remained about the same during the quarter ending June 30, 1996 as compared to the same period of the previous year due to the increase in selling, general and administrative expenses offsetting the increase in revenue and gross profit for the additional Direct Network markets. Other income (expense) consists of interest income, interest expense, and one-time non-recurring charges. Interest income earned during the quarter ended June 30, 1996 was $40,848, which is up from $15,567 for the quarter ending June 30, 1995. Interest income for the six months ending June 30, 1996 and 1995 was $89,379 and $26,427 respectively. This increase was largely due to the invested funds from the Company's initial public offering completed in September 1995. Interest expense for the quarter ending June 30, 1996 and 1995 was $30,213 and $80,450, respectively. Interest expense for the six months ending June 30, 1996 and 1995 was $72,098 and $153,688 respectively. The decrease is attributable to the elimination of the interest expense on the Convertible Notes which were paid off or converted to Common Stock at the Company's initial public offering. During the quarter ended June 30, 1996 and the six months ending June 30, 1996, the Company incurred costs of $19,027 and $59,248, respectively, as costs for the pooling of interest transaction which were not attributable to the ongoing operations of the Company. In addition, the Company incurred one-time expenses attributable to the Home Mall business investment which the Company chose to discontinue. For the six months ended June 30, 1996, these costs amounted to $202,204. During the three months ended June 30, 1996, the Company implemented a debt reduction strategy whereby it offered to pay sixty cents on the dollar to existing noteholders and allowed them an immediate cash recovery instead of the existing payment schedule which was tied to cash flow under the terms of notes. The Company recorded a gain on the forgiveness of debt in the amount of $216,376 from the noteholders that accepted the reduced amount. Liquidity and Capital Resources The Company continues to have a strong cash position after the two acquisitions and the debt reduction strategy in the first six months of 1996. Cash and cash equivalents totaled $2,657,955 at June 30, 1996. Cash used for the additions to property and equipment for the six months ended June 30, 1996 and 1995, was $79,632 and $17,070, respectively. Cash used for payment of notes payable for the six months ended June 30, 1996 and 1995 was $772,307 and $500,222, respectively. Other changes in cash position were largely attributable to working capital fluctuations. The Company believes that cash flows from operations along with its current cash balance will be sufficient to fund its current growth plans as well as meet its presently anticipated capital requirements for the next twelve months. Outlook for Remainder of 1996 The Company intends to focus on the synergism of the two acquisitions and to follow up on the momuntum created by the Company's Associate Network's marketing program. In addition, the Company will begin to recognize efficiencies from the combining of the previous acquisitions into the existing infrastructure. The Company intends to continue seeking out strategic alliances for each of the four areas of business enabling it to leverage its infrastructure and capacity. The Company will also be seeking potential candidates for acquisition as part of its ongoing consolidation plan. Forward-looking statement. Except for historical information contained herein, the matters set forth in this management discussion 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, the effectiveness of the marketing program. PART II. Other Information: Item 6. Exhibits and Reports on form 8-K. Exhibit 11.1 Computation of income (loss) per share. Page 13. During the period of this report, there were three Form 8-K filings as follows: 8-K/A filed April 5, 1996 as amendment to provide the related Financial Statement and Pro Forma Financial Information applicable to the Current Report event dated January 24, 1996. 8-K filed April 11, 1996 for acquisition of National Home Delivery, Inc. for Current Report event dated March 29, 1996. 8-K/A filed May 3, 1996 as amendment to provide the related Financial Statement and Pro Forma Financial Information applicable to the Current Report event dated March 29, 1996. 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 POSTAL DELIVERY, INC. Date: August 12, 1996 By: Phillip D. Miller Phillip D. Miller President and Chief Executive Officer By: Sandra J. Smith Sandra J. Smith Chief Financial Officer