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 March 31, 1997 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 May 13, 1997, 4,022,894 shares of the issuer's common stock were outstanding. This report contains 12 pages. ALTERNATE POSTAL DELIVERY, INC. FORM 10-QSB INDEX Page PART I. Financial Information: No. Condensed Consolidated Balance Sheets - March 31, 1997, and December 31, 1996. . . . . . . . . . . . . . . . . . . 3 & 4 Condensed Consolidated Statements of Operations - three months ended March 31, 1997 and 1996. . . . . . . . . . . . . .5 Condensed Consolidated Statements of Cash Flows - three months ended March 31, 1997 and 1996 . . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements. . . . . . 7 Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . .8 - 9 PART II. Other Information: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .10 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .11 Part I. Financial Information ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets ASSETS March 31, December 31, 1997 1996 (unaudited) ------------ ------------ Current assets: Cash and cash equivalents $ 2,000,906 $ 1,857,955 Accounts receivable, trade, less allowance of $102,363 and $100,000 at March 31 and December 31 respectively 2,924,504 2,511,361 Notes receivable, current portion 37,375 37,375 Prepaid expenses and other assets 295,790 255,863 ------------ ------------ Total current assets 5,258,575 4,662,554 Notes receivable, less current portion 46,517 34,595 Property and equipment: Furniture and equipment 895,463 891,833 Accumulated depreciation and amortization (685,829) (658,877) ------------ ------------ 209,634 232,956 Computer software, net 48,486 43,151 Intangible assets, net 1,201,661 1,220,490 0ther assets 25,991 32,241 ------------ ------------ $ 6,790,864 $ 6,225,987 ============ ============ Continued ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets LIABILITIES March 31, December 31, 1997 1996 (unaudited) ------------ ------------ Current liabilities: Notes payable, bank $ $ 300,000 Accounts payable 594,888 860,710 Accrued liabilities 337,878 416,947 Deferred revenue 1,664,839 302,096 Current portion of long-term obligations 174,064 181,150 ------------ ------------ Total current liabilities 2,771,669 2,060,903 Long-term obligations 178,791 334,941 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, 8,000,000 authorized shares; 4,022,894 shares issued and outstanding 9,677,530 9,677,530 Accumulated losses, through September 30, 1993 (Note 4) (1,291,039) (1,291,039) ------------ ------------ Total common stock 8,386,491 8,386,491 Accumulated losses, since October 1, 1993 (Note 4) (4,546,087) (4,556,348) ------------ ------------ Total shareholders' equity 3,840,404 3,830,143 ------------ ------------ $ 6,790,864 $ 6,225,987 ============ ============ The accompanying notes are an integral part of the condensed consolidated financial statements. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations Three months ended March 31, ---------------------------- 1997 1996 ------------- ------------- (unaudited) Net sales $4,045,909 $5,863,488 Cost of sales 2,893,137 4,431,801 ------------ ------------ Gross profit 1,152,772 1,431,687 Selling, general and administrative expenses 1,196,546 1,427,932 Other operating expenses 261,149 ------------ ------------ 1,196,546 1,689,081 ------------ ------------ Loss from operations ( 43,774) ( 257,394) Other income and (expense), net 12,430 6,646 ------------ ------------ Loss before income taxes and extraordinary gain ( 31,344) ( 250,748) Income tax expense (benefit) ( 3,460) 3,310 ------------ ------------ Loss before extraordinary gain ( 27,884) ( 254,058) Extraordinary gain from early retirement of debt 38,145 ------------ ------------ Net income (loss) $ 10,261 ($ 254,058) ============ ============ Income (loss) per share (Exhibit 11.1) Primary: Loss before extraordinary gain ($ .01) ($ .06) Extraordinary gain .01 ------------ ------------ Net income (loss) per share $ .00 ($ .06) ============ ============ Fully diluted: Loss before extraordinary gain ($ .01) ($ .06) Extraordinary gain .01 ------------ ------------ Net income (loss) per share $ .00 ($ .06) ============ ============ Weighted average number of shares outstanding: (Exhibit 11.1) Primary 4,022,894 3,997,532 ============ ============ Fully diluted 4,022,894 3,992,041 ============ ============ The accompanying notes are an integral part of the condensed consolidated financial statements. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Three months ended March 31, -------------------------- 1997 1996 ------------ ------------ (unaudited) Net cash flows from operating activities $ 630,844 $ 236,970 ------------ ------------ Net cash flows from investing activities ( 24,657) ( 25,612) ------------ ------------ Net cash flows from financing activities ( 463,236) ( 657,603) ------------ ------------ Net increase (decrease) in cash and cash equivalents 142,951 ( 446,245) Cash and cash equivalents, beginning of period 1,857,955 3,391,065 ------------ ------------ Cash and cash equivalents, end of period $2,000,906 $2,944,820 ============ ============ The accompanying notes are an integral part of the condensed consolidated financial statements. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED 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 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 ended March 31, 1997 are not necessarily indicative of the results of operations expected for the year ended December 31, 1997. 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. This per share information is provided in Exhibit 11.1. 4. Shareholders' equity represents combined equity after a pooling of interests on March 29, 1996. 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. Certain amounts, as presented in prior periods, have been reclassified to conform with the amounts presented for the three months ended March 31, 1997. These reclassifications do not have an impact on the net losses previously reported. ALTERNATE POSTAL DELIVERY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview and Plan of Operation In the first quarter of 1997, the Company began an initiative to combine the existing databases of its four areas of business into one delivery capabilities database. With this enhanced tool, the Company will be better able to maximize the information on target marketing services which it currently offers to its clients. The capabilities of this database will have the greatest effect on the Associate Network of the Company which provides for the product sampling deliveries of the business. As the alliance with News America FSI, a division of News Corp. (NYSE ADRS: NWS), continues to gain momentum, the Company anticipates that this area of business will see increased growth. During the first quarter of 1997, the Company also continued planning for the implementation of its agreement with American Newspaper Network (Media Passage) (ANN) for the electronic placement of newspaper advertising (ROP) to enhance the revenue capabilities of the Company's Suburban Network. Results of Operations During the three months ended March 31, 1997, the Company realized a decrease of approximately 40% in revenue in the Address Specific Network as compared to the same period of the previous year, due to the effects of the United States Postal Service reclassification rate case. Net sales also fluctuate from quarter to quarter based in part upon the timing of revenues derived from the Company's Associate Network. The gross margin increased from 24.4% for the three months ended March 31, 1996 to 28.5% for the three months ended, March 31, 1997. This increase is largely attributable to the mix of the revenues, specifically, the Address Specific Network revenues decreased; this area of business historically has operated at lower gross profit margins. Operating expenses decreased $492,535 during the 1997 quarter compared to the previous year's quarter. This was attributable to overhead reductions from efficiencies amounting to approximately $230,000 and to the elimination in 1997 of nonrecurring charges of approximately $260,000 incurred in the first quarter of 1996. These expenses were approximately $40,000 for acquisition expenses, and approximately $220,000 for start-up expenses for a project which the Company chose not to pursue. Other income and (expense), net consists of interest income and interest expense. Interest income for the three months ended March 31, 1997 and 1996 was $23,541 and $48,531 respectively. Interest expense for the three months ended March 31, 1997 and 1996 was $11,111 and $41,885 respectively. During the three months ended March 31, 1997, the Company recorded an extraordinary gain from early retirement of debt as a result of a debt reduction strategy whereby it offered to pay seventy five 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 the notes. Liquidity and Capital Resources The Company continues to have a strong cash position with cash and cash equivalents totaling $2,000,906 at March 31, 1997 and $1,857,955 at December 31, 1996. Cash used for the additions to property, equipment, and software for the three months ended March 31, 1997 and 1996, was approximately $13,000 and $32,000, respectively. Cash used for net reduction of notes payable for the three months ended March 31, 1997 and 1996 was approximately $454,000 and $455,000, respectively. In addition, the Company made cash payments during the three months ended March 31, 1996 of approximately $194,000 for costs of the acquisition of Preferred Customer Delivery, Inc. Other changes in cash position were largely attributable to working capital fluctuations. The Company has a bank line of credit for $500,000 to assist in future cash flow needs. The Company believes that this line of credit along with its current cash balance will enable it to fund its current growth plans as well as meet its presently anticipated capital requirements for the next twelve months. Outlook for Remainder of 1997 While revenues for the first quarter of 1997 came in below management's expectations, the gross profit percentage came in higher than expected due to the mix of the revenues. Moreover, the Company exceeded expectations for planned reductions in selling, general and administrative expenses. Management expects to continue tight control of these expenses for the foreseeable future. In the 2nd quarter of 1997 management anticipates improved sales results in the product sample area of the business as the alliance with News America moves forward. Upon the completion of the implementation of the ANN Agreement in the second quarter, the Company will incur some one-time expenses for employee severance payments as the variable outsourcing fees replace these fixed overhead costs. The Company will continue to look for additional alliances and acquisitions as it continues its plan for growth and expansion. Forward-looking Statements Except for historical information contained herein, the matters set forth in this management 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 effectiveness of the marketing program, and the Company's success in capitalizing on its strategic alliances. PART II. Other Information: Item 6. Exhibits and Reports on Form 8-K. Exhibit 11.1 Computation of income (loss) per share. Page 12. During the period of this report, there were no required 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 POSTAL DELIVERY, INC. Date: May 13, 1997 By: /s/Phillip D. Miller Phillip D. Miller President and Chief Executive Officer By: /s/Sandra J. Smith Sandra J. Smith Chief Financial Officer