ADVANTEX Announces F2009 1st Quarter Results
10/23/2008 12:00:00 AM

  NEWS RELEASE

 ADX: TSX

 Advantex Announces Fiscal 2009 First-Quarter Results

 

  • Advantex achieves growth in revenue, positive operating cash flow, and net earnings compared with 2008 quarter
  • Company succeeds in reducing expenses and achieving operating efficiencies greater than revenue growth
  • Success of Advance Purchase Marketing benefit program driving revenue gain
  • Conference call and webcast on Friday, October 24 at 8:30 a.m. (eastern)

 

Toronto, October 23, 2008 – Advantex Marketing International Inc. (TSX:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the fiscal first quarter ended September 30, 2008. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.

“The positive trends in our business that we noted at the end of our fiscal 2008 continued through the 2009 first quarter. As the result, we accomplished an impressive turnaround in our financial performance compared with the quarter a year ago, recording increased revenue, positive operating cash flow, a contribution from operations, compared with a loss in the 2008 quarter, and a net profit, compared with a net loss in the 2008 quarter,” said Kelly E. Ambrose, President and Chief Executive Officer. 

“These improved financial results are attributable to the initiatives that we have implemented during the past 30 months or so, including the growth of our Advance Purchase Marketing (APM) program, improved operational efficiencies, and cost reductions. We are hopeful that we can maintain our momentum and these positive trends despite the considerable uncertainty and turbulence affecting the Canadian and international economies,” Mr. Ambrose said.

 

Financial Performance – Highlights
(millions of $s, except per share amounts)
-------------------------------------------------------------------------------
                                                Three months    Three months     
                                                Ended              Ended             
                                                Sept. 30,          Sept. 30,         
                                                2008                2007   
-------------------------------------------------------------------------------
Revenue                                            3.1                   2.8                   
-------------------------------------------------------------------------------
Gross profit                                       2.1                   1.7                   
-------------------------------------------------------------------------------
Gross margin                                      68.4%                 59.5%              
-------------------------------------------------------------------------------
Contribution from Operations                       0.6                  (0.1)                
-------------------------------------------------------------------------------
Profit/(loss) before Amortization
And Interest                                       0.6                  (0.1)                
-------------------------------------------------------------------------------
Amortization                                       0.1                   0.1                 
-------------------------------------------------------------------------------
Interest                                           0.4                   0.2                 
-------------------------------------------------------------------------------
Net earnings (loss)                                0.1                  (0.4)                
-------------------------------------------------------------------------------
Net earnings (loss) per
 common share                                    ($0.00)                ($0.00)               

 

The 9.3 percent increase in revenue in the 2009 first quarter, compared with the prior year’s period primarily is the result of the growth of the CIBC Advantex programs. These programs recorded an increase in revenue to $2.5 million, compared with $2.1 million in the 2008 quarter. The APM program was the driver for this growth with revenue of $1.8 million, compared with $1.2 million a year earlier. 

The growth in the APM revenue is directly related to the increase in deployment of funds (as Transaction Credits) with merchants following the company’s successful financings completed during the second half of 2008. In addition, on September 1, 2008 Advantex in partnership with CIBC launched the Infinite Hotel program, enabling participating hotels to provide special privileges to holders of CIBC Infinite VISA cards. Advantex earns a fee for the marketing services provided to participating hotels.

Online program revenue declined for the 2009 first quarter to $0.6 million from $0.7 million a year earlier following the loss of Delta Airlines as an online partner in August 2008. During August, 2008 the Company and United Airlines signed a two year extension to the existing contract, which represents the Company’s busiest online mall.

While revenue grew 9.3 percent in the 2009 first quarter, direct expenses (which include cardholders awards costs, marketing, and advertising on behalf of merchants, and other costs) declined 14.7 percent to $1.0 million, compared with $1.1 million a year earlier. As the result, the company’s gross margin increased to 68.4 percent from 59.5 percent a year earlier, and gross profit rose 25.7 percent.

Sales, general, and administrative (SG&A) expenses also were down in the 2009 first quarter by 11 percent to $1.5 million from $1.7 million in the 2008 period mainly as the result of achieving better operating efficiencies and the effectiveness of the company’s cost-reduction efforts. Contributing to this was a reduction of $57,000 in the company’s rental expenses following the relocation of its head office in June 2008.

These improvements resulted in positive operating cash flow of $0.3 million in the 2009 first quarter and a contribution from operations of $0.6 million compared with a negative contribution from operations of $0.1 million in the 2008 quarter. The company recorded a net profit for the 2009 first quarter of $55,077 ($0.00 per share), compared with a net loss of $366,287 ($0.00 per share) in the 2008 quarter.

Company’s Outlook Positive Despite Downturn in Economy

“The net profit and positive cash flow from operations generated by Advantex in the 2009 first quarter are significant milestones and we are pleased with the progress that the Company has been making in growing our business and improving our operating efficiencies,” Mr. Ambrose said.

“Our optimism, however, must be tempered by the reality of the current uncertainty, turbulence, and apparent marked slowdown in the Canadian and global economies. This is affecting many of the businesses, such as the restaurant industry, that generate revenue and earnings for us. Accordingly, we are taking a conservative approach in our expectations for 2009. We will continue to focus on growing our Advance Purchase Marketing programs with credit-worthy merchants, manage risks associated with the APM, and maintain a tight control over costs in an effort to continue generating cash from operations. We believe that the current economic environment may prove favorable to expanding the APM programs to credit-worthy merchants. Another contributor to our growth going forward should be the Infinite Hotel program. This new program is still in its early stages of being launched since its formal kickoff on September 1 and it is being well received,” he said.  

Conference Call and Webcast

Advantex will hold a conference call for analysts and investors to discuss its 2009 first-quarter results on October 24, 2008 at 8:30 a.m. (Eastern). 

Kelly Ambrose, President and Chief Executive Officer, and Mukesh Sabharwal, Vice-President and Chief Financial Officer, will be available to answer questions during the call.

To participate in the call, please dial 416-644-3415 or 1-800-732-9303 at least five minutes prior to the start of the call.

A live audio webcast of the conference call will be available at www.newswire.ca and www.advantex.com.

An archived recording of the call will be available at 416-640-1917 or 1-877-289-8525 (Passcode 21286674#) from noon on October 24 to 11:59 p.m. on October 31. An archived recording of the webcast will also be available at Advantex’s website.

Advantex will file its fiscal 2009 first-quarter statements and Management’s Discussion and Analysis with SEDAR and they will be posted on the company’s website.

About Advantex Marketing International Inc.

Advantex is a specialist in the marketing services industry, managing white-labeled rewards accelerator programs for major affinity groups through which their members earn bonus frequent flyer miles and/or other rewards on purchases at participating merchants. Under the umbrella of each program, Advantex provides merchants with marketing, customer incentives, and secured future sales through its Advance Purchase Marketing model. Advantex partners include more than 700 restaurants, online retailers, golf courses, small inns and resorts, and major organizations, including CIBC, United Airlines, Alaska Airlines, and Lufthansa Airlines. Advantex is traded on the Toronto Stock Exchange under the symbol "ADX".  For additional information on Advantex, please visit www.advantex.com.

Forward-Looking Information

This Press Release contains certain “forward-looking information”. All information, other than information comprised of historical fact, addresses activities, events or developments that the Company believes, expects or anticipates will or may occur in the future. Such forward looking information includes, without limitation, information regarding the Company’s belief that Transaction Credits are likely indicators of future revenue; the Company’s expectation that its annualised SG&A cost saving measures, implemented mid March, 2008,  will be realized during Fiscal 2009; management’s expectations with respect to reaching agreement with CIBC to expanding the APM program including into retail fashion establishments in Fiscal 2009, and its ability to extend financing under its existing line of credit facility with respect to expanding APM program in the current categories (dining, golf, small inns and spa) allowed under the current CIBC agreement; the Company’s anticipated increase in the number of Merchant Partners with which it will do business; the Company’s anticipated revenues from the ‘Infinite Hotel’ program, the Company’s continued investment in information technology systems required to keep pace with partner and marketplace standards; the number of retailers the Company expects to target for its programs, including the regional markets in which the Company intends to focus on; the impact on the Company’s revenues that increased merchant participation would have; the Company’s intentions with respect to retaining future earnings in the foreseeable future; and other information regarding financial and business prospects and financial outlook is forward-looking information.  Forward-looking information reflects the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking information is 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 such forward-looking information, 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, uncertainties relating to the availability and costs of financing needed in the future, delays in finalizing the retail contract, and other factors, including without limitation, those listed under “Risks and Uncertainties” in the MD&A. All forward-looking information 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 information, 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 information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.

- 30 -

 

For further information please contact:

Mukesh Sabharwal
Vice-President and Chief Financial Officer
Tel: 905-470-9558 ext. 249
E-mail: Mukesh.sabharwal@advantex.com

 

 

 


 

 

 

 

ADVANTEX MARKETING INTERNATIONAL INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the three month period ended September 30, 2008

  

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)

 

                                                                            Note                    Sept 30, 2008                             June 30, 2008

ASSETS

                                                                                        

Current:

   Cash and cash equivalents                                                               $421,209                                   $144,794

   Accounts receivable                                                                         1,442,298                                      804,673

   Transaction credits                                                                           6,432,066                                  7,300,912

   Prepaid expenses and sundry assets                                                 121,289                                     114,978

                                                                                                            8,416,862                                  8,365,357

Long-term:

   Property, plant and equipment                                                           743,800                                     745,456

                                                                                                                                                                                                                                                                                                                                   

TOTAL ASSETS                                                                               $9,160,662                              $9,110,813

 

LIABILITIES

Current:

   Loan payable                                                              4                   $101,934                                    $663,448

   Accounts payable and accrued liabilities                                         3,136,834                                   2,664,079

                                                                                                           3,238,768                                  3,327,527

                                                                                

Long-term:

   Other liabilities                                                                                    145,955                                     205,955
   Non-Convertible debentures payable                         5                   2,444,920                                   2,422,097 
   Convertible debentures payable                                 6                  4,356,946                                   4,443,115
                                                                                                           6,947,821                                   7,071,167
                                                                         

                                                                                                         10,186,589                                   10,398,694

 

SHAREHOLDERS’ DEFICIENCY

Capital Stock                                                

   Class A preference shares                                                                    3,815                                             3,815

   Common shares                                                                              24,106,281                                 24,106,281

                                                                                                         24,110,096                                 24,110,096           

Contributed surplus                                                      3                      524,090                                      507,023

Equity portion of convertible debentures                                           2,114,341                                   2,114,341

Warrants                                                                      5/6                   374,554                                       184,744

Deficit                                                                                             (28,149,008)                              (28,204,085)

                                                                                                        (1,025,927)                                (1,287,881)          

TOTAL LIABILITIES AND                                                             $9,160,662                              $9,110,813   SHAREHOLDERS’ DEFICIENCY                                                                                                                       

(see accompanying notes)

 


                       

ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT/(LOSS) AND COMPREHENSIVE PROFIT/(LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(unaudited – note 1)

                                                                                                           Sept 30, 2008             Sept 30, 2007

                                                                                                               

REVENUE                                                                                               $3,110,186                    $2,844,687  
   Direct expenses                                                                                       983,451                      1,153,234       

 

GROSS PROFIT                                                                                      2,126,735                       1,691,453        

OPERATING EXPENSES
   Selling and marketing                                                                             682,756                           791,408   
   General and administrative                                                                    864,189                           945,048
                                                                                                               1,546,945                        1,736,456

CONTRIBUTION FROM OPERATIONS                                                     579,790                           (45,003)

     Stock-based compensation                                                                    17,067                             16,200

                                                                                                                       

PROFIT/(LOSS) BEFORE AMORTIZATION
    AND INTEREST                                                                                    562,723                             (61,203)

  Amortization of property, plant and equipment                                        71,344                              47,433

 

PROFIT/(LOSS) BEFORE INTEREST                                                      491,379                           (108,636)

   Interest expense
     Stated interest expense – loan payable, 
                non-convertible debentures, and other                                    140,689                                 8,239
          Stated interest expense – convertible debentures                        151,233                             151,233 
         Accretion charge on debentures, and                                                         
                amortization of deferred financing charges                             144,380                                98,179                    

      

NET PROFIT /(LOSS) AND COMPREHENSIVE                                

  PROFIT/(LOSS) FOR THE PERIOD                                                  $55,077                         $(366,287)

          

NET PROFIT/(LOSS) 
   PER COMMON SHARE                                                                        $ 0.00                                        $ (0.00)

  

                                                                                                                                (see accompanying notes)

 


 

ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
    (unaudited – note 1)

 

                                                                                                             Sept 30, 2008                 Sept 30, 2007

                                                                                                                                                                 

 

BALANCE AT THE START OF PERIOD                                               $(28,204,085)                    $(26,836,514)  

Net profit/(loss) for the period                                                                         55,077                               (366,287)          

BALANCE AT THE END OF PERIOD                                                  $ (28,149,008)                    $(27,202,801)          

 

                                                                                                           

                                                                                                                                (see accompanying notes)

 


 

ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(unaudited – note 1)

 

                                                                                                                      Sept 30, 2008                   Sept 30, 2007

                                                                                      

 

OPERATING ACTIVITIES

    Net profit/(loss) for the period                                                                          $55,077                          $(366,287)

                                                                               

Items not affecting cash

   Amortization of property, plant and equipment                                              71,344                             47,433 
   Accretion charge on debentures                                                                     97,895                             76,813        
   Amortization of deferred financing charges                                                    46,485                              21,366  
   Stock-based compensation                                                                            17,067                              16,200
                                                                                                                        287,868                           (204,475)                                                                                                                        

Changes in non-cash working capital items

   Accounts receivable                                                                                    (637,625)                           (58,351)   
   Transaction credits                                                                                       868,846                            234,444        
   Prepaid expenses and sundry assets                                                             (6,311)                            20,523            
      Accounts payable and accrued liabilities                                                    472,755                         (133,615)
                                                                                                                        697,665                             63,001 

  Movement in long-term other liabilities                                                          (60,000)                         (114,132)

   Cash provided by/(utilized in) operating activities                                        925,533                          (255,606)

 

FINANCING ACTIVITIES        

    Financing charges – non-convertible debenture                                             (1,833)                                  -
    Loans payable                                                                                            (577,597)                          ____-___
                                                                                                                       (579,430)                                  -

                   

INVESTING ACTIVITIES

            Purchase of property, plant and equipment                                         (69,688)                           (153,009)

 

INCREASE/(DECREASE) IN CASH AND CASH                                              276,415                             (408,615)

      EQUIVALENTS DURING THE PERIOD         

 

Cash and cash equivalents at the start of period                                           144,794                            910,995              

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $421,209                        $502,380              

 

ADDITIONAL INFORMATION

   Interest paid                                                                                              $ 140,689                             $ 8,239           

                                                                                                                                                                       

                                                                                                                                (see accompanying notes)

 


ADVANTEX MARKTING INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2008
(Unaudited – note 1)

                                                                       

1. SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim consolidated financial statements of Advantex Marketing International Inc. and its subsidiaries (“Advantex” or the “Company”) have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) for interim financial information.   Accordingly, they do not include all of the information and footnotes required by Canadian GAAP for annual consolidated financial statements.

The accompanying financial information reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for interim periods. Operating results for the three months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2009. The accounting policies used in the preparation of these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for fiscal 2008.

These interim consolidated financial statements follow the same accounting policies and methods of application as the consolidated financial statements for the year ended June 30, 2008. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

Change in accounting policies

Effective July 1, 2008, the Company adopted the new CICA Handbook Sections 1535 “Capital Disclosures”, 3862 “Financial Instruments – Disclosures”, and 3863 “Financial Instruments – Presentation”. The comparative consolidated financial statements have not been restated as these new standards have been applied prospectively. There has been no impact on accumulated other comprehensive income.

Capital disclosures

Handbook Section 1535 specifies the disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; (iv) if it has not complied, the consequences of such non-compliance. The Company has included disclosures recommended by the new Handbook section, in note 7 to these interim consolidated financial statements.

Financial instruments

Handbook Sections 3862 and 3863 replace Handbook Section 3861 “Financial Instruments – Disclosure and Presentation”, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company has included disclosures recommended by the new Handbook section, in note 8 to these interim consolidated financial statements.

The Company has classified each of its significant categories of financial instruments as follows:

  • Cash and cash equivalents are classified as held-for-trading. Changes in fair value for the period are recorded in earnings as interest income.
  • Accounts receivable and other receivables are classified as loans and receivables.
  • Borrowings under accounts payable and accrued liabilities are classified as other financial liabilities.
  • Convertible debentures, non-convertible debentures, and loan payable are classified as other financial liabilities and recorded at amortized cost using the effective interest method.
  • Debt issuance and transaction costs related to other financial liabilities are netted against the carrying value of the debt and amortized over the term of the debt using the effective interest method.

3. STOCK OPTIONS

As at September 30, 2008 there were 11,790,406 employee stock options outstanding at exercise prices between $ 0.045 to $ 0.15, expiring between October, 2008 and November, 2013.

During the period, 106,200 stock options were forfeited or expired.

The Company has recorded $17,067 of stock-based compensation expense during the three months ended September 30, 2008 related to the fair value of stock options issued during prior years. There was a corresponding increase in contributed surplus.

4. LOAN PAYABLE

The amount outstanding under this facility at September 30, 2008 was $246,684. The loan payable amount disclosed on the Balance Sheet is net of the unamortized financing fees of $144,750.

5. NON-CONVERTIBLE DEBENTURES PAYABLE

The balance of non-convertible debentures payable is disclosed under long-term liabilities and is net of unamortized financing charges. Movements in the balance during the three months ended September 30, 2008 are as follows:

 

Debt Portion

(net of deferred financing charges)

Equity portion (warrants)

Balance at June 30, 2008

$2,422,097

$184,744

Amortization of issuance costs (net of additional issuance costs of $1,833)

       7,203

      -

Accretion charge

      15,620

      -____

Balance at September 30, 2008

$2,444,920

$184,744

6. CONVERTIBLE DEBENTURES PAYABLE 

The balance of convertible debentures payable is disclosed under long-term liabilities and is net of unamortized financing charges. Movements in the balance during the three months ended September 30, 2008 are as follows:

 

Debt Portion (net of deferred financing charges)

Balance at June 30, 2008

$4,443,115

Amortization of issuance costs

      21,366

Accretion charge

      82,275

Issuance of warrants

   (189,810)

Balance at September 30, 2008

$4,356,946

In connection with an amendment to the agreement for the convertible debentures on September 24, 2008, the Company agreed to issue 9.990 million warrants to holders of convertible debenture holders on a pro rata basis based on the outstanding principal amounts of the convertible debentures.  Each warrant entitles the holder to purchase one common share of the Company at an exercise price of $0.045 at any time prior to December 9, 2011. The fair value of the warrants was determined as $189,810.

In accordance with Canadian Institute of Chartered Accountants Handbook Section 3855 ”Financial Instruments – Recognition and Measurement”, the debt and equity portions of the convertible debentures was re-computed based on estimated relative fair value of the debt and equity components.

The Black-Scholes pricing model was used to determine the fair value of the warrants. The following assumptions were used in the Black-Scholes option pricing model.

Common share price                                       $0.035
Exercise price of warrants                              $0.045
Expected life of the warrant                           3 years
Expected volatility                                          87%
Risk-free interest rate                                     3%

7. CAPITAL MANAGEMENT

The Company’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company manages Loan Payable, Non-Convertible debentures, Convertible debentures, and Capital Stock which is explained in detail in the audited financial statements for year ended June 30, 2008. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable growth.

The Company is subject to financial covenants which are measured on a quarterly basis. The Company is in compliance with all financial covenants.

8. FINANCIAL INSTRUMENTS

Credit risk

Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations. The Company, in the normal course of business, is exposed to credit risk on its accounts receivable and transaction credits from customers. Accounts receivable and transaction credits are net of applicable allowance for doubtful accounts, which is established based on the specific credit risk associated with the customer and other relevant information.

The ageing of accounts receivable and transaction credits at the reporting date was:

                                                                            September 30, 2008                      June 30, 2008

Current                                                                         $7,163,466                              $7,495,686
Over 90 days                                                               $   710,898                              $   609,899
                                                                                    $7,874,364                              $8,105,585

Currency risk

The Company is exposed to foreign exchange risk as a portion of its revenue is earned in US dollars and it has assets and liabilities that will be settled in US dollars. Foreign exchange risk arises due to fluctuations in foreign currency rates, which could affect the Company’s financial results.

Included in the undernoted accounts are the following amounts (in USD):

                                                                        September 30, 2008                        June 30, 2008

Cash and cash equivalents                                          $    3,514                                 $112,253
Accounts receivable                                                      $496,460                                $656,849
Accounts payable and accrued liabilities                       $377,169                                $153,300

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity when due.

The Company deploys available funds to merchants under its APM program, which are disclosed as transactions credits on the balance sheet. The Company generally acquires transaction credits that are estimated to be fully extinguishable within 30-120 days. The Company maintains adequate cash balances to meet liabilities when due.

Fair value

The carrying value of cash and cash equivalents, accounts receivable, transaction credits, accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of these instruments.

The stated value of the loans payable, convertible debentures payable and non-convertible debentures payable approximate their fair values, as the interest rates are representative of current market rates for loans with similar terms, conditions and maturities.