ADVANTEX ANNOUNCES FISCAL 2008 THIRD-QUARTER RESULTS
5/15/2008 12:00:00 AM

  NEWS RELEASE

Advantex Announces Fiscal Third-Quarter Results

 

Toronto, May 15, 2008 – Advantex Marketing International Inc. (TSX:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the fiscal third quarter and nine months ended March 31, 2008. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.

"The Company continues to evolve into a stronger and more competitive company, with a clear focus on profitable growth in the programs and areas in which it enjoys a leadership position”, said Mr. Kelly E. Ambrose, President and Chief Executive Officer.

For the three months ended March 31, which period is historically the weakest trading quarter, Company’s Contribution from Operations for the three months ended March 31, 2008 was $112,000 compared with a loss of $33,000 at the Contribution from Operations level in the corresponding period of the previous year. The Company achieved a modest Profit before Interest during the current quarter of $17,000 compared with a loss of $110,000 for the corresponding period of the previous year.

Financial Performance – Highlights
(millions of $s)
-----------------------------------------------------------------------------------------------------------------
                                                         Three months    Three months    Nine months     Nine months 
                                                         Ended           Ended           Ended           Ended
                                                         March 31,       March 31        March 31,       March 31,
                                                         2008            2007            2008            2007
------------------------------------------------------------------------------------------------------------------
Revenue                                                  2.5             2.7             8.6             8.4
------------------------------------------------------------------------------------------------------------------
Gross profit                                             1.8             1.9             5.3             5.6
-------------------------------------------------------------------------------------------------------------------
Gross Margin                                            70.5%           69.8%           61.2%           66.7%
-------------------------------------------------------------------------------------------------------------------
Contribution from operations                             0.1             0.0             0.1             0.3
-------------------------------------------------------------------------------------------------------------------
Profit / (Loss) before 
 amortization and interest                               0.1            (0.1)            0.0            (0.9)
-------------------------------------------------------------------------------------------------------------------
Amortization                                             0.1             0.1             0.2             0.2                                         -------------------------------------------------------------------------------------------------------------------
Interest                                                 0.4             0.2             0.9             0.6                                     -------------------------------------------------------------------------------------------------------------------
Net (Loss)                                              (0.4)           (0.4)           (1.1)           (1.7)
--------------------------------------------------------------------------------------------------------------------
 
The Company implemented several successful initiatives during the three months ended March 31, 2008:
 
(1)        Following the closing of debt financings in late December, 2007 and January, 2008, the Company had access to $4.2 million of funds to grow the CIBC Advantex Advance Purchase Marketing (APM) program. During the three months ended March 31, 2008 the Company focused on enrolling and activating the backlog of merchants waiting to enroll in its (APM) program, a process that took the better part of this quarter. As of March 31, 2008 the Company had deployed $4.2 million of funds as initial advances to new merchants, however the lag between the access to funds and enrolling / activation process means that the full impact of funds deployed in the quarter is only partially evident in the CIBC Advantex APM program revenues of the three months ended March 31, 2008.
(2)        Manpower and SG&A savings have been identified. Measures implemented from mid –March, 2008 onwards; will be realized partially during the last quarter of current year, and fully by first quarter of fiscal 2009, and which will save the Company approximately $650,000 over 12 months starting April, 2008.
(3)        Online revenues for three months ended March 31, 2008 are up 17.4% compared with the corresponding period of the previous year when expressed in USD terms, the currency in which the Company earns its revenues
(4)       New complementary revenue opportunities:
   (a)        In partnership with CIBC, Advantex is launching a Hotel program targeted towards select high income credit cardholders. The program markets the participating hotels to select CIBC cardholders, and entitles cardholders to special privileges at participating hotels. Advantex will earn a fee for the marketing services provided to participating hotels. The initial response to roll out of this program has been encouraging.
   (b)        Advantex acts as the exclusive Canadian-based agent across Canada to sell and market, to small and mid-sized businesses, the working-capital financing programs offered by Rapid Advance, a company based in Bethesda, Maryland. After set up of administrative processes during the current quarter, Advantex has begun marketing the service, and the response from merchants has been positive. Advantex earns a fee for marketing the service in Canada, and does not have exposure to delinquent accounts.

 
The CIBC Advantex program revenues for the three months ended March 31, 2008 were $1.9 million compared with $2.1 million for the corresponding period of the previous year. The Company’s APM program accounted for $1.2 million of the three months ended March 31, 2008 revenue, $0.5 million lower than corresponding period of the previous year, while the Marketing Only program accounted for $0.7 million, $0.3 million higher than corresponding period previous year. During the past periods the Company moved existing merchants either to a Marketing Only program or into its APM program which provides merchants with larger advances. This realignment has resulted in two very distinct programs with more of the existing merchants in the Marketing Only program. During the current quarter the Company enrolled and activated the backlog of merchants waiting to enroll in its Advance Purchase Marketing (APM) program, a process that took the better part of the current quarter, consequently the full impact of the funds deployed in the CIBC Advantex APM program are not realized in the revenue of the three months ended March 31, 2008. The Company continues to drive its Marketing Only program and revenues for this model for the three months ended March 31, 2008 are up 105% compared with the corresponding period of the previous year.

 

Online revenue for the three months ended March 31, 2008 achieved growth of 17.4% compared with corresponding period in the previous year when expressed in US dollars, the currency in which the Company earns its revenue but was up 2.6% when reported in Canadian Dollars in the consolidated financial statements, a reflection of the strengthening of the Canadian Dollar vs. US Dollar. The growth is mainly attributable to the increased awards promotions offered by the Company to online shoppers. 
 
The Net Loss for the three and nine months ended March 31, 2008 is $390,000 and $1,086,000 respectively compared with $359,000 and $1,702,000 respectively for the corresponding periods of the previous year. For the three months ended March 31, 2008, the increase in interest expense resulting from the new debt financings and the impact from marginally lower revenues ($182,000), a reflection of the merchant enrolling and activation process explained in earlier paragraph, on the Net Loss , was partially offset by lower SG&A ($255,000). 
 

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, Delta 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.

This press release contains certain "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding financial and business prospects and financial outlook) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks, uncertainties and assumptions that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things, changes in general economic and market conditions, changes to regulations affecting the Company's activities , uncertainties relating to the availability and costs of financing needed in the future, and delays in finalizing retail contract with CIBC. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein. 

 

- 30 -

 

For further information please contact:

Mukesh Sabharwal

Vice-President and Chief Financial Officer

Tel: (416) 481-5657, ext. 249

E-mail: Mukesh.sabharwal@advantex.com

 

 


 

ADVANTEX MARKETING INTERNATIONAL INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the three month and nine month period

Ended March 31, 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)

 

 

                                                                                               MARCH 31, 2008                       JUNE 30, 2007

                                                                                                              $                                               $

ASSETS

Current:

   Cash and cash equivalents                                                           762,578                                     910,995

   Accounts receivable                                                                      969,908                                     737,485

   Transaction credits                                                                     7,361,968                                  5,390,412

   Prepaid expenses and sundry assets                                            110,474                                     185,955

                                                                                                        9,204,928                                  7,224,847

Long-term:

  Property, plant and equipment and other assets                           913,920                                     775,733

                                                                                                            

 

TOTAL ASSETS                                                                             10,118,848                                 8,000,580

 

LIABILITIES

Current:

   Loan payable (note 5)                                                                   546,353                                           -

   Accounts payable and accrued liabilities                                    3,598,063                                  3,707,243

                                                                                                         4,144,416                                  3,707,243

                                                                          

Long-term:

   Other liabilities                                                                                265,955                                    450,856

   Non-convertible debenture payable (note 6)                              2,419,907                                          -

   Convertible debenture payable                                                    4,340,877                                 4,042,335

                                                                                                          7,026,739                                 4,493,191

 

                                                                                                        11,171,155                                8,200,434 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                                                                              460,823                                   412,223

Equity portion of debentures (note 7)                                              2,299,085                               2,114,341

 Deficit                                                                                            (27,922,311)                         (26,836,514)

 

                                                                                                          (1,052,307)                              (199,854)          

TOTAL LIABILITIES AND                                                                10,118,848                               8,000,580

   SHAREHOLDERS’ (DEFICIENCY)                                                                                                                    

(see accompanying notes)

 


                       

 

ADVANTEX MARKETING INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF LOSS

(unaudited)

 

 

                                                                                                    Three Months Ended                  Nine Months Ended   

                                                                                                             March 31                                    March 31

                                                                                                     2008               2007                  2008            2007 

                                                                                                         $                    $                          $                  $

 

REVENUE                                                                            2,510,016      2,692,237             8,591,543     8,369,354             

   Direct expenses                                                              740,052         812,668              3,332,101    2,787,194

                        

GROSS PROFIT                                                                   1,769,964      1,879,569             5,259,442     5,582,160

                                                

OPERATING EXPENSES

   Selling and marketing                                                        692,883          941,359             2,279,884     2,546,369

   General and administrative                                               965,401          971,538             2,885,238     2,739,262

                                                                                             1,658,284       1,912,897            5,165,122     5,285,631

 

CONTRIBUTION FROM OPERATIONS                                   111,680          (33,328)                94,320         296,529

 

   Re-structuring costs                                                                     -                       -                           -           1,026,156

   Stock-based compensation                                                   16,200            16,200                   48,600        152,575

                                                                                                                                                               

PROFIT/(LOSS) BEFORE AMORTIZATION                             95,480          (49,528)                  45,720      (882,202)

   

   Amortization of property, plant and equipment                    78,929            60,192                 198,981       175,099

 

PROFIT/(LOSS) BEFORE INTEREST                                        16,551        (109,720)             (153,261) (1,057,301)

  

    Interest expense

           Loan payable, and non convertible debenture           119,020              -                      129,182             -

            Stated interest on convertible debenture                  149,589       154,416                467,863        380,512

            Accretion charge on convertible debenture and                                                               

                amortization of deferred financing charges           137,760         94,484                335,491        264,300              

                                                                                                                                                                                                                               

NET (LOSS) AND COMPREHENSIVE LOSS                                                                                                                                 

FOR THE PERIOD                                                                  (389,818)      (358,620)         (1,085,797)   (1,702,113)

                                                                                                                                                                                                                 

NET (LOSS) PER COMMON SHARE                                           (0.01)            (0.01)                    (0.02)            (0.02)

  

                                                                                                                                                        (see accompanying notes)


 

 

 

ADVANTEX MARKETING INTERNATIONAL INC.

CONSOLIDATED STATEMENT OF DEFICIT

(unaudited)

 

                                                                                         Three Months Ended                         Nine Months Ended

                                                                                                  March 31                                            March 31

                                                                                          2008               2007                            2008                2007

                                                                                             $                     $                                   $                       $

 

BALANCE AT THE START OF PERIOD                (27,532,493)     (25,585,706)            (26,836,514)      (24,242,213)

 

Net (loss) for the Period                                        (389,818)          (358,620)              (1,085,797)        (1,702,113)

                                                                                                                                                               

BALANCE AT THE END OF PERIOD                   (27,922,311)     (25,944,326)             (27,922,311)    (25,944,326)          

 

                                                                                                           

                                                                                                                                (see accompanying notes)

 


 

ADVANTEX MARKETING INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

                                                                                                               Three Months Ended         Nine Months Ended

                                                                                                                        March 31                         March 31       

                                                                                                               2008              2007           2008              2007

                                                                                                                  $                    $                $                    $

OPERATING ACTIVITIES

   Net loss for the period                                                (389,818)    (359,620)  (1,085,797)   (1,703,113)            

Items not affecting cash

    Amortization of property, plant and equipment                            78,929          60,192         198,981          175,099

    Accretion charge on convertible debenture                                   94,872         74,234         249,871         195,522

   Amortization of deferred financing charges                                    42,888         20,250           85,620           68,778

    Stock-based compensation                                                            16,200        16,200            48,600         152,575

                                                                                                    (156,929)   (188,744)     (502,725)    (1,111,139)

Changes in non-cash working capital items

    Accounts receivable                                                                      419,502           806,278             (232,441)        111,316

    Transaction credits                                                                   (1,948,722)             5,599           (1,971,556)    (2,215,904)

    Prepaid expenses and sundry assets                                           (12,680)            10,036               75,481            32,179

    Accounts payable and accrued liabilities                                     (389,377)          (282,748)          (109,163)          29,112

                                                                                                     (1,931,277)          539,165         (2,237,679)    (2,043,297)

 

Decrease in Long-term other liabilities                                                 (6,700)           (68,099)          (184,900)         500,921

Cash utilized in operating activities                                               (2,094,906)          282,322        (2,925,304)     (2,653,515)

 

FINANCING ACTIVITIES

   Proceeds from convertible debenture, net                      -                 (39,781)                 -               1,619,944

   Proceeds from non-convertible debenture, net            662,557             -                     2,582,557            -

   Proceeds from draw of credit facility                                              3,720             -                           710,210            -

   Credit facility fees                                                                         (1,383)            -                         (178,713)          -

                                                                                                     664,894         (39,781)            3,114,054           1,619,944

 

INVESTING ACTIVITIES

    Purchase of property, plant and equipment                                (67,252)        (56,645)              (337,167)      (256,309)

 

MOVEMENT IN CASH AND CASH EQUIVALENTS                            (1,497,264)        185,896              (148,417)     (1,289,880)

 DURING THE PERIOD                                                                    

 

Cash and cash equivalents at the beginning of the period          2,259,842        331,266                 910,995       1,807,042

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD                        762,578        517,162                 762,578      517,162                

 

 

ADDITIONAL INFORMATION

    Interest paid                                                                           114,237            -                        414,237         295,357               

                                                                                                                                                                       

                                                                                                                                (see accompanying notes)

 


 

ADVANTEX MARKETING INTERNATIONAL INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31, 2008

(Unaudited)

                                                                 

1. SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim 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 nine months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2008. 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 2007.

These interim financial statements follow the same accounting policies and methods of application as the consolidated financial statements for the year ended June 30, 2007, except as described in note 2 below. Certain prior period amounts have been re-classified to conform to the current period’s presentation.                                     

2. CHANGES IN ACCOUNTING POLICIES

As required by the Canadian Institute of Chartered Accountants (“CICA”), on July 1, the Company adapted CICA Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments – Recognition and Measurement; Section 3861, Financial Instruments – Disclosure and Presentation; and Section 3865, Hedges. The prospective adoption of those new standards resulted in changes in the accounting and presentation for financial instruments. The principal changes in accounting for financial instruments due to the adoption of these accounting standards are described in detail in Note 2 to the interim consolidated financial statements of the Company for the three months ended September 30, 2007.

3. STOCK OPTIONS

As at March 31, 2008 the maximum number of shares issuable under the plan was 12,128,858, and there were 11,999,356 employee stock options outstanding at exercise prices between $0.045 to $0.15, expiring between July 9, 2008 and March 17, 2013.

During the three months ended March 31, 2008, the Company issued 3,024,356 stock options to its employees; on January 10, 300,000 options at exercise price of $0.05, vesting equally over three years, expiring January 2012, and on March 17, 2,724,356 options at an exercise price of $0.045, vesting after a year, expiring March, 2013.

125,000 stock options were forfeited or expired during the three months ended March 31, 2008.

The Company has recorded stock option expense of $16,200 and $48,600 for the three and nine months ended March 31, 2008, respectively.

4. DEFERRED COSTS

During the period Company continued development of new processing systems for its CIBC Advantex programs. The costs incurred for the quarter and to date on this project are $61,999 and $510,239 respectively and are included in property, plant and equipment. Certain modules of the system were implemented during the current year, and the Company commenced amortization on these modules. An amount of $33,600 and $59,678 is reflected in amortization expense for the three and nine months ended March 31, 2008 related to the new processing systems.

5. LOAN PAYABLE

In December, 2007 Advantex Dining Corporation, a 100% subsidiary of the Company concluded an agreement with Montcap Financial Corp (Montcap) for a $ 5.0 million credit facility. Interest is calculated daily on the amount outstanding and charged monthly at the per annum rate of 10 per cent above a certain major Canadian bank’s prime rate. First charge on all amounts due from participating establishments which are funded from this facility are provided as security. The agreement is for three years.  

Under the agreement, the facility is to be used exclusively to acquire transaction credits. Transaction credits can only be acquired from those establishments that are in industries open to the Company under its agreement with CIBC. The Company has immediate access to $1.5 million of the facility. The remaining balance of $3.5 million will be available once the Company reaches an agreement with CIBC that will allow the Company to expand its program to retail fashion establishments.

The financing fees of this credit facility were $178,713, have been deferred, and are being amortized over the term of the facility. The amount outstanding under this facility at March 31, 2008 was $710,210. The loan payable amount disclosed on the Balance Sheet is net of the deferred financing fees of $163,857.

6. NON-CONVERTIBLE DEBENTURE

In December, 2007, the Company issued 2,000 units of non-convertible debentures for gross proceeds of $2,000,000. The closing of the second and final tranche of the non-convertible debt offering was completed on January 30, 2008, and the Company issued an additional 665 units, for gross proceeds of $665,000. Certain Directors and officers of the Company participated in the second tranche, purchasing 110 units. Financing fees of $82,442 related to these debentures have been deferred and will be amortized over the term of the debentures.

Each unit consists of a $1,000 secured non –convertible debentures and 1,975 share purchase warrants. The debentures bear interest at 14% per annum, payable quarterly, and mature on December 31, 2010. Each share purchase warrant allows the holder to acquire one share of the Company at $0.06 per share during the three year term of the debenture.

Under the agreement, the proceeds of the debenture are to be used to acquire transaction credits. In addition, the proceeds of the non-convertible debentures are to be held in a segregated bank account, set up by the company. As security, the debenture holders have first charge to the balances in the segregated bank accounts as well as all amounts due from establishments funded by the proceeds of the non-convertible debentures.

The non-convertible debentures include a financial covenant that requires the Company to meet a defined level of assets at each quarter end commencing the quarter ending on March 31, 2008.

In accordance with CICA 3855, the fair value of the non-convertible debentures was bifurcated into debt and equity portions based on the estimated fair value of the debt and equity components. Accordingly, $184,744 was allocated to the equity portion of the share warrants.

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

Common share price                                    $0.06

Exercise price of share warrant                   $0.06

Expected life of the share warrant             3 years

Expected Volatility                                       89%

Risk-free interest rate                                  3.9%

 

The amount of non-convertible debentures is disclosed under long-term liabilities:

Gross Proceeds of debentures                   $2,665,000

Deferred financing fees                                  (75,776)

Accretion charges to date                                 15,427 

Equity portion of debentures                        (184,744)

Non – convertible debenture payable       $2,419,907

7. EQUITY PORTION OF DEBENTURES

                                                                                           As at March 31, 2008

 

Equity portion of convertible debenture                                   $ 2,114,341

Equity portion of non-convertible debenture (note 6)                    184,744

                                                                                                 $ 2,299,085