Advantex Marketing International Inc.
TSX VENTURE : ADX

Advantex Marketing International Inc.

November 13, 2009 11:17 ET

Advantex Announces Results for First Quarter of Fiscal 2010

- Return to profitability. Net Profit of $131,000. - In weak economic conditions Company achieves operational improvements vs. corresponding period previous year: -- Revenues up $371,000 (11.9% +) to $3.4 million -- Contribution from operations (EBITDA) up $135,000 to $0.7 million

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2009) - Advantex Marketing International Inc. (TSX VENTURE:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the first quarter of fiscal 2010. All currency amounts are in Canadian dollars unless otherwise noted.

"It is satisfying to see Advantex make a net profit in unprecedented weak economic conditions. The lessons learned during the three years of restructuring allowed the Company to plan and execute its way out of the adverse impact on its business from a decline in consumer spend that started from late fall of calendar 2008, "said Kelly Ambrose, Chief Executive Officer and President.

"We are once again set for scaling the business. The Company was at a similar stage during the first half of Fiscal 2009 when it reported two consecutive quarters of net profit. The subsequent turbulent economic conditions led to a very difficult third quarter. The Company took corrective steps which offset much of the adverse impact, on the fourth quarter of Fiscal 2009, of weak consumer spend in the Company's CIBC Advantex programs which are primarily focused on the Canadian restaurant sector and Online business which is focused on retail shopping primarily in the US, "Mr. Ambrose reported.

The solid results of the current quarter are the outcome of successful implementation of the recovery plan during the fourth quarter of Fiscal year 2009 - a). increase the number of establishments participating in its programs, particularly the CIBC Advantex programs, to offset the decline in consumer spend, and b). cut costs. Key operational metrics for the past six quarters are summarized in the table.



(dollars thousands)
----------------------------------------------------------------------------
Quarter ended Revenue Contribution from Net Profit/(Loss)
Operations (EBITDA)(i)
----------------------------------------------------------------------------
September 30, 2009 $ 3,481 $ 715 $ 131
----------------------------------------------------------------------------
June 30, 2009 $ 3,130 $ 457 $ (135)
----------------------------------------------------------------------------
March 31, 2009 $ 2,609 $ (237) $ (794)
----------------------------------------------------------------------------
December 31, 2008 $ 3,342 $ 523 $ 20
----------------------------------------------------------------------------
September 30, 2008 $ 3,110 $ 580 $ 55
----------------------------------------------------------------------------
June 30, 2008 $ 2,945 $ 357 $ (281)
----------------------------------------------------------------------------

(i) EBITDA is a non GAAP measure. It illustrates the Company's ability to
generate cash from operations.


The Company's platform for sustained growth and profitability is to:

1. Build stronger relationships with existing affinity and financial partners. Simultaneously continue to increase, within existing business segments, the number of establishments participating in the Company's programs; and

2. Diversify into new business segments by developing relationships with existing and or new affinity and financial partners. This will allow the Company to market its products to establishments in new business segments.

Pending evaluation of a longer renewal, on October 14, 2009 the Company and Canadian Imperial Bank of Canada (CIBC) signed an extension until June 30, 2010 of their existing value-added loyalty marketing agreement which was due to expire December 31, 2009. The Company believes its CIBC Advantex programs offer an attractive method for CIBC credit cardholders to accelerate accumulation of loyalty rewards, and expects to sign a multi- year renewal with CIBC on mutually beneficial terms.

"While the economic outlook continues to be uncertain and it is unlikely that consumer spend will come back to 2007 levels during the foreseeable future, the Company believes its products, particularly its Advance Purchase Marketing (APM) model, appeal to businesses because they deliver value during these difficult times, and thus the Company is cautiously optimistic about its operational performance during the rest of Fiscal 2010 in the event there is not a further deterioration in the economy, "said Mr. Ambrose.

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 1000 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 TSX Venture 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, that addresses activities, events or developments that the Company believes, expects or anticipates will or may occur in the future constitutes forward-looking information. Such forward-looking information relates to, without limitation, information regarding: the Company's belief that it will be able to reach agreement with existing and or new affinity groups to launch its product offering, in particular the APM program, in new business segments during Fiscal 2010 and beyond; the size of the market for the Company's products, in particular the APM program, in the new business segments; the Company's ability to extend its current agreement with CIBC beyond June 30, 2010; the Company's ability to expand its product offering in existing business segments (dining, golf, small inns and spas) allowed under the current CIBC agreement during Fiscal 2010 and beyond; the Company's ability to continue to access financing under its existing line of credit facility, and or its ability to access additional debt with respect to expanding the APM program within the existing business segments and launching and or expanding into new business segments during Fiscal 2010 and beyond; the impact of current market conditions on the Company's ability to access additional financing; the Company's ability to achieve continuation of many of the cost cuts, from measures implemented in Fiscal 2009, into Fiscal 2010; expectations relating to consumer spending and trends; the Company's anticipated increase in the number of establishments with which it will do business; the impact on the Company's revenues, results and cash flows that increased merchant participation would have; the continued impact of economic conditions on the Company's performance; the Company's belief that increase in establishments participating in its programs offsets impact of decline in consumer spend; the Company' ability to scale its business; 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.
With respect to the forward-looking information contained in this Press Release, the Company has made assumptions regarding, among other things, its ability to access current and future financing; current and future economic and market conditions and the impact of same on the Company's business; ongoing and future revenue sources; future business levels; interest and currency rates; the impact of an extension of the agreement with CIBC on future business; the Company's ability to offer same rewards as CIBC; the appropriateness of the Company's tax filing position, ongoing consumer interest in accumulating frequent flyer miles; and the Company's ability to manage risks connected to collection of transaction credits. 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 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 agreements that allow the Company to launch its products in new business segments, the termination or expiration of the CIBC agreement, any adverse change to the currently agreed payment plan with the CRA, currency risks, the inability of the Company to collect under its APM program, the Company's financial status, and other factors, including without limitation, those listed under "General Risks and Uncertainties" and "Economic Dependence" in the Company's Management Discussion and Analysis for the three months ended September 30, 2009. 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.



ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three month period ended September 30, 2009



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, 2009 June 30, 2009
-------------- --------------
ASSETS

Current:
Cash and cash equivalents $729,053 $344,180
Accounts receivable 438,080 506,380
Transaction credits 8,451,690 8,151,185
Prepaid expenses and
sundry assets 281,293 223,066
------------ ------------
9,900,116 9,224,811
------------ ------------

Long-term:
Property, plant and
equipment 615,648 652,639


TOTAL ASSETS $10,515,764 $9,877,450
------------ ------------
------------ ------------

LIABILITIES

Current:
Loan payable 5 $1,407,609 $980,988
Accounts payable and
accrued liabilities 3,455,147 3,544,327
------------ ------------
4,862,756 4,525,315
------------ ------------

Long-term:
Non-Convertible
debentures payable 6 2,544,771 2,519,661
Convertible debentures
payable 7 4,836,272 4,713,408
------------ ------------
7,381,043 7,233,069
------------ ------------

12,243,799 11,758,384
------------ ------------

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 4 600,090 578,090
Equity portion of
convertible debentures 7 2,114,341 2,114,341
Warrants 6/7 374,554 374,554
Deficit (28,927,116) (29,058,015)
------------ ------------
(1,728,035) (1,880,934)
------------ ------------

TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIENCY $10,515,764 $9,877,450
------------ ------------
------------ ------------

Economic Dependence and
Going Concern (note 1b)
Taxation (note 10)

(see accompanying notes)



ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT AND COMPREHENSIVE PROFIT
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(unaudited - note 1)

Sept 30, 2009 Sept 30, 2008
--------------- ---------------


REVENUE $3,481,000 $3,110,186
Direct expenses 1,117,132 983,451
--------------- ---------------

GROSS PROFIT 2,363,868 2,126,735
--------------- ---------------

OPERATING EXPENSES
Selling and marketing 826,154 682,756
General and administrative 822,977 864,189
--------------- ---------------
1,649,131 1,546,945
--------------- ---------------

CONTRIBUTION FROM OPERATIONS 714,737 579,790

Stock-based compensation 22,000 17,067
--------------- ---------------

PROFIT BEFORE AMORTIZATION
AND INTEREST 692,737 562,723

Amortization of property,
plant and equipment 89,482 71,344
Interest expense
Stated interest expense - loan payable,
non-convertible debentures, and other 157,066 140,689
Stated interest expense - convertible
debentures 151,233 151,233
Accretion charge on debentures, and
amortization of deferred financing
charges 164,057 144,380
--------------- ---------------

NET PROFIT AND COMPREHENSIVE
PROFIT FOR THE PERIOD $130,899 $55,077
--------------- ---------------
--------------- ---------------

NET PROFIT PER COMMON SHARE $ 0.00 $ 0.00
--------------- ---------------
--------------- ---------------

(see accompanying notes)



ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(unaudited - note 1)

Sept 30, 2009 Sept 30, 2008
--------------- ---------------

BALANCE AT THE START OF PERIOD $(29,058,015) $(28,204,085)

Net profit for the period 130,899 55,077
--------------- ---------------

BALANCE AT THE END OF PERIOD $(28,927,116) $(28,149,008)
--------------- ---------------
--------------- ---------------

(see accompanying notes)



ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(unaudited - note 1)

Sept 30, 2009 Sept 30, 2008
--------------- ---------------

OPERATING ACTIVITIES

Net profit for the period $130,899 $55,077

Items not affecting cash
Amortization of property, plant and
equipment 89,482 71,344
Accretion charge on debentures 117,509 97,895
Amortization of deferred financing
charges 46,548 46,485
Stock-based compensation 22,000 17,067
--------------- ---------------
406,438 287,868

Changes in non-cash working capital
items
Accounts receivable 68,300 (637,625)
Transaction credits (300,505) 868,846
Prepaid expenses and sundry assets (58,227) (6,311)
Accounts payable and accrued
liabilities (89,180) 472,755
--------------- ---------------
(379,612) 697,665

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

Cash provided by operating activities 26,826 925,533

FINANCING ACTIVITIES
Financing charges - non-convertible
debenture - (1,833)
Loans payable 410,538 (577,597)
--------------- ---------------
410,538 (579,430)

INVESTING ACTIVITIES
Purchase of property, plant and
equipment (52,491) (69,688)

MOVEMENT IN CASH AND CASH
EQUIVALENTS DURING THE PERIOD 384,873 276,415

Cash and cash equivalents at the start
of period 344,180 144,794
--------------- ---------------

CASH AND CASH EQUIVALENTS AT END OF
PERIOD $729,053 $421,209
--------------- ---------------
--------------- ---------------

ADDITIONAL INFORMATION
Interest paid $157,066 $140,689
--------------- ---------------
--------------- ---------------

(see accompanying notes)



ADVANTEX MARKETING INTERNATIONAL INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2009
(Unaudited - note 1)


1. SIGNIFICANT ACCOUNTING POLICIES

a. 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, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010. 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 2009.

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, 2009. Certain prior period amounts have been reclassified to conform to the current period's presentation.

b. Economic dependence and going concern. In continuation to details provided in note 1b to the consolidated financial statements for year ended June 30, 2009, on October 14, 2009 the Company and Canadian Imperial Bank of Commerce (CIBC) signed an extension until June 30, 2010 of their existing value-added loyalty marketing program agreement, pending evaluation of a longer renewal. The accompanying consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation during the normal course of operations. As renewal of the agreement or any other funding initiatives management may pursue as required for the Company to meet its obligations as they come due beyond June 30, 2010 cannot be assured, the uncertainty related to the renewal of the CIBC agreement described above, may cast significant doubt on the appropriateness of the use of accounting principles relating to a going concern. These interim consolidated financial statements do not include any adjustments or disclosures that may result from the Company's ability to continue as a going concern. If the going concern assumption were not appropriate for these interim consolidated financial statements, adjustments may be necessary in the carrying values of assets and liabilities and the reported expenses and balance sheet classifications; such adjustments could be material.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Change in accounting policies

Financial Statement Concepts

In February 2008, the CICA amended Handbook Section 1000 "Financial Statement Concepts" to clarify the criteria for recognition of assets and liabilities, the relationship between incurring expenditures and creating assets, the future economic benefit criterion necessary for recognition of an asset, and the timing of expense recognition. This amendment is effective for annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the amendment to this standard on July 1, 2009. The adoption of this amendment did not have an impact on the Company's interim consolidated financial results, position, or disclosure.

Goodwill and Intangible Assets

In February 2008, the CICA issued Handbook Section 3064 "Goodwill and Intangible Assets". Handbook Section 3064 replaces Handbook Section 3062 "Goodwill and Other Intangible Assets" and Handbook Section 3450 "Research and Development Costs". This new section provides additional guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This standard is effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted this new standard on July 1, 2009. The adoption of this amendment did not have an impact on the Company's interim consolidated financial results, position, or disclosure.

International Financial Reporting Standards ("IFRS")

On February 13, 2008, the CICA's Accounting Standards Board (AcSB) confirmed that the use of IFRS will be required for interim and annual financial statements for fiscal years beginning on or after January 1, 2011 for publicly accountable enterprises in Canada. Companies will be required to provide comparative information under IFRS for the previous fiscal year. The implementation of IFRS will be applicable for the Company for the July 1, 2011 to September 30, 2011 quarter, for which the current and comparative financial information will be presented under IFRS. The Company is currently evaluating the impact that the adoption of IFRS will have on its consolidated financial statements.

3. LISTING OF COMMON SHARES

On October 15, 2009 the Company's common shares were listed on the TSX Venture Exchange (TSXV), a seamless transition from the Toronto Stock Exchange (TSX).

4. STOCK OPTIONS

As at September 30, 2009 there were 10,754,276 employee stock options outstanding at exercise prices between $ 0.01 to $ 0.135, expiring between October, 2010 and March, 2014.

During the period, 654,926 stock options were forfeited or expired.

The Company has recorded $22,000 of stock-based compensation expense during the three months ended September 30, 2009 related to the fair value of stock options issued during prior years. There was a corresponding increase in contributed surplus.

5. LOAN PAYABLE

The carrying amount outstanding under this facility at September 30, 2009 was $1,488,027 (June 30, 2009 $1,077,489). The loan payable amount disclosed on the Balance Sheet is net of the unamortized financing fees of $80,418 (June 30, 2009 $96,501). The interest cost during the three months ended September 30, 2009 was $58,376.

6. 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, 2009 are as follows:



----------------------------------------------------------------------------
Debt Portion Warrants Deferred
Financing
costs
----------------------------------------------------------------------------
Balance at June 30, 2009 $2,574,270 $184,744 $54,609
----------------------------------------------------------------------------
Amortization of issuance costs - - (9,099)
----------------------------------------------------------------------------
Accretion charge 16,011 - -
------------ --------- ----------
----------------------------------------------------------------------------
Balance at September 30, 2009 $2,590,281 $184,744 $45,510
------------ --------- ----------
----------------------------------------------------------------------------


The stated interest cost during the three months ended September 30, 2009 was $94,042.

7. 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, 2009 are as follows:



----------------------------------------------------------------------------
Debt Portion Equity portion Warrants Deferred
Financing
costs
----------------------------------------------------------------------------
Balance at June 30,
2009 $4,927,074 $2,114,341 $189,810 $213,666
----------------------------------------------------------------------------
Amortization of
issuance costs - - - (21,366)
----------------------------------------------------------------------------
Accretion charge 101,498 - - -
------------ ------------ -------- ---------
----------------------------------------------------------------------------
Balance at September
30, 2009 $5,028,572 $2,114,341 $189,810 $192,300
----------------------------------------------------------------------------


The stated interest cost during the three months ended September 30, 2009 was $151,233.

The financial covenants of the convertible debentures require the Company to meet a defined level of current assets and interest coverage on a quarterly basis. The Company met its financial covenants.

8. 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, 2009. 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.

9. 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. The Company generally acquires transaction credits that are estimated to be fully extinguishable within 30-120 days. 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, 2009 June 30, 2009
------------------ -------------

Current $8,092,530 $7,934,945
Over 120 days $ 797,240 $ 722,620
------------------ -------------
$8,889,770 $8,657,565
------------------ -------------


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, 2009 June 30, 2009
------------------ -------------
Cash and cash equivalents $212,716 $ 82,929
Accounts receivable $272,595 $360,815
Accounts payable and accrued
liabilities $541,100 $728,770


As at September, 2009 the Company had nominal amounts (equivalent to under CAD 5,000) of assets and liabilities in Euro and Pound Sterling (June 30, 2009 $3,000).

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 transaction 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.

10. TAXATION

As explained in note 11 to the consolidated financial statements for year ended June 30, 2009, the balance owed under the GST re-assessment is required to be paid during the objection process. The Company made three payments totaling $75,000, during period ended September 30, 2009, under the 24 month payment plan worked out with the CRA. The amounts paid are included as a recoverable asset and are included under accounts receivable on the balance sheet. The amounts payable under the payment plan, including an estimate for interest are:

Due within 12 months from September 30, 2009 - $399,000

Due within 12 months from September 30, 2010 - $308,000

"Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release."

Contact Information

  • Advantex Marketing International Inc.
    Mukesh Sabharwal
    Vice-President and Chief Financial Officer
    905-470-9558 ext. 249
    Mukesh.sabharwal@advantex.com