Advantex Marketing International Inc.
TSX VENTURE : ADX

Advantex Marketing International Inc.

March 01, 2011 17:06 ET

Advantex Announces Fiscal 2010 Second Quarter Results

Net Profit for Second Quarter and First Six Months

TORONTO, ONTARIO--(Marketwire - March 1, 2011) - Advantex Marketing International Inc. ("Advantex" or the "Company") (TSX VENTURE:ADX), a leading specialist in merchant funding and loyalty marketing programs, today announced its results for the fiscal second quarter ended December 31, 2010. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.

Operational Performance

"The Company continues to make steady progress towards its financial goals of sustainable growth in revenues, profit before non cash expenses and non cash working capital (as a measure of the cash generated from operations), and profitability, "said Kelly Ambrose, Advantex President and Chief Executive Officer.

"Increasing the number of merchants participating, at profitable margins, in the Company's retail programs will enable the Company to meet its financial goals. For the six months ended December 31, 2010 we had an average of 749 merchants participating in our retail programs, a 25% increase over corresponding period in the previous year, "said Mr. Ambrose.

During the three months ended December 31, 2010, the operational goal was to increase merchant participation in the Aeroplan sponsored program launched September 1, 2010. The Company's design of the product value proposition and merchant training have met with acceptance by the market, and the affinity partner. Consequent to the Company's skilful implementation of the program at participating merchants, and their enthusiastic participation, it was apparent by early November that the actual cost of loyalty rewards would exceed the amount budgeted in the pricing model. In an attempt to retain the attractive value proposition of the product, and yet for the Company to make an economic return from the program, the Company and the affinity partner started discussions and in mid-February, 2011 had agreed on revisions that are mutually beneficial, and enable the program to be marketed by the Company. The adverse impact on the Company results for the three months ended December 31, 2010 was twofold, firstly from the higher than expected cost of rewards, and secondly from the hold put on activating new merchant starts pending resolution of the reward cost issue.

Furthermore the Company has had to mitigate the impact of the close down of the online business with the termination of the United Airlines agreement effective October 1, 2010. At the end of the first quarter of Fiscal 2011 it had laid off staff in an effort to mitigate the impact on its Fiscal 2011 profitability from the shutdown of its online business. During the six months ended December 31, 2010, the Company has been able to offset the impact on its gross profit by replacing the revenues from its online business with the growth in the retail programs with their higher gross margin The Company abandoned its online shopping mall business during the three months ending March 31, 2011 and is now a discontinued operation.



Financial Highlights:

----------------------------------------------------------------------------
3 months ended December 31 6 months ended December 31
----------------------------------------------------------------------------
2010 2009 2010 2009
(Fiscal (Fiscal Inc / (Fiscal (Fiscal Inc /
2011) 2010) (Dec) 2011) 2010) (Dec)
----------------------------------------------------------------------------
$ $ $ $ $ $
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Revenues
----------------------------------------------------------------------------
Retail programs
- CIBC Advantex
/ Aeroplan
sponsored
program 3,588,000 3,078,000 510,000 6,980,000 6,110,000 870,000
----------------------------------------------------------------------------
Online business 94,000 847,000 (753,000) 660,000 1,296,000 (636,000)
------------------------------------------------------------
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3,682,000 3,925,000 (243,000) 7,640,000 7,406,000 234,000
------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Gross Profit
----------------------------------------------------------------------------
Retail programs
- CIBC Advantex
/ Aeroplan
sponsored
program 2,419,000 2,074,000 345,000 4,924,000 4,247,000 677,000
----------------------------------------------------------------------------
Online business 35,000 317,000 (282,000) 235,000 508,000 (273,000)
------------------------------------------------------------
----------------------------------------------------------------------------
2,454,000 2,391,000 63,000 5,159,000 4,755,000 404,000
------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Profit before
non cash
expenses, and
non cash
working capital
items 349,000 439,000 (90,000) 832,000 846,000 (14,000)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net Profit 56,000 166,000 (110,000) 207,000 297,000 (90,000)
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Renewal of Debentures

The Company is substantially financed by its Non-Convertible Debentures Payable, and Convertible Debentures Payable. The Company has fully deployed the proceeds of its Non-convertible debentures which are used exclusively to acquire transaction credits under its APM program. The Convertible debenture proceeds are used for purpose of the Company's working capital needs.

The Non-Convertible Debentures matured on Decemeber 31, 2010, and the Company was in default as it has not redeemed the principal due on maturity. Also, as at December 31, 2010 the Company was in breach of its Convertible Debentures Payable current asset financial covenant.

Subsequent to December 31, 2010, the Company and the holder of the majority of the Non-Convertible Debentures Payable, and Convertible Debentures Payable (collectively "Debentures") signed term sheets for renewal of the Debentures.

The Company has secured an unconditional approval from the CNSX to list its common shares, and has received the Exchange's approval to the term sheets. The Company will be delisting its common shares from the TSX Venture Exchange ("TSXV"), and has notified TSXV of its intention. The Company expects to ensure a seamless transition between the two exchanges' by mid- March, 2011, and close the renewal transaction soon after listing of its common shares on the CNSX.

The above debenture renewal developments allow the Company to focus on growth of the business.

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 additionally secured future sales through its Advance Purchase Marketing model. Advantex partners include more than 750 merchants operating as restaurants, golf courses, small inns and resorts, hotels, retailers; CIBC; and Aeroplan. 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 continues to make steady progress towards sustainable growth in revenues, cash generated from its operations, profitability; the Company's belief that increasing the number of merchants participating at profitable margins in the Company's retail programs will enable the Company to meet its financial goals; the Company's belief that the revisions agreed mid-February with an affinity partner will : be signed as an amendment to the existing agreement, and enable the Company to market the program and make an economic return from it; the expected timing of the implementing the revisions in the Aeroplan sponsored program; the Company's ability to protect its gross margins; the Company's expectations with respect to the seamless transition of the listing of its common shares from TSXV to the CNSX; the Company's expectation with respect to timing of listing of its common shares on CNSX; the Company's expectation with respect to the renewal of the debentures, and the timing of the completion of the renewal transactions; the Company's belief that upon the expected renewal of the debentures it can focus on growth of the 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, the size of the market for the Company's programs; its ability to increase merchant participation in its programs; its ability to access future financing; continued affinity partner participation with the Company; its ability to transition its common shares on the CNSX; its ability to complete the renewal of the existing non-convertible and convertible debentures on terms described in the MD&A for three and six month periods ended December 31, 2010; continued support from its providers of Loan Payable; 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 the agreements with CIBC and Aeroplan on future business; the appropriateness of the Company's tax filing position; ongoing consumer interest in accumulating frequent flyer miles; 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; level of merchant participation in the Company's retail programs; uncertainties relating to the availability and costs of financing needed in the future including those connected to renewal of non convertible and convertible debentures; termination of the CIBC agreement; termination of the Aeroplan 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 Management Discussion and Analysis for the three and six month period ended December 31, 2010, and in note 1b to the interim consolidated financial statements for the three and six month periods ended December 31, 2010.

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 and six month periods
Ended December 31, 2010


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 1a)


December 31,
Note 2010 June 30, 2010
--------------------------------
$ $
ASSETS

Current:
Cash and cash equivalents $1,489,066 $505,941
Accounts receivable 719,334 700,927
Transaction credits 9,691,439 9,538,364
Aeronotes 3 265,638 381,309
Prepaid expenses and sundry assets 365,571 249,510
--------------------------------
12,531,048 11,376,051
--------------------------------
Long-term:
Property, plant and equipment 4 668,382 807,315

TOTAL ASSETS $13,199,430 $12,183,366
--------------------------------
--------------------------------

LIABILITIES

Current:
Loan payable 5 $3,081,125 $3,030,549
Accounts payable and accrued
liabilities 3,531,008 3,093,652
Non-convertible debentures payable 1b/6 2,665,000 2,620,705
Convertible debentures payable 1b/7 5,482,823 5,217,578
--------------------------------
14,759,956 13,962,484
--------------------------------

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 8 657,879 645,879
Equity portion of debentures 7 2,114,341 2,114,341
Warrants 6/7 374,554 374,554
Deficit (28,817,396) (29,023,988)
--------------------------------

(1,560,526) (1,779,118)
--------------------------------

TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIENCY $13,199,430 $12,183,366
--------------------------------
--------------------------------

(see accompanying notes)

Refinancing (note 1b)
Commitments and Contingencies - Taxation (note 12)



ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT AND COMPREHENSIVE PROFIT
(unaudited - note 1a)

Three Months Ended Six Months Ended
December 31 December 31
------------------------------------------------
2010 2009 2010 2009
------------------------------------------------
$ $ $ $

REVENUE 3,682,261 3,924,877 7,639,959 7,405,877
Direct expenses 1,228,630 1,534,188 2,481,039 2,651,320
------------------------------------------------

GROSS PROFIT 2,453,631 2,390,689 5,158,920 4,754,557
------------------------------------------------

OPERATING EXPENSES
Selling and marketing 746,699 825,564 1,577,732 1,651,718
General and administrative 970,533 819,730 1,964,252 1,642,707
Stock-based compensation 6,000 8,289 12,000 30,289
------------------------------------------------
1,723,232 1,653,583 3,553,984 3,324,714


CONTRIBUTION FROM OPERATIONS
AND PROFIT BEFORE
AMORTIZATION AND INTEREST 730,399 737,106 1,604,936 1,429,843

Amortization of property,
plant and equipment 118,611 99,271 271,764 188,753

Interest expense
Stated interest expense
- loan payable,
non-convertible
debentures, convertible
debentures, and other 386,905 305,981 784,872 614,280
Accretion charge on
debentures, and
amortization of deferred
financing charges 168,624 166,248 341,708 330,305
------------------------------------------------
555,529 472,229 1,126,580 944,585

NET PROFIT AND COMPREHENSIVE
PROFIT FOR THE PERIOD $56,259 $165,606 $206,592 $296,505
------------------------------------------------
------------------------------------------------

BASIC EARNINGS PER COMMON
SHARE $0.00 $0.00 $0.00 $0.00

DILUTED EARNINGS PER COMMON
SHARE $0.00 $0.00 $0.00 $0.00

(see accompanying notes)


ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT
(unaudited - note 1a)

Three Months Ended Six Months Ended
December 31 December 31
----------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------
$ $ $ $

BALANCE AT THE START OF
PERIOD (28,873,655) (28,927,116) (29,023,988) (29,058,015)

Net profit for the
period 56,259 165,606 206,592 296,505
----------------------------------------------------

BALANCE AT THE END OF
PERIOD (28,817,396) (28,761,510) (28,817,396) (28,761,510)
----------------------------------------------------
----------------------------------------------------

(see accompanying notes)


ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited - note 1a)

Three Months Ended Six Months Ended
December 31 December 31
--------------------------------------------

2010 2009 2010 2009
--------------------------------------------
$ $ $ $
OPERATING ACTIVITIES

Net profit for the period $56,259 $165,606 $206,592 $296,505

Items not affecting cash
Amortization of property,
plant and equipment 118,611 99,271 271,764 188,753
Accretion charge on debentures 122,058 119,700 248,594 237,209
Amortization of deferred
financing charges 46,566 46,548 93,114 93,096
Stock-based compensation 6,000 8,289 12,000 30,289
--------------------------------------------
349,494 439,414 832,064 845,852

Changes in non-cash working
capital items
Accounts receivable 82,086 (527,729) (18,407) (459,429)
Transaction credits 541,174 (719,761) (153,075) (1,020,266)
Prepaid expenses and sundry
assets (93,822) (69,305) (116,060) (127,532)
Aeronotes 85,612 (502,799) 115,671 (502,799)
Accounts payable and accrued
liabilities 349,263 710,818 437,356 621,638
--------------------------------------------
964,313 (1,108,776) 265,485 (1,488,388)

Cash provided by/(utilized in)
operating activities 1,313,807 (669,362) 1,097,549 (642,536)

FINANCING ACTIVITIES
Proceeds from draw of Loan
payable (746,613) 464,112 18,407 (530,830)
--------------------------------------------
(746,613) 464,112 18,407 874,650

INVESTING ACTIVITIES
Purchase of property, plant
and equipment (49,643) (108,745) (132,831) (161,236)

MOVEMENT IN CASH AND CASH
EQUIVALENTS 517,551 (313,995) 983,125 70,878
DURING THE PERIOD

Cash and cash equivalents at the
start of period 971,515 729,053 505,941 344,180

CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,489,066 $415,058 $1,489,066 $415,058
Consists of:
Cash $1,484,066 $410,058 $1,484,066 $410,058
Term deposits 5,000 5,000 5,000 5,000
--------------------------------------------
$1,489,066 $415,058 $1,489,066 $415,058
--------------------------------------------

ADDITIONAL INFORMATION
Interest paid $782,406 $454,748 $535,672 $611,814

(see accompanying notes)



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