Advantex Marketing International Inc.
TSX VENTURE : ADX

Advantex Marketing International Inc.

November 29, 2010 14:30 ET

Advantex Reports Net Profit for Fiscal 2011 First Quarter

- Total revenues up 14% to $4.0 million

- Contribution from operations (EBITDA) up 23% to $0.9 million

- Profit before non-cash expenses up 19% to $0.5 million

- Net Profit of $150,000

TORONTO, ONTARIO--(Marketwire - Nov. 29, 2010) - 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 first quarter ended September 30, 2010. All references to quarters or years are for the fiscal periods and all currency amounts are in Canadian dollars unless otherwise noted.

"The Company is well positioned to secure its future financial performance by capitalizing on the expansion opportunities following the completion, during the current quarter, of three significant initiatives. We renewed agreements with two of our partners for multi-year year terms, and on September 1 launched a program in partnership with a new affinity partner, "said Kelly Ambrose, Advantex President and Chief Executive Officer.

"During the first quarter the Company continued to build on the solid financial performance for Fiscal year ended June 30, 2010. The Company increased the number of merchants participating in its programs and this resulted in higher revenues and profitability vs. corresponding period in the previous year," said Mr. Ambrose.

The three significant initiatives that the Company completed during this quarter are set out in detail:

  1. In September, the Company renewed its existing arrangement with CIBC, and signed a new agreement expiring in August, 2013. The Company can continue to expand its CIBC Advantex program in the Dining, (Canadian restaurants, golf courses, independent inns, resorts and selected hotels, spas), and Retail (retailers of men's and ladies fashion, footwear, accessories, and other designated categories) business segments;
  2. Pursuant to a multi-year agreement with Aeroplan signed in March, 2010, on September 1 the Company launched its Aeroplan based program to merchants in Fashion Retail (retailers of mens's and ladies fashion, footwear, accessories) business segment. During the period leading to the launch, the Company set up the infrastructure including processing arrangements to facilitate the launch and subsequent implementation of this program. The set up involved capital expenditures, external and internal, of about $0.5 million and were incurred between July 1, 2009 and September 30, 2010; and
  3. In September, the Company and Accord signed an agreement extending the term of the existing line of credit facility to December, 2013. During the term, the facility limit is increased to $8.5 million and will be used exclusively to expand the Company's Advance Purchase Marketing (APM) program in the Dining, Retail, and Fashion Retail business segments.
Financial Highlights:  
   
  3 months ended
September 30, 2010
  3 months ended
September 30, 2009
 
Revenues $ 3,958,000   $ 3,481,000  
Gross Profit $ 2,705,000   $ 2,364,000  
Gross Margin   68.4 %   67.9 %
Contribution from Operations (EBITDA) $ 881,000   $ 715,000  
Profit before Amortization and Interest $ 875,000   $ 693,000  
Amortization $ 153,000   $ 89,000  
Interest $ 571,000   $ 472,000  
Net Profit $ 150,000   $ 131,000  
Some numbers in the above presentation may not add due to rounding.

The Company's core source of revenues, its CIBC Advantex, and Aeroplan based programs (collectively "Offline program"), which the Company markets to merchants in Dining, Retail, and Fashion Retail business segments increased 11.9% to $3.4 million vs. corresponding period in the previous year.

The Gross Margin was flat reflecting the Company's ability to protect its margin.

G&A expenses for the three month period ended September 30, 2010 were $0.9 million vs. $0.8 million for the corresponding period in the previous year. G&A expenses for three month period ended September 30, 2010 reflect cost of severance payments of $54,000 to staff who were laid off as part of steps to mitigate the impact on Fiscal 2011 profitability from the shutdown of online business – a secondary activity - from January, 2011.

The cash interest expense [disclosed as "Stated interest expense" in the consolidated financial statements] for the three month period ended September 30, 2010 was $0.4 million vs. $0.3 million for corresponding period in the previous year. The increase in stated interest cost reflects partially higher utilization of Loan Payable, and partially the increase in interest rate, effective March, 2010, with respect to Loan Payable. The higher Loan Payable has been used exclusively to increase merchant participation in Company's APM program, and the consequent increase in APM revenues during three month period ended September 30, 2010.

For three month period ended September 30, 2010, the Company is reporting a Net Profit of $150,000 vs. a Net Profit of $131,000 for the corresponding period in the previous year, an improvement of $19,000.

During the three month period ended September 30, 2010 the Company capitalized $61,000 (corresponding period in the previous year $nil) of internal costs expended on software development connected to ensuring operability of the Company's Offline program.

Within Offline program offerings the Company expects its APM program to be the driver of increasing merchant participation. Transaction credits are a likely indicator of future revenues from the APM program. The Company, therefore, attempts to maximize Transaction credits, and deploys cash, surplus to its operating needs, with participating merchants.

With respect to the Non-convertible debentures maturing December 31, 2010, the Company expects to either renew or replace these debentures on current market terms.

The significant financial covenants of the Convertible debentures maturing in December, 2011 require the Company to meet a defined level of current assets and interest coverage on a quarterly basis. During the period, the Company and the holders of the convertible debentures amended a certain financial covenant, and consequently at September 30, 2010 the Company met its financial covenants. In the past the Company has been successful in negotiating waivers. The Company may not meet its financial covenants subsequent to September 30, 2010 and consequently all of the long-term debt has been classified as a current liability in the interim consolidated financial statements in accordance with Canadian generally accepted accounting principles. The Company expects to either renew or replace these debentures on current market terms prior to their maturity.

The Company continues to make payments to Canada Revenue Agency under a 24 month payment plan pending the outcome to its notice of objection filed in response to CRA notice of re-assessment issued in April, 2009.

"The Company believes that growth in merchant participation results in increase in revenues, and profitability, and that during Fiscal 2011 that growth will come from merchants in the Dining, Retail, and Fashion Retail business segments. The Company is on course to improve over its Fiscal 2010 performance, "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 additionally secured future sales through its Advance Purchase Marketing model. Advantex partners include more than 1,000 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 is well positioned to secure its future financial performance by capitalizing on the expansion opportunities following the completion, during the current quarter, of three significant initiatives set out in this press release; the Company's belief that within its Offline program offerings it expects the APM program to be the driver of increasing merchant participation; the Company's belief that Transaction credits are a likely indicator of future revenues from the APM program; the Company's belief that growth in merchant participation results in increase in revenues, and profitability, and that during Fiscal 2011 that growth will come from merchants in the Dining, Retail, and Fashion Retail business segments; the Company's belief that it is on course to improve over its Fiscal 2010 performance; the Company's ability to protect its margin; the Company's expectation that the steps implemented to mitigate the impact on its Fiscal 2011 profitability from shutdown of its online business, from January, 2011, are sufficient; the Company's expectation with respect to either renewing or replacing on current market terms the Non-convertible debentures maturing in December, 2010; the Company's expectation with respect to either renewing or replacing on current market terms Convertible debentures prior to their maturity in December, 2011; the Company's ability to obtain waivers or renegotiate the covenants of the Company's Convertible debentures if a default in respect of the same arises; the Company's belief that its tax filing positions are appropriate and supportable; the size of the market for the Company's products in the Dining, Retail, and Fashion Retail business segments; the Company's anticipated increase in the number of merchants with which it will do business; the Company's expectation with respect to using the access to line of credit facility to support the growth of the APM program; 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 future financing; continued affinity partner participation with the Company; its ability to either renew or replace the Non-convertible debentures on current market terms; its ability to either renew or replace the Convertible debentures on current market terms; continued support from its providers of Loan Payable and Convertible debentures; 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; and sufficiency of the efforts to mitigate the impact on Fiscal 2011 from shutdown of Online business from January, 2011.

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 including those connected to: a) either renewal or replacement of Non-convertible debentures, b) the continued support of Convertible debenture holders in the event the Company is in breach of its financial covenants, and c) either early renewal or replacement of the 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 Company's Management Discussion and Analysis for the three month period ended September 30, 2010, and in note 1b to the interim consolidated financial statements for the three month period ended September 30, 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 period ended September 30, 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)      
               
  Note September 30, 2010   June 30, 2010      
    $   $      
ASSETS              
               
Current:              
  Cash and cash equivalents   $971,515   $505,941      
  Accounts receivable   801,420   700,927      
  Transaction credits   10,232,613   9,538,364      
  Aeronotes   351,251   381,309      
  Prepaid expenses and sundry assets   271,749   249,510      
    12,628,548   11,376,051      
Long-term:              
  Property, plant and equipment 3 737,352   807,315      
               
TOTAL ASSETS   $13,365,900   $12,183,366      
               
LIABILITIES              
Current:              
  Loan payable 4 3,811,652   3,030,549      
  Accounts payable and accrued liabilities   3,181,749   3,093,652      
  Non-convertible debentures payable 5 2,646,218   2,620,705      
  Convertible debentures payable 6 5,349,066   5,217,578      
    14,988,685   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 7 651,879   645,879      
Equity portion of debentures 6 2,114,341   2,114,341      
Warrants 5/6 374,554   374,554      
Deficit   (28,873,655 ) (29,023,988 )    
               
    (1,622,785 ) (1,779,118 )    
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY   $13,365,900   $12,183,366      
Going Concern (note 1b)              
Taxation (note 10)              
(see accompanying notes )    
 
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT AND COMPREHENSIVE PROFIT
(unaudited – note 1a)
         
  Three Months Ended     Three Months Ended
  September 30, 2010     September 30, 2009
         
  $     $
         
REVENUE 3,957,698     3,481,000
  Direct expenses 1,252,409     1,117,132
         
GROSS PROFIT 2,705,289     2,363,868
         
OPERATING EXPENSES        
  Selling and marketing 884,543     826,154
  General and administrative 940,209     822,977
  1,824,752     1,649,131
         
CONTRIBUTION FROM OPERATIONS 880,537     714,737
  Stock-based compensation 6,000     22,000
         
PROFIT BEFORE 874,537     692,737
AMORTIZATION AND INTEREST        
         
  Amortization of property, plant and equipment 153,152     89,482
  Interest expense        
    Stated interest expense – loan payable, non-convertible debentures, and other 246,735     157,066
    Stated interest expense - convertible debentures 151,233     151,233
    Accretion charge on debentures, and amortization of deferred financing charges 173,084     164,057
  724,204     561,838
         
NET PROFIT AND COMPREHENSIVE PROFIT FOR THE PERIOD $150,333     $130,899
         
BASIC EARNINGS PER SHARE $0.00     $0.00
         
DILUTED EARNINGS PER SHARE $0.00     $0.00
         
(see accompanying notes)
   
ADVANTEX MARKETING INTERNATIONAL INC.  
CONSOLIDATED STATEMENTS OF DEFICIT  
(unaudited – note 1a)  
             
  Three Months Ended       Three Months Ended  
  September 30, 2010       September 30, 2009  
             
  $       $  
             
BALANCE AT THE START OF PERIOD (29,023,988 )     (29,058,015 )
             
Net profit for the period 150,333       130,899  
             
BALANCE AT THE END OF PERIOD (28,873,655 )     (28,927,116 )
             
(see accompanying notes)  
   
ADVANTEX MARKETING INTERNATIONAL INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(unaudited – note 1a)  
               
    Three Months Ended       Three Months Ended  
    September 30, 2010       September 30, 2009  
               
    $       $  
OPERATING ACTIVITIES              
               
  Net profit for the period   $150,333       $130,899  
               
Items not affecting cash              
  Amortization of property, plant and equipment   153,152       89,482  
  Accretion charge on debentures   126,536       117,509  
  Amortization of deferred financing charges   46,548       46,548  
  Stock-based compensation   6,000       22,000  
    482,569       406,438  
               
Changes in non-cash working capital items              
  Accounts receivable   (100,493 )     68,300  
  Transaction credits   (694,249 )     (300,505 )
  Prepaid expenses and sundry assets   (22,239 )     (58,227 )
  Aeronotes   30,058       -  
  Accounts payable and accrued liabilities   88,097       (89,180 )
    (698,826 )     (379,612 )
               
Cash provided by/(utilized in) operating activities   (216,257 )     26,826  
               
FINANCING ACTIVITIES              
  Loan payable   765,020       410,538  
    765,020       410,538  
               
INVESTING ACTIVITIES              
  Purchase of property, plant and equipment   (83,189 )     (52,491 )
               
MOVEMENT IN CASH AND CASH EQUIVALENTS DURING THE PERIOD   465,574       384,873  
               
Cash and cash equivalents at the start of period   505,941       344,180  
               
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $971,515       $729,053  
               
ADDITIONAL INFORMATION              
  Interest paid   $246,734       $157,066  
               
(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