UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE MARKETING NETWORKS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 38-2841197
(State or other jurisdiction of incorporation or organization)(IRS Employer
Identification No.)
13155 Noel Road, 10th Floor, Dallas, TX 75240
(Address of principal executive offices)
972-720-3500
(Issuer's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X]Yes [ ]No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 6, 2003, there
were 9,895,878 shares of common stock, par value $0.01 per share, of the
issuer outstanding.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Plan of Operation . .12
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . .20
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . .22
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .22
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . .22
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . .22
Item 4. Submission of Matters to a Vote of Security Holders . . . . .22
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . .22
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
2003 2002
(unaudited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 261,315 $ 550,123
Accounts receivable, trade, net of
allowance of $150,000 3,048,407 3,948,567
Prepaid expenses and other assets 136,234 141,130
Refundable federal income tax 130,505 308,282
----------- -----------
Total current assets 3,576,461 4,948,102
Property and equipment, net 170,334 210,727
Goodwill 7,973,681 7,973,681
----------- -----------
Total assets $11,720,476 $13,132,510
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, bank and other $ 1,239,651 $ 1,394,508
Current portion of long-term debt 165,735 308,615
Accounts payable, trade 2,275,258 3,012,237
Accounts payable, other 423,445 484,221
Accrued liabilities 1,064,555 992,425
----------- -----------
Total current liabilities 5,168,644 6,192,006
Long-term debt - less current portion 63,085 940,993
Redeemable common stock put 300,000 --
Shareholders' equity:
Common stock-11,369,917 and 8,895,878 shares
issued at March 31, 2003 and December 31,
2002, respectively 113,699 88,958
Additional paid in capital 13,988,275 13,084,069
Treasury stock, 1,474,039 shares at cost (334,607) --
Accumulated deficit (7,578,620) (7,173,516)
----------- -----------
Total shareholders' equity 6,188,747 5,999,511
----------- -----------
Total liabilities and
shareholders' equity $11,720,476 $13,132,510
=========== ===========
See notes to condensed consolidated financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended March 31,
-----------------------------
2003 2002
------------- -------------
(unaudited)
Net revenues $ 5,202,584 $ 4,081,545
Cost of revenues 3,852,761 3,171,929
------------ ------------
Gross profit 1,349,823 909,616
Selling, general and administrative expenses 1,700,473 1,000,170
------------ ------------
Loss from operations (350,650) (90,554)
Interest and other income (expense) (54,454) 7,814
------------ ------------
Loss before income taxes (405,104) (82,740)
Income taxes -- 2,088
------------ ------------
Loss before accounting change (405,104) (84,828)
Cumulative effect of accounting change -- (1,204,058)
------------ ------------
Net loss $ (405,104) $ (1,288,886)
============ ============
Net loss per share - basic and diluted:
Loss before accounting change $ (0.04) $ (0.02)
Cumulative effect of accounting change -- (0.26)
------------ ------------
Net loss $ (0.04) $ (0.28)
============ ============
Weighted average number of shares
Outstanding - basic and diluted 9,362,545 4,586,005
============ ============
See notes to condensed consolidated financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended March 31,
-----------------------------
2003 2002
------------- -------------
(unaudited)
Operating activities:
Net loss $ (405,104) $ (1,288,886)
Noncash items in net loss:
Cumulative effect of accounting change 1,204,058
Depreciation 38,150 8,332
Amortization 2,887 10,753
Changes in operating assets and liabilities:
Accounts receivable 900,160 245,744
Prepaid and other current assets 182,673 (8,909)
Accounts payable (797,755) (333,593)
Accrued liabilities 72,130 (30,145)
------------ ------------
Net cash used in operating activities (6,859) (192,646)
------------ ------------
Investing activities:
Purchases of property and equipment (644) --
------------ ------------
Net cash used in investing activities (644) --
------------ ------------
Financing activities:
Payment of dividends -- (2,293,052)
Payments on note payable, bank (200,000) --
Principal payments on other notes payable (81,305) --
------------ ------------
Net cash used in financing activities (281,305) (2,293,052)
------------ ------------
Net decrease in cash and cash equivalents (288,808) (2,485,698)
Cash and cash equivalents, beginning of period 550,123 3,783,082
------------ ------------
Cash and cash equivalents, end of period $ 261,315 $ 1,297,384
============ ============
See notes to condensed consolidated financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of financial
position, cash flows, and the results of operations for the interim periods.
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures included
herein are adequate to make the information presented not misleading. The
results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the results of operations expected for the year
ending December 31, 2003.
Certain prior year amounts have been reclassified to conform with
current year classifications.
The year-end consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The organization and business of
the Company, accounting policies followed by the Company and other
information are contained in the notes to the Company's financial statements
filed as part of the Company's Form 10-KSB for the fiscal year ended December
31, 2002. This quarterly report should be read in conjunction with the Form
10-KSB.
Recent Accounting Pronouncements
In June 2002 the Financial Accounting Standards Board ("FASB") approved
for issuance SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
is effective for fiscal years beginning after December 31, 2002. The
adoption of SFAS No. 146 did not have a material effect on the Company's
financial position or results of operations.
2. Net Loss Per Share:
Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock outstanding during the
period. Diluted earnings (loss) per share is calculated by dividing net
income by the weighted average number of common shares used in the basic
earnings per share calculation plus the number of common shares that would be
issued assuming conversion of all potentially dilutive shares outstanding.
The anti-dilutive effects of all outstanding stock options for 1,885,100
shares were excluded from the calculation of the diluted loss per share at
March 31, 2003.
3. Segment Information and Significant Customers:
For evaluation of profitability and allocation of assets and resources,
the Company is divided into three operating segments by product areas: (i)
advertising and marketing, which includes newspaper advertising; (ii)
logistics, which includes the delivery of telephone directories and tracking,
verification and transportation services; and (iii) technology, which
includes enterprise application consulting services. Management evaluates
the segments' profitability primarily based on their gross profits.
Substantially all of the Company's revenues are generated in the United
States.
During the three months ended March 31, 2003, the advertising and
marketing segment had one customer that accounted for a total of
approximately 27% of the segment revenues, the logistics segment had one
customer that accounted for a total of approximately 89% of the segment
revenues, and the technology segment had two customers that accounted for a
total of approximately 87% of the segment revenues.
Segment analysis for the three months ended March 31, 2003 and 2002 is
provided in the tables below.
2003 2002
------ ------
Revenues:
Technology $ 1,738,462 $ --
Advertising and marketing 2,839,580 3,292,609
Logistics 624,542 788,936
----------- -----------
Total revenues $ 5,202,584 $ 4,081,545
=========== ===========
Gross Profits:
Technology $ 590,902 $ --
Advertising and marketing 434,087 571,905
Logistics 324,834 337,711
----------- -----------
Total gross profit 1,349,823 909,616
Selling, general & administrative expenses 1,700,473 1,000,170
Interest and other income (expense) (54,454) 7,814
----------- -----------
Loss before income taxes and
accounting change $ (405,104) $ (82,740)
=========== ===========
Gross Profit Percentages:
Technology 34.0% --
Advertising and marketing 15.3% 17.4%
Logistics 52.0% 42.8%
----------- -----------
Total Gross Profit 25.9% 22.3%
=========== ===========
Accounts receivable and revenues from significant customers represent
the following percentages of the Company's net accounts receivable and total
revenues:
Revenues for the
Accounts Receivable at Three Months Ended
March 31, 2003 March 31, 2003
Customer A 23% 19%
Customer B 14 15
Customer C 19 11
Customer D -- 10
4. Stock based compensation:
On March 6, 2003, the Board of Directors of the Company increased the
number of shares reserved and authorized for issuance under the 1995 Long-
Term Incentive Stock Option Plan (the "Incentive Plan") from 1,500,000 to
3,000,000, subject to stockholder approval. This proposal was approved at
the annual shareholder meeting on May 8, 2003.
For all of the Company's stock based compensation plans as of March 31,
2003, options for 1,865,100 shares were outstanding. During the quarter
ended March 31, 2003, options for 1,700,000 shares were granted and options
for 5,000 shares expired. Included in the options granted for 1,700,000
shares were 330,100 subject to approval at the annual shareholder meeting.
Shares of 1,169,900 remain reserved and available for future grants.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. All options granted to date were
granted with exercise prices not less than the fair market value of the
Company's common stock on the date of grant. Therefore, no compensation
expense for stock options has been recognized in any year. If compensation
cost for the Company's stock based plans had been determined based on the
fair value of the options at the grant dates, consistent with the method
prescribed by SFAS No. 123, "Accounting for Stock Based Compensation", the
Company's net loss and loss per share would have been adjusted to the pro
forma amounts indicated in the following table:
Three months ended
March 31,
2003 2002
---------- ----------
Net Loss
As Reported $ (405,104) $(1,288,886)
Fair value based compensation expense 816 816
---------- ---------
Pro Forma $ (405,920) $(1,289,702)
========== =========
Loss Per Share - basic and diluted
As Reported ($0.04) ($0.28)
Pro Forma ($0.04) ($0.28)
5. Change in Accounting for Goodwill Impairment and Amortization:
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which required the cessation of amortization of goodwill and
"indefinite-lived" intangible assets, and impairment testing and potential
loss recognition, at least annually, for goodwill and non-amortized
intangible assets, effective for the Company as of January 1, 2002.
In connection with the adoption of SFAS No. 142, the Company allocated
goodwill to each of its reporting units and tested this goodwill for
impairment as of January 1, 2002. The Company completed the testing during
the second quarter ending June 30, 2002. As a result, a charge of $1,204,058
was recorded to goodwill assigned to the Logistics reporting unit. The
remaining goodwill of $885,942 is assigned to the Advertising and Marketing
reporting unit, as well as $7,087,739, related to the Hencie acquisition,
assigned to the Technology reporting unit.
6. Acquisition of Hencie, Inc.:
On May 31, 2002, the Company entered into an Amended and Restated
Agreement and Plan of Reorganization pursuant to which it acquired
approximately 82% of the common stock of Hencie, Inc., a Delaware corporation
("Hencie"). Hencie is an information technology company offering Oracle
software consulting, implementation, and support services for a broad range
of clients and industry segments. The acquisition was approved at the annual
shareholder meeting held July 23, 2002 and was effective August 1, 2002. In
exchange for approximately 82% of Hencie's common shares, the Company issued
3,982,323 common shares utilizing an exchange ratio of 1 share of its common
stock for 3.563 shares of Hencie common stock. The business of Hencie added
a third operating segment to the Company's services. Costs directly related
to this acquisition of $212,283 are included in the total acquisition price.
The estimated fair value of the common shares issued by the Company in
connection with this acquisition was approximately $2.5 million ($.646 per
share), and Hencie's net liabilities assumed by the Company were
approximately $4.3 million, which resulted in goodwill and other intangible
assets of approximately $7 million. The Company plans to complete its annual
impairment test of the goodwill related to Hencie as of September 30, 2003.
The unaudited pro forma combined historical results, as if Hencie had
been acquired and the related common shares had been issued at the beginning
of 2002, are provided as follows:
Three months ended March 31,
2003 2002
------------- -------------
(unaudited)
Revenues $ 5,202,584 $ 6,526,636
Loss from continuing operations ** (405,104) (502,049)
Net loss ** $ (405,104) $ (502,049)
Basic and diluted loss per share $ (0.04) $ (0.06)
**The 2002 period excludes a charge for the cumulative effect of accounting
change of $1,204,058.
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been completed as of the beginning
of 2002, nor are they necessarily indicative of future consolidated results.
7. Drawbridge Note Payable Settlement:
Effective as of January 1, 2003, the Company's CEO contributed 1,474,309
common shares outstanding to the Company. This capital contribution was
accounted for as treasury stock, at the estimated fair value of the shares,
and additional paid in capital of $334,607.
On February 14, 2003 the Company granted options to the CEO to purchase
1,700,000 common shares at $0.50 per share. On February 18, 2003, the
Company entered into the Release Agreement by and among the Company, Hencie,
Inc., Hencie Consulting Services, Inc., K2VC LTD., Adil Khan (CEO),
Drawbridge Investment Partners, LLC, and certain directors and stockholders
of the Company. The agreement provided for settlement of the Drawbridge note
payable and accrued interest, $991,734 and $22,606, respectively, for a cash
payment of $120,000, issuance of 2,474,039 shares of the Company's Common
Stock, registration rights for such shares, and a contingent obligation for
the Company to repurchase $100,000 of the Company's common stock, at a
minimum price of $0.50 per share, from Drawbridge annually for three years
beginning February 18, 2004 ("redeemable common stock put"). Management
estimates the total cash and fair value of the equity consideration given as
follows:
Common stock issued $ 577,245
Common stock options granted 153,295
Redeemable common stock put 163,800
Cash 120,000
----------
$1,014,340
==========
The total maximum cash redemption requirement of the redeemable common
stock put of $300,000 is classified in the balance sheet as temporary equity
at March 31, 2003. This obligation may decrease, contingent on, among other
things, the remaining number of the Company's common shares held by
Drawbridge at the redemption dates in February 2004, 2005 and 2006.
8. Financing and Debt:
The Company has financing agreements for its subsidiaries. National
Home Delivery, Inc., an Illinois corporation and a wholly owned subsidiary of
the Company, amended its existing financing agreements with Fifth Third Bank
(the "NHD Credit Facility") on April 29, 2003 to extend the maturity date
under the NHD Credit Facility from May 1, 2003 to May 1, 2004. The NHD
Credit Facility provides for borrowings up to $1,000,000. Borrowings under
the NHD Credit Facility accrue interest at Fifth Third's prime rate (4.25% as
of April 21, 2003) plus 100 basis points. Available borrowings under the NHD
Credit Facility are subject to conditions and restrictions, including,
without limitation, eligible accounts receivable restrictions and other
restrictive financial covenants and performance ratios applicable to National
Home Delivery. The NHD Credit Facility is secured by substantially all of
the assets of Alternate Marketing Networks, Inc. and National Home Delivery,
Inc. As of March 31, 2003, borrowings of $700,000 were outstanding under the
prior agreement. As of April 30, 2003, borrowings of approximately $700,000
were outstanding and credit in the amount of approximately $300,000 was
available under the NHD Credit Facility.
Alternate Postal Direct, Inc., a Michigan corporation and a wholly owned
subsidiary of the Company, entered into a new financing agreement with Accord
Financial, Inc., (the "APD Credit Facility") on April 30, 2003 to replace the
financing agreements between Alternate Postal Direct, Inc. and Fifth Third
that expired on May 1, 2003. The APD Credit Facility provides for the sale
of accounts receivable by Alternate Postal to Accord at a 1.5% discount and
aggregate advances up to $750,000. Advances under the APD Credit Facility
accrue interest at the prime commercial rate of interest established from day
to day by Bank of America, Inc. for short term unsecured loans to substantial
borrowers. Sales of accounts receivable and advances under the APD Credit
Facility are subject to conditions and restrictions, including, without
limitation, accounts receivable eligibility restrictions, and accounts
receivable verification and approval. The APD Credit Facility is secured by
substantially all of the assets of Alternate Postal Direct, Inc. As of March
31, 2003, advances of $225,000 were outstanding under the prior agreement.
As of April 30, 2003, no advances were outstanding, and advances of
approximately $170,000 were available under the APD Credit Facility.
Hencie Consulting Services, Inc., a Delaware corporation and an indirect
majority owned subsidiary of the Company, amended its existing financing
agreement with Accord Financial, Inc., (the "HCS Credit Facility") on April
29, 2003. The HCS Credit Facility provides for the sale of accounts
receivable by Hencie Consulting to Accord at a 1.5% discount and aggregate
advances up to $750,000. Advances under the HCS Credit Facility accrue
interest at the prime commercial rate of interest established from day to day
by Bank of America, Inc. for short term unsecured loans to substantial
borrowers. Sales of accounts receivable and advances under the HCS Credit
Facility are subject to conditions and restrictions including, without
limitation, accounts receivable eligibility restrictions, and accounts
receivable verification and approval. The HCS Credit Facility is secured by
substantially all of the assets of Hencie Consulting. As of March 31, 2003,
advances of $314,651 were outstanding under the prior agreement. As of April
30, 2003, advances in the amount of approximately $174,000 were outstanding
and advances of approximately $173,000 were available under the HCS Credit
Facility.
Item 2. Management's Discussion and Analysis or Plan of Operation.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,
including, without limitation, in the discussions under the captions
"Management's Discussion and Analysis or Plan of Operation" and elsewhere in
this report. Any and all statements contained in this report that are not
statements of historical fact may be deemed forward-looking statements.
Terms such as may, might, will, would, should, could, project, estimate, pro
forma, predict, potential, strategy, anticipate, attempt, develop, plan,
help, believe, continue, intend, expect, future, and similar terms and terms
of similar import (including the negative of any of the foregoing) may be
intended to identify forward-looking statements. However, not all forward-
looking statements may contain one or more of these identifying terms.
Forward-looking statements in this report may include, without limitation,
statements regarding (i) a projection of revenues, income (including
income/loss), earnings (including earnings/loss) per share, capital
expenditures, dividends, capital structure, or other financial items, (ii)
the plans and objectives of management for future operations, including plans
or objectives relating to our products or services, (iii) future economic
performance, including any such statement contained in a discussion and
analysis of financial condition by management or in the results of operations
included pursuant to the rules and regulations of the Commission, or (iv) the
assumptions underlying or relating to any statement described in
subparagraphs (i), (ii), or (iii).
The forward-looking statements are not meant to predict or guarantee
actual results, performance, events, or circumstances and may not be realized
because they are based upon our current projections, plans, objectives,
beliefs, expectations, estimates, and assumptions and are subject to a number
of risks and uncertainties and other influences, many of which we have no
control over. Actual results and the timing of certain events and
circumstances may differ materially from those described by the forward-
looking statements as a result of these risks and uncertainties. Factors
that may influence or contribute to the inaccuracy of the forward-looking
statements or cause actual results to differ materially from expected or
desired results may include, without limitation, inability to obtain adequate
financing, insufficient cash flows and resulting illiquidity, dependence upon
software vendors or significant customers, inability to expand our business,
lack of diversification, sales volatility or seasonality, increased
competition, changing customer preferences, results of arbitration and
litigation, stock volatility and illiquidity, failure to successfully
reorient the Company as a technology/marketing services company, failure to
implement the Company's business plans or strategies, failure to attract
acquisition targets, or ineffectiveness of the marketing program to develop
and capitalize on strategic alliances. A description of some of the risks
and uncertainties that could cause actual results to differ materially from
those described by the forward-looking statements in this report appears
under the caption "Risk Factors" in our most recently filed Form 10-KSB.
Because of the risks and uncertainties related to these factors and the
forward-looking statements, readers of this report are cautioned not to place
undue reliance on the forward-looking statements. The Company disclaims any
obligation to update these forward-looking statements or to announce publicly
the results of any revisions to any of the forward-looking statements
contained in this report to reflect any new information or future events or
circumstances or otherwise.
Readers should read this report and the following discussion and
analysis in conjunction with the discussion under the caption "Risk Factors"
in the most recently filed Form 10-KSB, the Condensed Consolidated Financial
Statements and the related notes thereto included in Item 1 of Part I of this
report, and other documents filed by Alternate Marketing from time to time
with the Commission.
Overview
The Company is a business services company serving Fortune 500 and
middle market companies, through three complementary lines of business
services: software implementation and support services; logistics process
management; and advertising and marketing process management. Services are
provided throughout the United States to clients such as General Motors,
Verizon, Raytheon, and Lone Star Steel.
Our Services
Technology
The technology segment provides software consulting, implementation, and
support services related to Oracle Corporation's suite of enterprise business
applications to help its customers improve their business performance by
applying direct industry experience, expertise in Oracle technology, and in-
depth knowledge of business processes to create mission-critical business
solutions for these companies. As an Oracle-certified service provider, this
segment also provides enterprise resource planning, supply chain management,
customer relationship management, application integration, and enterprise
portal solutions. Customers of the technology segment include companies in
the manufacturing, energy, and distribution industries. A majority of these
customers are middle market companies with annual revenues greater than $100
million. The technology segment generates a majority of its revenue on an
hourly fee basis in connection with the implementation of Oracle software
applications. The balance of its revenues are derived from providing pre-
implementation consulting services and post-implementation support services.
Revenues are recognized as services are performed, primarily on a time and
materials basis.
Logistics
The logistics segment delivers and tracks and verifies the delivery of
various products, including telephone directories, and provides brokered
transportation of various goods for national and regional companies. This
segment's internet-based itrackdirectoriesSM system allows it to
electronically monitor and update its customers on the delivery status of
their products. Customers of the logistics segment include companies in the
telecommunications, publishing, and packaged goods industries. Logistics
segment revenues are recognized primarily as distribution services and
verification services are completed.
Advertising and Marketing
The advertising and marketing segment forms newspaper advertising networks
and sells and places print advertising and advertising inserts in suburban
newspapers for national advertisers. This segment has been placing
advertising in suburban newspapers for over 30 years, and has long-term
relationships with its customers as well as the newspapers in which the
advertising is placed. Customers of this segment are able to choose from
approximately 1,100 newspapers in over 50 markets nationwide and may focus
advertising on specific regions and demographic segments. This segment
handles all of the customary back room advertising functions ensuring that
the ads run correctly and provides customers with a "one-order one-bill"
service. Customers in the advertising and marketing segment include
companies in the telecommunications, automotive, travel, and hospitality
industries. Revenues for this segment are recognized primarily as the print
advertising and advertising inserts are distributed with the newspapers.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Assumptions and estimates of future earnings and cash flow
are used in the periodic analyses of the recoverability of goodwill, deferred
tax assets, and property, plant and equipment. Historical experience and
trends are used to estimate reserves, including reserves for bad debts. To
the extent that future earnings, cash flows and costs and losses are
determined to be different from the assumptions and estimates used,
adjustments may be required.
There have been no significant changes to the critical accounting
policies, estimates and judgments disclosed in the Company's Form 10-KSB for
the year ended December 31, 2002.
Results of Operations for the Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2002.
Summary financial data is provided in the table below:
Three months ended March 31,
2003 2002
---------------- ----------------
Amount % Amount %
Net revenues $5,202,584 100% $4,081,545 100%
Cost of revenues 3,852,761 74% 3,171,929 78%
---------- ----------
Gross profit 1,349,823 26% 909,616 22%
S,G,& A expenses 1,700,473 33% 1,000,170 24%
---------- ----------
Operating loss (350,650) (7%) (90,554) (2%)
Interest income/(expense) (54,454) (1%) 7,814 0%
---------- ----------
Net loss before taxes and
accounting change (405,104) (8%) (82,740) (2%)
========== ==========
Net revenues for the three months ended March 31, 2003 and 2002, were as
follows:
Three months ended March 31,
2003 2002
---------------- ----------------
Amount % Amount %
Technology $1,738,462 33% $ -- --
Advertising and Marketing 2,839,580 55% 3,292,609 81%
Logistics 624,542 12% 788,936 19%
---------- ---- ---------- ----
Total net revenues $5,202,584 100% $4,081,545 100%
========== ==== ========== ====
Total net revenues increased $1,121,039 (27%) from $4,081,545 for the
three months ended March 31, 2002 to $5,202,584 for the three months ended
March 31, 2003. The technology segment accounted for net revenues of
$1,738,462 during the first quarter of fiscal 2003. This segment was added
with the acquisition of Hencie, Inc. effective August 1, 2002. The combined
net revenues of the advertising and marketing and logistics segments
decreased $617,423 (15%) from $4,081,545 for the three months ended March 31,
2002 to $3,464,122 for the three months ended March 31, 2003. Net revenues
of the logistics segment decreased $164,394 (21%) for the three months ended
March 31, 2003 compared to the comparable period of 2002 primarily due to
reduced sales of transportation logistics services. Revenues from the
advertising and marketing segment decreased $453,029 (14%) due to changes in
the customer base of this segment, including the loss of higher volume
customers. Pricing in the advertising and marketing and logistics segments
remained constant.
Cost of revenues by segment and percentage of total cost of revenues for
the three months ended March 31, 2003 and 2002 were as follows:
Three months ended March 31,
2003 2002
------------------ ------------------
Amount % Amount %
Technology $1,147,560 30% $ -- --
Advertising and Marketing 2,405,493 62% 2,720,704 86%
Logistics 299,708 8% 451,225 14%
---------- ---- ---------- ----
Total cost of revenues $3,852,761 100% $3,171,929 100%
========== ==== ========== ====
Cost of revenues increased $680,832 (21%) for the three months ended
March 31, 2003 compared to the three months ended March 31, 2002. This
increase was attributable to the increase in net revenues from the recently
acquired technology segment. The combined cost of revenues of the
advertising and marketing and logistics segments decreased $466,728 (15%) due
primarily to lower revenues.
Gross profit per segment and percentage of total gross profit for the
three months ended March 31, 2003 and 2002 were as follows:
Three months ended March 31,
2003 2002
----------------- -----------------
Amount % Amount %
Technology 590,902 44% -- --
Advertising and Marketing $ 434,087 32% $ 571,905 63%
Logistics 324,834 24% 337,711 37%
---------- ---- ---------- ----
Total gross profit $1,349,823 100% $ 909,616 100%
========== ==== ========== ====
Gross Profit Percentages by Segment:
2003 2002
------- -------
Technology 34.0% --
Advertising and marketing 15.3% 17.4%
Logistics marketing 52.0% 42.8%
------- -------
Total Gross Profit 25.9% 22.3%
======= =======
Gross profit increased $440,207 (48%) for the three months ended March
31, 2003 compared to the three months ended March 31, 2002. This increase
was attributable to the acquisition of the technology segment. Total gross
profit of the other segments decreased $150,695. The logistics segment
recognized an increase in gross margin of 9.2% from 42.8% for the three
months ended March 31, 2002 to 52.0% for the three months ended March 31,
2003, while the gross margin in the advertising and marketing segment
decreased 2.1% from 17.4% for the three months ended March 31, 2002 to 15.3%
for the three months ended March 31, 2003.
Selling, general, and administrative expenses increased $700,303 (70%)
for the three months ended March 31, 2003 to $1,700,473 from $1,000,170 for
the three months ended March 31, 2002. This increase was primarily due to
the acquisition of the technology segment and the resulting increased number
of employees, as well as related overhead expenses. In addition, the Company
incurred increased expenses in legal and professional services, primarily due
to increases associated with public company reporting.
As a result of the foregoing, losses from operations increased $260,096
for the three months ended March 31, 2003 to ($350,650) from ($90,554) for
the three months ended March 31, 2002.
Interest income for the three months ended March 31, 2003 and 2002 was
$657 and $7,814, respectively. Interest expense for the three months ended
March 31, 2003 and 2002 was $55,111 and $0, respectively. The reduction in
interest income, net of interest expense was due to the decrease in cash
available for investing as well as interest expense attributable to
borrowings in 2003 not present in 2002.
As of January 1, 2002 the Company adopted SFAS No. 142, allocated
goodwill of $2,004,447 to each of its reporting units, and tested this
goodwill for impairment. The Company completed the testing during the second
quarter ending June 30, 2002. As a result, a charge of $1,204,058 was
recorded for the goodwill assigned to the logistics reporting unit as a
cumulative effect of accounting change.
Pro forma Results of Operations
The unaudited pro forma combined historical results, as if Hencie had
been acquired at the beginning of 2002, are provided as follows:
Three months ended March 31,
2003 2002
------------- -------------
(unaudited)
Revenues $ 5,202,584 $ 6,526,636
Loss from continuing operations ** (405,104) (502,049)
Net loss ** $ (405,104) $ (502,049)
Basic and diluted loss per share $ (0.04) $ (0.06)
**The 2002 period excludes a charge for the cumulative effect of accounting
change of $1,204,058.
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been completed as of the beginning
of 2002, nor are they necessarily indicative of future consolidated results.
The pro forma revenues included above from the Hencie acquisition were
$2,445,091 for the three months ended March 31, 2002 compared to the current
revenues of $1,738,462 included in the period ended March 31, 2003. This
decrease of $706,629 (41%) was largely attributable to an overall spending
decrease for capital expenditures by companies, which purchase the enterprise
software applications which Hencie implements. The gross margin declined as
the existing customers negotiated discounts on certain contract extensions to
expand the scope of work on current projects.
Quarterly Fluctuations and Seasonality
Although the logistics segment and the advertising and marketing segment
experience some seasonality in operations corresponding with holiday
advertising, such variations have not been material to the overall results of
operations of the Company. Revenues from the delivery of telephone
directories also fluctuate quarterly with the contractual delivery schedules
of customers, and vary during the course of the year.
Revenues and operating results from the technology segment have
fluctuated significantly in the past. The Oracle Implementations services
category of the technology segment historically has experienced greater
revenues during the first and second quarters, and significantly lower
revenues in the third and fourth quarters. Accordingly, although a
comparison of any given fiscal quarter to the same fiscal quarter of a
previous year may be meaningful, other period-to-period comparisons,
including comparisons of fiscal quarters in the same fiscal year, of the
operating results of the technology segment may not be meaningful.
This fluctuation between quarters is attributable to the project cycles
of customers of the technology segment, most of whom have calendar-based
fiscal years and are more likely to start project cycles during the first
half of the year. Further, because most of the technology segment's
expenses, including expenses associated with its employees, are relatively
fixed in the short-term, several other factors can cause significant
variations in the quarterly operating results, including:
- fluctuations in the number of customer projects it is awarded;
- cancellations or delays by its customers of planned projects;
- its employee utilization rate; and
- number of billable days in a given quarter.
The Company believes that the technology segment will experience similar
fluctuations in operations in the future. If the Company is unable to
predict the cyclical customer demand in a slower growth or distressed
economic environment, expenses may be disproportionate to and/or exceed
revenues.
Liquidity and Capital Resources
The Company has historically funded its operations and working capital
needs from operating cash flows and borrowings. During the three months
ended March 31, 2003, cash decreased $288,808. This decrease was primarily
attributable to debt service payments on our existing lines of credit during
this period. Net cash used in financing activities was $281,305 for the
three months ended March 31, 2003 and included debt service payments of
$200,000 on our existing lines of credit. Net cash used in operating
activities was $6,859 for the three months ended March 31, 2003. The Company
used working capital to fund operating losses during this period.
The Company currently funds its operations and working capital needs
from operating cash flows and borrowings under financing agreements between
its subsidiaries and lenders. As of May 8, 2003, the Company is in
compliance with all of these financing agreements.
National Home Delivery, Inc., an Illinois corporation and a wholly owned
subsidiary of the Company, amended its existing financing agreements with
Fifth Third Bank (the "NHD Credit Facility") on April 29, 2003 to extend the
maturity date under the NHD Credit Facility from May 1, 2003 to May 1, 2004.
The NHD Credit Facility provides for borrowings up to $1,000,000. Borrowings
under the NHD Credit Facility accrue interest at Fifth Third's prime rate
(4.25% as of April 21, 2003) plus 100 basis points. Available borrowings
under the NHD Credit Facility are subject to conditions and restrictions,
including, without limitation, eligible accounts receivable restrictions and
other restrictive financial covenants and performance ratios applicable to
National Home Delivery. The NHD Credit Facility is secured by substantially
all of the assets of Alternate Marketing Networks, Inc. and National Home
Delivery, Inc. As of April 30, 2003, borrowings in the amount of
approximately $700,000 were outstanding and credit in the amount of
approximately $300,000 was available under the NHD Credit Facility.
Alternate Postal Direct, Inc. ("APD"), a Michigan corporation and a
wholly owned subsidiary of the Company, entered into a new financing
agreement with Accord Financial, Inc., (the "APD Credit Facility") on April
30, 2003 to replace the financing agreements between APD and Fifth Third Bank
that expired on May 1, 2003. The APD Credit Facility provides for the sale
of accounts receivable by APD to Accord at a 1.5% discount and aggregate
advances up to $750,000. Advances under the APD Credit Facility accrue
interest at the prime commercial rate of interest established from day to day
by Bank of America, Inc. for short term unsecured loans to substantial
borrowers. Sales of accounts receivable and advances under the APD Credit
Facility are subject to conditions and restrictions, including, without
limitation, accounts receivable eligibility restrictions, and accounts
receivable verification and approval. The APD Credit Facility is secured by
substantially all of the assets of APD. As of April 30, 2003, no advances
were outstanding, and advances in the amount of approximately $170,000 were
available under the APD Credit Facility.
Hencie Consulting amended its existing financing agreement with Accord
(the "HCS Credit Facility") on April 29, 2003. The HCS Credit Facility
provides for the sale of accounts receivable by Hencie Consulting to Accord
at a 1.5% discount and aggregate advances up to $750,000. Advances under the
HCS Credit Facility accrue interest at the prime commercial rate of interest
established from day to day by Bank of America, Inc. for short term unsecured
loans to substantial borrowers. Sales of accounts receivable and advances
under the HCS Credit Facility are subject to conditions and restrictions,
including, without limitation, accounts receivable eligibility restrictions,
and accounts receivable verification and approval. The HCS Credit Facility
is secured by substantially all of the assets of Hencie Consulting. As of
April 30, 2003, advances in the amount of approximately $174,000 were
outstanding and advances in the amount of approximately $173,000 were
available under the HCS Credit Facility.
On February 18, 2003, the Company entered into an agreement regarding
settlement of approximately $1 million of liabilities owed by Hencie to
Drawbridge. The agreement provided for a cash payment of $120,000, issuance
of 2,474,039 shares of common stock by the Company to Drawbridge,
registration rights for the shares, and an obligation for the Company to
repurchase $100,000 of the shares, at a minimum of $0.50 per share, from
Drawbridge annually for three years beginning February 18, 2004.
The Company believes that its existing financing arrangements and
estimated operating cash flows will be sufficient to fund its operations and
working capital needs for at least the next 12 months. There can be no
assurance, however, that a failure to comply with the provisions of our
existing financing arrangements, changes in operating plans, the acceleration
or modification of expansion plans, lower than anticipated revenues,
increased expenses, potential acquisitions, or other events will not cause
the Company to seek additional financing sooner than anticipated, prevent the
Company from achieving the goals of its expansion strategy, force the closure
of unprofitable segments or portions of these segments, or prevent the
Company from operating profitably. In addition, there can be no assurance
that any additional financing, if needed, will be available on terms
acceptable to the Company or at all.
There have been no significant changes to the cash obligations table as
presented in the Company's Form 10-KSB for the year ending December 31, 2002,
except for the notes payable to bank. One note has been renewed for
$1,000,000 and matures May 1, 2004. The balance outstanding as of March 31,
2003 was $700,000. The other note was paid in full on April 30, 2003, and
was not renewed.
Outlook for the Future
The Company will continue with its expansion plans for the technology
segment through the Fulcrum Strategy as described in the Company's Form 10-
KSB for the year ending December 31, 2002. As part of the Fulcrum Strategy,
the Company expects to offer new enterprise resource services, such as
Sarbanes-Oxley processes, to customers who have existing enterprise
applications to add new functionality to their systems. In addition, the
Company intends to offer lower cost maintenance, support and outsourcing
services as businesses are seeking to reduce their technology costs. In
order to maintain its margins and offer the reduced costs, the Company plans
to enter into an alliance with an offshore IT service provider of low cost,
highly qualified professionals in countries such as India.
The Company continues to seek the right opportunity to acquire other
enterprise software service providers to augment the services currently
offered which will enable the Company to meet the "technology life cycle"
needs of its clients and expand its service offerings, territory, and
industry expertise.
Item 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in
Rule 13a-14(c) and Rule 15d-14(c) of the Exchange Act) designed to ensure
that information required to be disclosed in the reports of the Company filed
under the Exchange Act is recorded, processed, summarized, and reported
within the required time periods. The Company's Chief Executive Officer and
Chief Financial Officer have concluded, based upon their evaluation of these
disclosure controls and procedures as of a date within 90 days of the filing
date of this report, that, as of the date of their evaluation, these
disclosure controls and procedures were effective at ensuring that the
required information will be disclosed on a timely basis in the reports of
the Company filed under the Exchange Act.
(b) Changes in Internal Controls.
The Company maintains a system of internal controls that is designed to
provide reasonable assurance that the books and records of the Company
accurately reflect the Company's transactions and that the established
policies and procedures of the Company are followed. There were no
significant changes to the internal controls of the Company or in other
factors that could significantly affect such internal controls subsequent to
the date of the evaluation of such internal controls by the Chief Executive
Officer and the Chief Financial Officer, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in the legal proceedings
previously disclosed in the Company's filings with the Commission. No new
material legal proceedings were initiated during the three months ended March
31, 2003.
Item 2. Changes in Securities.
The Company issued the following equity securities during the three
months ended March 31, 2003, without registering such securities under the
Securities Act:
On February 18, 2003, the Company issued 2,474,039 shares of its common
stock to Drawbridge Investment Partners, LLC pursuant to that certain Release
Agreement dated February 18, 2003, among the Company, Hencie, Hencie
Consulting, K2 VC LTD., Adil Khan, Drawbridge, and certain directors and
stockholders of the Company. The Company claimed exemption from registration
under Section 4(2) and Rule 506 of Regulation D of the Securities Act in
reliance upon the fact that the transaction did not involve a public offering
and the purchaser of the stock at such time was an accredited investor.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
2.1 Acquisition Agreement dated March 29, 1996 between Alternate
Marketing and National Home Delivery, Inc. (incorporated
by reference from Form 8-K of Alternate Marketing dated
April 11, 1996)
2.2 Asset Purchase Agreement dated February 17, 2000 between
Alternate Marketing, Kevin Powers, and Total Logistics,
Inc. (incorporated by reference from Form 8-K of Alternate
Marketing dated March 1, 2000)
2.3 Consulting Agreement dated February 17, 2000 between Alternate
Marketing, Kevin Powers, and Total Logistics, Inc.
(incorporated by reference from Form 8-K of Alternate Marketing
dated March 1, 2000)
2.4 Amended and Restated Agreement and Plan of Reorganization dated
May 31, 2002 among Alternate Marketing Networks, Inc., a
Michigan corporation, Alternate Marketing Networks, Inc., a
Delaware corporation, ALTM Combination Co., a Delaware
corporation, Hencie, Inc., a Delaware corporation, Adil Khan,
and certain stockholders of Hencie, Inc. (incorporated by
reference from Appendix A to the Definitive Proxy Statement of
Alternate Marketing dated July 23, 2002 and filed June 16, 2002
by Alternate Marketing with the Commission)
3.1 Amended and Restated Certificate of Incorporation (incorporated
by reference from Exhibit 4.1 to the Form 8-K of Alternate
Marketing dated August 1, 2002 and filed August 14, 2002 by
Alternate Marketing with the Commission)
3.2 Amended and Restated Bylaws (incorporated by reference from
Exhibit 4.2 to the Form 8-K of Alternate Marketing dated
August 1, 2002 and filed August 14, 2002 by Alternate Marketing
with the Commission)
4.1 1995 Long-Term Incentive and Stock Option Plan (incorporated
by reference from the Registration Statement on Form SB-2;
Commission File No. 33-95332C)
4.2 1995 Outside Directors and Advisors Stock Option Plan
(incorporated by reference from the Registration Statement
on Form SB-2; Commission File No. 33-95332C)
4.3 Form of Registration Rights Agreement between Alternate Marketing
and certain noteholders of Alternate Marketing (incorporated by
reference from the Registration Statement on Form SB-2;
Commission File No. 33-95332C)
10.1 Form of Distribution Services Contract by and between Alternate
Marketing and GTE Directories Distribution Corporation, Bell
Atlantic Yellow Pages Company, and Bell Atlantic Directory
Services, Inc. (incorporated by reference from the Form 10-QSB
for the quarterly period ended September 30, 2002 filed
November 19, 2003 with the Commission)
10.2 Form of Consulting Services Master Agreement by and between
Hencie and customers of the technology segment (incorporated
by reference from the Form 10-QSB for the quarterly period
ended September 30, 2002 filed November 19, 2003 with the
Commission)
10.3 Employment Agreement dated July 21, 1995 between the
Company and Phillip D. Miller (incorporated by reference
from the Registration Statement on Form SB-2; Commission
File No. 33-95332C)
10.4 Addendum to Employment Agreement dated July 21, 1995 between
Alternate Marketing and Phillip D. Miller dated January 1, 2000
(incorporated by reference from the Form 10-KSB of the
Company for the fiscal year ended December 31, 1999 filed
March 30, 2000 by Alternate Marketing with the Commission)
10.5 Second Addendum dated to Employment Agreement dated July 21,
1995 between Alternate Marketing and Phillip D. Miller
(incorporated by reference from Exhibit 99.2 to the Form 8-K
of Alternate Marketing dated August 1, 2002 and filed August
14, 2002 by Alternate Marketing with the Commission)
10.6 Employment Agreement dated July 1, 2001 between Alternate
Marketing and Sandra J. Smith (incorporated by reference from
the Form 10-KSB of Alternate Marketing for the fiscal year
ended December 31, 2001 filed March 28, 2002 by Alternate
Marketing with the Commission)
10.7 Addendum dated to Employment Agreement dated July 1, 2001
between Alternate Marketing and Sandra J. Smith (incorporated
by reference from Exhibit 99.2 to the Form 8-K of Alternate
Marketing dated August 1, 2002 and filed August 14, 2002 by
Alternate Marketing with the Commission)
10.8 Employment Agreement dated August 1, 2002 between Alternate
Marketing and Adil Khan (incorporated by reference from Exhibit
99.1 to the Form 8-K of Alternate Marketing dated August 1,
2002 and filed August 14, 2002 by Alternate Marketing with the
Commission)
10.9 Loan Agreement (incorporated by reference from the Form 10-KSB
of Alternate Marketing for the fiscal year ended December 31,
2001 filed March 28, 2002 by Alternate Marketing with the
Commission)
10.10 First Amendment to Loan Agreement dated April 29, 2003 among
National Home Delivery, Inc., Alternate Postal Direct, Inc.,
and Fifth Third Bank (incorporated by reference from the Form
SB-2 filed May 7, 2003 with the Commission)
10.11 Amended and Restated Revolving Loan Note dated April 29, 2003
between National Home Delivery, Inc. and Fifth Third Bank
(incorporated by reference from the Form SB-2 filed May 7,
2003 with the Commission)
10.12 Times Mirror Stock Purchase Agreement (incorporated by reference
from the Form 10-QSB of Alternate Marketing for the quarterly
period ended September 30, 1999)
10.13 Contribution Agreement dated January 1, 2003 between Alternate
Marketing, K2 VC LTD., a Texas limited partnership
(incorporated by reference from Exhibit 99.1 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.14 Mutual Release Agreement dated February 18, 2003 between
Alternate Marketing, K2 VC LTD., a Texas limited partnership
(incorporated by reference from Exhibit 99.2 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.15 Non-Qualified Stock Option Agreement dated February 18, 2003
between Alternate Marketing and Adil Khan (incorporated by
reference from Exhibit 99.3 to the Form 8-K of Alternate
Marketing dated and filed February 20, 2003 by Alternate
Marketing with the Commission)
10.16 Release Agreement dated February 18, 2003 between Alternate
Marketing, Hencie, Inc., Hencie Consulting Services, Inc.,
K2 VC LTD., Adil Khan, Drawbridge Investment Partners, LLC,
and certain directors and stockholders of Alternate Marketing
(incorporated by reference from Exhibit 99.4 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.17 Factoring Agreement dated April 9, 1997 between Hencie Consulting
Services, Inc. and Richards Capital Corporation (filed
herewith)
10.18 Addendum to Master Purchase and Sale Agreement dated April 29,
2003 between Hencie Consulting Services, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
10.19 Master Purchase and Sale Agreement dated April 30 ,2003
between Alternate Postal Direct, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
10.20 Addendum to Master Purchase and Sale Agreement dated April 30,
2003 between Alternate Postal Direct, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
99.1 Section 906 Certification of Chief Executive Officer (filed
herewith)
99.2 Section 906 Certification of Chief Financial Officer (filed
herewith)
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter for
which this report is filed:
Form 8-K (Items 7 and 9) dated February 20, 2003
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALTERNATE MARKETING NETWORKS, INC.
Date: May 14, 2003 By: /s/ Adil Khan
Name: Adil Khan
Title: Chief Executive Officer
Date: May 14, 2003 By: /s/Sandra J. Smith
Name: Sandra J. Smith
Title: Chief Financial Officer
CERTIFICATIONS
I, Adil Khan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Alternate
Marketing Networks, Inc., a Delaware corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003 By: /s/ Adil Khan
Name: Adil Khan
Title: Chief Executive Officer
I, Sandra J. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Alternate
Marketing Networks, Inc., a Delaware corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003 By: /s/Sandra J. Smith
Name: Sandra J. Smith
Title: Chief Financial Officer
INDEX OF EXHIBITS
Exhibit No. Description of Exhibit
2.1 Acquisition Agreement dated March 29, 1996 between Alternate
Marketing and National Home Delivery, Inc. (incorporated
by reference from Form 8-K of Alternate Marketing dated
April 11, 1996)
2.4 Asset Purchase Agreement dated February 17, 2000 between
Alternate Marketing, Kevin Powers, and Total Logistics,
Inc. (incorporated by reference from Form 8-K of Alternate
Marketing dated March 1, 2000)
2.5 Consulting Agreement dated February 17, 2000 between Alternate
Marketing, Kevin Powers, and Total Logistics, Inc.
(incorporated by reference from Form 8-K of Alternate Marketing
dated March 1, 2000)
2.4 Amended and Restated Agreement and Plan of Reorganization dated
May 31, 2002 among Alternate Marketing Networks, Inc., a
Michigan corporation, Alternate Marketing Networks, Inc., a
Delaware corporation, ALTM Combination Co., a Delaware
corporation, Hencie, Inc., a Delaware corporation, Adil Khan,
and certain stockholders of Hencie, Inc. (incorporated by
reference from Appendix A to the Definitive Proxy Statement of
Alternate Marketing dated July 23, 2002 and filed June 16, 2002
by Alternate Marketing with the Commission)
3.1 Amended and Restated Certificate of Incorporation (incorporated
by reference from Exhibit 4.1 to the Form 8-K of Alternate
Marketing dated August 1, 2002 and filed August 14, 2002 by
Alternate Marketing with the Commission)
3.2 Amended and Restated Bylaws (incorporated by reference from
Exhibit 4.2 to the Form 8-K of Alternate Marketing dated
August 1, 2002 and filed August 14, 2002 by Alternate Marketing
with the Commission)
4.1 1995 Long-Term Incentive and Stock Option Plan (incorporated
by reference from the Registration Statement on Form SB-2;
Commission File No. 33-95332C)
4.2 1995 Outside Directors and Advisors Stock Option Plan
(incorporated by reference from the Registration Statement
on Form SB-2; Commission File No. 33-95332C)
4.4 Form of Registration Rights Agreement between Alternate Marketing
and certain noteholders of Alternate Marketing (incorporated by
reference from the Registration Statement on Form SB-2;
Commission File No. 33-95332C)
10.1 Form of Distribution Services Contract by and between Alternate
Marketing and GTE Directories Distribution Corporation, Bell
Atlantic Yellow Pages Company, and Bell Atlantic Directory
Services, Inc. (incorporated by reference from the Form 10-QSB
for the quarterly period ended September 30, 2002 filed
November 19, 2003 with the Commission)
10.2 Form of Consulting Services Master Agreement by and between
Hencie and customers of the technology segment (incorporated
by reference from the Form 10-QSB for the quarterly period
ended September 30, 2002 filed November 19, 2003 with the
Commission)
10.3 Employment Agreement dated July 21, 1995 between the
Company and Phillip D. Miller (incorporated by reference
from the Registration Statement on Form SB-2; Commission
File No. 33-95332C)
10.4 Addendum to Employment Agreement dated July 21, 1995 between
Alternate Marketing and Phillip D. Miller dated January 1, 2000
(incorporated by reference from the Form 10-KSB of the
Company for the fiscal year ended December 31, 1999 filed
March 30, 2000 by Alternate Marketing with the Commission)
10.5 Second Addendum dated to Employment Agreement dated July 21,
1995 between Alternate Marketing and Phillip D. Miller
(incorporated by reference from Exhibit 99.2 to the Form 8-K
of Alternate Marketing dated August 1, 2002 and filed August
14, 2002 by Alternate Marketing with the Commission)
10.6 Employment Agreement dated July 1, 2001 between Alternate
Marketing and Sandra J. Smith (incorporated by reference from
the Form 10-KSB of Alternate Marketing for the fiscal year
ended December 31, 2001 filed March 28, 2002 by Alternate
Marketing with the Commission)
10.7 Addendum dated to Employment Agreement dated July 1, 2001
between Alternate Marketing and Sandra J. Smith (incorporated
by reference from Exhibit 99.2 to the Form 8-K of Alternate
Marketing dated August 1, 2002 and filed August 14, 2002 by
Alternate Marketing with the Commission)
10.8 Employment Agreement dated August 1, 2002 between Alternate
Marketing and Adil Khan (incorporated by reference from Exhibit
99.1 to the Form 8-K of Alternate Marketing dated August 1,
2002 and filed August 14, 2002 by Alternate Marketing with the
Commission)
10.9 Loan Agreement (incorporated by reference from the Form 10-KSB
of Alternate Marketing for the fiscal year ended December 31,
2001 filed March 28, 2002 by Alternate Marketing with the
Commission)
10.10 First Amendment to Loan Agreement dated April 29, 2003 among
National Home Delivery, Inc., Alternate Postal Direct, Inc.,
and Fifth Third Bank (incorporated by reference from the Form
SB-2 filed May 7, 2003 with the Commission)
10.11 Amended and Restated Revolving Loan Note dated April 29, 2003
between National Home Delivery, Inc. and Fifth Third Bank
(incorporated by reference from the Form SB-2 filed May 7,
2003 with the Commission)
10.12 Times Mirror Stock Purchase Agreement (incorporated by reference
from the Form 10-QSB of Alternate Marketing for the quarterly
period ended September 30, 1999)
10.13 Contribution Agreement dated January 1, 2003 between Alternate
Marketing, K2 VC LTD., a Texas limited partnership
(incorporated by reference from Exhibit 99.1 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.14 Mutual Release Agreement dated February 18, 2003 between
Alternate Marketing, K2 VC LTD., a Texas limited partnership
(incorporated by reference from Exhibit 99.2 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.15 Non-Qualified Stock Option Agreement dated February 18, 2003
between Alternate Marketing and Adil Khan (incorporated by
reference from Exhibit 99.3 to the Form 8-K of Alternate
Marketing dated and filed February 20, 2003 by Alternate
Marketing with the Commission)
10.16 Release Agreement dated February 18, 2003 between Alternate
Marketing, Hencie, Inc., Hencie Consulting Services, Inc.,
K2 VC LTD., Adil Khan, Drawbridge Investment Partners, LLC,
and certain directors and stockholders of Alternate Marketing
(incorporated by reference from Exhibit 99.4 to the Form 8-K
of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.17 Factoring Agreement dated April 9, 1997 between Hencie Consulting
Services, Inc. and Richards Capital Corporation (filed
herewith)
10.18 Addendum to Master Purchase and Sale Agreement dated April 29,
2003 between Hencie Consulting Services, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
10.19 Master Purchase and Sale Agreement dated April 30, 2003
between Alternate Postal Direct, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
10.20 Addendum to Master Purchase and Sale Agreement dated April 30,
2003 between Alternate Postal Direct, Inc. and Accord
Financial, Inc. (incorporated by reference from the Form SB-2
filed May 7, 2003 with the Commission)
99.3 Section 906 Certification of Chief Executive Officer (filed
herewith)
99.4 Section 906 Certification of Chief Financial Officer (filed
herewith)
EXHIBIT 10.17
FACTORING AGREEMENT
RICHARDS CAPITAL CORPORATION
5950 Berkshire Lane, Suite 1200
Dallas, Texas 75225
LADIES AND GENTLEMEN:
We hereby request that you, as secured party, act as sole factor for the
undersigned (the "Company") upon the following terms:
1. The Company hereby agrees to offer to you accounts, chattel paper,
documents, instruments, and general intangibles (all herein called
"accounts"), arising out of sales of merchandise, services rendered, or labor
performed by the Company during the term of this Agreement, and to sell to
you such accounts as you may approve for purchase. You shall purchase all
such accounts which may be acceptable to you. The Company may from time to
time submit orders to you for credit approval prior to acceptance by you;
however, you shall not be obligated to purchase the account arising out of
any such order if such account is not acceptable to you when submitted for
purchase. All accounts purchased by you shall be purchased with out recourse
against the Company as to the financial ability of the account debtors to
pay, except for those accounts designated by you on any Schedule of Accounts
presented by the Company to you (Schedule) by marking an "R" to the right of
the account listing. Accounts so marked with an "R" shall be purchased by
you with full recourse against the Company. You shall notify the Company
that you are purchasing the designated accounts "with recourse" by returning
a copy of the Schedule to the Company so marked.
2. Except as you may otherwise consent, the terms of all accounts
submitted to you for purchase shall be as follows: N-45
After an account has been purchased by you, the Company shall not have the
right to vary the terms of sale set forth in the invoice relating to such
account without your consent. If any such variation in terms is requested by
the Company, it is recognized that you will incur the same bookkeeping
expense as if you had purchased a new and separate account, as you shall
therefore be entitled to receive as a condition precedent to approving such
change a sum equal to (1) any decrease in "net amount", as herein defined, of
such account, which would result from such variation in terms, plus (2) an
additional factoring commission computed in the same manner as if the account
had been newly purchased by you on the date of the Company requested a
variation in the terms of the sale. The said additional factoring commission
may be referred to in accounting records as a dating charge, and may in your
sole discretion, if in your opinion the circumstances justify a reduction, be
less than the full factoring commission determined as if the account had been
newly purchased.
3. Each account accepted by you for purchase shall be purchased by you
for a purchase price equal to the net amount of such account, less your
factoring commission equal to 2.75% of the net amount of such account. The
"net amount" of each account purchased by you hereunder shall mean the gross
amount payable thereunder, less all permitted discounts, calculated on the
basis of the shortest selling terms provided. The purchase price of each
account shall be paid on the date (the "Payment Date") which shall be the
earlier of (a) 5 days after your receipt of payment of the account from the
account debtor; or (b) the last day of the third month following the due date
thereof.
At any time after you have purchased an account and prior to the Payment
Date, the Company shall have the right at its option to borrow from you up to
80.00% of the purchase price thereof, subject to the adequacy of the Reserve
Fund. The term of any such loan requested by the Company shall be the period
of time from date upon which the funds are advanced by you to the Company to
the Payment Date. The principal amount of any such loan shall bear interest
at a fluctuating annual rate from the date of such loan until maturity, which
annual rate shall be 3.50 percentage points above the prime commercial rate
of interest ("Prime Rate") established from day to day by your Bank for
short-term unsecured loans to substantial and responsible commercial
borrowers. Each change in the rate charged Company shall be effective
without notice to Company on the first day of the calendar month following
that calendar month in which a change in the Prime Rate shall have been made,
but in no event shall the rate charged Company exceed the maximum rate of
interest permitted by applicable law. Such interest shall be charged to the
Company Account as defined in paragraph 4. Interest shall be calculated at a
daily rate equal to 1/360 of the applicable annual rate.
Your factoring commission shall be consideration for all services in
making credit investigations of the Company's customers whose accounts are
offered to you for purchase, in accepting the risk of such payment by the
Company's customers beyond the Payment Date, your services in handling all
bookkeeping with respect to accounts which you purchase, your services in
collecting all accounts purchased by you, and for assuming the complete
credit risk on accounts purchased without recourse by you.
4. All transactions between you and the Company will be recorded in an
account (herein referred to as "Company Account"). A copy of this Company
Account, setting forth all debits and credits to the Company Account during
each calendar month, shall be furnished to the Company within fifteen (15)
days after the end of such calendar month. You shall have the right to
create and maintain a reserve fund (herein referred to as "Reserve Fund") out
of any payments or credits otherwise to be made by you to Company in an
amount equal to 20.00% of the then aggregate unpaid gross amount of all
accounts purchased by you hereunder, and to charge against the Reserve Fund
any amount for which Company may become obligated to you, whether such
obligation arises under this Agreement or otherwise. However, you are
authorized, without giving prior notice to Company, to increase the amount or
the percentage of the Reserve Fund at such times as you may deem same is
reasonably necessary to cover and provide for account debtor claims as
defined in paragraph 8 and/or present or potential indebtedness of Company to
you.
The Company recognizes that nay balance in the Company Account and
Reserve Fund represent bookkeeping entries and not cash funds. The total
amount of the Company Account will include, without specifically showing, any
amount held in the Reserve Fund. You, however, agree to advise the Company
upon request of the exact amount of the Reserve Fund being maintained by you
as of any particular date.
You, in addition to the outright ownership of those receivables
purchased, are granted and shall have a continuing Security Interest in all
other of the Company's accounts (which includes accounts, chattel paper,
documents, instruments, and general intangibles), inventory, products, and
proceeds, now or hereafter existing, and insurance proceeds covering all of
same, together with all moneys credited to Company and any of Company's
property at any time in your possession, as security for any and all
obligations or indebtedness of Company to you of any kind, direct or
contingent, however such obligations or indebtedness shall arise or be
incurred or evidenced, whether now or hereafter existing, and whether under
this Agreement or otherwise. You shall shave all of the rights and remedies
provided in this Security Agreement and in the Uniform Commercial Code in
force at the time of the execution of this Security Agreement and by any
amendment thereof.
5. Notwithstanding any other provisions of this Agreement, you shall
also be entitled at all times, both before and after any termination of this
Agreement, to hold all sums to the credit of Company as security for any and
all of the Company's obligations to you, no matter how arising, and any
amount which you are authorized hereunder to charge to Company or for which
Company is obligated to you may be withheld or deducted by you at any time in
your sole discretion from any remittances, payments or credits otherwise to
be made by you hereunder.
6. The Company agrees to deliver to you the original and one copy of all
invoices relating to accounts purchased by you hereunder together with
evidence of shipment of the related merchandise and a written assignment of
such accounts, all in form satisfactory to you, and, upon your request, the
original purchase order from its account debtor. Invoices delivered to you
shall plainly state on their face that the amounts payable thereunder have
been assigned to and are payable to you and billing on such invoices shall
constitute an assignment to you of the accounts thereby represented whether
or not a specific written assignment is executed. You shall mail at the
Company's expense all invoices representing accounts accepted by you for
purchase. If in your sole judgment the credit risk of any account debtor
under any account purchased by you becomes impaired before delivery of the
related merchandise, the company will, upon request and at its expense, use
its best efforts to stop delivery.
7. The Company hereby sells, transfers and assigns to you all rights,
title and interest of the Company in and to all accounts assigned to you
together with all guaranties and security therefore and all rights, title and
interest of the Company in the merchandise represented by such accounts,
including all of the Company's rights to stoppage in transit, replevin and
reclamation and as an unpaid vendor. The Company agrees to execute and
deliver to you such notices of assignment and other documents and to make
such entries and markings upon it books and records as you may request to
better protect the sale and assignment of accounts hereunder.
8. The Company hereby warrants to you that assignment to you of each
account purchased by you hereunder will vest absolute ownership of such
account to you free from any liens, claims or equities of third parties; that
each account shall on the date of assignment be based upon a bona fide sale
and actual shipment of merchandise, services rendered, or labor performed by
the Company during the term of this Agreement, and shall be a valid and
enforceable obligation of the named account debtor; and that such merchandise
shall be accepted and retained by the account debtor without assertion of any
account debtor claim. The term "account debtor claim" shall mean any
defense, dispute, offset, or claim asserted by an account debtor with respect
to an account or the related merchandise, but the term "account debtor claim"
shall not include the failure of an account debtor to pay due to financial
inability. The Company shall immediately notify you of the assertion of any
account debtor claim or of the breach of any other warranty hereunder. The
Company shall at its own expense settle all account debtor claims, subject to
your approval, but you shall have the right, in your discretion, to settle
any account debtor claim directly with the account debtor involved upon such
terms as you may deem advisable at the Company's expense. If you should so
elect to settle an account debtor claim yourself, you are specifically vested
with a power of attorney to act in Company's name, place and stead, the same
as Company could of in person, and you are authorized hereby to execute all
release, settlement or compromise agreements, and to receive and receipt for
and in Company's name, all money or other property that you may receive in
settlement, release, and/or compromise of account debtor claims. In the
event of any account debtor claim or other breach of warranty hereunder as to
any account, you may at your election reassign to the Company without
recourse, the unpaid balance of such account (or any disputed portion
thereof) and charge the amount of such unpaid balance (or reassigned portion
thereof) to the Company Account or Reserve Fund or at your option the Company
agrees to pay such amount to you on demand.
9. If any account purchased "with recourse" as set forth in Paragraph 1
hereof remains unpaid thirty (30) days after the maturity date of such
account, the Company agrees to repurchase that account from you and shall pay
you the gross amount of the account remaining unpaid in cash at Dallas,
Texas, within three business days after receipt of request for payment from
you. If the Company has sufficient funds in the Reserve Fund maintained by
you, you are authorized to take such payment directly from the Reserve Fund
if payment is not received within three business days after receipt of such
request from you.
10. If any remittances on an account purchased by you shall be received
by the Company such remittances shall be held by the Company in trust for
your, separate and apart from the Company's own properties and funds, and
shall be immediately delivered to you in identical form in which received.
In the event any merchandise represented by an account purchased by you shall
be returned to or repossessed by the Company, such merchandise shall be held
by the Company in trust for you, separate and apart from the Company's own
property, and subject to your directions and control.
11. You and your agents shall have the right, at all times during normal
business hours, to examine and make extracts from all books and records of
the Company. The Company authorizes you and your agents to receive, open and
dispose of mail addressed to the Company and to endorse the name of the
Company upon checks and other instruments and documents, and in the name of
and as agent for the Company to do all other acts and things necessary to
carry out this agreement.
12. This Agreement shall become effective upon your acceptance hereof,
shall be deemed dated as of the date of your acceptance, and shall continue
in full force and effect for 6 months from the effective date hereof, and
from year to year thereafter, unless terminated as to future transactions by
either party giving to the other not less than thirty days advance written
notice by mail, but any such notice given by the Company shall not be
effective prior to the end of the initial period, or prior to the end of any
succeeding year, as the case may be, and in any event, the Company shall have
no right to terminate this Agreement until all obligations (direct or
contingent, hereunder or otherwise) owing by the Company to you shall have
been paid in full, whether or not such obligation is due or is to become due
in the future. You may, at your election, immediately terminate this
Agreement as to future transactions, without notice, if the Company shall
fail to perform any of its obligations hereunder or shall breach any warranty
contained herein, or if the Company shall become insolvent or suspend
business or if a petition under any chapter of the Federal Bankruptcy Act or
any other insolvency or debtor statute or receivership proceedings shall be
filed by or against the Company, or if any guaranty of the obligations of the
Company hereunder shall be terminated by the guarantor, or if you should
otherwise deem yourself insecure. Termination of this Agreement shall not
affect the rights and obligations of the parties accruing with respect to
prior transactions. The Company agrees to reimburse you upon demand for all
attorney's fees, court costs, and other expenses incurred by you in enforcing
any of your rights against the Company under this Agreement. In the event
that the Company shall have breached any provision of this Agreement or any
other agreement with you or if this Agreement shall have been terminated, the
Company Account, Reserve Fund any other monies, balances, or credits
otherwise due by you to the Company may be retained and applied by you from
time to time upon any indebtedness (direct or contingent) then or thereafter
due from the Company, and the Reserve Fund shall upon such breach or
termination be increased to an amount equal to the then aggregate unpaid
gross amount of all accounts purchased by you hereunder. You shall have all
of the right and remedies provide in this Agreement and in the Uniform
Commercial code in force at the time of the execution of this Agreement and
by any amendment thereof.
13. All taxes and governmental charges imposed with respect to the sales
of the related merchandise, services rendered, or labor performed shall be
charged to and paid by the Company. Company shall indemnify and hold you
harmless from and against all liabilities for any acts or omissions of the
Company.
14. All obligations of the Company to you shall be performable in the
City of Dallas, Dallas County, Texas, and the Company waives the right to be
sued elsewhere on any cause of action asserted by you against the Company,
whether or not arising under the terms of this Agreement. If the parties
hereto are parties to any other agreement, either written or oral, relating
to the same subject matters as this Agreement, the terms of this Agreement
shall amend and supersede the terms of any prior agreements as to
transactions on and after the effective date of this Agreement, but all
security agreements, financing statements, guaranties or other contracts or
notices for your benefit shall continue in full force and effect to secure
all obligations of the Company to you under the terms hereof unless you
specifically release your rights thereunder by separate release.
15. This Agreement, when accepted by you, constitutes a Security
Agreement under the provisions of the Uniform Commercial Code then in effect
in Texas. This Agreement may only be changed, modified, supplemented, or
amended by a written document signed by you and the Company. This Agreement
shall be construed according to the laws of the State of Texas. Should any
paragraph, provision, or clause of this Agreement be found or held contrary
to, or unenforceable at law or in equity, such finding shall not affect the
others, which shall not withstanding continue in full force and effect, it
being the express intention of the parties hereto that the invalidity of any
one or more paragraphs, provisions, or clauses shall not in any way affect
the others.
16. It being the express intention of the parties hereto to conform
strictly with the applicable usury laws, it is agreed that nothing contained
herein shall be so construed as to require the payment of interest at a rate
in excess of the maximum allowable by law, and in no event shall the Company
be obligated to pay interest exceeding such maximum rate of interest
permitted by law, and all such agreements, conditions, or stipulations, if
any, which may in any event or contingency whatsoever operate to bind,
obligate, or compel the Company to pay a rate of interest exceeding the
maximum rate of interest permitted by law shall be without binding force or
effect at law or in equity to the extent only of the excess of interest over
such maximum rate of interest permitted by law. It is the intention of the
parties hereto that in the construction and interpretation of this Agreement,
the foregoing sentence shall be given precedence over any other agreement,
condition, or stipulation herein contained which is in conflict with same.
17. This Agreement represents the full agreement between you and
Company, and supersedes any prior or contemporaneous agreements and/or terms
not contained herein except that all existing prior Security Agreements,
Financing Statement, Guaranties, or other agreements or notices for your
benefits shall continue and remain in full force and effect to secure all
obligations of Company to you under the terms of this Agreement unless you by
separate release specifically release your rights thereunder. This Agreement
shall be binding upon Company and you, and the heirs, successors and assigns
of the Company and you. Your accounting records of any transactions with
Company shall be admissible in evidence in any action or proceeding, and
shall be binding upon Company in establishing transactions and entries
reflected therein, and shall be accepted as prima facia proof thereof. You
and Company agree that any Financing Statement and/or Guaranty and/or
Certificate of Corporate Minutes authorizing or ratifying any action under
this Agreement if executed and attached hereto shall be a part of this
Agreement for all purposes.
18. Company agrees to furnish to you within 90 days after the close of
the FYE of Company a profit and loss statement for such period and a balance
sheet as of the close of such period and shall also furnish you such
additional financial information as you shall reasonably request.
19. All notices, assignments and documents to be delivered to you shall
be mailed to you at your office in Dallas County, Texas. Any sums required
to be paid by Company to you hereunder shall be payable to you at your office
Dallas County, Texas. Any notices, remittances and statements to be made or
given to company shall be mailed or delivered to Company at its address shown
below, or you may at your option deposit to the account of the Company in a
bank having its principal banking offices in Dallas County, Texas, any
remittances to be made to Company.
20. Any accounting which you render Company under the terms hereof shall
be deemed acceptable to and binding upon Company unless you receive from
Company written notice of any exception thereto within thirty days of the
date of said accounting.
21. Any failure by you to exercise any of your rights hereunder shall
not be deemed to be a waiver by you of such or any other right, nor in any
manner impair the subsequent exercise of the same or any other right, and any
waiver by you of any default shall not constitute a waiver of any subsequent
default.
If the foregoing is acceptable to you, will you please so indicate in
the space provided below for this purpose, whereupon this shall constitute a
binding agreement between you and the Company under the terms and conditions
above set forth.
ACCEPTED AT DALLAS, TEXAS
Very truly yours,
on 4/9, 1997 Hencie Consulting Services, Inc.
RICHARDS CAPITAL CORPORATION By: /s/ Adil Khan
By: /s/ R. Washburn Its: President
Its: President
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alternate Marketing Networks,
Inc., a Delaware corporation (the "Company"), on Form 10-QSB for the period
ended March 31, 2003 as filed with the Securities and Exchange Commission
(the "Report"), the undersigned Chief Executive Officer of the Company does
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the knowledge of the
undersigned:
(1) The Report fully complies with the requirements of Section 13 (a) or
15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company as of the date(s) and for the period(s) indicated.
Date: May 14, 2003 By: /s/Adil Khan
Name: Adil Khan
Title: Chief Executive Officer
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alternate Marketing Networks,
Inc., a Delaware corporation (the "Company"), on Form 10-QSB for the period
ending March 31, 2003 as filed with the Securities and Exchange Commission
(the "Report"), the undersigned Chief Financial Officer of the Company does
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the knowledge of the
undersigned:
(1) The Report fully complies with the requirements of Section 13 (a) or
15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company as of the date(s) and for the period(s) indicated.
Date: May 14, 2003 By: /s/Sandra J. Smith
Name: Sandra J. Smith
Title: Chief Financial Officer