Advantex Announces Fiscal 2009 Second Quarter Results



    
    -  Advantex reports Net Profit for second consecutive quarter.

    -  2009 second quarter:
       -  Net Profit, improves $350,000 vs. 2008 second quarter
       -  Profit before non-cash items, improves $406,000 vs. 2008 second
          quarter.

    -  Success of Advance Purchase Marketing ("APM") program driving revenue
       gain. 2009 second quarter APM revenues up 31.5% vs. 2008 second
       quarter.

    ADX: TSX

    -------------------------------------------------------------------------
    

    TORONTO, Jan. 27 /CNW/ - Advantex Marketing International Inc. (TSX:ADX),
a leading specialist in loyalty marketing programs and merchant funding, today
announced its results for the fiscal second quarter ended December 31, 2008.
All references to quarters or years are for the fiscal periods and all
currency amounts are in Canadian dollars unless otherwise noted.
    "The second consecutive quarter of net profit and positive cash flow from
operations generated by Advantex in 2009 are significant milestones given the
current market conditions," Mr. Ambrose said.
    "These improved financial results are attributable to the initiatives
that we have implemented during the past 30 plus months, including the growth
of our APM program, improved operational efficiencies, and cost reductions,
"Mr. Ambrose said.
    "We are in a period of unprecedented decline and negative sentiment in
stock markets. The management is of the opinion that Advantex's share price
does not reflect the improved financial performance," he said.

    The highlights of the financial performance are illustrated in the
following table:

    
    -------------------------------------------------------------------------
                                       INC/                             INC/
                  Q2 F09    Q2 F08    (DEC)     YTD F09   YTD F08      (DEC)
    -------------------------------------------------------------------------
    Revenues    $ 3.34 m  $ 3.24 m     3.3 %   $ 6.45 m  $ 6.08 m       6.1 %
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Gross
     Profit     $ 2.21 m  $ 1.80 m     23.0%   $ 4.34 m  $ 3.49 m      24.3 %
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Contribution
     from
    Operations  $523,351 $  27,641  $495,710 $1,103,141 $ (17,360) $1,120,501
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net Profit/
     (Loss)     $ 20,264 $(329,692) $349,956 $   75,341 $(695,979) $  771,320
    -------------------------------------------------------------------------



    The increase in revenue is illustrated by the following table:

    -------------------------------------------------------------------------
                                          INC/                          INC/
                     Q2 F09    Q2 F08    (DEC)    YTD F09   YTD F08    (DEC)
    -------------------------------------------------------------------------
    CIBC Advantex
     Programs
     -  APM(1)     $ 1.46 m  $ 1.11 m  $ 0.35 m  $ 3.22 m  $ 2.36 m  $ 0.86 m
    -------------------------------------------------------------------------
     -  Marketing
     Only, including
     Infinite Hotel
     program(2)    $ 0.92 m  $ 0.80 m  $ 0.12 m  $ 1.68 m  $ 1.66 m  $ 0.02 m
                   --------  --------  --------  --------  --------  --------
    -------------------------------------------------------------------------
                   $ 2.38 m  $ 1.91 m  $ 0.47 m  $ 4.90 m  $ 4.02 m  $ 0.88 m
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Online Shopping
     Malls(3)      $ 0.96 m  $ 1.30 m  $(0.34)m  $ 1.53 m  $ 2.02 m  $(0.49)m
    -------------------------------------------------------------------------

    1. The increase in APM revenues reflects higher transaction credits
    deployed with merchants. Average transactions credits deployed for the
    three and six months ended December 31, 2008 were 41.3% and 42.0% higher
    compared with corresponding periods in the previous year, while current
    year APM revenues increased 31.5% and 36.4% respectively over
    corresponding period in the previous year. APM program accounted for
    43.7% of Company's revenues for the three months ended December 31, 2008
    compared with 34.3% of revenues for the corresponding period in the
    previous year.

    2. The Company launched the Infinite Hotel program, a marketing program
    introduced in partnership with CIBC, on September 1, 2008. Advantex earns
    a fee for marketing services provided to participating hotels. The
    revenues from this program offset the impact of decline in consumer spend
    at merchants participating in the Marketing Only program during the three
    and six months ended December 31, 2008 compared to corresponding period
    in the previous year.

    3. Decrease reflects decline in consumer spend, and loss of Delta as a
    partner from August, 2008. In USD terms (base currency in which the
    Company earns its online revenues) the decrease in current year Q2 and
    YTD revenues compared with corresponding period in the previous year was
    32.9% and 27.6% respectively but due to the favourable movement in
    exchange rates the decrease is partially mitigated in the reporting
    currency.
    

    While revenue grew 3.3% in the 2009 second quarter, direct expenses
(which include cardholders awards costs, marketing, and advertising on behalf
of merchants, and other costs) declined 21.4% to $1.1 million, compared with
$1.4 million a year earlier. As the result, the company's gross margin
increased to 66.2% from 55.6% a year earlier, and gross profit rose 23.0 %.
    Sales, general, and administrative (SG&A) expenses also were down in the
2009 second quarter by 4.6% percent to $1.7 million from $1.8 million in the
2008 period mainly as the result of achieving better operating efficiencies
and the effectiveness of the company's cost-reduction efforts.
    These improvements resulted in profit before non cash items of $0.3
million in 2009 second quarter compared with a loss of $0.1 million in 2008
quarter. The company recorded a net profit for the 2009 second quarter of
$20,264 ($0.00 per share), compared with a net loss of $329,692 ($0.00 per
share) in the 2008 quarter.

    Company's Outlook is Cautiously Optimistic

    "We are hopeful that we can maintain our momentum and the positive trends
in our business despite the considerable uncertainty and turbulence affecting
the Canadian and international economies," Mr. Ambrose said.
    "The Company's results will be subjected to seasonality that is
reflective of seasonal consumer spend behaviour in the CIBC Advantex programs,
and Online business. The third quarter is historically the weakest in terms of
consumer spend at merchants participating in Advantex's programs. In addition,
the deteriorating economic conditions will adversely impact consumer spend
behaviour at our merchants. As revenue is recognized at the time that
purchases are made by consumers through the Advantex programs, the weakness in
consumer spend will be reflected in Advantex revenues. However, the current
economic conditions also provide a favourable environment for the Company to
expand its APM program to credit-worthy merchants. APM, which represented
43.7% of the Company's revenues for the three months ended December 31, 2008
was up from 34.3% for the corresponding period in the previous year, is the
growth business for the Company. To meet untapped demand for this product
requires the Company to have access to additional funds, and the difficult
market conditions could hinder that access," he said.

    About Advantex Marketing International Inc.

    Advantex is a specialist in the marketing services industry, managing
white-labeled rewards accelerator programs for major affinity groups through
which their members earn bonus frequent flyer miles and/or other rewards on
purchases at participating merchants. Under the umbrella of each program,
Advantex provides merchants with marketing, customer incentives, and secured
future sales through its Advance Purchase Marketing model. Advantex partners
include more than 700 restaurants, online retailers, golf courses, small inns
and resorts, and major organizations, including CIBC, United Airlines, Alaska
Airlines, and Lufthansa Airlines. Advantex is traded on the Toronto Stock
Exchange under the symbol "ADX". For additional information on Advantex,
please visit www.advantex.com.

    Forward-Looking Information

    This Press Release contains certain "forward-looking information". All
information, other than information comprised of historical fact, addresses
activities, events or developments that the Company believes, expects or
anticipates will or may occur in the future. Such forward looking information
includes, without limitation, information regarding the Company's belief that
Transaction Credits are likely indicators of future revenue; the Company's
expectation that its annualized SG&A cost saving measures, implemented mid
March, 2008, will be realized during Fiscal 2009; management's expectations
with respect to reaching agreement with CIBC to expanding the APM program
including into retail fashion establishments in Fiscal 2009, and its ability
to continue to access financing under its existing line of credit facility
with respect to expanding APM program in both the current categories (dining,
golf, small inns and spa) allowed under the current CIBC agreement, and in the
retail fashion category; the Company's anticipated increase in the number of
Merchant Partners with which it will do business; the Company's anticipated
revenues from the 'Infinite Hotel' program, the Company's continued investment
in information technology systems required to keep pace with partner and
marketplace standards; the number of retailers the Company expects to target
for its programs, including the regional markets in which the Company intends
to focus on; the impact on the Company's revenues that increased merchant
participation would have; the Company's intentions with respect to retaining
future earnings in the foreseeable future; and other information regarding
financial and business prospects and financial outlook is forward-looking
information. Forward-looking information reflects the current expectations or
beliefs of the Company based on information currently available to the
Company. Forward-looking information is subject to a number of risks,
uncertainties and assumptions that may cause the actual results of the Company
to differ materially from those discussed in the forward-looking information,
and even if such actual results are realized or substantially realized, there
can be no assurance that they will have the expected consequences to, or
effects on the Company. Factors that could cause actual results or events to
differ materially from current expectations include, among other things,
changes in general economic and market conditions, changes to regulations
affecting the Company's activities, uncertainties relating to the availability
and costs of financing needed in the future, delays in finalizing the retail
contract, continuation of listing on the TSX, and other factors, including
without limitation, those listed under "Risks and Uncertainties" and "Economic
Dependence" in the Company's interim and year end filings. All forward-looking
information speaks only as of the date on which it is made and, except as may
be required by applicable securities laws, the Company disclaims any intent or
obligation to update any forward-looking information, whether as a result of
new information, future events or results or otherwise. Although the Company
believes that the assumptions inherent in the forward-looking information are
reasonable, forward-looking information is not a guarantee of future
performance and accordingly undue reliance should not be put on such
information due to the inherent uncertainty therein.


    
                    ADVANTEX MARKETING INTERNATIONAL INC.
                      CONSOLIDATED FINANCIAL STATEMENTS
                   For the three month and six month period
                           Ended December 31, 2008

    The accompanying consolidated financial statements have been prepared by
management and approved by the Board of Directors of the Company. Management
is responsible for the information and representations contained in these
consolidated financial statements and other sections of this report.
    An auditor has not performed a review of these consolidated financial
statements.

                    ADVANTEX MARKETING INTERNATIONAL INC.
                         CONSOLIDATED BALANCE SHEETS
                            (unaudited - note 1)

                                                  December 31,       June 30,
                                                         2008           2008
                                                  ------------   ------------
    ASSETS

    Current:
      Cash and cash equivalents                        $7,595       $144,794
      Accounts receivable                           1,231,232        804,673
      Transaction credits                           7,317,969      7,300,912
      Prepaid expenses and sundry assets              230,249        114,978
                                                      -------        -------
                                                    8,787,045      8,365,357
                                                    ---------    -----------
    Long-term:
      Property, plant and equipment                   761,740        745,456


    TOTAL ASSETS                                   $9,548,785     $9,110,813
                                                   -----------    ----------
                                                   -----------    ----------
    LIABILITIES
    Current:
       Loan payable (note 4)                         $164,783       $663,448
       Accounts payable and accrued liabilities     3,342,186      2,664,079
                                                    ---------      ---------
                                                    3,506,969      3,327,527
                                                    ---------      ---------

    Long-term:
      Other liability                                  85,955        205,955
      Non-convertible debentures payable (note 5)   2,469,738      2,422,097
      Convertible debentures payable (note 6)       4,473,786      4,443,115
                                                    ---------      ---------
                                                    7,029,479      7,071,167
                                                    ---------      ---------

                                                   10,536,448     10,398,694
                                                   ----------     ----------
    SHAREHOLDERS' DEFICIENCY

    Capital Stock
      Class A preference shares                         3,815          3,815
      Common shares                                24,106,281     24,106,281
                                                   ----------     ----------
                                                   24,110,096     24,110,096
    Contributed surplus (note 3)                      542,090        507,023
    Equity portion of debentures                    2,114,341      2,114,341
    Warrants (notes 5 and 6)                          374,554        184,744

    Deficit                                       (28,128,744)   (28,204,085)
                                                  ------------   ------------

                                                     (987,663)    (1,287,881)
                                                     ---------    -----------
    TOTAL LIABILITIES AND SHAREHOLDERS'
     DEFICIENCY                                    $9,548,785     $9,110,813
                                                   ----------     ----------
                                                   ----------     ----------

                                                     (see accompanying notes)



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

                                Three Months Ended         Six Months Ended
                                    December 31               December 31
                                    -----------               -----------
                                 2008         2007         2008         2007

    REVENUE                 3,342,760    3,236,840    6,452,946    6,081,527
      Direct expenses       1,130,878    1,438,816    2,114,329    2,592,049
                            ---------    ---------    ---------    ---------

    GROSS PROFIT            2,211,882    1,798,024    4,338,617    3,489,478
                            ---------    ---------    ---------    ---------

    OPERATING EXPENSES
      Selling and
       marketing              806,806      795,594    1,489,562    1,587,001
      General and
       administrative         881,725      974,789    1,745,914    1,919,837
                              -------      -------    ---------    ---------
                            1,688,531    1,770,383    3,235,476    3,506,838

    CONTRIBUTION FROM
     OPERATIONS               523,351       27,641    1,103,141      (17,360)

      Stock-based
       compensation            18,000       16,200       35,067       32,400
                               ------       ------       ------       ------

    PROFIT/(LOSS) BEFORE
     AMORTIZATION AND
     INTEREST                 505,351       11,441    1,068,074      (49,760)

      Amortization of
       property, plant and
       equipment               68,628       72,618      139,972      120,052

      Interest expense
        Stated interest
         expense - loan
         payable, non-
         convertible
         debentures, and
         other                107,485       10,167      248,174       10,167
        Stated interest
         expense -
         convertible
         debentures           151,233      158,796      302,466      318,269
        Accretion charge on
         debentures and
         amortization of
         deferred financing
         charges              157,741       99,552      302,121      197,731
                              -------       ------      -------      -------

    NET PROFIT/(LOSS) AND
     COMPREHENSIVE PROFIT/
     (LOSS) FOR THE PERIOD    $20,264    $(329,692)     $75,341    $(695,979)
                              -------    ----------     -------    ----------
                              -------    ----------     -------    ----------

    NET PROFIT/(LOSS) PER
     COMMON SHARE               $0.00       $(0.00)       $0.00       $(0.01)
                              ---------------------     ---------------------
                              ---------------------     ---------------------

                                                     (see accompanying notes)



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

                                Three Months Ended         Six Months Ended
                                    December 31               December 31
                                    -----------               -----------
                                 2008         2007         2008         2007

    BALANCE AT THE START
     OF PERIOD            (28,149,008) (27,202,801) (28,204,085) (26,836,514)

    Net profit/(loss) for
     the period                20,264     (329,692)      75,341     (695,979)
                               ------     ---------      ------     ---------

    BALANCE AT THE END
     OF PERIOD            (28,128,744) (27,532,493) (28,128,744) (27,532,493)
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

                                                     (see accompanying notes)



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

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

                                 2008         2007         2008         2007
    OPERATING ACTIVITIES

      Net profit/(loss)
       for the period         $20,264    $(329,692)     $75,341    $(695,979)

    Items not affecting cash
      Amortization of
       property, plant and
       equipment               68,628       72,618      139,972      120,051
      Accretion charge on
       debentures             111,193       78,186      209,088      154,999
      Amortization of
       deferred financing
       charges                 46,548       21,366       93,033       42,732
      Stock-based
       compensation            18,000       16,200       35,067       32,400
                               ------       ------       ------       ------
                              264,633     (141,322)     552,501     (345,797)

    Changes in non-cash
     working capital items
      Accounts receivable     211,066     (593,573)    (426,559)    (651,925)
      Transaction credits    (885,903)    (257,278)     (17,057)     (22,834)
      Prepaid expenses and
       sundry assets         (108,960)      67,638     (115,271)      88,161
      Accounts payable and
       accrued liabilities    185,352      413,808      678,107      280,196
                              -------      -------      -------      -------
                             (598,445)    (369,405)     119,220     (306,402)

      Decrease in Long-term
       other liabilities      (40,000)     (64,067)    (120,000)    (178,200)
                              --------     --------    ---------    ---------

    Cash provided by/
     (utilized in)
     operating activities    (373,812)    (574,794)     551,721     (830,399)

    FINANCING ACTIVITIES
      Proceeds from
       non-convertible
       debenture, net               -    1,920,000            -    1,920,000
      Financing charges - non
       convertible debenture        -            -       (1,833)           -
      Proceeds from initial
       draw of credit
       facility                     -      706,490            -      706,490
      Credit facility costs         -     (177,330)           -     (177,330)
      Loan payable             46,767            -     (530,830)           -
                               ------            -     ---------           -
                               46,767    2,449,160     (532,663)   2,449,160

    INVESTING ACTIVITIES
      Purchase of property,
       plant and equipment    (86,569)    (116,904)    (156,257)    (269,914)

    MOVEMENT IN CASH AND CASH
     EQUIVALENTS DURING THE
     PERIOD                  (413,614)   1,757,462     (137,199)   1,348,847

    Cash and cash equivalents
     at the beginning of
     the period               421,209      502,380      144,794      910,995

    CASH AND CASH EQUIVALENTS
     AT END OF PERIOD          $7,595  $ 2,259,842       $7,595   $2,259,842

    ADDITIONAL INFORMATION
      Interest paid          $453,000     $300,000     $558,000     $300,000

                                                     (see accompanying notes)



    ADVANTEX MARKETING INTERNATIONAL INC.
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Six Months Ended December 31, 2008
    (Unaudited - note 1)

    1.  SIGNIFICANT ACCOUNTING POLICIES

    The accompanying interim consolidated financial statements of
    Advantex Marketing International Inc. and its subsidiaries ("Advantex" or
    the "Company") have been prepared in accordance with Canadian generally
    accepted accounting principles ("Canadian GAAP") for interim financial
    information. Accordingly, they do not include all of the information and
    footnotes required by Canadian GAAP for annual consolidated financial
    statements.

    The accompanying financial information reflects all adjustments,
    consisting primarily of normal recurring adjustments, which are, in the
    opinion of management, necessary for a fair presentation of results for
    interim periods. Operating results for the six months ended December 31,
    2008 are not necessarily indicative of the results that may be expected
    for the fiscal year ending June 30, 2009. The accounting policies used in
    the preparation of these interim consolidated financial statements should
    be read in conjunction with the consolidated financial statements and
    notes thereto for fiscal 2008.

    These interim consolidated financial statements follow the same
    accounting policies and methods of application as the consolidated
    financial statements for the year ended June 30, 2008. Certain prior
    period amounts have been reclassified to conform to the current period's
    presentation.

    2.  RECENT ACCOUNTING PRONOUNCEMENTS

    Change in accounting policies

    General Standards of Financial Statement Preparation
    In June 2007, the Canadian Institute of Chartered Accountants ("CICA")
    amended Handbook Section 1400 "General Standards of Financial Statement
    Presentation" to include requirements to assess an entity's ability to
    continue as a going concern. The new requirements are effective for
    interim and annual financial statements relating to fiscal years
    beginning on or after January 1, 2008. Accordingly, the Company adopted
    the amendment to this standard on July 1, 2008. The adoption of this
    amendment did not have an impact on the Company's consolidated financial
    results or position.

    Capital Disclosures, Financial Instruments - Disclosures, and Financial
    Instruments - Presentation
    Effective July 1, 2008, the Company adopted the new CICA Handbook
    Sections 1535 "Capital Disclosures", 3862 "Financial Instruments -
    Disclosures", and 3863 "Financial Instruments - Presentation". The
    comparative consolidated financial statements have not been restated as
    these new standards have been applied prospectively. There has been no
    impact on accumulated other comprehensive income.

    Capital disclosures
    -------------------

    Handbook Section 1535 specifies the disclosure of (i) an entity's
    objectives, policies and processes for managing capital; (ii)
    quantitative data about what the entity regards as capital; (iii) whether
    the entity has complied with any capital requirements; (iv) if it has not
    complied, the consequences of such non-compliance. The Company has
    included disclosures recommended by the new Handbook section, in
    note 7 to these interim consolidated financial statements.

    Financial instruments
    ---------------------

    Handbook Sections 3862 and 3863 replace Handbook Section 3861 "Financial
    Instruments - Disclosure and Presentation", revising and enhancing its
    disclosure requirements, and carrying forward unchanged its presentation
    requirements. These new sections place increased emphasis on disclosures
    about the nature and extent of risks arising from financial instruments
    and how the entity manages those risks. The Company has included
    disclosures recommended by the new Handbook section, in note 8 to these
    interim consolidated financial statements.

    The Company has classified each of its significant categories of
    financial instruments as follows:

        -  Cash and cash equivalents are classified as held-for-trading.
           Changes in fair value for the period are recorded in earnings as
           interest income.

        -  Accounts receivable and other receivables are classified as loans
           and receivables.

        -  Borrowings under accounts payable and accrued liabilities are
           classified as other financial liabilities.

        -  Convertible debentures, non-convertible debentures, and loan
           payable are classified as other financial liabilities and recorded
           at amortized cost using the effective interest method.

        -  Debt issuance and transaction costs related to other financial
           liabilities are netted against the carrying value of the debt and
           amortized over the term of the debt using the effective interest
           method.

    Future change in accounting policies

    Financial Statement Concepts
    In February 2008, the CICA amended Section 1000 "Financial Statement
    Concepts" to clarify the criteria for recognition of assets and
    liabilities, the relationship between incurring expenditures and creating
    assets, the future economic benefit criterion necessary for recognition
    of an asset, and the timing of expense recognition. This amendment is
    effective for annual and interim financial statements relating to fiscal
    years beginning on or after October 1, 2008. The Company will apply the
    amendments beginning July 1, 2009.

    Goodwill and Intangible Assets
    In February 2008, the CICA issued Section 3064 "Goodwill and Intangible
    Assets". Section 3064 replaces Section 3062 "Goodwill and Other
    Intangible Assets" and Section 3450 "Research and Development Costs".
    This new section provides additional guidance on the recognition,
    measurement, presentation and disclosure of goodwill and intangible
    assets. This standard is effective for interim and annual financial
    statements for fiscal years beginning on or after October 1, 2008. The
    Company will apply this new standard beginning July 1, 2009. The Company
    is evaluating the impact that the adoption of this new standard will have
    on its consolidated financial statements.

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

    3.  STOCK OPTIONS

    As at December 31, 2008 there were 11,611,357 employee stock options
    outstanding at exercise prices between $0.045 to $0.14, expiring between
    July 2009 and March 2013.

    During the six months ended December 31, 2008, 285,249 stock options were
    forfeited or expired.

    The Company has recorded $35,067 of stock-based compensation expense
    during the six months ended December 31, 2008 related to the fair value
    of stock options issued during prior years. There was a corresponding
    increase in contributed surplus.

    4.  LOAN PAYABLE

    The amount outstanding under this facility at December 31, 2008 was
    $293,450. The loan payable amount disclosed on the Balance Sheet is net
    of the unamortized financing fees of $128,667.

    5.  NON-CONVERTIBLE DEBENTURES PAYABLE

    The balance of non-convertible debentures payable is disclosed under
    long-term liabilities and is net of unamortized financing charges.
    Movements in the balance during the six months ended December 31, 2008
    are as follows:

    --------------------------------------------------------------------
                                      Debt Portion     Equity portion
                                      (net of          (warrants)
                                      deferred
                                      financing
                                      charges)
    --------------------------------------------------------------------
    Balance at June 30, 2008          $2,422,097       $184,744
    --------------------------------------------------------------------
    Amortization of issuance costs
    (net of additional issuance
    costs of $1,833)                      16,302          -
    --------------------------------------------------------------------
    Accretion charge                      31,339          -
                                      ----------        --------
    --------------------------------------------------------------------
    Balance at December 31, 2008      $2,469,738        $184,744
                                      ----------        --------
    --------------------------------------------------------------------


    6.  CONVERTIBLE DEBENTURES PAYABLE

    The balance of convertible debentures payable is disclosed under
    long-term liabilities and is net of unamortized financing charges.
    Movements in the balance during the six months ended December 31, 2008
    are as follows:

    --------------------------------------------------------------------
                                        Debt Portion (net of deferred
                                        financing charges)
    --------------------------------------------------------------------
    Balance at June 30, 2008            $4,443,115
    --------------------------------------------------------------------
    Amortization of issuance costs          42,732
    --------------------------------------------------------------------
    Accretion charge                       177,749
    --------------------------------------------------------------------
    Issuance of warrants                  (189,810)
                                        -----------
    --------------------------------------------------------------------
    Balance at December 31, 2008        $4,473,786
                                        ----------
    --------------------------------------------------------------------

    In connection with an amendment to the agreement for the convertible
    debentures on September 24, 2008, the Company agreed to issue
    9.990 million warrants to holders of convertible debenture on a pro rata
    basis based on the outstanding principal amounts of the convertible
    debentures. Each warrant entitles the holder to purchase one common share
    of the Company at an exercise price of $0.045 at any time prior to
    December 9, 2011. The fair value of the warrants was determined as
    $189,810.

    In accordance with Canadian Institute of Chartered Accountants Handbook
    Section 3855 "Financial Instruments - Recognition and Measurement", the
    debt and equity portions of the convertible debentures was re-computed
    based on estimated relative fair value of the debt and equity components.

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

    Common share price                $0.035
    Exercise price of warrants        $0.045
    Expected life of the warrant      3 years
    Expected volatility               87%
    Risk-free interest rate           3%

    7.  CAPITAL MANAGEMENT

    The Company's objective is to maintain a strong capital base so as to
    maintain investor, creditor and market confidence and to sustain future
    development of the business. The Company manages Loan Payable,
    Non-Convertible debentures, Convertible debentures, and Capital Stock
    which is explained in detail in the audited financial statements for year
    ended June 30, 2008. The Board of Directors does not establish
    quantitative return on capital criteria for management, but rather
    promotes year over year sustainable growth.

    The Company is subject to financial covenants which are measured on a
    quarterly basis. The Company is in compliance with all financial
    covenants.

    8.  FINANCIAL INSTRUMENTS

    Credit risk
    -----------

    Credit risk is the risk of financial loss to the Company if a customer
    fails to meet its contractual obligations. The Company, in the normal
    course of business, is exposed to credit risk on its accounts receivable
    and transaction credits from customers. The Company generally acquires
    transaction credits that are estimated to be fully extinguishable within
    30-120 days. Accounts receivable and transaction credits are net of
    applicable allowance for doubtful accounts, which is established based on
    the specific credit risk associated with the customer and other relevant
    information.

    The ageing of accounts receivable and transaction credits at the
    reporting date was:

                                    December 31, 2008         June 30, 2008
                                    -----------------         -------------

    Current                             $7,851,960              $7,694,911
    Over 120 days                         $697,241                $410,674
                                        ----------              ----------
                                        $8,549,201              $8,105,585
                                        ----------              ----------

    Currency risk
    -------------

    The Company is exposed to foreign exchange risk as a portion of its
    revenue is earned in US dollars and it has assets and liabilities that
    will be settled in US dollars. Foreign exchange risk arises due to
    fluctuations in foreign currency rates, which could affect the Company's
    financial results.

    Included in the undernoted accounts are the following amounts (in USD):

                                    December 31, 2008         June 30, 2008
                                    -----------------         -------------

    Cash and cash equivalents             $ 71,265                $112,253
    Accounts receivable                   $764,746                $656,849
    Accounts payable and
     accrued liabilities                  $506,208                $153,300

    Liquidity risk
    --------------

    Liquidity risk is the risk that the Company will not be able to meet its
    financial obligations as they fall due. The Company's approach to
    managing liquidity is to ensure, as far as possible, that it will always
    have sufficient liquidity when due.

    The Company deploys available funds to merchants under its APM program,
    which are disclosed as transactions credits on the balance sheet. The
    Company generally acquires transaction credits that are estimated to be
    fully extinguishable within 30-120 days. The Company maintains adequate
    cash balances to meet liabilities when due.

    Fair value
    ----------

    The carrying value of cash and cash equivalents, accounts receivable,
    transaction credits, accounts payable and accrued liabilities approximate
    their fair values due to the short-term maturity of these instruments.

    The stated value of the loans payable, convertible debentures payable and
    non-convertible debentures payable approximate their fair values, as the
    interest rates are representative of current market rates for loans with
    similar terms, conditions and maturities.
    

    %SEDAR: 00004122E




For further information:

For further information: Mukesh Sabharwal, Vice-President and Chief
Financial Officer, Tel: (905) 470-9558 ext. 249, E-mail:
Mukesh.sabharwal@advantex.com

Organization Profile

ADVANTEX MARKETING INTERNATIONAL INC.

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