Advantex Announces Fiscal 2009 First-Quarter Results

    -   Advantex achieves growth in revenue, positive operating cash flow,
        and net earnings compared with 2008 quarter
    -   Company succeeds in reducing expenses and achieving operating
        efficiencies greater than revenue growth
    -   Success of Advance Purchase Marketing benefit program driving revenue
    -   Conference call and webcast on Friday, October 24 at 8:30 a.m.

    ADX: TSX

    TORONTO, Oct. 23 /CNW/ - Advantex Marketing International Inc. (TSX:ADX),
a leading specialist in merchant funding and loyalty marketing programs, today
announced its results for the fiscal first quarter ended September 30, 2008.
All references to quarters or years are for the fiscal periods and all
currency amounts are in Canadian dollars unless otherwise noted.
    "The positive trends in our business that we noted at the end of our
fiscal 2008 continued through the 2009 first quarter. As the result, we
accomplished an impressive turnaround in our financial performance compared
with the quarter a year ago, recording increased revenue, positive operating
cash flow, a contribution from operations, compared with a loss in the 2008
quarter, and a net profit, compared with a net loss in the 2008 quarter," said
Kelly E. Ambrose, President and Chief Executive Officer.
    "These improved financial results are attributable to the initiatives
that we have implemented during the past 30 months or so, including the growth
of our Advance Purchase Marketing (APM) program, improved operational
efficiencies, and cost reductions. We are hopeful that we can maintain our
momentum and these positive trends despite the considerable uncertainty and
turbulence affecting the Canadian and international economies," Mr. Ambrose

    Financial Performance - Highlights
    (millions of $s, except per share amounts)
                                                Three months    Three months
                                                       Ended           Ended
                                                    Sept. 30,       Sept. 30,
                                                        2008            2007
    Revenue                                              3.1             2.8
    Gross profit                                         2.1             1.7
    Gross margin                                       68.4%           59.5%
    Contribution from Operations                         0.6            (0.1)
    Profit/(loss) before Amortization
     And Interest                                        0.6            (0.1)
    Amortization                                         0.1             0.1
    Interest                                             0.4             0.2
    Net earnings (loss)                                  0.1            (0.4)
    Net earnings (loss) per
     common share                                     ($0.00)         ($0.00)

    The 9.3 percent increase in revenue in the 2009 first quarter, compared
with the prior year's period primarily is the result of the growth of the CIBC
Advantex programs. These programs recorded an increase in revenue to
$2.5 million, compared with $2.1 million in the 2008 quarter. The APM program
was the driver for this growth with revenue of $1.8 million, compared with
$1.2 million a year earlier.
    The growth in the APM revenue is directly related to the increase in
deployment of funds (as Transaction Credits) with merchants following the
company's successful financings completed during the second half of 2008. In
addition, on September 1, 2008 Advantex in partnership with CIBC launched the
Infinite Hotel program, enabling participating hotels to provide special
privileges to holders of CIBC Infinite VISA cards. Advantex earns a fee for
the marketing services provided to participating hotels.
    Online program revenue declined for the 2009 first quarter to
$0.6 million from $0.7 million a year earlier following the loss of Delta
Airlines as an online partner in August 2008. During August, 2008 the Company
and United Airlines signed a two year extension to the existing contract,
which represents the Company's busiest online mall.
    While revenue grew 9.3 percent in the 2009 first quarter, direct expenses
(which include cardholders awards costs, marketing, and advertising on behalf
of merchants, and other costs) declined 14.7 percent to $1.0 million, compared
with $1.1 million a year earlier. As the result, the company's gross margin
increased to 68.4 percent from 59.5 percent a year earlier, and gross profit
rose 25.7 percent.
    Sales, general, and administrative (SG&A) expenses also were down in the
2009 first quarter by 11 percent to $1.5 million from $1.7 million in the 2008
period mainly as the result of achieving better operating efficiencies and the
effectiveness of the company's cost-reduction efforts. Contributing to this
was a reduction of $57,000 in the company's rental expenses following the
relocation of its head office in June 2008.
    These improvements resulted in positive operating cash flow of
$0.3 million in the 2009 first quarter and a contribution from operations of
$0.6 million compared with a negative contribution from operations of
$0.1 million in the 2008 quarter. The company recorded a net profit for the
2009 first quarter of $55,077 ($0.00 per share), compared with a net loss of
$366,287 ($0.00 per share) in the 2008 quarter.

    Company's Outlook Positive Despite Downturn in Economy

    "The net profit and positive cash flow from operations generated by
Advantex in the 2009 first quarter are significant milestones and we are
pleased with the progress that the Company has been making in growing our
business and improving our operating efficiencies," Mr. Ambrose said.
    "Our optimism, however, must be tempered by the reality of the current
uncertainty, turbulence, and apparent marked slowdown in the Canadian and
global economies. This is affecting many of the businesses, such as the
restaurant industry, that generate revenue and earnings for us. Accordingly,
we are taking a conservative approach in our expectations for 2009. We will
continue to focus on growing our Advance Purchase Marketing programs with
credit-worthy merchants, manage risks associated with the APM, and maintain a
tight control over costs in an effort to continue generating cash from
operations. We believe that the current economic environment may prove
favorable to expanding the APM programs to credit-worthy merchants. Another
contributor to our growth going forward should be the Infinite Hotel program.
This new program is still in its early stages of being launched since its
formal kickoff on September 1 and it is being well received," he said.

    Conference Call and Webcast

    Advantex will hold a conference call for analysts and investors to
discuss its 2009 first-quarter results on October 24, 2008 at 8:30 a.m.
    Kelly Ambrose, President and Chief Executive Officer, and Mukesh
Sabharwal, Vice-President and Chief Financial Officer, will be available to
answer questions during the call.
    To participate in the call, please dial 416-644-3415 or 1-800-732-9303 at
least five minutes prior to the start of the call.
    A live audio webcast of the conference call will be available at and
    An archived recording of the call will be available at 416-640-1917 or
1-877-289-8525 (Passcode 21286674 followed by the number sign) from noon on
October 24 to 11:59 p.m. on October 31. An archived recording of the webcast
will also be available at Advantex's website.
    Advantex will file its fiscal 2009 first-quarter statements and
Management's Discussion and Analysis with SEDAR and they will be posted on the
company's website.

    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

    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 annualised 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 extend financing under its existing line of credit facility with respect to
expanding APM program in the current categories (dining, golf, small inns and
spa) allowed under the current CIBC agreement; 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 such
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, and other factors,
including without limitation, those listed under "Risks and Uncertainties" in
the MD&A. 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.

             For the three month period ended September 30, 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 financial statements.

                         CONSOLIDATED BALANCE SHEETS
                             (unaudited - note 1)

                                       Note    Sept 30, 2008   June 30, 2008
                                               -------------   -------------

      Cash and cash equivalents                     $421,209        $144,794
      Accounts receivable                          1,442,298         804,673
      Transaction credits                          6,432,066       7,300,912
      Prepaid expenses and sundry assets             121,289         114,978
                                                     -------         -------
                                                   8,416,862       8,365,357
                                                   ---------       ---------

      Property, plant and equipment                  743,800         745,456

    TOTAL ASSETS                                  $9,160,662      $9,110,813
                                                  ----------      ----------
                                                  ----------      ----------


      Loan payable                        4         $101,934        $663,448
      Accounts payable and accrued
       liabilities                                 3,136,834       2,664,079
                                                   ---------       ---------
                                                   3,238,768       3,327,527
                                                   ---------       ---------

      Other liabilities                              145,955         205,955
      Non-Convertible debentures payable  5        2,444,920       2,422,097
      Convertible debentures payable      6        4,356,946       4,443,115
                                                   ---------       ---------
                                                   6,947,821       7,071,167
                                                   ---------       ---------

                                                  10,186,589      10,398,694
                                                  ----------      ----------


    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                   3         524,090          507,023
    Equity portion of convertible
     debentures                                   2,114,341        2,114,341
    Warrants                            5/6         374,554          184,744
    Deficit                                     (28,149,008)     (28,204,085)
                                                ------------     ------------

                                                 (1,025,927)      (1,287,881)
                                                 -----------      -----------
     SHAREHOLDERS' DEFICIENCY                    $9,160,662       $9,110,813
                                                 ----------       ----------
                                                 ----------       ----------

                                                     (see accompanying notes)

                         COMPREHENSIVE PROFIT/(LOSS)
               THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                             (unaudited - note 1)

                                               Sept 30, 2008   Sept 30, 2007
                                               -------------   -------------

    REVENUE                                       $3,110,186      $2,844,687
      Direct expenses                                983,451       1,153,234
                                                     -------       ---------

    GROSS PROFIT                                   2,126,735       1,691,453
                                                   ---------       ---------

      Selling and marketing                          682,756         791,408
      General and administrative                     864,189         945,048
                                                     -------         -------
                                                   1,546,945       1,736,456
                                                   ---------       ---------

    CONTRIBUTION FROM OPERATIONS                     579,790         (45,003)

      Stock-based compensation                        17,067          16,200
                                                      ------          ------

     AND INTEREST                                    562,723         (61,203)

      Amortization of property, plant
       and equipment                                  71,344          47,433
                                                      ------          ------

    PROFIT/(LOSS) BEFORE INTEREST                    491,379        (108,636)

      Interest expense
        Stated interest expense - loan payable,
         non-convertible debentures, and other       140,689           8,239
        Stated interest expense - convertible
         debentures                                  151,233         151,233
        Accretion charge on debentures, and
         amortization of deferred financing
         charges                                     144,380          98,179
                                                     -------          ------

     PROFIT/(LOSS) FOR THE PERIOD                    $55,077       $(366,287)
                                                     -------       ----------
                                                     -------       ----------

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

                                                     (see accompanying notes)

               THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                             (unaudited - note 1)

                                               Sept 30, 2008   Sept 30, 2007
                                               -------------   -------------

    BALANCE AT THE START OF PERIOD              $(28,204,085)   $(26,836,514)

    Net profit/(loss) for the period                  55,077        (366,287)
                                                      ------        ---------

    BALANCE AT THE END OF PERIOD                $(28,149,008)   $(27,202,801)
                                                -------------   -------------
                                                -------------   -------------

                                                     (see accompanying notes)

               THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                             (unaudited - note 1)

                                               Sept 30, 2008   Sept 30, 2007
                                               -------------   -------------


      Net profit/(loss) for the period               $55,077       $(366,287)

    Items not affecting cash
      Amortization of property, plant and
       equipment                                      71,344          47,433
      Accretion charge on debentures                  97,895          76,813
      Amortization of deferred financing charges      46,485          21,366
      Stock-based compensation                        17,067          16,200
                                                      ------          ------
                                                     287,868        (204,475)

    Changes in non-cash working capital items
      Accounts receivable                           (637,625)        (58,351)
      Transaction credits                            868,846         234,444
      Prepaid expenses and sundry assets              (6,311)         20,523
        Accounts payable and accrued liabilities     472,755        (133,615)
                                                     -------        ---------
                                                     697,665          63,001

      Movement in long-term other liabilities        (60,000)       (114,132)
                                                     --------       ---------

      Cash provided by/(utilized in)
       operating activities                          925,533        (255,606)

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

      Purchase of property, plant and equipment      (69,688)       (153,009)

     EQUIVALENTS DURING THE PERIOD                   276,415        (408,615)

    Cash and cash equivalents at the
     start of period                                 144,794         910,995
                                                     -------         -------

    CASH AND CASH EQUIVALENTS AT END OF PERIOD      $421,209        $502,380
                                                    --------        --------
                                                    --------        --------

      Interest paid                                $ 140,689         $ 8,239
                                                   ---------         -------
                                                   ---------         -------

                                                     (see accompanying notes)

    Three Months Ended September 30, 2008
    (Unaudited - note 1)


    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

    The accompanying financial information reflects all adjustments,
    consisting primarily of normal recurring adjustments, which are, in the
    opinion of management, necessary for a fair presentation of results for
    interim periods. Operating results for the three months ended
    September 30, 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


    Change in accounting policies

    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

    -   Accounts receivable and other receivables are classified as loans and

    -   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


    As at September 30, 2008 there were 11,790,406 employee stock options
    outstanding at exercise prices between $ 0.045 to $ 0.15, expiring
    between October, 2008 and November, 2013.

    During the period, 106,200 stock options were forfeited or expired.

    The Company has recorded $17,067 of stock-based compensation expense
    during the three months ended September 30, 2008 related to the fair
    value of stock options issued during prior years. There was a
    corresponding increase in contributed surplus.


    The amount outstanding under this facility at September 30, 2008 was
    $246,684. The loan payable amount disclosed on the Balance Sheet is net
    of the unamortized financing fees of $144,750.


    The balance of non-convertible debentures payable is disclosed under
    long-term liabilities and is net of unamortized financing charges.
    Movements in the balance during the three months ended September 30, 2008
    are as follows:

                                                Debt Portion
                                            (net of deferred  Equity portion
                                           financing charges)      (warrants)
    Balance at June 30, 2008                      $2,422,097        $184,744
    Amortization of issuance costs (net
     of additional issuance costs of $1,833)           7,203               -
    Accretion charge                                  15,620               -
                                                  -----------     -----------
    Balance at September 30, 2008                 $2,444,920        $184,744
                                                  -----------     -----------


    The balance of convertible debentures payable is disclosed under
    long-term liabilities and is net of unamortized financing charges.
    Movements in the balance during the three months ended September 30, 2008
    are as follows:

                                                Debt Portion
                                            (net of deferred
                                           financing charges)
    Balance at June 30, 2008                      $4,443,115
    Amortization of issuance costs                    21,366
    Accretion charge                                  82,275
    Issuance of warrants                            (189,810)
    Balance at September 30, 2008                 $4,356,946

    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 holders 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%


    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


    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. Accounts receivable and
    transaction credits are net of applicable allowance for doubtful
    accounts, which is established based on the specific credit risk
    associated with the customer and other relevant information.

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

                                          September 30, 2008   June 30, 2008

    Current                                       $7,163,466      $7,495,686
    Over 90 days                                  $  710,898      $  609,899
                                                  ----------      ----------
                                                  $7,874,364      $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):

                                          September 30, 2008   June 30, 2008
                                          ------------------   -------------
    Cash and cash equivalents                       $  3,514        $112,253
    Accounts receivable                             $496,460        $656,849
    Accounts payable and accrued liabilities        $377,169        $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:

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