In response, Alternate Marketing Networks turned inward to focus on operational improvements in order to improve our bottom line – and outward, to explore strategic alternatives in an effort to enhance shareholder value.  Our results fell into three primary areas:

   Improved operations.  We employed careful cost-containment and consolidation measures that allowed us to reduce overhead expenses on a quarter-over-quarter basis.  These double-digit reductions, allowed us to improve our operations despite lower sales. 

    Special cash dividend.  We announced a special cash dividend of $0.50 per share in December 2001, payable in January 2002, in an effort to reward shareholders for their continued investment in the Company.  A significant portion of the dividend qualified to be treated as a return of capital, which provided certain tax advantages to shareholders. Given what our stock was trading for at the time of the dividend, its size was extremely generous – but prudent, thanks to our solid balance sheet.

    Acquisition candidate.  After a thorough evaluation of a number of opportunities, we identified an excellent acquisition candidate in Hencie, Inc., a Texas-based information technology solutions provider.  Alternate Marketing Networks has signed a definitive agreement to acquire Hencie, a transaction shareholders are being asked to approve at our annual meeting in July 2002.  When completed, this deal will join two companies with complementary business strategies and product offerings that will foster continued growth and renewed profitability for the Company.

A review of 2001

The first half of 2001 proved especially difficult for Alternate Marketing Networks in both our Advertising and Marketing division and our Logistics Marketing division. 

Ongoing softness in the economy prompted many of our long-time customers to restrict their advertising budgets.  As consumer spending slowed, companies responded by cutting back production, laying off workers and trimming their marketing budgets.  The Newspaper Association of America reported that national advertising fell nearly 8.5 percent during 2001.  We saw a similar decline in demand from our logistics customers. 

In response to these constrictions on our top line, we focused on better managing direct costs and overhead expenses.  The Company posted a full year of quarter-over-quarter reductions in selling, general and administrative (SG&A) expenses throughout 2001.   

During the second half of the year, we added new categories of clients, including direct marketers and computer hardware manufacturers.  We strengthened our U.S. Suburban Press (USSPI) offerings, launching a Hispanic Newspaper Network that gives advertisers a cost-effective way to pinpoint market to the nation’s fast-growing Hispanic population.  And we made the strategic decision to move Sandy Smith, our chief financial officer, to assume additional responsibility as the general manager of our logistics division in St. Petersburg, Fla.  Sandy’s presence has strengthened our management team and introduced new quality and cost controls.

Our cost-containment efforts, in combination with contributions from new customers and programs, allowed us to hold relatively steady during the latter half of the year, despite tough economic conditions.  Yet the pullbacks in both advertising and logistics, in combination with the absence of revenue from our in-home sampling division, which we divested in 2000, resulted in a loss for the year. 

The Company reported a net loss of $404,871, or $0.09 per diluted share, on net sales of $16.6 million for the year ended December 31, 2001, compared with net income of $2.28 million, or $0.49 per diluted share, on net sales of $21.8 million for 2000.  The 2000 results included a one-time gain of $3.6 million attributed to the sale of our in-home sampling division in September 2000.  Exclusive of the one-time gain, Alternate Marketing Networks narrowed its net loss, a significant feat given the lower sales volume for the year.

Much of our efforts in 2001 focused on exploring a wide range of strategic options – such as special dividends, acquisitions and merger opportunities – that would allow us to increase shareholder value.  We retained the services of an investment banking firm that specialized in media-related transactions to assist us in identifying companies with which to partner and options to consider.

In April of 2002, after carefully evaluating a number of opportunities, we signed a definitive agreement to acquire Hencie in an all-stock transaction.  Hencie, which is based in Dallas, is a growing consulting firm that delivers Oracle Corp. e-business solutions and applications.   Hencie focuses on middle-market, discrete manufacturers and distributors in high tech, entertainment, oil and gas, travel, hospitality and other service industries – many of the same industries and types of clients that Alternate Marketing Networks currently serves.

Last year, Hencie posted revenue of approximately $12 million, and we expect the acquisition to be accretive to our earnings.  Despite challenging business conditions for IT providers, Hencie has achieved revenue growth in the past few years.  Hencie believes that this is due, in part, to its commitment to delivering a rapid return on investment to clients by improving their business processes.  Hencie was recently awarded its largest-ever single contract to deliver $2.3 million in IT services to a global entertainment conglomerate.  Hencie expects the contract will be completed by the end of 2002.

We believe the actions we have taken to improve our core Advertising and Logistics businesses, coupled with the addition of Hencie and the opportunities this transaction opens up to us, positions Alternate Marketing Networks well for the future.  We have made significant strides in managing our costs and we believe the addition of Hencie, if approved by shareholders, will allow us to grow and maximize shareholder value.

As always, thank you for your continued support of Alternate Marketing Networks.