UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________to________________________
Commission file number 0-26368
TRANSMEDIA ASIA PACIFIC, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3760219
- ----------------------- ------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation of
organization)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
---------------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
---------------------------
(Registrant's telephone
number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Yes |X| No |_|
34,018,298 Shares, $.00001 par value, as of February 11, 2000
(Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date)
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31, September 30,
1999 1999
(Unaudited) (Audited)
------------ -------------
Assets
Current assets
Cash and cash equivalents $ 927,115 $ 548,576
Trade accounts receivable 151,003 267,771
Restaurant credits (net of allowance for irrecoverable
credits of $71,111 at December 31, 1999 and of
$ 65,761 at September 30, 1999) 104,890 128,599
Amounts due from related parties (note 7) 1,034,306 22,665
Prepaid expenses and other current assets 297,607 172,617
Prepaid fees 711,724 711,724
----------- -----------
Total current assets 3,226,645 1,851,952
----------- -----------
Non current assets
Investment in affiliated company (note 4) 8,915,514 9,437,824
Property and equipment, (net of accumulated
depreciation of $665,619 at December 31, 1999 and
$647,875 at September 30, 1999) 128,622 132,870
Goodwill, (net of accumulated
amortization of $730,417 at December 31, 1999 and
$ 642,545 at September 30, 1999) (note 5) 4,541,889 4,629,762
Other intangible assets, (net of accumulated
amortization of $1,179,679 at December 31, 1999 and
$1,149,783 at September 30, 1999) (note 5) 661,895 691,791
Prepaid fees 604,537 711,724
Other assets 71,527 221,420
----------- -----------
Total non-current assets 14,923,984 15,825,391
----------- -----------
TOTAL ASSETS $18,150,629 $17,677,343
=========== ===========
See accompanying notes
2
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
December 31, September 30,
1999 1999
(Unaudited) (Audited)
------------ -------------
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 791,964 $ 630,694
Deferred income 70,709 70,258
Accrued liabilities 747,086 636,491
Amount due to related parties (note 7) 1,925,645 2,051,188
Notes payable 3,000,000 3,688,186
Deferred payment 0 562,500
Bank lines of credit 0 18,740
------------ ------------
Total Current Liabilities 6,535,404 7,658,057
------------ ------------
Minority interest 60,771 60,771
------------ ------------
Stockholders' equity
Preferred stock $0.01 par value per share,
authorized 5,000,000 shares, issued and
Outstanding shares 0 0
Common stock $0.00001 par value per share
authorized 95,000,000 shares; (34,018,298 issued
and outstanding at December 31, 1999
and 29,487,048 at September 30, 1999) 340 295
Additional paid in capital 31,617,575 28,086,369
Cumulative foreign currency translation (418,262) (185,717)
adjustment
Accumulated deficit (19,645,199) (17,942,432)
------------ ------------
Total Stockholders' Equity 11,554,454 9,958,515
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,150,629 $ 17,677,343
============ ============
See accompanying notes
3
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
December 31, December 31,
1999 1998
------------ ------------
Total revenues 575,143 1,134,145
Cost of sales (134,605) (217,689)
------------ ------------
Gross profit 440,538 916,456
Selling, general and
administrative expenses (1,302,611) (1,707,316)
------------ ------------
Loss from operations (862,073) (790,860)
Share of profits/(losses) of affiliated companies (583,764) (134,283)
Interest expense (259,677) (107,645)
Interest income 2,747 4,424
------------ ------------
Loss before income taxes (1,702,767) (1,028,364)
Income taxes 0 13,248
------------ ------------
Loss after income taxes (1,702,767) (1,015,116)
Minority Interest 0 29,667
------------ ------------
Net loss $ (1,702,767) $ (985,449)
============ ============
Loss per share $ (0.05) $ (0.06)
Weighted average number of common
shares outstanding 32,507,881 17,691,690
============ ============
See accompanying notes
4
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------ ------------------
Cash flows from Operating Activities:
- - Net loss $(1,702,767) $ (985,449)
Adjustment to reconcile net loss
to net cash used in operating activities:
- - Depreciation 13,340 35,173
- - Amortization of license 29,896 19,434
- - Amortization of goodwill - subsidiaries 87,873 71,071
- - Amortization of goodwill - affiliates 231,216 69,821
- - Amortization of prepaid fees 107,187 0
- - Provision for irrecoverable restaurant credits 5,350 0
- - Share of losses of affiliates 352,530 64,462
- - Debt discount expense 142,000 0
- - Minority interests 0 29,667
- - Provision for bad debts 0 (11,563)
Changes in assets and liabilities:
- - Trade accounts payable 161,270 140,074
- - Accrued liabilities 110,595 (187,348)
- - Accrued interest expense 45,001 (89,041)
- - Accounts receivable 116,768 222,108
- - Restaurant credits 18,359 (13,338)
- - Prepaid expense and other current assets 0 (51,964)
- - Deferred income 451 (131,869)
- - Due from / (to) related parties (1,081,989) (1,710,106)
- - Due from / (to) affiliates companies (161,630) 0
- - Deferred cost of investment (562,500) 0
- - Accrued sign-on fees 0 (296,500)
- - Other assets (117,098) 0
- - Restricted cash & cash equivalents 0 (78,280)
----------- -----------
Net cash used in operating activities (2,204,148) (2,903,648)
----------- -----------
Cash flows from investing activities:
- - Purchase of NHS 0 (1,233,451)
- - Investment in Countdown USA 0 (24,967)
- - Investment in Porkpine 0 (25,575)
- - Purchase of fixed assets (9,092) (33,962)
----------- -----------
Net cash used in investing activities (9,092) (1,317,955)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock 3,531,250 632,000
- - Proceeds from (repayment of) notes payable (688,186) 3,335,519
- - Bank credit line (18,740) 0
----------- -----------
Net cash (used in)/provided by financing activities 2,824,324 3,967,519
----------- -----------
(Decrease)/increase in cash and
cash equivalents carried forward $ 611,084 $ (254,084)
=========== ===========
5
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------ ------------------
(Decrease)/increase in cash and
cash equivalents brought forward $ 611,084 $ (254,084)
Effect of foreign currency on cash (232,545) 332,559
Minority Interest 0 (411,650)
----------- -----------
Net (decrease)/increase in cash and
cash equivalents 378,539 (333,175)
Cash and cash equivalents at beginning of period 548,576 1,504,921
----------- -----------
Cash and cash equivalents at end of period $ 927,115 $ 1,171,746
=========== ===========
Supplemental disclosures of cash flow information:
Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------ ------------------
Cash paid during the period for:
Interest $ 84,648 $ 73,494
Income taxes $ NIL $ 395
6
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company
Transmedia Asia Pacific, Inc. ("the Company") is a global provider of
membership-based consumer and business services through its subsidiaries and
affiliates. These services are primarily marketed to major corporations
providing specifically designed loyalty programs to aid customer acquisition,
activation and retention. The Company's various member benefit programs are
currently offered in 28 countries and globally via the internet. The Company
estimates that it currently has over 9 million members participating in its
various loyalty programs.
The Company was incorporated under the laws of the State of Delaware in March
1994. On May 2, 1994 the Company acquired the right, pursuant to a Master
License Agreement ("License Agreement") dated March 21, 1994, an exclusive
license ("License") to use certain trademarks and service marks, proprietary
computer software programs and know-how of Transmedia Network, Inc. ("Network")
to establish and operate a discount restaurant charge card business in clearly
defined geographical areas. The License is currently limited to Australia and
New Zealand (the "Licensed Territories"). The Company commenced operations as a
discount restaurant charge card business in Sydney, Australia in November 1994.
Network was issued 590,790 shares of common stock, par value $.00001 per share
("Common Stock") of the Company, as part consideration for the License and has
the right to designate one director to the board of directors of the Company,
which right has not currently been exercised. Additionally, under the License
Agreement certain changes in key executives and principal shareholdings in the
Company require the prior written approval of Network.
Through 1996 the operations of the Company consisted of a discount restaurant
charge card business in Australia. In 1996 management decided to expand the
Company's operations by providing broader based "member benefits" to its
corporate clients and individual members. Such benefits included discount
shopping, travel, hotel accommodation and telephone helpline services. The
Company has worked closely with Transmedia Europe, Inc. ("TME") for a number of
years. TME is a company which acquired a similar license to that of the Company
to operate a discount restaurant charge card business in Europe, Turkey and
certain other countries outside of Europe. TME commenced operations in the
United Kingdom in January 1994. TME made a similar strategic decision. As a
result the Company and TME jointly acquired in April 1997 Countdown Holdings
Limited ("Countdown"), an international provider of membership based discount
shopping services. See "Countdown". In December 1997 the Company and TME
acquired control of NHS Australia Pty Limited ("NHS") through Transmedia
Australia Holdings Pty Limited. NHS owned the business operations of Nationwide
Helpline Services Pty Limited ("Nationwide"). NHS is a provider of telephone
helpline services covering advice on legal, tax, accounting, medical and home
emergency. In addition, NHS offers travel related products such as airline
tickets, vacation packages, insurance and provides international medical case
management and repatriation services to a number of insurance companies. See
"Nationwide Helpline Services".
The Company and TME on May 14, 1998 jointly acquired Porkpine Limited
("Porkpine"). Porkpine trades as Logan Leisure, a business which produces and
sells discount shopping and services directories in Ireland. See "Logan
Leisure". On May 22, 1998 the Company and TME jointly acquired, through
Transmedia Australia Travel Holdings Pty Limited, Breakaway Travel Club Pty
Limited ("Breakaway"). Breakaway is a licensed travel agent specializing in
discount packaged vacations for individuals employed in the travel industry in
Australia. See "Breakaway". In July 1998 the Company and TME jointly established
Countdown America, Inc. ("Countdown USA"), to offer member benefits in the
United States and in November 1998 Countdown USA acquired the membership base
and certain assets of National Association of Mature Americans, Inc. ("NAMA") a
provider of discounted mail order and retail pharmacy products as well as other
benefit programs such as discounted eyewear, dental services and leisure
products. On November 17, 1998 Transmedia Australia acquired the balance of 49%
of the shares of common stock of NHS.
7
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
Finally, on June 15, 1999 the Company and TME jointly acquired DSS Direct
Connect, L.L.C. ("DBS Direct"), a marketer and full-service installer of DirecTV
in the United States. See "DBS Direct". In light of the close collaboration
between the Company and TME since incorporation and, more particularly, in view
of the joint ownership of Countdown, NHS, DBS Direct, Countdown USA, Logan
Leisure and Breakaway Travel, management of the Company and TME assessed the
rationale of a merger of the two entities. Management believed that keeping the
two companies distinct and separate was not appropriate or advantageous to
shareholders and therefore on December 28, 1999 the Company and TME executed a
definitive merger agreement. ("Merger Agreement"). Under the terms of the Merger
Agreement, the Company will issue one share of its common stock for each share
of common stock of TME. The merger, which is expected to be completed in the
second quarter of 2000, is subject to a number of conditions, including
shareholder approval. The Company and TME each established independent
committees to determine the fairness of the proposed transaction from a
financial point of view.
The Company currently holds the rights to the License with respect to Australia
and New Zealand. The Company is engaged in discussions with Network for many
months with a view to terminating the License Agreement. The principal terms of
the proposed termination agreement ("Termination Agreement") are that the
Company give up its rights under the License Agreement in return for forgiveness
of a promissory note in default in the sum of $250,000 together with accrued
interest of approximately $69,000, forgiveness of past due royalty payments
under the License Agreement in the sum of approximately $43,000 and return to
the Company of the balance of shares of Common Stock issued to Network and still
owned by Network. The Company believes that termination of the License Agreement
is in the best interests of the Company because the License Agreement is no
longer fundamental to the success of the Company's restaurant card business. The
restaurant card business is now an integral part of the Company's member
benefit/loyalty marketing operations and therefore is expected to operate more
favorably under a brand developed by the Company. Further, the Company developed
its own software and systems and therefore the Company has no benefit from the
systems and software provided under the License Agreement for the conduct of its
day-to-day operations. The Company will derive direct financial benefit from the
proposed Termination Agreement. There can be no assurance given however that the
proposed Termination Agreement will be executed or that the terms will not
change materially in the final stages of negotiation with Network.
As of December 31, 1999, Transmedia Asia Pacific, Inc., had the following equity
interests in its direct subsidiaries and affiliates:
Name Country of Incorporation % Owned
Subsidiaries:
Transmedia Australia Pty Ltd Australia 100
Transmedia Australasia Pty Ltd New Zealand 100
Transmedia Australia Holdings Pty Ltd Australia 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
Affiliates:
Countdown Holdings Limited UK 50
Porkpine Limited Channel Islands 50
Countdown USA, Inc. United States 50
DSS Direct Connect, LLC United States 50
All references herein to "Company" and "TMAP" include Transmedia Asia Pacific,
Inc. and its subsidiaries unless otherwise indicated.
8
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, the statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of December 31, 1999, the results of
operations for the three months ended December 31, 1999 and 1998 and the changes
in cash flows for the three months ended December 31, 1999 and 1998. The results
of operations for the three months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
The September 30, 1999 balance sheet has been derived from the audited
consolidated financial statements as of that date included in the Company's
annual report on Form 10-K. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
Although the Company has significant influence over the operating and financial
decisions of its affiliates, it does not have effective control over their
operations and therefore they are accounted for under the equity method.
Note 3 - Significant accounting policies
(a) Principles of consolidation
The consolidated unaudited financial statements include the
financial statements of the Company and its subsidiaries and
affiliates, including 50% held subsidiaries where effective control
is exercised by the Company over the financial and operational
decisions of the subsidiary. All significant inter-company
transactions have been eliminated on consolidation.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern.
(b) Restaurant credits
Restaurant credits represent the total advances made to
participating restaurants in exchange for credits less the amount by
which these food and beverage credits are recouped by the Company as
a result of Company cardholders utilizing their cards at
participating restaurants. The amount by which such food and
beverage credits are recouped amounts to approximately 50% of the
retail value of food and beverages consumed by cardholders. The
Company reviews recoverability of restaurant credits and establishes
an allowance for restaurant credits to restaurants that have ceased
operations or whose credits may not be utilized by cardholders.
The amount of funds advanced to participating restaurants are
generally unsecured and are recoverable as cardholders utilize their
restaurant charge card at the respective restaurant. In certain
cases the Company may request a personal guarantee from the owner of
a restaurant with respect to the recoverability of the advance if
the restaurant ceases operations or ceases to be a participating
restaurant. Generally no other forms of collateral or security are
obtained from the restaurant owners.
9
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(c) Long-lived assets
Long-lived assets, such as office furniture and equipment, goodwill
and other intangibles, are evaluated for impairment when events or
changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such
impairment exists, the related assets are written down to fair
value.
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the
Transmedia License paid to Network in cash plus the fair value of
shares of Common Stock granted in exchange for the Transmedia
License to operate in the licensed territories using the systems,
procedures and 'know how' of the Transmedia business. The license
cost is being amortized on a straight-line basis over its estimated
useful life of 15 years from the commencement of operations in
November 1994.
(e) Office furniture and equipment
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated lives which are between 3-5 years.
(f) Goodwill
The excess of cost of investments over the fair value of net assets
acquired which is not otherwise allocated is determined to be
goodwill and is amortized on a straight-line basis over a period of
ten or fifteen years.
(g) Income taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Accordingly, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation
allowance is established to reduce the deferred tax assets when
management determines it is more likely than not that the related
tax benefits will not be realized.
(h) Cash equivalents
For purposes of the statements of cash flows, the Company considers
all investments with an original maturity of three months or less to
be a cash equivalent.
10
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(i) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, notes payable, restaurant credits and amounts due
from/to related parties and approximated fair value as of December
31 and September 30, 1999 due to either short maturity or terms
similar to those available to similar companies in the open market.
(j) Revenue recognition
Revenues and fees comprise:
i) the retail value of food and beverages purchased from
participating restaurants by the Company's Transmedia
cardholders (less the cardholders' 20% or 25% discount) and
cardholders' membership fees.
ii) NHS membership fees paid by sponsoring corporations;
iii) Travel agency commissions earned by the Teletravel division of
NHS and Breakaway.
Transmedia card membership fees are recognized as revenue in equal
monthly installments over the membership period. All other
components of revenue, including NHS membership fees paid by
corporations for the provision of helpline services, are
non-refundable and recognized as revenue when the related services
have been performed.
(k) Foreign currencies
The reporting currency of the Company is the United States dollar.
The Company's functional currencies are the Australian dollar, the
UK pound sterling and the Irish punt. The Australian dollar is the
functional currency of the Company's member benefits and travel
businesses because it is the primary currency of the environment in
which the businesses operate as autonomous units. All cash generated
and expended by these businesses is primarily in Australian dollars.
For the same reasons the functional currency of the company's
interest in Countdown is the UK pound sterling because that business
is located, and primarily operates in, the United Kingdom. Similarly
the functional currency of the Company's interest in Porkpine is the
Irish punt because that business is located, and primarily operates
in the Republic of Ireland.
For consolidation purposes, the assets and liabilities of overseas
subsidiaries are translated at the closing exchange rates.
Consolidated statements of income of such subsidiaries are
consolidated at the average rates of exchange during the period.
Exchange differences arising on the translation of subsidiaries'
financial statements are recorded in the cumulative foreign currency
translation adjustment account as a component of stockholders'
equity. Transactions in foreign currencies are recorded using the
rate of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated using the rate of exchange ruling at the balance sheet
date and the gains or losses on translation are included in the
consolidated statement of operations.
11
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(k) Foreign currencies(continued)
The average exchange rates during the three months ended December
31, 1999 and 1998 and the exchange rates in effect at December 31,
1999 and September 30, 1999 were as follows:
UK Pound Australian Irish
Sterling (pound) Dollar Punt
Average exchange rates:
3 months ended December 31, 1999 1.6297 0.6433 1.3166
3 months ended December 31, 1998 1.6757 0.6434 1.4969
Closing exchange rate:
December 31, 1999 1.6153 0.6570 1.2778
September 30, 1999 1.6463 0.6528 1.3513
(l) Comprehensive income
The Company adopted Statement of Financial Accounting Standard
("SFAS") No.130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income (loss),
its components and accumulated balances. Comprehensive income (loss)
is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No.130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income (loss) be reported in a financial statement
that is displayed with the same prominence as other financial
statements. The only item of comprehensive income (loss) is foreign
currency translation adjustments.
(m) Recent accounting pronouncements not yet implemented
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No.133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes standards for accounting for
the various derivative instruments commonly used in hedging
activities. This standard is now effective for fiscal years
beginning after June 15, 2000. While management is still reviewing
the statement, it believes the adoption of this statement will not
have a material effect on the Company's consolidated financial
position, results of operations or cash flows, and any effect will
generally be limited to the form and content of its disclosures.
12
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Investment in Affiliated Companies
Investment in affiliated companies is made up as follows:
December 31, September 30,
1999 1999
----------- -----------
Countdown
Cost of investment $ 2,682,487 $ 2,682,487
Cost of Option 171,860 171,860
Share of profits/(losses)
- From acquisition date to September 30, 1999 (798,274) (798,274)
- Three months ended December 31, 1999 27,246 0
- Amortization of goodwill on investment (453,078) (405,503)
----------- -----------
$ 1,630,241 $ 1,650,570
=========== ===========
Porkpine Limited
Cost of investment $ 922,372 $ 922,372
Share of profits/(losses)
- From acquisition date to September 30, 1999 (75,119) (75,119)
- Three months ended December 31, 1999 107,971 0
- Amortization of goodwill on investment (96,796) (81,849)
----------- -----------
$ 858,429 $ 765,404
=========== ===========
DBS Direct
Cost of investment $ 7,538,821 $ 7,538,821
Share of profits/(losses)
- From acquisition to September 30, 1999 (320,161) (320,161)
- Three months ended December 31, 1999 (426,312) 0
- Amortization of goodwill on investment (365,504) (196,810)
----------- -----------
$ 6,426,844 $ 7,021,850
=========== ===========
Total investment in affiliates $ 8,915,514 $ 9,437,924
=========== ===========
Countdown USA
Cost of investment $ 24,990 $ 24,990
Share of profits/(losses)
- From inception to September 30, 1999 (186,602) (186,602)
- Three months ended December 31, 1999 (61,453) 0
Amounts due from/(to) Countdown America 0 37,510
----------- -----------
Included within related parties (see Note 5) $ (223,065) $ (124,102)
=========== ===========
13
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 Goodwill and other intangible assets
Goodwill is made up as follows:
December 31, September 30,
1999 1999
Acquisition of NHS $ 5,213,510 $ 5,213,510
Acquisition of Breakaway 58,797 58,797
----------- -----------
5,272,307 5,272,307
Less: Accumulated amortization (730,418) (642,545)
----------- -----------
$ 4,541,889 $ 4,629,762
=========== ===========
Other intangible assets is made up as follows:
Formation expenses $ 784 $ 784
Acquisition of Breakaway 1,840,790 1,840,790
----------- -----------
1,841,574 1,841,574
Less: Accumulated amortization (1,179,679) (889,061)
Impairment write-down 0 (260,722)
----------- -----------
$ 661,895 $ 691,791
=========== ===========
Note 6 - Notes Payable
On November 17, 1998 the Company and TME executed a One Year Secured Promissory
Note ("Promissory Note") in the principal sum of $3.4 million with FAI General
Insurance, a shareholder of the Company. Interest on the Promissory Note accrued
at the rate of 10% per annum and was payable quarterly in arrears. The
Promissory Note was secured by a charge over Transmedia Australia and was
guaranteed by TME. The Promissory Note holder received a three-year warrant to
purchase 1 million shares of Common Stock at an exercise price of $1.00 per
share. In addition, the Company agreed to exchange warrants to purchase 633,366
shares of Common Stock at exercise prices of $1.00 to $1.40, already held by the
Promissory Note holder, for a warrant to purchase 633,366 shares of Common Stock
at an exercise price of $1.00. The warrant is exercisable at any time from
November 16, 1998 through November 15, 2001. The Promissory Note holder also
held warrants on similar terms to purchase 633,366 shares of the common stock of
TME. Such warrants were exchanged by TME for a new warrant on the same terms as
those of the Company. Interest on the Promissory Note was paid to November 15,
1999 and the Company repaid $400,000 of principal in November 1999. On November
30, 1999 the Promissory Note holder and the Company executed a new note
representing the balance of principal of $3 million. The new note is payable on
February 15, 2000 and bears interest at the rate of 10% per annum payable at
maturity. The new note is secured by a charge over Transmedia Australia and is
guaranteed by TME.
14
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7 - Related Parties
Amounts due from related parties comprise the following:
December 31 September 30
1999 1999
----------- ------------
Related Party
Transmedia Europe, Inc. 1,034,036 0
Countdown 0 22,665
---------- ----------
Total $1,034,036 $ 22,665
---------- ----------
Amounts due to related parties comprise the following:
December 31 September 30
1999 1999
----------- ------------
Related Party
J. V. Vittoria 1,342,137 1,302,137
TMNI 360,443 355,443
Transmedia Europe, Inc. 0 269,506
Countdown USA, Inc. 223,065 124,102
---------- ----------
Total $1,925,645 $2,051,188
---------- ----------
Note 8 - Loss per common share
The following table summarizes securities that were outstanding at March 31,
1999 and 1998 but not included in the calculation of diluted loss per share
because such shares are anti-dilutive.
December 31, December 31,
1999 1998
------------ ------------
Stock options and warrants 7,692,965 5,118,809
15
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in four lines of
business: member benefits/loyalty programs, travel services direct
marketing and e-commerce, with the latter being insignificant in the
quarters ended December 31, 1999 and 1998. Operations of the subsidiary
companies are conducted in Australia and New Zealand. The following is a
summary of the Company's operations by business segment and by
geographical segment. The accounting policies of the segments are the same
as those described in Note 3 - Significant accounting policies
December 31, December 31,
1999 1998
------------ ------------
(a) Statement of operations
Revenues
Member benefits/loyalty programs $ 423,456 $ 327,945
Travel services 151,687 806,201
----------- -----------
Revenues for reportable segments
and consolidated revenues 575,143 1,134,146
----------- -----------
Operating loss
Member benefits/loyalty programs (253,447) (149,238)
Travel services (147,810) (23,505)
Corporate overhead (460,816) (688,357)
----------- -----------
Total operating loss for reportable segments (862,073) (860,681)
----------- -----------
Share of affiliate losses
Member benefits/loyalty programs 11,242 (64,462)
Direct marketing (595,006) --
----------- -----------
(583,764) (64,462)
----------- -----------
Net interest expense (256,930) (103,221)
----------- -----------
Loss before taxation and minority interests $(1,702,767) $(1,028,364)
----------- -----------
Depreciation and amortization
Member benefit/loyalty programs 71,772 124,690
Travel services 988 988
----------- -----------
$ 72,760 $ 125,678
----------- -----------
The only geographic segment from which all the revenues are derived is
Australasia.
16
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9 - Industry and geographic area segments (continued)
December 31, September 30,
1999 1999
(b) Total assets
Member benefits/loyalty programs $ 7,528,228 $ 5,882,396
Travel services 179,803 553,131
Investment in affiliates 8,915,513 9,437,824
Unallocated 1,304,020 1,803,992
----------- -----------
$17,927,564 $17,677,343
=========== ===========
17
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described below and those presented elsewhere by management
from time to time. When used in this Quarterly Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
General
Historically, the business of the Company was the design and supply of a range
of member benefit programs to corporations, affinity groups and individuals. In
1996 the Company and TME decided to work closely to implement a strategy to
create a broader based international member benefits/loyalty marketing business.
As a result the Company currently has established business operations in
Australia and through its affiliates, Countdown, Countdown USA, DBS Direct and
Logan Leisure, has an interest in business operations in Europe and elsewhere.
In addition, the Company and TME have recently established business operations
in the United States and in November 1998 Countdown launched its transactional
web site business, Countdown Arcade.
The business of the Company today comprises four segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups. Additionally, the Company
provides member benefit packages to individuals on an international scale,
2. E-commerce and internet services,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
The future success of the Company is primarily dependent upon its ability to
develop and expand its current business operations in each of these segments. In
its member benefit/loyalty marketing, the Company has recently focused its sales
effort as a loyalty and affinity marketing service to corporate clients.
Management will continue to build the Company's membership base and broadening
the range of member benefit programs offered. As of the date hereof, management
is actively recruiting senior sales and marketing executives to strengthen the
management team and facilitate such development and expansion. The Company will
continue to look for new opportunities within the member benefits industry and
may expand its operations through further acquisitions.
Management believes there is significant opportunity for the Company in its
e-commerce and internet services business. Such opportunity includes revenue
generation, not only through the Countdown-Arcade shopping web site, but also by
providing internet services to its merchant base, corporate clients and its
affiliate, Countdown, licensees. The Company will continue to develop and expand
its e-commerce and internet activities primarily through strategic alliances.
In the United States the Company intends to aggressively develop the business of
its affiliates Countdown USA and DBS Direct, through cross-marketing and
strategic partnerships. The Company is actively recruiting senior sales,
marketing and program executives to be based in the United States
18
to support the development and expansion of Countdown USA and DBS Direct. This
strengthening of the Company's United States based management team will also
help to facilitate the expansion of its e-commerce and other internet activities
in the United States marketplace.
In light of the close collaboration between the Company and TME since
incorporation and, more particularly, in view of the joint ownership of
Countdown, Countdown USA, DBS Direct, NHS, Logan Leisure and Breakaway Travel,
management of the Company and TME have executed a merger agreement, subject to
shareholder approval. The proposed merger is also subject to fairness opinions
by independent investment advisers.
Results of Operations
Three Months ended December 31, 1999 compared to Three Months ended December 31,
1998
The Company generated revenues of $575,143 (1998: $1,134,145) in the three
months ended December 31, 1999, a decrease of $559,002 or 49.3% over the
corresponding period in 1998. The Company's member benefit/loyalty marketing
businesses, NHS and the restaurant card business, generated revenues of $316,292
and $107,164 respectively. (1998: $555,546 and $252,426). Revenues at NHS were
impacted by the loss of a number of contracts. The decline in revenues in the
restaurant card business resulted from lower card usage by cardholders as a
result of rationalization of the participating restaurant base. Additionally,
the Company was not able to add new restaurants due to its inability to fund
advances to such restaurants. The Company has recruited additional sales and
marketing staff who are progressing a number of new business opportunities.
Teletravel and Breakaway generated revenues of $55,045 and $96,642 respectively
(1998: $129,830 and $196,343). Both businesses experienced a downturn in trading
activity generally.
Cost of sales totaled $134,605 (1998: $217,689) for the three months ended
December 31, 1999, generating a gross profit percentage of 76.6% (1998: 80.8%).
The gross profit percentage achieved in the period by NHS was 76.5% (1998:
83.0%) and the restaurant card business achieved 43.8% (1998: 51.1%). Teletravel
and Breakaway operate at 100% gross margin.
Selling, general and administrative expenses totaled $1,302,611 (1998:
$1,707,316) for the three months ended December 31, 1999, a decrease of $404,705
or 23.7% over the corresponding period in 1998. Selling, general and
administrative expenses of NHS decreased by $61,977 and the restaurant card
business recorded a decrease of $131,155 as compared to the corresponding period
in 1998. The travel business also recorded decreases in selling, general and
administrative expenses, $57,901 at Teletravel and $86,858 at Breakaway.
Decreases in expenses in all businesses were recorded across most cost
categories reflecting lower activity levels. Head office selling, general and
administrative expenses decreased by $136,663 as compared to the corresponding
period in 1998. The net decrease comprised an increase in professional fees of
$170,382, which was offset by expense decreases primarily in payroll.
Additionally, head office selling. General and administrative expenses in 1998
included one-off office relocation costs of $287,622.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $27,246, $(426,312), $(61,453) and $107,791
respectively for the three months ended December 31, 1999 (1998: $1,713, nil,
$(65,158) and $68,803).
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
19
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Three Months Ended
------------------
December 31, 1999 December 31, 1998
Cash (used in)/provided by
Operating Activities $(2,204,148) $(2,903,648)
Cash used in
Investing activities $ (9,092) $(1,317,955)
Cash provided by financing
Activities $ 2,824,324 $ 3,967,519
The Company incurred a net loss of $1,702,767 in the three months ended December
31, 1999, which when adjusted for non-cash items resulted in funds used in
operating activities totaling $2,204,148, net of working capital movements.
Non-cash items comprised depreciation and amortization charges $469,512, the
Company's share of losses of affiliates of $352,530, provision against
irrecoverable restaurant credits $5,350 and debt discount expense $142,000.
Net cash used in investing activities of $9,092 in the three months ended
December 31, 1999 comprised investment in fixed assets. In the corresponding
period in 1998, net cash used in investing activities comprised the cash
elements of the Company's investment in Transmedia Australia to complete the
acquisition of NHS ($1,233,451) and the Company's investment of $50,542 in its
affiliates Countdown America ($24,967) and Porkpine ($25,575). In addition, the
Company invested $33,962 in fixed assets in the three months ended December 31,
1998.
To meet its cash requirements during the quarter ended December 31, 1999, the
Company issued in aggregate 4,531,250 shares of Common Stock in equity private
placements, resulting in net proceeds to the Company of $3,531,250. $406,250 of
the net cash proceeds were received in October 1999 and the balance in early
November. Further, in November 1998 the Company raised approximately $3,400,000
through the issuance of a secured 10% promissory note. Such promissory note fell
due for payment on November 16, 1999. The Company repaid $400,000 of principal
and executed a new note representing the balance of $3 million on November 30,
1999. The new note is payable on February 15, 2000, together with accrued
interest. In addition, in the quarter ended December 31, 1999 cash generated by
financing activities was partially off set by the repayment of short-term loans
totaling $288,186
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the implementation of its strategy to create a broad
based international member benefit/loyalty marketing business primarily through
the joint acquisition of synergistic businesses with TME. The Company currently
has established business operations in Australia and through its affiliates,
Countdown, Countdown USA, DBS Direct and Logan Leisure, has an interest in
business operations in Europe, the United States and elsewhere. In addition, in
November 1998 the Company and TME launched their transactional web site
business, Countdown-Arcade. While the Company will continue to operate cash
negative in the short term, management believes that after completion of the
proposed merger with TME, the Company and TME will be well positioned to achieve
profitability in the medium term. However, there can be no assurance given that
the proposed merger will be completed or when, if at all, profitability will be
achieved.
20
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the three months ended December 31, 1999, a situation which is
expected to continue for foreseeable future. The business of Breakaway is to
some extent seasonal. However, the Company has no basis at this time on which to
project the effects, if any, on its business as a whole.
Year 2000 disclosure issues
The Company has considered the guidance of the Statement of the Commission
regarding disclosure of Year 2000 issues for public companies (Release No.
33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues was
made in the Company's annual report on Form 10-K for the year ending September
30, 1999.
21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On September 29, 1999 NAMA of Texas filed a civil action against the Company,
TME and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of
NAMA, a business acquired by the Company and TME through Countdown USA in
November 1998. NAMA of Texas is claiming breach of contract pursuant to a
License and Consulting Agreement for the provision, by NAMA, of medical and
other benefit programs to NAMA of Texas. NAMA of Texas is claiming damages for
loss of business and income in the sum of $5 million, punitive damages in the
sum of $3 million, interest, attorney fees and all costs including court costs.
Management of the Company, TME and Countdown USA believe that the claims of NAMA
of Texas are unfounded and that they have meritorious defenses against such
claims. The Company, TME and Countdown USA filed their original answer on
November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal
Court. The court has ordered an initial pre-trial conference on April 10, 2000.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 2. Change in Securities and Use of Proceeds
On September 30, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on October 5, 1999 upon the sale of 625,000 shares of common stock at $0.65 per
share resulting in net proceeds to the Company of $406,250. The proceeds were
received in October 1999 and were applied to working capital.
On October 21, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on November 20, 1999 upon the sale of 3,906,250 shares of common stock at $0.80
per share resulting in net proceeds to the Company of $3,125,000. The proceeds
were received in November 1999 and were applied to loan repayments and working
capital.
ITEM 3. Default Upon Senior Securities
On April 29, 1998 the Company engaged in a private placement of securities. The
placement was made pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The placement consisted of three 250,000 pounds sterling
(approximately $425,000) face amount 8% promissory notes payable on November 1,
1998 and one 200,000 pounds sterling (approximately $340,000) face amount 8%
promissory note payable on the same date. The holders of the 250,000 pounds
sterling promissory notes each received a three and a half year warrant to
purchase 41,660 shares of the Common Stock at an exercise price of $2.00 per
share and the holder of the 200,000 pounds sterling promissory note received a
warrant to purchase 33,328 shares on the same terms. The Company failed to pay
the promissory notes on the due date and accordingly, pursuant to the terms of
the promissory notes, the holders each received additional warrants for the same
number of shares and exercisable on the same terms as the original warrants. The
warrants are exercisable at any time after issuance through November 1, 2001.
The Company has now repaid all the promissory notes in full, together with
accrued interest.
22
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMEDIA ASIA PACIFIC, INC.
By: /S/ Michael R. Chambrello
- -----------------------------
President and Chief Executive Officer
23