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 March 31, 2000
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 jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
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 |_|
37,039,404 Shares, $.00001 par value, as of May 15, 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
- --------------------------------------------------------------------------------
March 31, September 30,
2000 1999
(Unaudited) (Audited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 5,595,595 $ 548,576
Trade accounts receivable 601,296 267,771
Restaurant credits (net of allowance for
irrecoverable credits of $76,273 as of
March 31, 2000 and $ 65,761 as of
September 30, 1999) 50,900 128,599
Amounts due from related parties (note 7) 2,533,364 22,665
Prepaid expenses and other current assets 498,114 172,617
Prepaid fees 711,724 711,724
----------- -----------
Total current assets 9,990,993 1,851,952
----------- -----------
Non current assets
Investment in affiliated companies (note 4) 8,179,338 9,437,824
Property and equipment, (net of accumulated
depreciation of $627,605 as of March 31, 2000
and $647,875 as of September 30, 1999) 120,146 132,870
Goodwill, (net of accumulated
amortization of $818,290 as of March 31, 2000
and $ 642,545 as of September 30, 1999) (note 5) 4,454,017 4,629,762
Other intangible assets, (net of accumulated
amortization and impairment write-off of
$1,840,790 as of March 31, 2000 and
$1,149,783 as of September 30, 1999) (note 5) 784 691,791
Prepaid fees 355,862 711,724
Other assets 61,151 221,420
----------- -----------
Total non-current assets 13,171,298 15,825,391
----------- -----------
TOTAL ASSETS $23,162,291 $17,677,343
=========== ===========
See accompanying notes
2
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
March 31, September 30,
2000 1999
(Unaudited) (Audited)
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 633,485 $ 630,694
Deferred income 65,286 70,258
Accrued liabilities 992,575 636,491
Amount due to related parties (note 7) 1,632,931 2,051,188
Notes payable -- 3,688,186
Deferred payment -- 562,500
Bank lines of credit -- 18,740
------------ ------------
Total Current Liabilities 3,324,277 7,658,057
------------ ------------
Minority interest 103,800 60,771
------------ ------------
Preferred stock
Authorized 5,000,000 shares, $0.01 par
value per share. Issued and outstanding
as of March 31, 2000 10,000 convertible
preferred shares (nil as of
September 30, 1999) (note 8) 10,000,000 --
------------ ------------
Stockholders' equity
Common stock $0.00001 par value per share
authorized 95,000,000 shares; (34,076,631
issued and outstanding as of March 31, 2000
and 29,487,048 as of September 30, 1999) 341 295
Additional paid in capital 32,138,947 28,086,369
Cumulative foreign currency translation
adjustment 448,886 (185,717)
Accumulated deficit (22,853,960) (17,942,432)
------------ ------------
Total Stockholders' Equity 9,734,214 9,958,515
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,162,291 $ 17,677,343
============ ============
See accompanying notes
3
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Total Revenues $ 534,561 $ 900,724 $ 1,109,704 $ 2,034,869
Cost of revenues (156,680) (193,599) (291,285) (411,288)
------------ ------------ ------------ ------------
Gross profit 377,881 707,125 818,419 1,623,581
Selling, general and
administrative expenses (1,643,735) (1,159,016) (2,946,346) (2,936,153)
------------ ------------ ------------ ------------
Loss from operations (1,265,854) (451,891) (2,127,927) (1,312,572)
Share of profits/losses and amortization of
goodwill of affiliated companies (783,910) (53,886) (1,367,674) (118,348)
Interest expense (134,292) (115,103) (393,969) (222,748)
Interest income 1,886 3,543 4,633 7,967
------------ ------------ ------------ ------------
Loss before income taxes (2,182,170) (617,337) (3,884,937) (1,645,701)
Income taxes (benefit) (1,049) 58,545 (1,049) 71,793
------------ ------------ ------------ ------------
Loss after income taxes (2,183,219) (558,792) (3,885,986) (1,573,908)
Minority Interest -- (33,976) -- (4,309)
------------ ------------ ------------ ------------
(2,183,219) (592,768) (3,885,986) (1,578,217)
Preferred stock dividend (note 8) (1,025,542) -- (1,025,542) --
------------ ------------ ------------ ------------
Net loss (3,208,761) (592,768) (4,911,528) (1,578,217)
============ ============ ============ ============
Loss per common share $ (0.09) $ (0.03) $ (0.15) $ (0.08)
Weighted average number of common
shares outstanding 34,040,520 20,713,316 32,518,991 20,116,426
See accompanying notes
4
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED SEGMENTATION REPORT
- --------------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Statement of operations
Revenues:
Member benefits/loyalty programs $ 381,488 $ 558,912 $ 804,944 $ 1,366,884
Travel services 153,073 341,812 304,760 667,985
------------ ------------ ------------ ------------
Revenue for reportable segments
and consolidated revenues 534,561 900,724 1,109,704 2,034,869
============ ============ ============ ============
Operating loss:
Member benefits/loyalty programs (694,306) (141,334) (947,753) (176,873)
Travel services 31,301 (45,241) (116,509) (182,026)
Corporate overhead (602,849) (265,316) (1,063,665) (953,673)
------------ ------------ ------------ ------------
Total operating loss for
reportable segments (1,265,854) (451,891) (2,127,927) (1,312,572)
------------ ------------ ------------ ------------
Share of affiliate profits/(losses):
Member benefits/loyalty programs (25,938) (53,886) (14,696) (118,348)
Direct marketing (757,972) -- (1,352,978) --
------------ ------------ ------------ ------------
Total share of affiliate profits
(losses) (783,910) (53,886) (1,367,674) (118,348)
------------ ------------ ------------ ------------
Net interest expense (132,406) (111,560) (389,336) (214,781)
------------ ------------ ------------ ------------
Loss before taxation and
minority interests (2,182,170) (617,337) (3,884,937) (1,645,701)
============ ============ ============ ============
Depreciation and amortization:
Member benefits/loyalty programs 114,880 99,434 186,652 224,124
Travel services 16,470 15,310 15,482 14,322
------------ ------------ ------------ ------------
Total 131,350 114,744 202,134 238,446
============ ============ ============ ============
Total assets
Member benefits/loyalty programs 6,734,616 6,723,942
Travel services 372,654 1,078,971
Investment in affiliates 8,179,338 9,437,824
Unallocated 7,443,463 436,606
------------ ------------
Total assets 22,730,071 17,677,343
============ ============
See accompanying notes
5
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
- --------------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net loss $(3,208,761) $ (592,768) $(4,911,528) $(1,578,217)
Other comprehensive income (loss)
Foreign currency translation
adjustment 867,148 179,215 634,603 187,470
----------- ----------- ----------- -----------
Comprehensive loss $(2,341,613) $ (413,553) $(4,276,925) $(1,390,747)
=========== =========== =========== ===========
6
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Six months ended Six months ended
March 31, 2000 March 31, 1999
-------------- --------------
Cash flows from Operating Activities:
- - Net loss $(4,911,528) $(1,578,217)
Adjustment to reconcile net loss to net cash
used in operating activities:
- - Depreciation 26,390 96,364
- - Amortization of license 61,360 61,360
- - Amortization of goodwill - subsidiaries 175,745 130,718
- - Amortization of goodwill - affiliates 462,431 71,187
- - Amortization of prepaid fees 355,862 --
- - Provision for irrecoverable restaurant credits 10,512 3,946
- - Share of losses of affiliates 905,243 (5,692)
- - Preferred stock dividend 1,025,542 --
- - Minority interests -- 4,309
- - Provision for bad debts -- (11,563)
- - Loss on termination of Transmedia license 629,647 --
- - Shares issued re termination of employment contract 137,500 --
Changes in assets and liabilities:
- - Trade accounts payable 2,791 370,688
- - Accrued liabilities 447,817 (268,463)
- - Accrued interest expense (267,100) (94,848)
- - Accounts receivable (333,525) 290,166
- - Restaurant credits 67,187 37,994
- - Prepaid expense and other current assets (325,497) 148,433
- - Deferred income (4,972) (181,512)
- - Accrued sign-on fees -- (296,500)
- - Other assets 302,269 (324,944)
----------- -----------
Net cash used in operating activities (1,237,138) (1,546,575)
----------- -----------
Cash flows from investing activities:
- - Purchase of NHS -- (1,233,451)
- - Investment in Countdown USA -- (24,967)
- - Investment in Porkpine -- (25,575)
- - Investment in DBS Direct (562,500) --
- - Purchase of fixed assets (13,666) (33,962)
----------- -----------
Net cash used in investing activities (576,166) (1,317,955)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock 3,539,582 1,507,000
- - Net proceeds from issuance of convertible
preferred stock 9,350,000 --
- - Due from / (to) related parties (2,999,965) (2,060,747)
- - Proceeds from (repayment of) notes payable (3,688,186) 3,335,519
- - Bank credit line (18,740) --
----------- -----------
Net cash (used in)/provided by financing
activities 6,182,691 2,781,772
----------- -----------
(Decrease)/increase in cash and
cash equivalents carried forward $ 4,369,387 $ (82,758)
=========== ===========
7
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
Six months ended Six months ended
March 31, 2000 March 31, 1999
-------------- --------------
(Decrease)/increase in cash and
cash equivalents brought forward $ 4,369,387 $ (82,758)
Effect of foreign currency on cash 677,632 (538,509)
Minority Interest -- 182,437
----------- -----------
Net (decrease)/increase in cash and
cash equivalents 5,047,019 (438,830)
Cash and cash equivalents at beginning of period 548,576 1,504,921
----------- -----------
Cash and cash equivalents at end of period $ 5,595,595 $ 1,066,091
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 247,412 $ 158,494
Income taxes 1,047 --
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES
1. In March 2000 the Company issued 50,000 shares of its common stock to its
former Chief Executive Officer in part payment of a settlement agreement.
8
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. On April 7, 2000 the Company and Network executed a
termination agreement ("Termination Agreement") pursuant to which the Company
agreed to cancel License Agreement (see below). The License was 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 had the right to designate one director to the board of directors of
the Company, which right was not exercised. Additionally, under the License
Agreement certain changes in key executives and principal shareholdings in the
Company required the prior written approval of Network.
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.
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. 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. In December 1997 the
Company and TME acquired control of NHS Australia Pty Limited ("NHS") through
Transmedia Australia Holdings Pty Limited ("Transmedia Australia"). 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.
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. On May 22, 1998 the
Company and TME jointly acquired, through Transmedia Australia Travel Holdings
Pty Limited ("Transmedia Travel"), 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.
In July 1998 the Company and TME jointly established
9
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
Countdown USA, 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. 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. Finally, on April 13,
2000 the Company acquired MonsterBook.com, Inc. ("MonsterBook"). MonsterBook
produces and distributes a printed e-business directory which is also available
via its web site MonsterBook.com (See "Subsequent Events")
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 third 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.
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel 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 and forgiveness of past due
royalty payments under the License Agreement in the sum of approximately
$43,000. The Company believes that termination of the License Agreement was in
the best interests of the Company because the License Agreement was 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 received no benefit from
the systems and software provided under the License Agreement for the conduct of
its day-to-day operations. The Company derived direct financial benefit from the
Termination Agreement.
As of March 31, 2000, the Company had the following equity interests in its
direct subsidiaries:
Name Country of Incorporation % Owned
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
Asia Merger Sub I, Inc. United States 100
Asia Merger Sub II, Inc. United States 100
10
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
As of March 31, 2000, the Company had the following equity interests in its
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.
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 March 31, 2000, the results of
operations for the three and six months ended March 31, 2000 and 1999 and the
changes in cash flows for the six months ended March 31, 2000 and 1999. The
results of operations for the three and six months ended March 31, 2000 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.
11
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(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.
(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. An impairment of $629,647 was recorded for the three month
period to March 31, 2000.
(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 was being amortized on a straight-line basis over its estimated
useful life of 15 years from the commencement of operations in
November 1994, until terminated.
(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.
12
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(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.
(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
13
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(k) Foreign currencies(continued)
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.
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 March 31, 2000 1.5802 0.6096 1.2247
3 months ended March 31, 1999 1.6145 0.6292 1.4883
6 months ended March 31, 2000 1.6172 0.6363 1.2825
6 months ended March 31, 1999 1.6757 0.6434 1.4969
Closing exchange rate:
March 31, 2000 1.5921 0.6066 1.2152
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.
14
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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.
Note 4 - Investment in Affiliated Companies
Investment in affiliated companies is made up as follows:
March 31, September 30,
2000 1999
(unaudited) (audited)
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)
- Six months ended March 31, 2000 142,314
Amortization of goodwill on investment (500,653) (405,503)
----------- -----------
$ 1,697,734 $ 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)
- Six months ended March 31, 2000 77,215 --
Amortization of goodwill on investment (111,742) (81,849)
----------- -----------
$ 812,726 $ 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)
- Six months ended March 31, 2000 (1,015,590)
Amortization of goodwill on investment (534,192) (196,810)
----------- -----------
$ 5,668,878 $ 7,021,850
=========== ===========
Total investment in affiliates $ 8,179,338 $ 9,437,824
----------- -----------
15
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Investment in Affiliated Companies (continued)
March 31, September 30,
2001 1999
(unaudited) (audited)
Countdown USA
Cost of investment $ 24,990 $ 24,990
Share of profits/(losses)
- From inception to September 30, 1999 (186,602) (186,602)
- Six months ended March 31, 2000 (109,182) --
Amounts due from/(to) Countdown America -- 37,510
--------- ---------
Included within related parties (see Note 5) $(270,794) $(124,102)
========= =========
Note 5 - Goodwill and other intangible assets
Goodwill is made up as follows:
March 31, September 30,
2000 1999
(unaudited) (audited)
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 (818,290) (642,545)
----------- -----------
$ 4,454,017 $ 4,629,762
=========== ===========
Other intangible assets is made up as follows:
Formation expenses $ 784 $ 784
Transmedia License 1,840,790 1,840,790
----------- -----------
1,841,574 1,841,574
Less: Accumulated amortization (1,211,143) (889,061)
Impairment write-down (629,647) (260,722)
----------- -----------
$ 784 $ 691,791
=========== ===========
16
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Notes Payable
On November 30, 1999 the Company and TME executed a Promissory Note ("Note"),
payable on February 15, 2000, in the principal sum of $3 million with FAI
General Insurance, a shareholder of the Company. Interest on the Note accrued at
the rate of 10% per annum and was payable at maturity. The Note was secured by a
charge over Transmedia Australia and was guaranteed by TME. The Company repaid
the Note in full on March 30, 2000 together with accrued interest.
Note 7 - Related Parties
Amounts due from related parties comprise the following:
March 31 September 30
2000 1999
(unaudited) (audited)
Related Party
Transmedia Europe, Inc. 2,509,303 --
Countdown 24,061 22,665
---------- ----------
Total $2,533,364 $ 22,665
---------- ----------
Amounts due to related parties comprise the following:
March 31 September 30
2000 1999
Related Party
J. V. Vittoria 1,362,137 1,302,137
TMNI -- 355,443
Transmedia Europe, Inc. -- 269,506
Countdown USA, Inc. 270,794 124,102
---------- ----------
Total $1,632,931 $2,051,188
---------- ----------
The Company and TME have a joint responsibility to fund the operations of their
jointly held businesses. The monies advanced by the Company to TME in the six
months ended March 31, 2000 were primarily to fund the operations of the
Company's affiliates DBS Direct and Countdown USA. The advances to TME and its
subsidiaries (the Company's affiliates) were not made against formal loan
documentation, are not interest bearing and are repayable on demand. The
advances were made to protect the Company's interest in its affiliates. Such
cash advances will be eliminated on consolidation post completion of the merger
of the Company and TME.
17
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8 - Series A Convertible Preferred Stock
On March 27, 2000 the Company sold, in a private placement (the "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,
10,000 shares of a newly designated Series A Convertible Preferred Stock, par
value $.01 ("Preferred Shares") resulting in net proceeds to the Company of
approximately $9,350,000. In connection with the Placement the Company paid due
diligence costs of $50,000 in cash and granted to the purchasers of the
Preferred Shares five year warrants to purchase in aggregate 385,542 shares of
the Company's common stock at an exercise price of $6.225 per share.
Additionally, the Company paid a cash fee of $600,000 to Reedland Capital
Partners for services in connection with the Placement and granted them five
year warrants to purchase an aggregate of 250,000 shares of the Company's common
stock at an exercise price of $6.225 per share. The value of the warrants issued
to the purchasers of the Preferred Shares totaled $1,025,542 using the
Black-Scholes model and the Company recorded such amount as preferred stock
dividends in the quarter ended March 31, 2000, with a related credit to
additional paid-in capital. The cash fee paid to Reedland Capital partners was
applied to additional paid-in capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued unless, otherwise agreed to by the holders of
the Preferred Shares and entitle the holder to dividends as declared on a
non-cumulative basis. The principal terms of the Preferred Shares are:
(i) Liquidation Preference: $1,000 per share plus 5% per annum subject
to certain adjustments. Neither a consolidation, merger nor sale of
all of the Company's assets shall in and of itself shall be
considered a liquidation.
(ii) Conversion: Preferred Shares can be converted into common stock
through December 27, 2000 at a price of $6.225 per share. Thereafter
the conversion ratio shall be the lower of $6.74375 and the average
market price determined as of December 27, 2000, as reset at the end
of each six month period thereafter through March 27, 2003. The
average market price shall be the average of the five lowest sale
prices for five of the twenty trading days immediately preceding the
relevant determination date. The applicable conversion price shall
also be reduced, on a weighted average basis, to adjust for
issuances of equity at a price per share lower than the conversion
price then in effect. In addition, adjustments shall be made to
reflect dividends made with respect to capital stock ranking junior
as to dividends or liquidation rights to the Preferred Shares as
well as the issuance of options or warrants. Additionally, holders
of the Preferred Shares can require redemption by the Company upon
the occurrence of certain events, including but not limited to,
delisting of the Company's shares of common stock from the NASDAQ
SmallCap market, absence of a closing bid price for five consecutive
trading days, restriction on sale for thirty or more days after a
registration statement covering the shares of common stock
underlying the Preferred Shares has been declared effective or the
taking of any action without the authorization of a majority in
interest of the holders of the Preferred Shares which would be
adverse to their rights.
18
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8 - Series A Convertible Preferred Stock (continued)
(iii) Optional Redemption by the Company: Under certain circumstances
where the Company is in full compliance with all its obligations to
the holders of Preferred Shares, the Company shall have the right,
upon giving notice not later than twenty trading days nor more than
thirty trading days prior to the proposed redemption date to redeem
the Preferred Shares at the applicable redemption price. Such
redemption price shall be the higher of (A.) the product obtained by
multiplying (i) $1,000 plus (ii) accrued dividends calculated at 5%
thereof per annum times 120% or (B) the number of shares of common
stock which would be issuable upon conversion of the Series A
Convertible Preferred Stock on the date of determination times the
average closing bid price for the common stock for the five trading
days immediately preceding the redemption date.
(iv) Final Redemption: The Company shall have the right commencing March
28, 2003 to redeem the Series A Convertible Preferred Stock at any
time thereafter so long as it is in compliance with all requirements
and notice is given not less than thirty trading days nor more than
fifty trading days prior to the final redemption date. The final
redemption price shall be the sum of $1,000 plus accrued dividends
calculated thereon at 5% per annum.
(v) Voting Rights: Holders of the Preferred Shares do not have voting
rights other than with respect to matters adversely effecting the
rights of such holders.
Note 9 - Loss per common share
The following table summarizes securities that were outstanding at March 31,
2000 and 1999 but not included in the calculation of diluted loss per share
because such shares are anti-dilutive.
March 31, March 31,
2000 1999
Stock options and warrants 8,328,507 5,118,809
Note 10 - 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 three and six ended March
31, 2000 and 1999. The operations of subsidiary companies are conducted in
Australia and New Zealand and the operations of affiliates are conducted in
Europe and the Unites states. The accounting policies of the segments are those
described in Note 3 - Significant accounting policies.
19
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11 - Stockholders' equity
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.
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.
During the quarter ended March 31, 2000 the Company issued 50,000 shares of its
common stock in part payment of its obligations pursuant to a settlement
agreement executed by the Company and Michael R. Chambrello, former Chief
Executive Officer of the Company. Additionally, the Company issued 8,333 shares
of its common stock upon exercise of a warrant resulting in net proceeds to the
Company of $8,333.
Note 12 - Subsequent Events
Acquisition of MonsterBook.com, Inc.
On April 13, 2000 (the "Effective Date") the Company, Asia Merger Sub II, Inc.,
a wholly owned subsidiary of the Company ("Merger Sub"), and MonsterBook.com,
Inc. ("MonsterBook") consummated a merger (the "Merger") of Merger Sub with and
into MonsterBook pursuant to which MonsterBook became a wholly owned subsidiary
of the Company. The Merger was consummated pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of March 8, 2000, by and
among the Company, Merger Sub, MonsterBook and William H. McKee and Frank T.
Vega.
MonsterBook produces and distributes a printed e-business directory for the
Internet. Additionally, the e-business directory is available via the internet
at www.monsterbook.com. MonsterBook's headquarters are located in San Francisco,
California. The Company presently intends to operate MonsterBook as a subsidiary
under the name MonsterBook.com.
Pursuant to the terms of the Merger Agreement, as of the Effective Time, each of
the outstanding shares of common stock of MonsterBook, par value $0.0001 per
share, was converted into the right to receive either (a) $0.27105114 in cash,
without interest (the "Cash Consideration") or (b) 0.0735054 of a share of
common stock of the Company, par value $0.00001 per share (the "Stock
Consideration" and, together with the Cash Consideration, the "Merger
Consideration"). The Merger Consideration was negotiated by the parties at the
time they entered into the Merger Agreement. The Stock Consideration to be
issued by the Company will consist of approximately 2,962,773 shares of its
common stock, and the Cash Consideration to be paid by the Company will consist
of approximately $138,000. Based on the closing price of the Company's common
stock on April 13, 2000 of $5.3125 per share, the Stock Consideration has a
value of approximately $15,739,732, and the Merger Consideration has a value of
approximately $15,877,732. The funds to be used by the Company to pay the Cash
Consideration will be supplied by the Company's working capital. In addition,
the Company converted existing MonsterBook options into options to acquire
approximately 362,749 shares of the Company's common stock.
20
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12 - Subsequent Events (continued)
Acquisition of MonsterBook.com, Inc. (continued)
It is intended that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and it is expected that the Merger will be a tax-free event to the MonsterBook
stockholders for federal income tax purposes. The descriptions contained herein
of the Merger are qualified in their entirety by reference to the Company's
Current Report on Form 8-K filed April 28, 2000 and the Merger Agreement
attached thereto as Exhibit 2.1.
21
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 recently acquired MonsterBook.com, Inc.
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 and directories,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
The future success of the Company is primarily dependent upon its ability
implement its strategy to leverage its existing assets to develop and expand its
internet activities and generate additional revenues from its member and
merchant bases. 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, marketing and other
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 and the
Company's e-business directory business, but also by providing Internet services
to its merchant base, corporate clients and Countdown licensees. The Company
will continue to develop and expand its e-commerce and Internet activities
primarily through strategic alliances.
22
In the United States the Company intends to aggressively develop the business of
its subsidiary MonsterBook.com as well as 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 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. Post completion of the merger the Company
aims to become a leading global provider of customized loyalty programs and
services to corporations worldwide, providing superior business to consumer
solutions for businesses. The Company's objective is to package online commerce
and Internet content with traditional offline commerce into a web-based and real
world affinity solution for corporations and associations. For members, online
offerings will include Internet access (free in some jurisdictions), a
customized multi-media portal, targeted e-commerce and global directory
services. The Company's (including its affiliates) offline content is currently
available in 28 countries and includes a wide range of products and services
such as discount shopping, discount dining, travel and telephone helpline
services.
Results of Operations
Three Months ended March 31, 2000 compared to Three Months ended March 31, 1999
The Company generated revenues of $534,561 (1999: $900,724) in the three months
ended March 31, 2000, a decrease of $366,163 or 40.7% over the corresponding
period in 1999. The Company's member benefit/loyalty marketing businesses, NHS
and the restaurant card business, recorded a 32% decline in revenues of
approximately $181,000, primarily in the restaurant card operations. Revenues at
NHS were impacted by the loss of a number of contracts which have yet to be
replaced. The Company has recruited additional sales staff who are progressing a
number of new business opportunities. The decline in revenues in the restaurant
card business resulted from lower card usage by cardholders and the Company's
inability to fund advances to new restaurants. Additionally, in light of
termination of the Transmedia License, the Company has not promoted its
restaurant card business for some time. Teletravel and Breakaway recorded a
54.8% decline in revenues as compared to the corresponding period in 1999. Both
businesses experienced a downturn in trading activity generally and suffered
from high staff turnover.
Cost of revenues totaled $156,680 (1999: $193,599) for the three months ended
March 31, 2000, generating a gross profit percentage of 70.7% (1999: 78.5%). The
gross profit percentage achieved in the period by NHS was 77.7% (1999: 75.5%)
and the restaurant card business achieved 9.9% (1999: 48.2%). The decline in the
restaurant card business gross margin is due to cardholders being given
discounts of up to 40% as opposed to the normal 25%. The increase in discount
was given to cardholders to encourage card usage to utilize restaurant credits
prior to termination of the License Agreement. The Company's travel businesses
operate at 100% gross margin.
Selling, general and administrative expenses totaled $1,643,735 (1999:
$1,159,016) for the three months ended March 31, 2000, an increase of $484,719
or 41.8% over the corresponding period in 1999. Selling, general and
administrative expenses of NHS and the restaurant card business recorded an
increase of $110,388 as compared to the corresponding period in 1999. The travel
businesses recorded decreases in selling, general and administrative expenses of
$283,983 as compared to the corresponding period in 1999. Head office selling,
general and administrative expenses increased by $468,453 as compared to the
corresponding period in 1999. The net increase comprised an increase in
professional fees of $318,721.
23
$177,931 of such increase relates to amortization of prepaid fees to Gleacher &
Co., the Company's investment banker and $140,790 relates to the proposed merger
with TME. Such increases in professional fees were partially offset by expense
decreases, primarily in payroll and marketing costs. In addition, the Company
incurred a net expense of $255,733 with respect to termination of the License
Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $67,493, $(757,969), $(47,729) and
$(45,703) respectively for the three months ended March 31, 2000 (1999: $4,336,
nil, $(20,001) and $(38,222). Such profits (losses) include amortization of
underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Six months ended March 31, 2000 compared to six months ended March 31, 1999
The Company generated revenues of $1,109,704 (1999: $2,034,869) in the six
months ended March 31, 2000, a decrease of $925,165 or 45.5% over the
corresponding period in 1999. The Company's member benefit/loyalty marketing
businesses, NHS and the restaurant card business, generated revenues of $804,944
(1999: $1,366,529), a decrease of 41.1%. Revenues in the Company's travel
operations totaled $304,760 (1999: $668,340), a decline of approximately 54%.
Revenues in all business sectors were impacted in the six months ended March 31,
2000 by the loss of a number of contracts, a shortage of senior sales personnel
and limited working capital for much of the period. The Company has recruited
additional sales staff who are progressing a number of new business
opportunities. Additionally, the Company will launch its new dining product at
the end of the third quarter of fiscal 2000.
Cost of revenues totaled $291,285 (1999: $411,288) for the six months ended
March 31, 2000, generating a gross profit percentage of 73.8% (1999: 79.8%). The
gross profit percentage achieved in the period by NHS was 77.1% (1999: 80.1%)
and the restaurant card business achieved 27.0% (1999: 49.6%). The Company's
travel businesses operate at 100% gross margin.
Selling, general and administrative expenses totaled $2,946,346 (1999:
$2,936,153) for the six months ended March 31, 2000, an increase of $10,193 over
the corresponding period in 1999. Selling, general and administrative expenses
of NHS and the restaurant card business recorded a decrease of $145,619. The
travel businesses also recorded decreases in selling, general and administrative
expenses of $428,742. Decreases in expenses in all businesses were recorded
across most cost categories reflecting lower activity levels. Head office
selling, general and administrative expenses increased by $397,640 as compared
to the corresponding period in 1998. $355,862 of such increase relates to
amortization of prepaid fees to Gleacher & Co. and $140,790 relates to the costs
of the proposed merger with TME. Such increases in professional fees were
partially offset by expense decreases, primarily in payroll and marketing costs.
In addition, the Company incurred a net expense of $255,733 with respect to
termination of the License Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $47,164, $(1,352,972), $(109,182) and
$47,321 respectively for the six months ended March 31, 2000 (1999: $(55,549),
nil, $(85,158) and $22,359). Such profits (losses) include amortization of
underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
24
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:
Six Months Ended
----------------
March 31, 2000 March 31, 1999
Cash (used in)/provided by
Operating Activities $(1,237,138) $(1,546,575)
Cash used in
Investing activities $ (576,166) $(1,317,955)
Cash provided by financing
Activities $ 6,182,691 $ 2,781,772
The Company incurred a net loss of $4,911,528 in the six months ended March 31,
2000, which when adjusted for non-cash items resulted in funds used in operating
activities totaling $1,237,138, net of working capital movements. Non-cash items
comprised preferred stock dividend $1,025,542, depreciation and amortization
charges $1,081,788, the Company's share of losses of affiliates of $905,243,
loss on termination of the Transmedia License $629,467, provision against
irrecoverable restaurant credits $10,512 and employment termination compensation
$137,500.
Net cash used in investing activities of $576,166 in the six months ended March
31, 2000 comprised the Company's investments in its affiliate DBS Direct
$562,500 and in fixed assets $13,566. In the corresponding period in 1999, 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 six months ended March 31, 1999.
To meet its cash requirements during the six months ended March 31, 2000, 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. In March 2000, the Company sold, in a private placement 10,000 shares
of Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting
in net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
Additionally, the Company issued 8,333 shares of its common stock upon exercise
of a warrant resulting in net proceeds to the Company of $8,333.
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 was payable on February 15, 2000, together with accrued interest.
The Company repaid the note, together with accrued interest, from the proceeds
of the Preferred Share placement. Cash generated by financing activities was
partially off set by the repayment of short-term loans totaling $3,688,186 and
advances to related parties of $2,999,965, net primarily TME to fund the
operations of the Company's affiliates.
25
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 the United States 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. 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.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the six months ended March 31, 2000, 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.
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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 Federal Court ordered an initial pre-trial conference for May 18,
2000. At the pre-trial conference the Judge dismissed the case against the
Company and TME with the condition that should Countdown USA ultimately lose the
case and is not capable of paying any judgment against it, then the Company and
TME could be enjoined again.
The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief
Executive Officer, with respect to amounts which the Company claims Mr. Guinan
owes to the Company and with respect to amounts which Mr. Guinan claims are owed
to him by the Company. Mr. Guinan's employment agreement was terminated for
cause on September 30, 2000 and the Company considers the employment agreement
to no longer be effective. Mr. Guinan's attorneys recently have challenged this
position and have also asserted claims for various advances which Mr. Guinan
asserts were made on behalf of the Company and for which he claims to be
entitled to reimbursement. No legal action has been commenced by the Company or
Mr. Guinan. At this time it cannot be determined when and if this dispute can be
resolved or what the net amount, if any, which Mr. Guinan owes to the Company or
the Company owes to Mr. Guinan.
The Company is engaged in a dispute with Carl Freyer, a former director and
consultant to the Company. Mr. Freyer claims that an agreement was reached in
December 1999 pursuant to which he, or his affiliate was granted warrants plus
cash payments in lieu of prior compensation arrangements. The Company asserts
that there is no such valid agreement and that the only rights of Mr. Freyer, or
his affiliate, relate to the Company's obligation to submit for shareholder
approval, warrants previously granted covering 300,000 shares exercisable at
$1.00 per share. At this time no litigation has been commenced.
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.
27
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.
On March 27, 2000 the Company sold, in 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, 10,000 shares of
Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting in
net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued, unless otherwise agreed to by the holders of
the Preferred Shares. Holders of the Preferred Shares do not have voting rights
other than with respect to matters adversely affecting the rights of such
holders.
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.
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 was payable on
February 15, 2000, together with accrued interest at the rate of 10% per annum.
The new note was secured by a charge over Transmedia Australia and was
guaranteed by TME. The Company was unable to repay the new note on the due date.
However as of the date hereof the new note has been repaid in full, together
with accrued interest.
ITEM 4. Submission of Matters to a Vote of Security Holders
28
On March 16, 2000 the Company held its annual meeting of stockholders. The only
business conducted was the election of three directors, Joseph Vittoria, James
Fyfe and William Marks constituting the entire board of directors. Each nominee
received a total of 18,150,185 votes for election and 19,500 votes were withheld
with respect to each.
29
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
3.3 Certificate of Designations of Series A Convertible Preferred Stock
10.2(i) Termination Agreement dated as of April 7, 2000 by and among
Transmedia Network, Inc., TMNI International Incorporated,
Transmedia Europe, Inc. and Transmedia Asia Pacific, Inc.
(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/ Grant White
--------------------------------
President and Chief Executive Officer
30