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, 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. 011-44-207-930-0706
----------------------------
(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 |_|
37,086,441 Shares, $.00001 par value, as of February 11, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date)
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31, September 30,
2000 2000
(Unaudited) (Audited)
----------- ---------
($ thousand) ($ thousand)
Assets
Current assets
Cash and cash equivalents $ 2 $ 444
Trade accounts receivable 132 151
Amounts due from related parties 2,914 3,661
Prepaid expenses and other current assets 327 177
------- -------
Total current assets 3,375 4,433
------- -------
Non current assets
Investment in affiliated company 5,514 5,999
Office furniture and equipment, (net of accumulated
depreciation of $602,000 as of December 31, 2000 and
$584,000 as of September 30, 2000) 124 168
Goodwill, (net of accumulated
amortization of $2,760,000 as of December 31, 2000 and
$2,139,000 as of September 30, 2000) 10,830 11,510
Property lease deposit 770 899
Other assets 793 740
------- -------
Total non-current assets 18,031 19,316
------- -------
TOTAL ASSETS $21,406 $23,749
======= =======
See accompanying notes to the unaudited consolidated financial statements.
2
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
December 31, September 30,
2000 2000
(Unaudited) (Audited)
($ thousand) ($ thousand)
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 1,001 $ 884
Deferred income 55 55
Dividend payable -- 257
Payroll taxes 281 249
Accrued liabilities 712 856
Amount due to related parties 2,110 2,058
Notes payable, current portion 4,453 --
Bank lines of credit 80 21
Other liabilities 116 81
-------- --------
Total Current Liabilities 8,808 4,461
-------- --------
Notes payable, more than one year 5,937 --
Minority interest 959 780
-------- --------
Stockholders' equity
Preferred stock $0.01 par value per share, authorized 5,000,000 shares. Issued
and outstanding as of December 31, 2000 nil and 10,000 Series A Convertible
Preferred Shares
at $1,000 per share as of September 30, 2000 -- 10,000
Common stock $0.00001 par value per share authorized 95,000,000 shares;
(37,086,441 issued and outstanding as of December 31, 2000
and September 30, 2000) -- --
Additional paid in capital 46,256 45,231
Cumulative foreign currency translation
adjustment (59) 527
Accumulated deficit (40,495) (37,250)
-------- --------
Total Stockholders' Equity 5,702 8,508
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,406 $ 23,749
======== ========
See accompanying notes to the unaudited consolidated financial statements.
3
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, December 31,
2000 1999
($ thousand except loss per share)
Revenues 315 363
Cost of revenues (77) (74)
------------ ------------
Gross profit 238 289
Selling, general and
administrative expenses (1,328) (898)
Depreciation and amortization (651) (98)
------------ ------------
Loss from operations (1,741) (707)
Share of profits/(losses) and amortization
of goodwill of affiliated companies (507) (584)
Interest expense (93) (260)
Interest income 3 3
------------ ------------
Net loss from continuing operations (2,338) (1,548)
Discontinued operations 211 (155)
------------ ------------
Net loss (2,127) (1,703)
Preferred stock dividends (1,118) --
------------ ------------
Net loss attributable to common stockholders $ (3,245) $ (1,703)
============ ============
Loss per share $ (0.09) $ (0.05)
Weighted average number of common
shares outstanding 37,086,441 32,507,881
============ ============
See accompanying notes to the unaudited consolidated financial statements.
4
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, 2000 December 31, 1999
----------------- -----------------
Cash flows from Operating Activities:
- - Net loss (2,127) $(1,703)
Adjustment to reconcile net loss
to net cash used in operating activities:
- - Depreciation 17 13
- - Amortization of license -- 30
- - Amortization of goodwill - subsidiaries 635 88
- - Amortization of goodwill - affiliates 240 231
- - Amortization of prepaid fees -- 107
- - Provision for irrecoverable restaurant credits (7) 5
- - Share of losses of affiliates 267 353
- - Debt discount expense -- 142
- - Minority interests 204 --
- - Provision for bad debts --
- - Profit on sale of Breakaway (409) --
- - Loss on sale of fixed assets 8 --
Changes in assets and liabilities:
- - Trade accounts payable 117 161
- - Accrued liabilities (144) 111
- - Accrued interest expense -- 45
- - Accounts receivable 19 117
- - Restaurant credits 7 18
- - Prepaid expense and other current assets (150) --
- - Deferred income -- --
- - Due from / (to) related parties 777 (1,082)
- - Due from / (to) affiliates companies -- (161)
- - Deferred cost of investment -- (562)
- - Payroll taxes 32 --
- - Other assets 76 (117)
- - Other liabilities 35 --
------- -------
Net cash used in operating activities (403) (2,204)
------- -------
Cash flows from investing activities:
- - Proceeds of sale of Breakaway 178 --
- - Purchase/(proceeds of sale) of fixed assets 19 (9)
------- -------
Net cash used in investing activities 197 (9)
------- -------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock -- 3,531
- - Proceeds from (repayment of) notes payable -- (688)
- - Bank credit line 59 (19)
------- -------
Net cash (used in)/provided by financing activities 59 2,824
------- -------
(Decrease)/increase in cash and
cash equivalents carried forward (147) 611
======= =======
5
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, 2000 December 31, 1999
----------------- -----------------
(Decrease)/increase in cash and
cash equivalents brought forward (147) 611
Effect of foreign currency on cash (295) (233)
-------- --------
Net (decrease)/increase in cash and
cash equivalents (442) 378
Cash and cash equivalents at beginning of period 444 549
-------- --------
Cash and cash equivalents at end of period $ 2 $ 927
======== ========
Supplemental disclosures of cash flow information:
Three months ended Three months ended
December 31, 2000 December 31, 1999
----------------- -----------------
Cash paid during the period for:
Interest $ 2,000 $ 85,000
Income taxes $ nil $ nil
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 provider of membership-based
consumer benefit programs and marketing programs for businesses on an
international scale through its subsidiaries and affiliates. The Company has
developed/acquired in recent years a range of consumer benefits included
discount shopping, dining, travel, hotel accommodation and telephone helpline
services. The Company sells access to these benefits directly to consumers and
also uses them to develop marketing programs for corporations. The marketing
programs provided by the Company to corporations comprise specifically designed
benefit based consumer loyalty programs to assist such corporations with
customer acquisition, customer activation and customer retention. The Company's
various membership-based consumer benefit and loyalty programs are currently
offered in 28 countries and globally via the Internet. The Company estimates
that it currently has over 8 million members participating in one or more of its
programs. The business of the Company currently comprises three segments: (i)
member benefits/loyalty marketing, (ii) e-commerce and Internet services and
(iii) direct marketing.
On December 8, 2000 the Company sold its travel services business, located in
Australia, to an unaffiliated third party in a transaction valued at
approximately $178,000. The travel services business was owned and operated by
Taste Card Pty Limited (formerly known as Transmedia Australia Travel Holdings
Pty Limited) a subsidiary of the Company jointly owned by the Company and TME.
The travel services business historically consisted of Breakaway and Teletravel.
In April 2000 the business of Teletravel was re-branded as Co-travel,
transferred to Breakaway and became a subsidiary of Breakaway. On December 8,
2000 Taste Card Pty Limited sold Breakaway. The sale was completed following an
evaluation by the Company of the rationale for owning and operating its own
travel businesses. Management concluded that the travel products and services
included in its loyalty programs could be more efficiently sourced by
negotiating alliances with third party travel product and service providers.
Additionally, outsourcing travel products would enable the Company to re-deploy
the working capital used by its travel businesses, Breakaway and Teletravel.
As of December 31, 2000, 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
MonsterBook.com, Inc. United States 100
Transmedia Australia Holdings Pty Ltd Australia 50
Taste Card 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.
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.
7
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, 2000, the results of
operations for the three months ended December 31, 2000 and 1999 and the changes
in cash flows for the three months ended December 31, 2000 and 1999. The results
of operations for the three months ended December 31, 2000 are not necessarily
indicative of the results to be expected for the full year.
The September 30, 2000 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
Note 3 - Going concern
The unaudited consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company recorded a loss for
the quarter ended December 31, 2000 of $3,245,000, which taken with prior
losses, results in an accumulated deficit of $40,495,000 as of December 31,
2000.
The company has strategically reviewed each of it's operating businesses and
with TME each of it's affiliates businesses. Management projects that each
business will, as a result, be operating cash flow positive by the second half
of fiscal year 2001. However, cash projected to be generated by operations of
the company's subsidiaries and affiliates in fiscal 2001 will not be sufficient
to fund corporate overhead or the costs of the proposed merger with TME.
The company does not have existing lines of credit and therefore, in light of
the above, the company will require an additional cash infusion in the second
quarter of fiscal 2001 and may require further cash infusions thereafter.
Management believes that it will be able to secure sufficient funds to operate
in the foreseeable future either independently or via the recovery of short-term
indebtedness from TME. It should be noted however that there is no assurance
that additional funds can be raised or that the cost of such funds and/or the
extent of dilution to existing shareholders would be acceptable to the company.
Note 4 - 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 $0.01 at an issue price of $1,000 per share ("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 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.
8
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Series A Convertible Preferred Stock (continued)
The Preferred Shares ranked 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 entitled the holders to dividends as declared on a
non-cumulative basis.
On December 13, 2000 the Company issued $10,390,000 of two year convertible
notes and 2,289,155 five year warrants in exchange for the retirement of the
Preferred Shares. See Note 5 - Notes Payable.
Note 5 - Notes Payable
On December 13, 2000 the Company issued $10,390,000 of two year convertible
notes (the "Notes") and 2,289,155 five year warrants (the "Exchange Warrants")
in exchange for the retirement of the $10,000,000 in aggregate face value of the
Company's outstanding Series A convertible preferred stock ("Series A
Preferred"), accrued but unpaid Series A Preferred dividends and registration
obligations of $390,000 and 289,155 five year warrants issuable to the holders
of the Series A Preferred based on prior registration obligations of the
Company. The Notes bear interest at 12% per annum payable quarterly in arrears.
Payment of interest on the first instalment of the Notes is due on March 31,
2001 but may be deferred until June 13, 2001 in exchange for an interest rate on
the first instalment of 15% per annum. The Notes are convertible into a maximum
of 6,800,000 shares of the Company's common stock. The conversion price is equal
to 95% of the average of the lowest five closing bid prices for the previous
twenty trading days determined from the date of the notice of conversion. Any
principal payments resulting from a conversion will be applied equally over all
instalments due. Instalments of principal are due in seven equal quarterly
instalments with the first instalment to be paid on June 13, 2001. The Exchange
Warrants are non-callable. The company is required to register the 6,800,000
shares subject to conversion as well as the 2,289,155 shares underlying the
Exchange Warrants.
The parties made other agreements in connection with the exchange as follows:
(i) The Series A Preferred holders agreed not to assert any default rights on
the prior failure by the Company to register the shares underlying the
Series A Preferred;
(ii) Each of the holders of the Notes agreed that they may not own at any time
more than 3% of the Company's outstanding shares;
(iii) The Company secured its obligations under the Notes with the pledge of the
stock of MonsterBook and DBS Direct; the guarantees of TME, MonsterBook
and DBS Direct; and a lien on the assets of MonsterBook and a subordinate
lien on the assets of the DBS Direct;
(iv) The Noteholders agreed that they would not sell any securities of the
Company short so long as the Notes were outstanding; and
(v) The company agreed to register the shares underlying the Notes and
Exchange Warrants and to pay a monthly fee of $90,000 per month for each
one month period staring after March 13, 2001, if the registration is not
effective by such date.
The issuance of the Notes and the Exchange Warrants was exempt from registration
pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. The
company did not receive any additional funds as a result of the exchange.
9
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in three lines of
business: member benefits/loyalty programs, direct marketing and e-commerce,
with the latter being insignificant in the quarters ended December 31, 2000 and
1999. Operations of the subsidiary companies are conducted in Australia and the
United States. 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,
2000 1999
------- -------
(a) Statement of operations
Revenues
Member benefits/loyalty programs $ 306 $ 363
e-commerce and internet services 9 --
------- -------
Revenues from reportable segments
and consolidated revenues 315 363
------- -------
Operating loss
Member benefits/loyalty programs (159) (118)
e-commerce and internet services (294) --
Corporate overhead (1,288) (589)
------- -------
Total operating loss for reportable segments (1,741) (707)
------- -------
Share of affiliate losses
Member benefits/loyalty programs (264) 11
Direct marketing (243) (595)
------- -------
(507) (584)
------- -------
Net interest expense (90) (257)
------- -------
Net Loss $(2,338) $(1,548)
======= =======
10
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Industry and geographic area segments (continued)
December 31, December 31,
2000 1999
(a) Statement of operations (continued)
Depreciation and amortization
Member benefit/loyalty programs 1 98
e-commerce and internet services 650 --
-------- --------
$ 651 $ 98
======== ========
(b) Geographic region
Revenues
Australia 306 363
United States of America 9 --
-------- --------
$ 315 $ 363
======== ========
Net loss before taxation, minority
interests and dividends
Australia (159) (118)
United States of America (559) (595)
Europe (242) 11
Corporate (1,378) (846)
-------- --------
$ (2,338) $ (1,548)
======== ========
As of As of
December 31, September 30,
2000 2000
Long lived assets
Australia 43 127
United States of America 1,687 1,123
Corporate 16,301 18,066
-------- --------
$ 18,031 $ 19,316
======== ========
11
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Industry and geographic area segments (continued)
As of As of
December 31, September 30,
2000 2000
(c) Total assets
Member benefits/loyalty programs $ 3,201 $ 2,226
e-commerce and internet services 11,111 14,360
Travel services -- 236
Investment in affiliates 5,514 5,999
Unallocated 1,580 928
------- -------
$21,406 $23,749
======= =======
12
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," "expect", "may", "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.
In 2000 management strategically reviewed each of its operating businesses and,
with TME, each of its affiliated businesses. As a result of such reviews
management decided to discontinue its restaurant charge card business in June
2000 and sold its travel services business in December 2000. In deciding not to
continue its restaurant charge card business in Australia, management considered
a number of factors including declining revenues in recent years and significant
operating losses since commencement of operations in 1994. Additionally,
management believed that its declining restaurant cardholder base in Australia
could not be rebuilt without significant investment of management time and
marketing expense. As regards the Company's travel services business, management
concluded that the travel products and services included in its loyalty programs
could be more efficiently sourced by negotiating alliances with third party
travel product and service providers. Additionally, outsourcing travel products
would enable the Company to re-deploy the working capital used by its travel
businesses, Breakaway and Teletravel.
The business of the Company today comprises three segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups through NHS and its
affiliates Countdown, Countdown USA and Logan Leisure. Additionally, the
Company provides member benefit packages to individuals on an
international scale through such affiliates.
2. E-commerce and Internet services through the Internet services division of
its affiliate, Countdown and its wholly owned subsidiary, MonsterBook. The
Company commenced operations in this segment in fiscal 1999 although the
operation has been insignificant to date.
3. Direct marketing through its affiliate DBS Direct.
Management believes that each of its business segments are now well structured
and are expected to achieve profitability, before taking corporate overhead into
account, in the second half of fiscal 2001. It is also projected that these
businesses will not contribute sufficient profit to cover corporate overhead
until, at the earliest, fiscal 2002.
The future success of the Company is primarily dependent upon its ability to
fund its current business operations in each of its business segments to achieve
revenue growth. The Company has been and will continue to focus its sales effort
as a loyalty and affinity marketing service to corporate clients. Management
aims to build the Company's revenue base by securing contracts to provide new
corporate clients with "benefit based" loyalty and direct marketing programs for
their customers, members and employees.
13
Results of Operations
Although the Company has significant influence over the operating and financial
decisions of its affiliates, TME has effective control over their operations.
Accordingly, the operations of the Company's affiliates are accounted for under
the equity method in the financial statements of the Company. As a result, the
Company does not report the revenues, gross profit or selling, general and
administrative expenses of its affiliates in its Statement of Operations line
items. The profit or loss attributable to the Company from such affiliates is
reported as a single line item, "share of profits/losses and amortization of
goodwill of affiliated companies" in the Consolidated Statement of Operations of
the Company.
The revenues of the Company's (i) member benefit/loyalty marketing affiliates
(Countdown, Countdown USA and Logan Leisure) (ii) Internet services affiliate
(Countdown Internet Services) and (iii) direct marketing affiliate (DBS Direct)
were as follows in the quarters ended December 31, 2000 and 1999 but are
reported in the Consolidated Statement of Operations of TME:
Quarter Ended Quarter Ended
December 31, 2000 December 31, 1999
----------------- -----------------
Revenue % of total Revenue % of total
$'000 revenue $'000 revenue
Business Segment:
Member benefit/loyalty marketing 1,484 38.5 1,903 74.8
E-commerce and Internet services -- 0.0 -- 0.0
Direct marketing 2,368 61.5 642 25.2
----- ----- ----- -----
Total Reported Revenue 3,852 100.0 2,545 100.0
===== ===== ===== =====
The operating losses of affiliates attributable to the Company, by business
segment, were as follows in the quarters ended December 31, 2000 and 1999:
Quarter Ended Quarter Ended
December 31, 2000 December 31, 1999
Profit/(Loss) Profit/(Loss)
$'000 $'000
Business Segment:
Member benefit/loyalty marketing (264) 11
E-commerce and Internet services -- --
Direct marketing (243) (595)
------- -------
Total attributable affiliate (507) (584)
losses ======= =======
During the last quarter of fiscal 2000 the Company retroactively applied the
guidance in Staff Accounting Bulletin ("SAB") 101 and EITF 99-19 by reporting
certain revenues net. The adoption of the guidance in Staff Accounting Bulletin
("SAB") 101 and EITF 99-19 impacts reported revenue from the company's
restaurant charge card business which was discontinued on June 30, 2000. In the
following discussion, revenues from the Company's restaurant card business have
been retroactively restated to comply with the new standard.
14
Three Months ended December 31, 2000 compared to Three Months ended December 31,
1999
The Company generated revenues of $315,000 (1999: $363,000) in the three months
ended December 31, 2000, a decrease of $48,000 or 13.2% over the corresponding
period in 1999. The Company's member benefit/loyalty marketing business, NHS,
generated revenues of $306,000 as compared to $316,000 in the corresponding
period in 1999. The restaurant card business accounted for a $47,000 decline in
revenues following the Company's decision not to continue that business post
termination of the Transmedia Network License. MonsterBook, which was acquired
in April 2000 generated revenues of $9,000.
Cost of sales totaled $77,000 (1999: $74,000) for the three months ended
December 31, 2000, generating a gross profit percentage of 75.6% (1999: 79.6%).
The gross profit percentage achieved in the period by NHS was 74.8% (1999:
76.5%). The restaurant card business operated at a 100% gross margin.
Selling, general and administrative expenses totaled $1,328,000 (1999: $898,000)
for the three months ended December 31, 2000, an increase of $430,000 or 47.9%
over the corresponding period in 1999. Excluding the impact of MonsterBook,
which was acquired in April 2000, selling, general and administrative increased
by $143,000 in the quarter ended December 31, 2000 as compared to 1999. Selling,
general and administrative expenses of NHS increased by $125,000 primarily due
to higher payroll costs of $109,000 and higher property costs of $33,000. The
restaurant card business recorded a decrease of $90,000 year-on-year as a result
of that business being discontinued in the quarter. Corporate overhead increased
by $108,000 as compared to the corresponding period in 1999. $64,000 of the net
increase primarily comprised increases in property costs of $126,000 and travel
expenses of $32,000, net of a decrease in payroll costs of $94,000.
Additionally, the Company incurred a penalty of $40,000 for its failure to
timely file a registration statement covering the shares of the Company's common
stock issuable to the Series A Preferred Stock holders upon conversion of their
Preferred stock and upon exercise of common stock purchase warrants held by
them.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $(282,000), $(243,000), $(22,000) and
$40,000 respectively for the three months ended December 31, 2000, including
amortization of underlying goodwill (1999: $(19,000) $(595,000), $(62,000) and
$92,000).
Minority interests comprise TME's 50% interest in Transmedia Australia Holdings
Pty Limited and Taste Card Pty Limited.
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Three Months Ended
------------------
December 31, 2000 December 31, 1999
($ thousands) ($ thousands)
Cash (used in)/provided by
Operating Activities $ (376) $(2,204)
Cash used in
Investing activities $ 209 $ (9)
Cash provided by financing
Activities $ 59 $ 2,824
15
The Company incurred a net loss of $2,127,000 in the three months ended December
31, 2000, which when adjusted for non-cash items resulted in funds used in
operating activities totaling $403,000, net of working capital movements,
$762,000. Non-cash items comprised depreciation and amortization charges
$892,000, the Company's share of losses of affiliates $267,000, minority
interest $204,000, profit on sale of Breakaway ($409,000) and loss on sale of
fixed assets $8,000.
Net cash provided by investing activities of $197,000 comprised the proceeds of
sale of Breakaway of $178,000 and the proceeds of sale of fixed assets $19,000.
In the corresponding period in 1999, the Company invested $9,000 in fixed
assets.
To meet its cash needs in the quarter ended December 31, 2000 the Company
utilized $59,000 of a bank credit line and relied on a repayment of short-term
indebtedness by TME. 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
$3,531,000. Further, in November 1998 the Company raised approximately $3.4
million 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 repaid in March 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 $288,000.
Historically, the Company's ability to grow and generate cash from operations
has been restricted by a lack of working capital and 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. In recent months the Company has strategically reviewed each of its
operating businesses and with TME each of its affiliated businesses. Management
projects that each business will, as a result, be operating cash flow positive
by the second half of fiscal 2001. However, cash projected to be generated by
the operations of the Company's subsidiaries and affiliates in fiscal 2001 will
not be sufficient to fund corporate overhead or the costs of the proposed merger
with TME. Additionally, on December 13, 2000 the Company issued $10,390,000 in
aggregate of two year convertible notes in exchange for the retirement of
$10,000,000 in aggregate of the Company's then outstanding Series A convertible
preferred stock and accrued but unpaid Series A Preferred dividends and
registration obligations of $390,000. The notes bear interest at 12% per annum
payable quarterly in arrears. Payment of interest on the first instalment of the
notes is due on March 31, 2001 but may be deferred until June 13, 2001 in
exchange for an interest rate on the first instalment of 15% per annum. The
notes are convertible into a maximum of 6,800,000 shares of Common Stock. The
conversion price is equal to 95% of the average of the lowest five closing bid
prices for the previous twenty trading days determined from the date of the
notice of conversion. Any principal payments resulting from a conversion will be
applied equally over all instalments due. Instalments of principal are due in
seven equal quarterly instalments with the first instalment to be paid on June
13, 2001. Accordingly, the Company will be required to make a payment of
principal of approximately $1,485,000 in June 2001 (assuming no repayments of
principal through conversion) and interest payments of approximately $312,000 in
each of March and June 2001. Further, payments of principal and interest may be
payable on a quarterly basis through December 2002.
During fiscal 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and stockholder of the Company, whereby Mr. Vittoria
advanced a loan of $1 million to the Company. The purpose of the loan was to
enable the Company to pay the cash element of the purchase of the Company's
interest in Countdown. The loan, which bears interest at 12% per annum, was
originally scheduled to mature on September 27, 1997. By agreement between the
Company and Mr. Vittoria, the loan was renewed upon maturity for an indefinite
period and was converted to a demand loan callable on 60 days' notice. Payment
of interest was also deferred, although interest continues to accrue at 12% per
annum. The loan is secured by a pledge of the Company's entire interest in
Countdown. While Mr. Vittoria has confirmed that he has no present intention of
demanding repayment within twelve months of the date hereof, there can be no
assurance given that he will not do so in the future.
16
The Company has no capital expenditure commitments in place. However, the
Company will need to invest in technology and infrastructure in the future when
available cash resources permit.
In light of the above, the Company will require an additional cash infusion in
the second quarter of fiscal 2001 and may require further cash infusions
thereafter. Management believes that it will be able to secure sufficient funds
to operate in the foreseeable future either independently or via the recovery of
short-term indebtedness from TME. It should be noted however that there is no
assurance that additional funds can be raised or that the cost of such funds
and/or the extent of dilution to existing stockholders would be acceptable to
the Company.
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. 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 three months ended December 31, 2000, a situation which is
expected to continue for foreseeable future. However, the Company has no basis
at this time on which to project the effects, if any, on its business as a
whole.
17
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.
The Company and TME are engaged in a dispute with Edward J. Guinan, III, former
Chief Executive Officer of the Company and TME, with respect to amounts which
TME claims Mr. Guinan owes to TME totaling approximately $347,000 and with
respect to amounts which Mr. Guinan claims are owed to him by the Company of
approximately $237,000 and by TME of approximately $237,000. The amounts claimed
by Mr. Guinan represent salary from August 1, 1999 through February 28, 2001
calculated at an annual rate of approximately $150,000 from each of the Company
and TME. Mr. Guinan's employment contracts with the Company and TME, dated March
2, 1998, reduced his annual salary to approximately $75,000 per annum in each
company and granted him options to purchase 2.5 million shares of each the
Company's and TME's common stock at an exercise price of $1.00, subject to
shareholder approval. Based on other employment, the Company considers Mr.
Guinan's employment agreement to have terminated on September 30, 1999. Mr.
Guinan's attorneys have challenged this position and have also asserted a claim
for $250,000 being the amount of a loan he claims to have advanced to the
Company's affiliate, DBS Direct, in April 1999. Additionally, Mr. Guinan's
attorneys are claiming replacement of, or cash compensation for, 200,000 shares
of the common stock of each of the Company and TME pledged and lost by him in an
aborted joint acquisition by the Company and TME and 2,000,000 shares of the
Company's Common Stock pledged by him to secure a short-term loan advanced by an
unrelated third party to TME in 1998. Mr. Guinan's employment contracts referred
to above included the grant of the options described above in consideration for
his agreeing to a reduction in salary and to compensate Mr. Guinan for pledges
of shares of the common stock of each of the Company and TME owned by him and to
induce him to make further pledges in the future of his shares for the benefit
of the Company and TME. No legal action has been commenced by the Company or Mr.
Guinan. At this time, the Company cannot determine when and if this dispute can
be resolved or what net amount, if any, will be received from Mr. Guinan or paid
to Mr. Guinan by the Company and TME.
The Company and TME are engaged in a dispute with Carl Freyer, a former director
and consultant to the Company and TME. Mr. Freyer claims that an agreement was
reached in December 1999 pursuant to which his affiliate, Caribbean Basin
Capital Consultants, Inc. ("CBCC"), was granted warrants in each of the Company
and TME to purchase shares of their respective common stock at an exercise price
of $0.875 per share plus cash payments of $200,000, in aggregate in lieu of
prior compensation arrangements. The Company and TME assert that there is no
such valid agreement and that the only rights of Mr. Freyer, or his affiliate,
relate to the Company's and TME's obligation to each submit for shareholder
approval, warrants previously granted by each covering 300,000 shares of their
respective common stock, exercisable at $1.00 per share. On August 30, 2000,
CBCC filed a complaint against the Company and TME in the United States District
Court - District of Connecticut alleging, inter alia, breach of contract and
claiming compensatory damages in an amount to be determined at trial (but in
excess of $5,000,000), restitution, punitive damages, costs of the action and
such other and further relief as the Court deems just and proper. The Company
and TME filed their answer on October 20, 2000 denying all the material
allegations in the complaint and demanding judgment against CBCC dismissing the
complaint in its entirety, with prejudice, awarding the Company's and TME's
costs of the action and such other and further relief as the Court deems just
and proper. The proceeding is currently at discovery stage. The Company has no
basis at this time for determining the likely outcome of the proceeding.
18
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.
19
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
Company Press Release dated December 14, 2000 re the Exchange Agreement
dated as of December 12, 2000 by and among Transmedia Asia Pacific, Inc.,
Advantage Fund II Ltd. and Koch Investment Group Limited for exchange of
Series A Convertible Preferred Stock and Warrants for 12% Secured
Convertible Notes and new Common Stock purchase warrants filed December
22, 2000
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
20