UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
-----------------
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 |_|
21,063,982 Shares, $.00001 par value, as of February 17, 1999
(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,
1998 1998
(Unaudited) (Audited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 1,171,746 1,504,921
Trade accounts receivable 267,624 446,193
Restaurant credits (net of allowance for
irrecoverable credits of $ 54,721 at
December 31, 1998 and of $ 48,033 at
September 30, 1998) 208,886 195,548
Amounts due from related parties (note 15) 782,764 591,916
Prepaid expenses and other current assets 118,271 26,394
----------- -----------
Total current assets 2,549,291 2,764,972
----------- -----------
Non current assets
Investment in affiliated company (Note 9) 3,043,408 2,877,728
Property and equipment, (net of accumulated
depreciation of $ 519,057 at December 31, 1998
and $106,260 at September 30, 1998) 239,058 240,269
Goodwill, (net of accumulated
amortization of $ 335,615 at December 31, 1998
and $ 204,897 at September 30, 1998)(note 11) 4,311,365 3,759,284
Intangible and other assets, (net of accumulated
amortization of $797, 885 at December 31, 1998
and $ 768,277 at September 30, 1998)(note 10) 1,043,689 1,073,297
Restricted cash and cash equivalents 217,489 139,209
Other assets 64,089 104,003
----------- -----------
Total non-current assets 8,919,098 8,193,790
----------- -----------
TOTAL ASSETS $11,468,389 $10,958,762
=========== ===========
See accompanying notes
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
December 31, September 30,
1998 1998
(Unaudited) (Audited)
------------ ------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Trade accounts payable $ 678,783 $ 538,708
Deferred membership fee income 335,719 467,588
Accrued liabilities 803,324 990,672
Liability for sign on fees 0 296,500
Amount due to related parties (note 15) 2,622,511 3,924,386
Notes payable 4,855,672 1,615,000
------------ ------------
Total Current Liabilities 9,296,009 7,832,854
------------ ------------
Minority interest (189,895) 629,784
Stockholders' equity
Common stock, $0.00001 par value per share
Authorised 95,000,000 shares;
(20,363,982 issued and outstanding at
December 31, 1998 and 19,521,316 at
September 30, 1998) 204 196
Additional paid in capital 15,455,717 14,823,648
Cumulative foreign currency translation 8,255 (211,268)
adjustment
Accumulated deficit (13,101,901) (12,116,452)
------------ ------------
Total Stockholders' Equity 2,362,275 2,496,124
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,468,389 $ 10,958,762
============ ============
See accompanying notes
2
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three months Three months
ended ended
December 31, December 31,
1998 1997
------------ ------------
Total revenues 1,134,145 832,892
Cost of sales (217,689) (282,108)
------------ ------------
Gross profit
916,456 550,784
Selling, general and
administrative expenses (1,777,137) (2,141,229)
------------ ------------
Profit/(Loss) from operations (860,681) (1,590,445)
Share of profits/(losses) of
associated company (64,462) (85,365)
Interest income/(expense) (103,221) (35,081)
------------ ------------
Loss before income taxes (1,028,364) (1,710,891)
Income taxes 13,248 0
------------ ------------
Loss after income taxes (1,015,116) (1,710,891)
Minority Interest 29,667 (37,785)
------------ ------------
Net loss $ (985,449) $ (1,748,676)
============ ============
Loss per common share $ (0.06) $ (0.12)
Weighted average number of common
shares outstanding 17,691,690 14,610,888
============ ============
See accompanying notes
3
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Three months ended Three months ended
December 31, 1998 December 31, 1997
----------------- -----------------
Cash flows from Operating Activities:
- - Net loss $ (985,449) $(1,748,676)
Adjustment to reconcile net loss
to net cash used in operating activities
- - Depreciation 35,173 11,812
- - Amortization of intangible assets 160,326 32,495
- - Provision for irrecoverable restaurant credits 0 (41,959)
- - Share of losses of affiliates 64,462 85,365
- - Minority interests 29,667 37,785
- - Provision for bad debts (11,563) 0
Changes in assets and liabilities:
- - Accrued interest expense (89,041) 0
- - Trade accounts payable 140,074 130,437
- - Accrued liabilities (187,348) 427,751
- - Restaurant credits (13,338) 47,571
- - Prepaid expense and other current assets (51,964) (244,472)
- - Trade accounts receivable 222,108 (427,191)
- - Restricted cash & cash equivalents (78,280) 0
- - Due from/(to) related parties (1,710,106) 359,657
- - Deferred membership fees (131,869) 161,780
- - Accrued sign-on fees (296,500) 1,258,089
----------- -----------
Net cash used in operating activities (2,903,648) 90,444
----------- -----------
Cash flows from investing activities:
- - Disposal/(purchase) of property and equipment (33,962) 0
- - Purchase of NHS (1,233,451) (881,368)
- - Investment in Countdown America (24,967) 0
- - Investment in Porkpine (25,575) 0
----------- -----------
Net cash used in investing activities (1,317,955) (881,368)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock 632,000 1,000,000
- - Issuance of notes 3,335,519 0
----------- -----------
Net cash (used in)/provided by financing activities 3,967,519 1,000,000
----------- -----------
Effect of foreign currency on cash 332,559 41,075
Minority Interest (411,650) 260,344
----------- -----------
Net (decrease)/increase in cash and
cash equivalents (333,175) 510,495
Cash and cash equivalents at beginning of period 1,504,921 13,104
----------- -----------
Cash and cash equivalents at end of period $ 1,171,746 $ 523,599
=========== ===========
Supplemental disclosures of cash flow information:
No amounts of cash were paid for interest or income taxes for each of the
periods presented See accompanying notes
4
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company
Transmedia Asia Pacific, Inc. ("TMAP" or "the Company") was incorporated under
the laws of the state of Delaware in March 1994. On May 2, 1994 the Company
acquired, from Conestoga Partners II, Inc. ("Conestoga"), the rights Conestoga
had previously acquired from Transmedia Network, Inc. ("Network"), an
independent company which, through its affiliate TMNI International Inc.,
("TMNI"), is a shareholder of the Company. The rights acquired, pursuant to a
Master License Agreement ("License Agreement") dated March 21, 1994, were an
exclusive license ("License") to use certain trademarks and service marks,
proprietary computer software programs and know-how of Network to establish and
operate a discount restaurant charge card business in clearly defined
geographical areas. The geographical areas covered by the License are
substantially all countries in Asia and the Pacific Rim including Australia, New
Zealand, Japan, China, Hong Kong, Taiwan, Korea, the Philippines and India (the
"Licensed Territories").
The Company has worked closely with Transmedia Europe, Inc. ("TME") since
inception. 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 the countries outside of Europe which were formerly part of the Union of
Soviet Socialist Republics. The Company and TME share common directors and
officers. Edward J. Guinan III is Chairman and Chief Executive Officer of the
Company and TME, as well as a principal shareholder in each.
Through 1996 the Company operated a discount restaurant charge card business in
Australia through its wholly owned subsidiary Transmedia Australia Pty Limited.
In late 1996 management identified the need to expand the Company's operations
to become a broader based "member benefits" provider, believing that the Company
needed a range of benefits to offer its corporate clients and individual
members, in addition to discount dining. Such benefits included discount
shopping, travel, hotel accommodation and telephone helpline services. At the
same time TME made a similar strategic decision and as a result the Company and
TME decided to work together in expanding their business operations.
In April 1997 the Company and TME jointly acquired Countdown Holdings Limited
("Countdown"), an international provider of membership based discount shopping
services. In December 1997 Transmedia Australia Holdings Pty Limited
("Transmedia Australia"), a company owned jointly by the Company and TME,
purchased 51% of the shares of common stock of NHS Australia Pty Limited
("NHS"). NHS purchased the net assets and 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. On
November 17 1998 Transmedia Australia acquired the balance of 49% of the shares
of common stock of NHS. On May 14, 1998 the Company and TME jointly acquired
Porkpine Limited, a business trading as Logan Leisure, which produces and sells
discount shopping and services directories. On May 22, 1998 Transmedia Australia
Travel Holdings Pty Limited ("Transmedia Travel"), a company owned jointly by
the Company and TME acquired Breakaway Travel Club Pty Limited ("Breakaway").
Breakaway, which is based in Sydney Australia, 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
incorporated Countdown America, Inc. ("Countdown America") to establish a member
benefits business in the United States. Finally, in November 1998 Countdown
launched an internet shopping program, Countdown Arcade.
5
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
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, Countdown America, Logan Leisure and Breakaway Travel,
management of the Company and TME have announced their intention to pursue a
merger of the two companies. The proposed merger is subject to approval by the
respective boards of directors, fairness opinions by independent investment
advisers and the approval of shareholders of both companies.
The Company commenced business operations in Sydney, Australia in November 1994.
As of December 31, 1998, Transmedia Asia Pacific, Inc., had the following equity
interests in its direct subsidiaries and affiliates:
Country of
Name 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
Countdown Holdings Limited UK 50
Porkpine Limited Channel Islands 50
Countdown America, Inc. 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 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, 1998, the results of operations for the
three months ended December 31, 1998 and 1997 and the changes in cash flows for
the three months ended December 31, 1998 and 1997. The results of operations for
the three months ended December 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
The September 30, 1998 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.
6
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Basis of Presentation (continued)
Effective control over Transmedia Australia and Transmedia Travel is exercised
by the Company and accordingly Transmedia Australia's accounts are consolidated
in the accounts of the Company. Although the Company has significant influence
over the operating and financial decisions of Countdown, Countdown America and
Porkpine, TME has effective control over the operations of those businesses.
Accordingly, the operations of Countdown, Countdown America and Porkpine are
accounted for under the equity method in the financial statements of the
Company.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's ability to continue as a
going concern will depend on its ability to obtain outside financing sufficient
to support its operations. Management believes, based upon the Company's history
of obtaining necessary financing, that sufficient funds will be available to the
Company to enable it to operate for the foreseeable future. However there can be
no assurance given that the Company will obtain such short-term or long-term
outside financing.
Note 3. Foreign Currencies
The reporting currency of the Company is the United States dollar. The
functional currencies of the Company's operating subsidiaries and affiliates are
the Australian dollar, UK pound sterling, Irish punt and the United States
dollar.
For consolidation purposes, the assets and liabilities of the Company's
subsidiaries are translated at the exchange rate in effect at the balance sheet
date. Consolidated statements of income for the Company's subsidiaries are
translated at the average rates of exchange during the period. Exchange
differences arising on these translations are taken directly to stockholders'
equity.
The average exchange rates during the three months ended December 31, 1998 and
1997 and the exchange rates in effect at December 31, 1998 and September 30,
1998 were as follows:
UK Pound Australian Irish
Sterling (pound) Dollar Punt
Average exchange rates
3 months ended December 31, 1998 1.6757 0.6434 1.4969
3 months ended December 31, 1997 1.6357 0.7697 1.5257
Closing exchange rate
December 31, 1998 1.6627 0.6128 1.4873
September 30, 1998 1.6125 0.7251 1.4545
7
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Income Taxes
The Company adopts Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" which recognizes (a) the amount of taxes payable
or refundable in the current year and (b) deferred tax liabilities and assets
for the future tax consequences of events that have been recognized in an
enterprise's financial statements or tax returns.
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.
Note 5. New Accounting Standards
Effective for the quarter ended March 31, 1998 the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings per Share." SFAS No. 128
requires that all prior period earnings per share data be restated to conform to
this standard. The adoption of this standard has not had a material effect on
the Company's restated historic earnings per share.
In June 1997, the Financial Accounting Standards Board ("FASB") issued two new
disclosure standards, SFAS No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
The Company has adopted SFAS No. 130 which establishes standards for reporting
and display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners.
The Company has also adopted SFAS No. 131 which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and establishes
standards for the way that public enterprises report information about operating
segments in financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas and
major customers.
Both of these standards require comparative information to be restated. Results
of operations and financial position is unaffected by implementation of these
new standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" (SFAS No. 132), which revises
employers' disclosures about pension and other post-retirement benefit plans.
SFAS 132 is effective for financial statements for the periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard does not apply currently to the Company.
8
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Revenue Recognition
Revenues 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 the cardholders' membership fees;
(ii) NHS membership fees paid by sponsoring corporations; and
(iii) Travel agency commissions earned by the Teletravel division of NHS and
Breakaway Travel Club Pty Limited.
Transmedia card membership fees are recognized as revenue in equal monthly
installments over the membership period. NHS membership fees paid by sponsoring
corporations for the provision of "helpline services," are recognized as revenue
when received.
Note 7. License Costs
The Company evaluates the carrying value of its investment in License Costs for
impairment based on estimated future net cash flows generated by, and directly
attributable to, the Transmedia License. If the estimated future net cash flows
are less than the carrying value of the License Costs, it is the policy of the
Company to recognize the impairment and adjust the carrying value of the License
Costs to their estimated fair value. In the opinion of management, there has
been no permanent impairment of the License Costs as at December 31, 1998.
Note 8. Restaurant Credits
Restaurant credits represent the total advances made to participating
restaurants less the amount recouped by the Company as a result of Company
cardholders using their cards at participating restaurants. Restaurant credits
are recouped by the Company within one year of advance and accordingly are
classified as a current asset. The amount by which such credits are recouped
equates to approximately 50% of the retail value of the food and beverage
purchased by cardholders at participating restaurants. The Company periodically
reviews the recoverability of restaurant credits and establishes an appropriate
provision against irrecoverable restaurant credits.
The funds advanced to participating restaurants are generally unsecured.
9
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Investment in Affiliated Companies
Investment in affiliated company comprises the Company's interest in Countdown,
Countdown America and Logan Leisure which are made up as follows:
December 31, September 30,
1998 1998
----------- -----------
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, 1998 (854,216) (854,216)
- Three months ended December 31, 1998 1,713 0
- Amortization of goodwill on investment (269,003) (215,204)
Amounts due from/(to) Countdown 318,081 278,956
----------- -----------
$ 2,050,922 $ 2,063,883
=========== ===========
Porkpine Limited
Cost of investment $ 896,797 $ 896,797
Additions 25,575 0
Share of profits/(losses)
- From acquisition date to September 30, 1998 (60,889) (60,889)
- Three months ended December 31, 1998 68,804 0
- Amortization of goodwill on investment (38,085) (22,063)
Amounts due from/(to) Logan Leisure 0 0
----------- -----------
$ 892,202 $ 813,845
=========== ===========
Countdown America
Cost of investment $ 24,967 $ 0
Share of profits/(losses)
From inception to December 31, 1998 (65,158) 0
Amounts due from/(to) Countdown America 140,475 0
----------- -----------
$ 100,284 $ 0
=========== ===========
10
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Intangible Assets
Intangible assets primarily consist of the cost of the Transmedia License, net
of amortization. The Transmedia License cost is being amortized on a straight
line basis over its estimated useful life of fifteen years from the commencement
of operations in November, 1994.
December 31, September 30,
1998 1998
------------ -------------
Formation Expenses $ 784 $ 784
Transmedia License 1,840,790 1,840,790
Less: Accumulated amortization (797,885) (768,277)
----------- -----------
Total $ 1,043,689 $ 1,073,297
=========== ===========
Note 11. Goodwill
The Company recognizes the excess of the purchase price paid over the fair value
of net tangible assets acquired in connection with its acquisitions as goodwill.
Goodwill arising on acquisitions is amortized on a straight line basis usually
over a period of fifteen years.
Note 12. Notes Payable
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 $413,000) face amount, 8% promissory notes payable on November 1,
1998 and one 200,000 pounds sterling (approximately $330,000) 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 of the Company 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 warrants are
exercisable at any time after issuance through November 1, 2001. 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.
As of the date hereof the Company has made repayments totaling $500,000. Two of
the note holders have agreed to give the Company until April 9, 1999 to repay
the balance of the notes together with accrued interest. The Company is in
negotiation with the other two note holders to agree a similar extension.
11
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Notes Payable (continued)
On November 17, 1998 the Company entered into a One Year Secured Promissory Note
("Note") in the principal sum of $3.4 million executed with FAI General
Insurance, a shareholder of the Company and TME. Interest on the Note accrues at
the rate of 10% per annum and is payable quarterly in arrears. The Note is
secured by a charge over the assets of Transmedia Australia and is guaranteed by
TME. The Note is repayable on November 16, 1999. The Note holder received a
three year warrant to purchase 1,000,000 shares of the common stock of the
Company 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, exercisable at
prices between $1.00 and $1.40, for a warrant to purchase 633,366 shares at an
exercise price of $1.00.
Note 13. Stockholders Equity
On October 16, 1998 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 30, 1998 upon the sale of 842,666 shares of common stock at $0.75
per share, resulting in net proceeds to the company of $632,000. See Note 17 -
Subsequent Events.
Note 14. Acquisitions
On December 2, 1997, Transmedia Australia, purchased 51% of the common stock of
NHS. NHS purchased the net assets and business of Nationwide. NHS is an
Australian provider of telephone helpline services and other member benefit
programs. The Company exercises effective control over Transmedia Australia and
accordingly Transmedia Australia's accounts are consolidated in the accounts of
the Company. The total consideration paid by Transmedia Australia for its 51%
interest in the equity capital of NHS was Aus$6,000,000 (approximately
$4,290,000 as of December 2, 1997). Transmedia Australia also agreed to purchase
the balance of the equity capital of NHS for Aus$2,500,000 on June 30, 1998 with
the right to extend such obligation ("Balance Obligation") until September 30,
1998 by paying interest at 5% per annum. Transmedia Australia exercised the
extension right. In addition the Company and TME agreed to pay Aus$4,000,000 in
sign-on fees to the two former executive directors of Nationwide. On October 21,
1998 Transmedia Australia reached agreement to reduce the sign-on fees by
Aus$1,000,000. On November 17, 1998 Transmedia Australia acquired the remaining
49% and settled the Balance Obligation. The Company and TME also paid the
balance of the reduced sign-on fees on that date. The total revised sign-on fees
of Aus$3,000,000 (approximately $1,940,000) were charged in full as compensation
expense in the income statements of the Company and TME for the year ended
September 30, 1998. The acquisition was accounted for as a purchase and the
excess purchase price attributable to goodwill was $3,905,384.
12
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Related Parties
Amounts due from related parties comprise the following:
December 31, September 30,
1998 1998
------------ -------------
Related Party
Transmedia UK 489,427 383,507
Conestoga Partners Inc. 26,260 26,260
Internal Advance 208,040 140,000
Paul Harrison 59,037 42,149
-------- --------
Total $782,764 $591,916
-------- --------
Amounts due to related parties comprise the following:
December 31, September 30,
1998 1998
------------ -------------
Related Party
J.V. Vittoria 1,212,384 1,182,137
TMNI 293,835 287,533
Transmedia Europe, Inc. 1,116,292 2,454,716
---------- ----------
Total $2,622,511 $3,924,386
---------- ----------
13
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Loss per common share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" in fiscal 1998. SFAS 128 requires restatement of prior
periods. Assumed exercise of warrants is not included in the calculation of
diluted loss per share since the effect would be anti-dilutive. Accordingly,
basic and diluted loss per share do not differ for any period presented.
The following table summarizes securities that were outstanding at December 31,
1998 and 1997 but not included in the calculation of diluted loss per share
because such shares are anti-dilutive.
December 31, September 30,
1998 1998
------------ -------------
Stock options and warrants 5,118,809 2,865,509
Note 17. Subsequent Events
On January 25, 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. As of the date hereof
the Company has sold 700,000 shares of common stock at $1.25 per share,
resulting in net proceeds to the Company of $875,000.
14
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
The Company creates and provides a range of member benefit programs to
corporations, affinity groups and individuals on an international scale. In 1996
the Company and TME decided to work closely to implement a strategy to create a
broader based international member benefits business. As a result the Company
currently has established business operations in Australia and New Zealand and
through its affiliates, Countdown, Countdown America and Logan Leisure, has an
interest in business operations in the United States, Europe and elsewhere. In
addition, in November 1998 Countdown launched its transactional web site
business, Countdown Arcade.
The future success of the Company is primarily dependent upon its ability to
develop and expand its current business operations by increasing its membership
base and broadening the range of member benefit programs offered. As of the date
hereof, management is actively recruiting senior executives to strengthen the
management team to 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 that while the industry has shown good growth, which is
expected to continue, this has been primarily in the United States. Outside the
United States, the international market is significantly less developed
providing an opportunity for the Company to expand its operations from its
established base in Australasia and through its affiliates in Europe and the
United States.
Results of Operations
Three Months ended December 31, 1998 compared to Three Months ended December 31,
1997
The Company generated revenues of $1,134,145 (1997: $832,892) in the three
months ended December 31, 1998, an increase of $301,253 or 36.2% over the
corresponding period in 1997. The increase in revenues is attributable to the
NHS and Breakaway acquisitions. NHS generated revenues of $685,376 (1997:
$419,932 - one month only post acquisition) and Breakaway generated revenues of
$196,343 (1997: $nil). The pre-existing restaurant charge card business recorded
a decline in revenues of $160,534 due to lower card usage by cardholders and a
reduction in the participating restaurant base.
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Cost of sales totaled $217,689 (1997: $282,108) for the three months ended
December 31, 1998, generating a gross profit percentage of 80.8% (1997: 66.1%).
The increase in gross profit percentage reflects the impact of the higher margin
NHS and Breakaway Travel businesses. The gross profit percentage achieved in the
period by NHS and Breakaway were 86.3 % and 100% respectively, as compared to
51.1% (1997: 42.2%) by pre-existing operations.
Selling, general and administrative expenses totaled $1,777,137 (1997:
$2,141,229) for the three months ended December 31, 1998, a decrease of $364,092
or 17% over the corresponding period in 1997. Selling, general and
administrative expenses for the three months ended December 31, 1997 included
$1,258,089 in respect of sign-on fees paid to the former executive directors of
Nationwide. Excluding the impact of such sign-on fees, selling, general and
administrative expenses increased by $893,997 in the quarter ended December 31,
1998 as compared to the corresponding period in 1997. Of such increase NHS and
Breakaway accounted for $353,887 and $279,422 respectively, NHS having been
consolidated for only one month in the quarter ended December 31, 1997. Selling,
general and administrative expenses of pre-existing operations totaled $214,967
a decrease of $49,012 or 18.6% over the corresponding period in 1997. Cost
savings were achieved in all but a few expense categories in the Company's
pre-existing operations. Head Office expenses increased by $309,700 primarily
due to additional staff costs.
The Company's share of profits/(losses) of its affiliates Countdown, Countdown
America and Logan Leisure were $(52,086), $(65,158) and $52,782 respectively for
the three months ended December 31, 1998 (1997: ($85,365), Nil and Nil).
The minority interests in the Company comprise TME's 50% interest in Transmedia
Australia and Transmedia Travel.
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, 1998 December 31, 1997
----------------- -----------------
Cash (used in)/provided by
Operating Activities $(2,903,648) $ 90,444
Cash used in
Investing activities $(1,317,955) $ (881,368)
Cash provided by financing
Activities $ 3,967,519 $ 1,000,000
The Company incurred a net loss of $985,449 for the three months ended December
31, 1998. Such loss, adjusted for non-cash items, namely depreciation and
amortization charges totaling $195,499, the Company's share of losses of
affiliates of $64,462, losses attributable to minority interests $29,667 and a
release of provision for bad debts of $11,563 resulted in funds used in
operating activities totaling $2,903,648, net of working capital movements.
Net cash used in investing activities of $1,317,955 comprised the cash elements
of the Company's investment in
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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 quarter ended December 31, 1998. In the corresponding period in
1997 net cash used in investing activities comprised the cash element of the
Company's investment in Transmedia Australia to acquire NHS.
To meet its cash requirements during the quarter ended December 31, 1998, the
Company sold in aggregate 842,666 shares of its common stock in an equity
private placement at $.75 per share, resulting in net proceeds to the Company of
$632,000. In addition, in November 1998 the Company raised approximately
$3,400,000 through the issuance of a One Year Secured Promissory Note (see Note
12 to the unaudited consolidated financial statements).
During the quarter ended December 31, 1998 and prior periods the Company relied
on net revenues and the net proceeds of equity placements and short-term debt
financing to fund its operating needs and investments. Management has taken
steps to reduce the amount of cash used by operations, however the Company's
operations may not provide sufficient internally generated cash flows to meet
its projected requirements in the short-term. Accordingly, the Company will
require further capital infusions in order to meet its loan repayment
commitments and the ongoing funding requirements of its operations. Based upon
the Company's history of obtaining necessary financing, management remains
confident that sufficient funds will be available for the Company to operate in
the foreseeable future and meet its loan repayment obligations. However there
can be no assurance given that the Company will be able to obtain such funding
at all or on terms acceptable to the Company.
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the single product offered, the Transmedia dining card.
However, in recent years the Company and TME have worked closely to implement a
strategy to create a broader based international member benefits business. As a
result the Company currently has established business operations in Australia
and New Zealand and through its affiliates, Countdown and Logan Leisure, has an
interest in business operations in the United States, Europe and elsewhere. In
addition, the Company and TME have recently established business operations in
the United States and in November 1998 Countdown launched its transactional web
site business, Countdown Arcade. 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, 1998, a situation which is
expected to continue for foreseeable future. The business of individual
participating restaurants may be seasonal depending on their location and the
types of food and beverage sold. However, the Company has no basis at this time
on which to project the seasonal 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, 1998.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In the opinion of management there are no material pending legal proceedings
against the Company or any of its subsidiaries.
ITEM 2. Changes in Securities and Use of Proceeds
On October 16, 1998 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 30, 1998 upon the sale of 842,666 shares of common stock at $0.75
per share, resulting in net proceeds to the company of $632,000.
See also "Default Upon Senior Securities" below.
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 $413,000) face amount, 8% promissory notes payable on November 1,
1998 and one 200,000 pounds sterling (approximately $330,000) 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 of the Company 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 warrants are
exercisable at any time after issuance through November 1, 2001. 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.
As of the date hereof the Company has made repayments totaling $500,000. Two of
the note holders have agreed to give the Company until April 9, 1999 to repay
the balance of the notes together with accrued interest. The Company is in
negotiation with the other two note holders to agree a similar extension.
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMEDIA ASIA PACIFIC, INC.
By: /s/ Paul Harrison
- -------------------------------------
President and Chief Financial Officer
(As duly authorized officer
and Chief Accounting Officer)
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