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, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to_______________________
Commission file number 0-26368
TRANSMEDIA ASIA PACIFIC, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3760219
--------------------------- ---------------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation of
organization)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
---------------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
------------------------
(Registrant's telephone
number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes |X| No |_|
23,063,982 Shares, $.00001 par value, as of June 7, 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
- --------------------------------------------------------------------------------
March 31, September 30,
1999 1998
(Unaudited) (Audited)
----------- ---------
Assets
- ------
Current assets
Cash and cash equivalents $ 1,066,091 1,504,921
Trade accounts receivable 167,590 446,193
Restaurant credits (net of allowance
for irrecoverable credits of $54,721
at March 31, 1999 and of
$48,033 at September 30, 1998) 191,602 195,548
Amounts due from related parties (note 15) 403,921 591,916
Prepaid expenses and other current assets 174,827 26,394
----------- -----------
Total current assets 2,004,031 2,764,972
----------- -----------
Non current assets
Investment in affiliated company (Note 9) 2,981,722 2,877,728
Property and equipment, (net of accumulated
depreciation of $195,057 at March 31, 1999 and
$106,260 at September 30, 1998) 200,917 240,269
Goodwill, (net of accumulated
amortization of $ 335,615 at March 31, 1999 and
$ 204,897 at September 30, 1998)(note 11) 4,314,000 3,759,284
Intangible and other assets, (net of accumulated
amortization of $797, 885 at March 31, 1999 and
$ 768,277 at September 30, 1998)(note 10) 1,016,661 1,073,297
Restricted cash and cash equivalents 324,944 139,209
Other assets 154,233 104,003
----------- -----------
Total non-current assets 8,992,477 8,193,790
----------- -----------
TOTAL ASSETS $10,996,508 $10,958,762
=========== ===========
See accompanying notes
2
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
March 31, September 30,
1999 1998
(Unaudited) (Audited)
------------ -------------
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 909,396 $ 538,708
Deferred membership fee income 286,076 467,588
Accrued liabilities 722,202 990,672
Liability for sign on fees 0 296,500
Amount due to related parties (note 15) 1,605,490 3,924,386
Notes payable 4,855,672 1,615,000
------------ ------------
Total Current Liabilities 8,378,846 7,832,854
------------ ------------
Minority interest 20,772 629,784
Stockholders' equity
Common stock, $0.00001 par value
per share Authorised 95,000,000 shares;
(21,063,982 issued and outstanding at
March 31, 1999 and 19,521,316 at
September 30, 1998) 210 196
Additional paid in capital 16,330,165 14,823,648
Cumulative foreign currency translation (23,798) (211,268)
adjustment
Accumulated deficit (13,709,687) (12,116,452)
------------ ------------
Total Stockholders' Equity 2,596,890 2,496,124
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,996,508 $ 10,958,762
============ ============
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,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Total revenues 900,724 1,062,755 2,034,869 1,752,791
Cost of sales (193,599) (296,248) (411,288) (578,357)
------------ ------------ ------------ ------------
Gross profit 707,125 766,507 1,623,581 1,174,434
Selling, general and
administrative expenses (1,283,056) (1,535,796) (3,060,193) (3,723,763)
------------ ------------ ------------ ------------
Loss from operations (575,931) (769,289) (1,436,612) (2,549,329)
Share of profits of associated company 70,154 37,542 5,692 5,978
Interest (expense) / income (111,560) 1,438 (214,781) 2,936
------------ ------------ ------------ ------------
Loss before income taxes (617,337) (730,309) (1,645,702) (2,540,415)
Income taxes 58,545 0 71,793 0
------------ ------------ ------------ ------------
Loss after income taxes (558,792) (730,309) (1,573,909) (2,540,415)
Minority Interest (33,976) (37,298) (4,309) (75,083)
------------ ------------ ------------ ------------
Net loss $ (592,768) $ (767,607) $ (1,578,218) $ (2,615,498)
Loss per common share $ (0.03) $ (0.05) $ (0.08) $ (0.16)
Weighted average number of common
shares outstanding 20,713,316 16,687,695 20,116,426 16,111,653
------------ ------------ ------------ ------------
See accompanying notes
4
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Six months ended Six months ended
March 31, 1999 March 31, 1998
-------------- --------------
Cash flows from Operating Activities:
- - Net loss $(1,578,218) $(2,615,498)
Adjustment to reconcile net loss
to net cash used in operating activities
- - Depreciation 96,364 22,315
- - Amortization of intangible assets 263,265 146,946
- - Provision for irrecoverable restaurant credits 3,946 100,000
- - Share of profits of affiliates (5,692) (5,978)
- - Minority interests 4,309 75,083
- - Provision for bad debts (11,563) 0
Changes in assets and liabilities:
- - Accrued interest expense (94,848) 0
- - Trade accounts payable 370,688 (267,232)
- - Accrued liabilities (268,463) 52,878
- - Restaurant credits 37,994 10,809
- - Prepaid expense and other current assets 148,433 (96,635)
- - Trade accounts receivable 290,166 35,880
- - Restricted cash & cash equivalents (324,944) 0
- - Due from/(to) related parties (2,060,747) 423,196
- - Deferred membership fees (181,512) (46,570)
- - Accrued sign-on fees (296,500) (1,120,418)
----------- -----------
Net cash used in operating activities (3,607,322) (1,044,388)
----------- -----------
Cash flows from investing activities:
- - Disposal/(purchase) of property and equipment (33,962) 0
- - Purchase of NHS (1,233,451) (763,323)
- - Investment in Countdown America (24,967) 0
- - Investment in Porkpine (25,575) 0
----------- -----------
Net cash used in investing activities (1,317,955) (763,323)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock 1,507,000 1,595,366
- - Issuance of notes 3,335,519 0
- - NHS cash acquired 0 841,347
----------- -----------
Net cash (used in)/provided by financing activities 4,842,519 2,436,713
----------- -----------
Effect of foreign currency on cash (538,509) 295,329
Minority Interest 182,437 0
----------- -----------
Net (decrease)/increase in cash and
cash equivalents (438,830) 924,331
Cash and cash equivalents at beginning of period 1,504,921 13,104
----------- -----------
Cash and cash equivalents at end of period $ 1,066,091 $ 937,435
=========== ===========
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
5
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"). 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
substantially all countries in Asia and the Pacific Rim including Japan, China,
Hong Kong, Taiwan, Korea, the Philippines and India (the "Licensed
Territories").
The Company has worked closely with its affiliate 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 other countries outside of Europe which were formerly
part of the Union of Soviet Socialist Republics. The Company and TME have the
same 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 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 and on November 17, 1998, Transmedia Australia acquired the balance of
49% of the shares of common stock of NHS. Finally, in November, 1998, Countdown
launched an internet shopping program, Countdown Arcade.
6
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 March 31, 1999, Transmedia Asia Pacific, Inc., had the following equity
interests in its direct subsidiaries and affiliates:
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
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 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, 1999, the results of
operations for the three and six months ended March 31, 1999 and 1998 and the
changes in cash flows for the six months ended March 31, 1999 and 1998. The
results of operations for the three and six months ended March 31, 1999 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
7
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 may 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 and six months ended March 31, 1999
and 1998 and the exchange rates in effect at March 31, 1999 and September 30,
1998 were as follows:
UK Pound Australian Irish
Sterling ((pound)) Dollar Punt
------------------ ------ ----
Average exchange rates
- ----------------------
3 months ended March 31, 1999 1.6145 0.6292 1.4883
3 months ended March 31, 1998 1.6400 0.6667 1.5336
6 months ended March 31, 1999 1.6757 0.6434 1.4969
6 months ended March 31, 1998 1.6357 0.7697 1.5257
Closing exchange rate
- ---------------------
March 31, 1999 1.6706 0.6310 1.4903
September 30, 1998 1.6125 0.7251 1.4545
8
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 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.
In June 1998, the 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 effective for fiscal years beginning after June 15, 1999.
9
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 beverage 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 March 31, 1999.
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.
10
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:
March 31, September 30,
1999 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)
- Six months ended March 31, 1999 52,048 0
- Amortization of goodwill on investment (376,599) (215,204)
Amounts due from/(to) Countdown 380,112 278,956
----------- -----------
$ 2,055,692 $ 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)
- Six months ended March 31, 1999 38,803 0
- Amortization of goodwill on investment (54,539) (22,063)
--------- ---------
$ 845,747 $ 813,845
========= =========
Countdown America
- -----------------
Cost of investment $ 24,967 $ 0
Share of profits/(losses)
From inception to September 30, 1998 0 0
Six months ended March 31, 1999 (85,159) 0
Amounts due from/(to) Countdown America 140,475 0
--------- --------
$ 80,283 $ 0
========= ========
11
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.
March 31, September 30,
1999 1998
----------- -------------
Formation Expenses $ 784 $ 784
Transmedia License 1,840,790 1,840,790
Less: Accumulated amortization (824,913) (768,277)
----------- -----------
Total $ 1,016,661 $ 1,073,297
=========== ===========
Note 11. Goodwill
The Company recognizes the excess of the purchase price paid over the fair value
of net 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 repaid the three 250,000 pounds sterling
promissory notes in full, together with accrued interest. In addition, the
holder of the 200,000 pounds sterling promissory note has been paid
approximately $41,700 in part repayment and has agreed to give the Company until
July 8, 1999 to repay the balance of the note together with accrued interest.
The Company granted such note holder a conversion privilege to convert the
balance of the note, together with accrued interest, into shares of common stock
at a conversion price of $.75 per share.
12
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Notes Payable (continued)
During the course of negotiations with the note holders, the Company granted two
of the 250,000 pounds sterling note holders an additional warrant each to
purchase 41,660 shares of common stock and agreed to adjust the exercise price
of all warrants issued to all note holders from $2.00 to $1.00.
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 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.
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. The placement closed
on January 31, 1999 upon the sale of 700,000 shares of common stock at $1.25 per
share, resulting in net proceeds to the company of $875,000.
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. Nationwide was 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.
13
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:
March 31, September 30,
1999 1998
--------- -------------
Related Party
Transmedia UK 318,634 383,507
Conestoga Partners Inc. 26,260 26,260
International Advance -- 140,000
Paul Harrison 59,037 42,149
-------- --------
Total $403,921 $591,916
-------- --------
Amounts due to related parties comprise the following:
March 31, September 30,
1999 1998
--------- -------------
Related Party
J. V. Vittoria 1,212,384 1,182,137
TMNI 293,835 287,533
Transmedia Europe, Inc. 99,271 2,454,716
---------- ----------
Total $1,605,490 $3,924,386
---------- ----------
14
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 March 31,
1999 and 1998 but not included in the calculation of diluted loss per share
because such shares are anti-dilutive.
March 31, March 31,
1999 1998
--------- -------------
Stock options and warrants 5,118,809 2,865,509
Note 17. Subsequent Events
On May 11, 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 2 million shares of common stock at $.75 per share,
resulting in net proceeds to the company of $1.5 million.
15
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 business of the Company is the design and supply of 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 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 their
membership base, broadening the range of member benefit programs offered and
migrating its products to the internet. 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 the international member benefits market is
significantly less developed than in the United States, 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 March 31, 1999 compared to Three Months ended March 31, 1998
The Company generated revenues of $900,724 (1997: $1,062,755) in the three
months ended March 31, 1999, a decrease of $162,031 or 15.2% over the
corresponding period in 1998. NHS generated revenues of $685,376 (1997:
$419,932) and Breakaway generated revenues of $196,343 (1998: $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.
Cost of sales totaled $193,599 (1998: $296,248) for the three months ended March
31, 1999, generating a gross profit percentage of 78.5% (1998: 72.1%). The
increase in gross profit percentage due to the impact of the high margin
Breakaway Travel business. The gross profit percentage achieved in the period by
Breakaway was 100%, as compared to 71.2 % (1998: 72.1%) by pre-existing
operations. In pre-existing operations NHS achieved a gross profit of 81.5%
(1998: 86.9%) and the restaurant card business 48.2% (1998: 31.5%).
16
Selling, general and administrative expenses totaled $1,283,056 (1998:
$1,535,796) for the three months ended March 31, 1999, a decrease of $252,740 or
16.5% over the corresponding period in 1998. Adjusting such decrease for the
impact of sign-on fees paid to the former executive directors of Nationwide
expensed in 1998 ($427,832) and Breakaway ($263,313) which was acquired in May
1998, the Company recorded a year on year decrease in selling, general and
administrative expenses of $88,221. Selling, general and administrative expenses
of NHS increased by $266,141 as compared to the corresponding period in 1998.
NHS recorded expense increases in most cost categories, most significantly in
payroll, communication and property costs. This increase was offset by cost
reductions in the restaurant card business totaling $104,168 across all expense
categories and a net decrease in head office expenses of $250,194. The net
decrease in head office selling, general and administrative expenses comprised
office an increase in depreciation and amortization charges of 111,543 which was
offset by expense decreases primarily in payroll and professional fees.
The Company's share of profits/(losses) of its affiliates Countdown, Countdown
America and Logan Leisure were $104,134, $(20,001) and $(13,979) respectively
for the three months ended March 31, 1999 (1998: $37,542, nil and nil).
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Six Months ended March 31, 1999 compared to Six Months ended March 31, 1998
Revenues totaled $2,034,869 (1998: $1,752,791) for the six months ended March
31, 1998, an increase of $282,078 (16.1%) as compared to the corresponding
period in 1998. NHS accounted for $160,708 of such increase, albeit that in 1998
NHS was only consolidated for 4 months. Breakaway, which was acquired in May
1998, generated revenues of $425,172 (1998: nil) and the pre-existing restaurant
card business recorded a decline in revenues of $303,802 or 39.7%. The decline
in the restaurant card business was primarily due to a lower participating
restaurant base and lower card usage.
Cost of sales totaled $411,288 (1998: $578,357) for the six months ended March
31, 1999 resulting in a gross profit percentage of 79.8% (1998: 67.0%). The
increase in gross profit percentage reflects the impact of the higher margin NHS
and Breakaway businesses. The gross profit percentage achieved in the period by
NHS and Breakaway were 84.3% and 100% respectively as compared to 49.8% in the
restaurant card business. In the corresponding period in 1998 NHS achieved a
gross profit percentage of 86.2% and the restaurant card business 42.2%.
Selling, general and administrative expenses totaled $3,060,193 (1998:
$3,723,763) for the six months ended March 31, 1999, a decrease of $663,570 or
17.8% over the corresponding period in 1998. Selling, general and administrative
expenses for the six months ended March 31, 1998 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 and Breakaway, selling, general and
administrative expenses increased by $56,689 or 2.3% in the six months ended
March 31, 1999 as compared to the corresponding period in 1998. NHS recorded an
increase of $224,170 primarily in payroll costs and communication charges. This
increase was offset by cost reductions in the restaurant card business totaling
$149,080 across all expense categories and a net decrease in head office
expenses of $18,401. The net decrease in head office selling, general and
administrative expenses comprised office relocation costs of $287,622 and an
increase in depreciation and amortization charges of 154,869 which were offset
by expense decreases in payroll and professional fees.
The Company's share of profits/(losses) of its affiliates Countdown, Countdown
America and Logan Leisure were $52,048 $(85,159) and $38,803 respectively for
the six months ended March 31, 1999 (1998: $5,978, nil and nil).
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Liquidity and Capital Resources
17
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, 1999 March 31, 1998
Cash (used in)/provided by
Operating Activities $(3,607,322) $(1,044,388)
Cash used in
Investing activities $(1,317,955) $ (763,323)
Cash provided by financing
Activities $ 4,842,519 $ 2,436,713
The Company incurred a net loss of $1,578,218 in the six months ended March 31,
1999, which when adjusted for non-cash items resulted in funds used in operating
activities totaling $3,607,322, net of working capital movements. Non-cash items
comprised depreciation and amortization charges $359,629, the Company's share of
profits of affiliates of $5,692, losses attributable to minority interests
$4,309, provision against irrecoverable restaurant credits $3,946 and a release
of provision for bad debts of $11,563.
Net cash used in investing activities of $1,317,955 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. In the
corresponding period in 1998 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 six months ended March 31, 1999, the
Company sold in aggregate 1,542,666 shares of its common stock in equity private
placements, resulting in net proceeds to the Company of $1,507,000. In addition,
in November 1998 the Company raised approximately $3.4 million through the
issuance of a One Year Secured Promissory Note (see Note 12 to the unaudited
consolidated financial statements).
During the six ended March 31, 1999 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 believes 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.
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 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
18
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 and six months ended March 31, 1998, 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, 1998.
19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no lawsuits or claims pending against the Company or any of its
subsidiaries.
ITEM 2. Change 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 is
closed on November 30, 1998 upon the sale of 842,666 shares of common stock at
$0.75 per share, resulting in the net proceeds to the company of $632,000. The
proceeds of the placement were applied to working capital.
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. The placement closed
on January 31, 1999 upon the sale of 700,000 shares of common stock at $1.25 per
share, resulting in net proceeds to the company of $875,000. The proceeds of the
placement were used to meet debt repayment obligations and for working capital
generally.
On May11, 1999 the Company commenced an equity 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 2 million shares of common stock at $.75 per share,
resulting in net proceeds to the company of $1.5 million.
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 repaid the three 250,000 pounds sterling
promissory notes in full, together with accrued interest. In addition, the
holder of the 200,000 pounds sterling promissory note has been paid
approximately $41,700 in part repayment and has agreed to give the Company until
July 8, 1999 to repay the balance of the note together with accrued interest.
The Company granted such note holder a conversion privilege to convert the
balance of the note, together with accrued interest, into shares of common stock
at a conversion price of $.75 per share prior to July 8, 1999.
During the course of negotiations with the note holders, the Company granted two
of the 250,000 pounds sterling note holders an additional warrant each to
purchase 41,660 shares of common stock and agreed to adjust the exercise price
of all warrants issued to all note holders from $2.00 to $1.00.
ITEM 6. Exhibits and Reports on Forms 8-K
20
(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
21