SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 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 2-98074-NY
Trident Media Group, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 11-2751536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6349 Palomar Oaks Court, Carlsbad, CA 92009
(Address of principal executive offices)
(760) 438-9080
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of Issuer's Common Stock as of July 31, 1998:
5,000,152
<PAGE>
PART I
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
June 30,
1998
-----------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 571,400
Accounts receivable, net of allowance for doubtful accounts
of $104,300 618,100
Other current assets 552,200
-----------
Total current assets 1,741,700
Property and equipment, net 4,639,700
Other assets 219,900
-----------
$ 6,601,300
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,115,700
Current portion of bank debt 1,136,400
Other current liabilities 91,200
-----------
Total current liabilities 2,343,300
Bank debt, less current portion 1,827,300
Deferred taxes 911,500
-----------
Total liabilities 5,082,100
-----------
Stockholder's equity:
Common stock, $.001 par value, 100,000,000 shares authorized,
5,000,152 shares issued and outstanding 5,000
Retained earnings 1,514,200
-----------
Total stockholder's equity 1,519,200
-----------
$ 6,601,300
===========
</TABLE>
<PAGE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,902,100 $ - $ 2,924,100 $ -
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of operations 1,114,900 - 1,954,400 -
Selling, general and administrative 642,900 600 1,126,500 1,200
Depreciation and amortization 265,400 - 509,500 -
----------- ----------- ----------- -----------
Total operating costs and expenses 2,023,200 600 3,590,400 1,200
----------- ----------- ----------- -----------
Loss from operations (121,100) (600) (666,300) (1,200)
Interest expense 67,400 - 128,000 -
----------- ----------- ----------- -----------
Loss before taxes (188,500) (600) (794,300) (1,200)
Income tax benefit 75,400 - 317,700 -
----------- ----------- ----------- -----------
Net loss $ (113,100) (600) $ (476,600) $ (1,200)
=========== =========== =========== ===========
Net (loss) per share - Basic $ (0.02) $ - $ (0.10) $ -
=========== =========== =========== ===========
- Diluted $ (0.02) $ - $ (0.10) $ -
=========== =========== =========== ===========
Weighted average number of shares outstanding 5,000,152 1,500,152 4,710,097 1,500,152
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (113,300) $ (600) $ (476,600) $ (1,200)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 265,400 - 509,500 -
Net Increase (decrease) in cash resulting from changes in
current assets, current liabilities and other assets 432,700 600 776,300 1,200
----------- ----------- ----------- -----------
Net cash provided by operating activities 584,800 - 809,200 -
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (163,400) - (176,700) -
Purchase of Steinley's Photochart Systems, Inc. (350,000) - (350,000) -
Purchase of GoldenTel, LLC. (230,000) - (230,000) -
Purchase of On Track, Inc. Net of $13,000
Cash acquired (187,000) - (187,000) -
----------- ----------- ----------- -----------
Net cash used by investing activities (930,400) - (943,700) -
----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on bank debt (347,200) - (489,100) -
Proceeds from bank borrowings 950,000 - 1,200,000 -
Principal payments on capital leases (2,500) - (5,000) -
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities 600,300 - 705,900 -
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 254,700 - 571,400 -
Cash and cash equivalents at beginning of period 316,700 - - -
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 571,400 - $ 571,400 -
=========== =========== =========== ===========
</TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Merger with Spector Entertainment Group, Inc.:
On January 15, 1998, Spector Entertainment Group, Inc. ("SEG"), Millenium
Entertainment Group, Inc. ("Millenium"), a California corporation and the
sole stockholder of SEG, and Trident Media Group, Inc. ("the Company" or
"Trident"), an inactive public company that had been dormant since 1988,
completed an Agreement and Plan of Merger (the "Agreement").
Pursuant to the Agreement, all of the outstanding shares of SEG were
exchanged for 4,500,000 shares of validly issued, fully paid and non-
assessable common stock of Trident (approximately 90% of the issued and
outstanding shares of Trident).
For accounting purposes, this transaction was recorded as if SEG
acquired Trident, a reverse acquisition. Subsequent to the business
combination, the Board of Directors and shareholders of Millenium controlled
a majority of the common stock of Trident. As a result of the large number
of shares being issued in connection with the transaction, the fact that the
shares represent unregistered securities, and the market for the securities
is thin, the fair value of Trident's net assets, which approximates cost,
was used to determined the value of the shares exchanged.
Supplemental Proforma Results of Operations
The following unaudited proforma information presents the
consolidated results of operations as if the purchase had occurred at the
beginning of the periods presented and does not purport to be indicative of
what would have occurred had the acquisition actually been made as of such
date or of results which may occur in the future.
Six Months Ended
June 30, June 30,
1998 1997
----------- -----------
[S] [C] [C]
Revenue $ 2,924,100 $ 2,531,300
Loss from operations (666,300) (286,400)
Net loss (476,600) (231,700)
Loss per share (0.10) (0.05)
2.The Company:
Trident, a Nevada corporation formed in 1984, through its wholly-owned
subsidiaries, provides telecommunications services for the broadcast
industry and private satellite networks, video production and management
operations services for the sports and entertainment industry, syndicates
sports and entertainment programming throughout North America and provides
telecomunications products through the sale of prepaid phone cards
3. Acquisitions:
The following acquisitions were completed during the three months ended June
30, 1998. These transactions were all accounted for under the purchase
method of accounting. The allocation of purchase price for these
transactions was based on historic net book values, which in management's
opinion approximates fair value.
Steinley's Photochart Systems, Inc.
----------------------------------
On April 1, 1998, the Company acquired 100% of the issued and outstanding
common stock of Steinley's Photochart Systems, Inc. ("Steinley's") for
$350,000 ($250,000 in cash and the remainder to be paid in monthly
installments in connection with a consulting and non-compete agreement with
one of the former owners). In addition, the former owners of Steinley's can
earn an additional $250,000 based on achieving certain revenue and earnings
targets over the next two years. Steinley's is a provider of audio-video and
photo finish services to the pari-mutuel racing industry.
GoldenTel Prepaid, LLC.
-----------------------
On June 2, 1998, the Company acquired 100% of the issued and outstanding
membership units of GoldenTel Prepaid, LLC. ("GoldenTel") for $200,000 in
cash and an earn-out of an additional $30,000 if certain revenue objectives
are achieved for the two months commencing June 2, 1998. These revenue
objectives were met and the earn-out payment will be paid on September 2,
1998. GoldenTel markets and sells prepaid telephone calling cards primarily
through dispensing machines in the State of Nevada
On Track, Inc.
--------------
On June 24, 1998, the Company acquired 100% of the issued and outstanding
common stock of On Track, Inc. ("OTI") for $200,000. The purchase price was
payable $100,000 at closing and $100,000 less any unrecorded liabilities, as
defined in the agreement, six months after the closing date. The sellers can
also earn an additional $200,000 based on reaching certain revenue and profit
levels over the next two years. OTI provides video production and management
services to the pari-mutuel racing industry as well as insert advertising to
the cable television industry in the southwest portion of the United States.
4. Significant Accounting Policies:
Interim Financial Statements
----------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been condensed or omitted. The results of
operations included herein are not necessarily indicative of the operating
results that may be expected for a full year. In the opinion of management,
all adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation have been included.
Revenue Recognition
-------------------
Revenue is recognized at the time services are performed by the Company.
Most of the Company's revenue is generated under long-term contracts with
remaining terms from one to five years. The Company provides services for
customers' scheduled events under these noncancelable contracts for the term
of the contract.
4. Significant Accounting Policies, Continued:
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt investments with original
maturities of three months or less to be cash equivalents.
Property and Equipment
----------------------
Property, plant and equipment, including renewals and betterments, are
recorded at cost. Depreciation is provided utilizing the straight-line
method over the estimated useful asset lives of 5 to 10 years. Leasehold
improvements are amortized over the shorter of their estimated useful life or
the remaining lease term. The Company evaluates the carrying value of its
long-lived assets to determine if impairment existed due to specific
conditions known to affect the carrying value of its assets. The Company
determined that no adjustment to asset values was necessary.
Goodwill
--------
Goodwill recorded in connection with acquisitions is amortized on a straight
line basis over three to ten years.
Income Taxes
------------
The Company records deferred tax assets and liabilities for differences
between the financial statement and tax bases of assets and liabilities
("temporary differences") at enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes
the enactment date. In addition, valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts expected to be
realized.
Business and Credit Concentrations
----------------------------------
The Company invests its cash in federally insured financial institutions.
Such amounts may, from time to time, be in excess of insured limits.
The Company's customers are not concentrated in any specific geographic
region. The Company reviews a customer's credit history before extending
credit and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
5. Loss per Share:
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period presented.
Options and warrants to purchase common stock of 590,000 and 100,000,
respectively, are outstanding at June 30, 1998, but were not included in the
computation of diluted loss per share because their effect was antidilutive.
6. Property and Equipment:
Property and equipment at June 30, 1998, consists of the following:
Operating equipment $ 9,367,200
Leasehold improvements 220,400
Office furniture and equipment 379,200
Automobiles 167,500
-----------
10,134,300
Less accumulated depreciation and amortization (5,494,600)
----------
$ 4,639,700
===========
7. Bank Debt:
Bank debt at June 30, 1998, consists of the following:
Bank note payable bearing interest at bank's prime rate
plus 2% (8.5% at June 30, 1998). Principal payments
of $43,596 plus interest due monthly through July 2001. $ 1,613,100
Bank revolving note of $500,000 bearing interest at
bank's prime rate plus 2%. Interest payments due
monthly through July 1998. Outstanding balance shall
be $-0- for a minimum of 30 consecutive days during
the stated term of the note. 300,000
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $7,353 plus interest
due monthly through February 2001. 227,400
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $15,829 plus interest
due monthly through June 2002. 750,000
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $3,125 plus interest due
monthly through January 2000. 73,200
-----------
2,963,700
Less current portion (1,136,400)
-----------
$ 1,827,300
===========
Bank debt is collateralized by all of the Company's assets and is personally
guaranteed by the Company's principal stockholders. In conjunction with the
bank notes payable, the Company is restricted from paying dividends, and is
required to meet certain financial ratios and maintain certain tangible net
worth levels. The Company was in violation of these financial covenants at
June 30, 1998. On August 14, 1998, the bank agreed to waive these
violations.
8. Warrants and Options:
Warrants
---------------
In connection with the acquisition of SEG, the Company issued warrants to
purchase 80,000 shares of common stock to a former officer of the Company and
warrants to purchase 20,000 shares of common stock to the Company's legal
counsel. The exercise price of the warrants will be determined in the future
and will be equal to 125% of the opening bid price on the NASDAQ Small Cap
Exchange if the stock is listed on the exchange within twelve months or else
will be 125% of the average bid price of the stock as listed on the OTC
Bulletin Board for the period of thirty days immediately prior to the one
year anniversary date. The warrants are exercisable for a period of two
years from the date the exercise price is determined.
Options
------------
The Company has formed an Employee Stock Option Plan for eligible officers,
employees and consultants of the Company or any of its subsidiaries. Under
the term of the Plan options may not be issued for less than 100% of the fair
market value of the Company's common stock on the date of grant. As of June
30, 1998, no options have been granted under this Plan.
On February 27, 1998, outside the aforementioned plan, the Company granted
options to acquire 590,000 shares of the Company's common stock at $0.125 per
share to certain officers of the Company.
9. Transactions with Related Parties:
Leases
----------
The Company leases office space from Margate Associates, a general
partnership wholly-owned by certain stockholders of the Company. The lease,
which expires May 31, 2003, currently provides for monthly payments of
$23,400.
The total office rent expense for the six month period ended June 30, 1998,
was approximately $142,700 and was paid to Margate Associates.
ITEM 2: MANAGEMENT DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
This report contains forward-looking statements that involve a number of risks
and uncertainties. In addition to the factors discussed elsewhere in this
report, among the other factors that could cause actual results to differ
materially are the following: business conditions and the general economy;
governmental regulation of the Company's telecommunications services and of the
pari-mutuel and gaming industries in general; competitive factors such as rival
service providers and alternative methods of broadcasting; consolidation in the
ownership of the Company's principal customers and the risks associated with
providing services to the gaming industry.
Plan of Operation
- - -----------------
Since the merger with SEG (see Note 1), the Company has been primarily
operating as a provider of integrated telecommunications,
television production and related services to the entertainment,
sports, and wagering industries. The Company's services include use and
or provision of mobile satellite and television production facilities,
post production services, closed circuit television and security systems,
satellite leasing, program syndication, and the sale
of prepaid phone cards. The Company's plan of operation over the next
twelve (12) months is to continue to seek expansion opportunities in its core
business with existing clientele, as well as develop new clients to maximize
utilization of the Company's existing facilities and services.
The Company has not and does not project for the future any research and
development efforts, any material purchase or sale of equipment or any
significant increase or decrease in the number of employees used to provide its
services.
Results of Operations
- - ---------------------
For the three and six month periods ended June 30, 1998, the Company reported
net losses of $113,100 and $476,600, respectively. The first calendar quarter
of the year historically shows a net loss due to the cyclical nature of SEG's
business activities. The majority of the Company's current services are
provided to customers in the pari-mutuel wagering industry with racing
schedules heavily weighted to the late spring and summers months.
Results for the three months ended June 30, 1998, were adversely affected by a
shift in the mix of racing start dates in 1998 as compared to the same period
of prior years. In addition, on May 19, 1998,
as a result of the failure of the Galaxy IV satellite,
Hughes declared Galaxy IV permanently out of service and
pre-empted all clients of Galaxy VI (on which the Company leased two full-time
transponders). This pre-emption forced the Company to find alternative
transponder capacity in a tighter and more expensive marketplace. The loss of
income from this disruption in satellite service for the three months ended
June 30, 1998 was approximately $100,000.
Liquidity
- - ---------
At June 30, 1998, the Company had current assets of $1,669,100 and current
liabilities of $2,343,300. At June 30, 1998, $200,000 was available under a
revolving line of credit from the Company's senior lender.
During the next twelve (12) months the Company's foreseeable cash requirements
include capital expenditures to support its core business, repairs and
maintenance of its equipment and facilities, and new equipment and facilities
to support corporate growth. The Company believes that is current cash flow
and its relationship with its lending institutions will be sufficient to
support these cash requirements.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits -
Exhibit 27.00 - Financial Data Schedule
(b) Reports on Form 8K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRIDENT MEDIA GROUP, INC.
Dated: August 19, 1998 By: /s/ Edward M. Spector
President and Director
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contain summary financial information extracted from the Form
10QSB for the quarter ended June 30, 1998 of Trident Media Group., and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 571,400
<SECURITIES> 0
<RECEIVABLES> 618,100
<ALLOWANCES> 104,300
<INVENTORY> 0
<CURRENT-ASSETS> 1,741,700
<PP&E> 10,134,300
<DEPRECIATION> 5,494,600
<TOTAL-ASSETS> 6,601,300
<CURRENT-LIABILITIES> 2,343,300
<BONDS> 2,963,700
0
0
<COMMON> 5,000
<OTHER-SE> 1,514,200
<TOTAL-LIABILITY-AND-EQUITY> 6,601,300
<SALES> 0
<TOTAL-REVENUES> 2,924,100
<CGS> 0
<TOTAL-COSTS> 3,590,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,000
<INCOME-PRETAX> (794,300)
<INCOME-TAX> (317,700)
<INCOME-CONTINUING> (476,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,600)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
