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 September 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 October 31, 1998:
5,000,152
PART I
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
September 30,
1998
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 120,400
Accounts receivable, net of allowance for doubtful accounts
of $65,000 864,400
Other current assets 713,900
-----------
Total current assets 1,698,700
Property and equipment, net 4,492,600
Other assets 267,300
-----------
$ 6,458,600
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 839,500
Current portion of bank debt 1,336,400
Other current liabilities 177,800
-----------
Total current liabilities 2,353,700
Bank debt, less current portion 1,627,900
Deferred taxes 911,500
-----------
Total liabilities 4,893,100
-----------
Stockholder's equity:
Common stock, $.001 par value, 100,000,000 shares authorized,
5,000,152 shares issued and outstanding 5,000
Retained earnings 1,560,500
-----------
Total stockholder's equity 1,565,500
-----------
$ 6,458,600
===========
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,211,500 $ - $ 6,135,600 $ -
Operating costs and expenses:
Cost of operations 1,994,600 - 3,949,000 -
Selling, general and administrative 698,600 6,500 1,825,100 7,700
Depreciation and amortization 312,400 - 821,900 -
----------- ----------- ----------- -----------
Total operating costs and expenses 3,005,600 6,500 6,596,000 7,700
----------- ----------- ----------- -----------
Income (loss) from operations 205,900 (6,500) (460,400) (7,700)
Interest expense 83,600 - 211,600 -
----------- ----------- ----------- -----------
Income (loss) before taxes 122,300 (6,500) (672,000) (7,700)
Income tax (expense) benefit (76,000) - 241,700 -
----------- ----------- ----------- -----------
Net income (loss) $ 46,300 $ (6,500) $ (430,300) $ (7,700)
=========== =========== =========== ===========
Net income (loss) per share - Basic $ 0.01 $ - $ (0.09) $ -
=========== =========== =========== ===========
- Diluted $ 0.01 $ - $ (0.09) $ -
=========== =========== =========== ===========
Weighted average number of shares outstanding
- Basic 5,000,152 1,500,152 4,807,844 1,500,152
=========== =========== =========== ===========
- Diluted 5,560,318 1,500,152 4,807,844 1,500,152
=========== =========== =========== ===========
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 46,300 $ (6,500) $ (430,300) $ (7,700)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 312,400 - 821,900 -
Net Increase (decrease) in cash resulting from changes in
current assets, current liabilities and other assets (698,200) 6,500 92,000 7,700
----------- ----------- ----------- -----------
Net cash provided by operating activities (339,500) - 483,600 -
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (105,200) - (281,900) -
Purchase of Steinley's Photochart Systems, Inc. - - (350,000) -
Purchase of GoldenTel, LLC. - - (230,000) -
Purchase of On Track, Inc. Net of $13,000
Cash acquired - - (187,000) -
----------- ----------- ----------- -----------
Net cash used by investing activities (105,200) - (1,048,900) -
----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on bank debt (199,400) - (702,400) -
Proceeds from bank borrowings 200,000 - 1,400,000 -
Principal payments on other liabilities and capital leases (6,900) - (11,900) -
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities (6,300) - 685,700 -
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (451,000) - 120,400 -
Cash and cash equivalents at beginning of period 571,400 - - -
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 120,400 - $ 120,400 -
=========== =========== =========== ===========
</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 determine
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.
Nine Months Ended
September 30, September 30,
1998 1997
----------- -----------
[S] [C] [C]
Revenue $ 6,135,600 $ 4,601,000
Loss from operations (460,400) (60,300)
Net loss (430,300) (128,400)
Loss per share (0.09) (0.03)
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 nine months
ended September 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 was 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 related
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.
Trident Telecard, Inc.
----------------------
In September 1998, the Company acquired certain assets from an unrelated
third party and formed a new company, Trident Telecard, Inc. ("Telecard").
Telecard's purpose is to develop and distribute through a network of
wholesalers prepaid telephone calling cards primarily to the resident alien
ethnic markets, tourists, students and the general public.`
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 from broadcasting and production activities is recognized at the
time services are performed by the Company. Revenue from prepaid phone card
activities is recognized at the time of sale. 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. As of September
30,1998, contractual revenue for future periods under these agreements amounted
to approximately $19,000,000.
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 periods presented.
Options and warrants to purchase common stock of 590,000 and 100,000,
respectively, are outstanding at September 30, 1998, but were not included in
the computation of diluted loss per share for the nine months ended September
30, 1998, because their effect was antidilutive.
6. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 1998, consists of the following:
Operating equipment $ 9,460,100
Leasehold improvements 220,400
Office furniture and equipment 426,700
Automobiles 170,800
-----------
10,278,000
Less accumulated depreciation and amortization (5,785,400)
-----------
$ 4,492,600
===========
7. BANK DEBT:
Bank debt at September 30, 1998, consists of the following:
Bank note payable bearing interest at bank's prime rate
plus 2% (8.5% at September 30, 1998). Principal payments
of $43,596 plus interest due monthly through July 2001. $ 1,482,300
Bank revolving note of $500,000 bearing interest at
bank's prime rate plus 2%. Interest payments due
monthly through July 1999. Outstanding balance shall
be $-0- for a minimum of 30 consecutive days during
the stated term of the note. 500,000
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $7,353 plus interest
due monthly through February 2001. 205,300
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $15,829 plus interest
due monthly through June 2002. 712,800
Bank note payable bearing interest at bank's prime rate
plus 2%. Principal payments of $3,125 plus interest due
monthly through January 2000. 63,900
-----------
2,964,300
Less current portion (1,336,400)
-----------
$ 1,627,900
===========
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.
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
September 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 nine month period ended September
30, 1998, was approximately $213,000 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 provision of telephony services including prepaid telephone calling 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 nine month periods ended September 30, 1998, the Company
reported net income of $46,300 and a net loss of $430,300, 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 September 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 nine
months ended September 30, 1998 was in excess of $250,000.
Liquidity
---------
At September 30, 1998, the Company had current assets of $1,698,700 and
current liabilities of $2,353,700.
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. In addition, the Company operates
primarily under long-term non-cancelable contracts with major establishments in
the sports and wagering industries which provides a reliable and predictable
revenue stream (see note 4). The Company believes that its current cash flow,
long-term contracts with its customers and its relationship with its lending
institutions will be sufficient to support these cash requirements.
Year 2000 Compliance
--------------------
The Company is implementing a Year 2000 program to ensure that its
computer systems and applications will function properly beyond the year 1999
and believes that adequate resources have been allocated for this purpose. The
Company does not believe that the cost of implementing its Year 2000 program
will have a material effect on the Company's financial condition or results of
operations. The expenses of the Company's efforts to address such problems, or
the expenses or liabilities to which the Company may become subject as a result
of such problems, could have a material adverse affect on the Company's results
of operations and financial condition. In addition, the revenue stream and
financial ability of existing suppliers, service providers or customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenues and operating profitability.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(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: November 13, 1998 By: /s/ Edward M. Spector
President and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10QSB for the quarter ended September 30, 1998 of Trident Media Group, Inc. 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> SEP-30-1998
<CASH> 120,400
<SECURITIES> 0
<RECEIVABLES> 864,400
<ALLOWANCES> 65,000
<INVENTORY> 120,500
<CURRENT-ASSETS> 1,698,700
<PP&E> 10,278,000
<DEPRECIATION> 5,785,400
<TOTAL-ASSETS> 6,458,600
<CURRENT-LIABILITIES> 2,353,700
<BONDS> 2,964,300
0
0
<COMMON> 5,000
<OTHER-SE> 1,560,500
<TOTAL-LIABILITY-AND-EQUITY> 6,458,600
<SALES> 0
<TOTAL-REVENUES> 6,135,600
<CGS> 0
<TOTAL-COSTS> 6,596,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,600
<INCOME-PRETAX> (672,000)
<INCOME-TAX> (241,700)
<INCOME-CONTINUING> (430,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (430,300)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
