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, 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 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, 1999:
5,000,152
PART I
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 568,000
Accounts receivable, net of allowance for doubtful accounts
of $112,900 674,800
Prepaid expenses 253,100
Deferred taxes 649,200
Other current assets 34,500
----------
Total current assets 2,179,600
Property and equipment, net 3,751,900
Other assets 258,700
----------
$6,190,200
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 801,100
Bank debt 2,659,700
Payable to majority stockholder 455,000
Deferred income 30,000
Other current liabilities 111,300
----------
Total current liabilities 4,057,100
Deferred taxes 905,000
Other liabilities 50,200
----------
Total liabilities 5,012,300
----------
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 shares authorized,
5,000,152 shares issued and outstanding 5,000
Paid in capital 35,000
Retained earnings 1,137,900
----------
Total stockholders' equity 1,177,900
----------
$6,190,200
==========
</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,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $3,093,000 $3,211,500 $7,348,400 $6,135,600
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of operations 1,625,400 1,994,600 4,281,900 3,949,000
Selling, general and administrative 641,400 698,600 1,840,300 1,825,100
Depreciation and amortization 287,500 312,400 902,800 821,900
---------- ---------- ---------- ----------
Total operating costs and expenses 2,554,300 3,005,600 7,025,000 6,596,000
---------- ---------- ---------- ----------
Income (loss) from operations 538,700 205,900 323,400 (460,400)
Interest expense 83,200 83,600 239,900 211,600
---------- ---------- ---------- ----------
Income (loss) before taxes 455,500 122,300 83,500 (672,000)
Income tax expense (benefit) 141,100 76,000 7,700 (241,700)
---------- ---------- ---------- ----------
Net income (loss) $ 314,400 $ 46,300 $ 75,800 $ (430,300)
========== ========== ========== ==========
Net income (loss) per share - Basic $ 0.06 $ 0.01 $ 0.02 $ (0.09)
========== ========== ========== ==========
- Diluted $ 0.06 $ 0.01 $ 0.01 $ (0.09)
========== ========== ========== ==========
Weighted average number of shares
outstanding
- Basic 5,000,152 5,000,152 5,000,152 4,807,844
========== ========== ========== ==========
- Diluted 5,420,152 5,560,318 5,530,954 4,807,844
========== ========== ========== ==========
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED CASH FLOW
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 314,400 $ 46,300 $ 75,800 $ (430,300)
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 287,400 312,400 902,700 821,900
Loss on disposal of property
and equipment 24,600 - 24,600 7,800
Increase (decrease) in cash resulting
from changes in:
Accounts receivable 219,000 (31,600) (36,100) (23,700)
Prepaid expenses and other assets 36,700 (92,000) (22,300) (407,400)
Accounts payable and
other liabilities (313,500) (417,200) (385,600) (13,500)
---------- ---------- ---------- ----------
Net cash provided (used)
by operating activities 568,600 (182,100) 559,100 (45,200)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Change in amounts due
from related parties (12,800) (86,000) (28,700) (79,900)
Purchase of Steinley's Photochart,
Systems, Inc. (24,300) (8,300) (40,800) (263,800)
Purchase of GoldenTel, LLC. - - - (230,000)
Purchase of On Track, Inc. - - - (187,000)
Purchase of property and equipment (15,400) (168,300) (470,700) (345,500)
---------- ---------- ---------- ----------
Net cash used by
investing activities (52,500) (262,600) (540,200) (1,106,200)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Advances (payments) from (to)
majority stockholder (105,000) - 455,000 -
Debenture payment to former stockholder - - (75,000) -
Principal payments on bank debt (264,600) (199,400) (407,900) (502,400)
Proceeds from bank borrowings - 200,000 - 1,200,000
Other 38,200 (6,900) 42,200 (11,900)
---------- ---------- ---------- ----------
Net cash provided (used) by
financing activities (331,400) (6,300) 14,300 685,700
---------- ---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents 184,700 (451,000) 33,200 (465,700)
Cash and cash equivalents at
beginning of period 383,300 571,400 534,800 586,100
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period $ 568,000 $ 120,400 $ 568,000 $ 120,400
========== ========== ========== ==========
</TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
- ---------------------------------------------------------------------------
1. THE COMPANY:
Trident Media Group, Inc. ("Trident" or the "Company"), a Nevada
Corporation, 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
industries, syndicates sports and entertainment programming throughout North
America and provides long distance telephone services through the sale of
prepaid phone cards.
2. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements for Trident contain all adjustments (consisting of only
normal recurring adjustments and accruals) necessary to present fairly the
consolidated financial position as of September 30, 1999, and the consolidated
results of operations and cash flows for the nine and three months ended
September 30, 1999 and 1998. All significant intercompany transactions have
been eliminated.
3. INTERIM FINANCIAL STATEMENTS:
Certain information and footnote disclosures normally included in the
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 to be
expected for the full year. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1998.
4. ADVANCES FROM MAJORITY STOCKHOLDER:
During the nine months ended September 30, 1999, the Company's majority
stockholder advanced $455,000 (net of $140,000 in repayments) toward funding
the Company's operations. These advances are payable on demand and call for
interest at 12% per annum, payable six months in arrears.
5. EARNINGS PER SHARE:
The computation of basic earnings per share of common stock is based on
the weighted average number of shares outstanding for the periods ended
September 30, 1999 and September 30, 1998. Options and warrants to purchase
common stock of 720,000 and 100,000, respectively, are outstanding at September
30, 1999.
The following tables represent the required disclosure of the basic and
diluted earnings per share computation for the nine and three months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount Numerator) (Denominator) Amount
--------- --------- ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income (loss) $ 75,800 5,000,152 $ 0.02 $ (430,300) 4,807,844 $ (0.09)
====== =======
Effect of Dilutive
Securities
Securities Assumed
Converted
Options 590,000
Warrants 100,000 -
Less Securities Assumed
Repurchased (159,198)
--------- --------- ------ ---------- --------- -------
Diluted EPS $ 75,800 5,530,954 $ 0.01 $ (430,300) 4,807,844 $ (0.09)
========= ========= ====== ========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount Numerator) (Denominator) Amount
--------- --------- ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $ 314,400 5,000,152 $ 0.06 $ 46,300 5,000,152 $ 0.01
====== =======
Effect of Dilutive
Securities
Securities Assumed
Converted
Options 590,000 590,000
Warrants 100,000
Less Securities Assumed
Repurchased (270,000) (29,834)
--------- --------- ------ ---------- --------- -------
Diluted EPS $ 314,400 5,420,152 $ 0.06 $ 46,300 5,560,318 $ 0.01
========= ========= ====== ========== ========= =======
</TABLE>
6. BANK DEBT
Bank debt of $2,659,700 at September 30, 1999 is collateralized by all of
the Company's assets and is personally guaranteed by the Company's majority
stockholder. 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 the financial covenants at June 30, 1999. Pursuant to a Loan
Agreement Amendment dated July 29, 1999, the bank has (i) extended the term of
the loans (which had been due on July 15, 1999) to January 15, 2000, (ii)
waived the financial covenant violations through the date of the agreement,
(iii) adjusted the interest rate from the bank's prime rate plus 2% to the
bank's prime rate plus 3.5% through November 15, 1999, increasing to the bank's
prime rate plus 7% after November 15, 1999, and (iv) instituted monthly
reporting to the bank of the Company's financial condition and progress being
made by the Company toward obtaining funds to fully repay the subject loans by
January 15, 2000.
7. DISCLOSURE OF SEGMENT INFORMATION
The Company has the following two reportable segments: Network Services
Group and Telecommunications Services (which began operations in June of
1998). Network Services Group provides simulcasting, television production,
advertising and related services primarily to racetracks, casinos and off-track
betting locations. The Telecommunications Services Group offers services
primarily through the use of enhanced prepaid phone cards provided through
company owned electronic dispensing units and retail sales.
The Company manages segment reporting at a gross profit level. Selling,
general and administrative expenses (including, corporate functions, recruiting
and marketing) are managed at the corporate level separately from the segments.
The following information about the segments is for the nine and three
month periods ended September 30, 1999 and 1998 (000's).
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------
1999 1998
---------------------------- ------------------------------
Network Telecommu- Network Telecommu-
Services nication Services nication
Group Services Total Group Services Total
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 6,331 $ 1,017 $ 7,348 $ 5,542 $ 594 $ 6,136
Cost of Operations 3,651 631 4,282 3,471 478 3,949
Depreciation and
Amortization 844 58 902 804 18 822
------- ------- ------- ------- ------- -------
Gross Profit $ 1,836 $ 328 2,164 $ 1,267 $ 98 1,365
======= ====== ======= ======
Selling, General
Administrative 1,841 1,825
===== ------
Income (loss)
from Operations $ 323 $ (460)
====== ========
Identifiable Assets $ 5,720 $ 470 $ 6,190 $ 6,050 $ 409 $ 6,459
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------
1999 1998
---------------------------- ------------------------------
Network Telecommu- Network Telecommu-
Services nication Services nication
Group Services Total Group Services Total
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,681 $ 412 $ 3,093 $ 2,690 $ 522 $ 3,212
Cost of Operations 1,388 237 1,625 1,561 434 1,995
Depreciation and
Amortization 269 19 288 297 15 312
------- ------- ------- ------- ------- -------
Gross Profit $ 1,024 $ 156 1,180 $ 832 $ 73 905
======= ====== ======= ======
Selling, General &
Administrative 641 699
------- -------
Income from Operations $ 539 $ 206
======= =======
Identifiable Assets $ 5,720 $ 470 $ 6,190 $ 6,050 $ 409 $ 6,459
======= ======= ======= ======= ======= =======
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATONS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
The following discussion of the financial condition and operating results
of Trident should be read in conjunction with Trident's Financial Statements
and notes thereto, and other financial information included elsewhere in this
report. 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, alternative methods of broadcasting and an increasing
variety of telecommunication products being offered to the general public;
consolidation in the ownership of the Company's principal customers and the
risks associated with providing services to the gaming industry.
RESULTS OF OPERATIONS
- ---------------------
The Company reported net income of $75,800 for the nine months ended
September 30, 1999, as compared to a net loss of $430,300 for the same period
of 1998. For the three months ended September 30, 1999, the Company reported
net income of $314,400 as compared to net income of $46,300 for the same period
of the prior year. The first calendar quarter of the year historically shows a
net loss, primarily due to the cyclical nature of the Company's core 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 summer months. In addition, the start-up of the
Company's telephone calling card business in June of 1998 contributed to higher
losses in 1998. In the second quarter of 1998, the Company also acquired
Steinley's Photochart, Systems, Inc. ("Steinley's") and On Track, Inc. ("OTI")
which operate in the same business segment as the Company's existing core
business. These two acquisitions contributed approximately $188,000 and
$68,000 to pre-tax results for the nine and three months ended September 30,
1999, respectively, as compared to $80,000 and $60,000 for the same periods of
the prior year.
Revenues
- --------
The Company reported revenues of $7.3 million and $3.1 million for the
nine and three months ended September 30, 1999, respectively, as compared to
$6.1 million and $3.2 million for the same periods in 1998. The increase in
revenues of $1.2 million for the nine month period from 1998 to 1999 was
directly related to the Company's telephone calling card business
(approximately $0.4 million) which was started up in June of 1998 and the
activities of Steinley's and OTI (approximately $0.9 million) which were not
acquired until the second quarter of 1998.
Cost of Operations
- ------------------
Cost of operations amounted to $4.3 million and $1.6 million for the nine
and three months ended September 30, 1999, respectively, as compared to $3.9
million and $2.0 million for the same periods of the prior year. The increase
of $0.4 million from 1998 to 1999 for the nine months ended September 30
primarily relates to costs incurred by the Company's calling card activities
($0.2 million) and the operations of Steinley's and OTI ($0.6 million), which
only operated during a portion of the first nine months of 1998. These higher
costs were offset by lower costs (primarily satellite time) incurred by the
Company's core racing business activities.
Selling, General and Administrative Expenses
- --------------------------------------------
The Company reported selling, general and administrative expenses of $1.8
million and $0.6 million for the nine and three months ended September 30,
1999, respectively. Approximately the same amounts were reported for the same
periods of 1998 as the Company has been able to effectively absorb the
acquisitions made in 1998 with little or no increase in fixed overhead costs.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization for the nine months ended September 30, 1999
increased by approximately $80,000 from the same as period of the prior year
primarily due to amortization of Goodwill recorded in the 1998 acquisitions and
higher capital expenditures in 1999 versus 1998.
Interest Expense
- ----------------
Interest expense increased slightly from 1998 to 1999 primarily as a
result of borrowings incurred in connection with acquisitions consummated
during 1998.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
The Company's primarily business of providing services to the pari-mutuel
gaming industry is subject to concentrations of risk. The Company derives a
significant portion of its revenues (approximately 32% in fiscal year 1998)
from four racetrack operators. The loss of one or more of these customers
could have a material adverse impact on the Company's operating results.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had current assets of $2.2 million and current liabilities of $4.0
million as of September 30, 1999. The deficit in working capital was due to
classifying all of the Company's bank debt as a current liability as of
September 30, 1999 (see discussion below). Stockholder's equity increased from
$1.1 million at December 31, 1998 to $1.2 million at September 30, 1999, as a
result of the income reported for the nine months ended September 30, 1999.
At September 30, 1999, the Company had a credit facility with its
principal lender consisting of a term loan of $2.2 million and a revolving line
of credit of $0.5 million (which was fully drawn down and no further funds are
available). Pursuant to a Loan Agreement Amendment dated July 29, 1999 the
lender extended the maturity date of the term loan and the revolving line of
credit from July 15, 1999 to January 15, 2000. The Loan Agreement Amendment
also adjusted the interest rate on the outstanding borrowings from the bank's
prime rate plus 2% to the bank's prime rate plus 3.5% through November 15,
1999, increasing to the bank's prime rate plus 7% after November 15, 1999. The
loan agreement requires the Company to meet certain financial ratios and
maintain certain tangible net worth levels. The Company was in violation of
the financial covenants at September 30, 1999, which the lender waived in the
Loan Agreement Amendment through the date of the agreement. The Company is
currently exploring various alternatives to replace or satisfy its current
credit facility. Based on its current operating performance and its prior
refinancing experience the Company believes that the credit facility will be
satisfied or refinanced.
During the next twelve 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 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. During
the first three or four months of the calendar year the Company historically
shows negative cash flow due to the cyclical nature of the Network Services
Group's business activities. During the nine months ended September 30, 1999
the Company's majority shareholder advanced the Company approximately $455,000
to cover this cash flow shortfall.
YEAR 2000 COMPLIANCE
- --------------------
By modifying existing programs and making conversions to Year 2000 ("Y2K")
compliant software the Company is implementing a Y2K 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 Y2K program will
have a material effect on the Company's financial condition or results of
operations. However, 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 effect on
the Company's results of operations and financial condition. In addition,
factors outside of the Company's control such as the revenue stream and
financial ability of existing suppliers, service providers or customers may be
adversely impacted by Y2K problems, which could cause fluctuations in the
Company's revenue and operating profitability.
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 8-K - 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 17, 1999 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 nine months ended September 30, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 568,000
<SECURITIES> 0
<RECEIVABLES> 787,700
<ALLOWANCES> 112,900
<INVENTORY> 13,100
<CURRENT-ASSETS> 2,179,600
<PP&E> 10,632,500
<DEPRECIATION> 6,880,600
<TOTAL-ASSETS> 6,190,200
<CURRENT-LIABILITIES> 1,397,400
<BONDS> 2,659,700
0
0
<COMMON> 5,000
<OTHER-SE> 1,172,900
<TOTAL-LIABILITY-AND-EQUITY> 6,190,200
<SALES> 0
<TOTAL-REVENUES> 7,348,400
<CGS> 0
<TOTAL-COSTS> 7,025,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239,900
<INCOME-PRETAX> 83,500
<INCOME-TAX> 7,700
<INCOME-CONTINUING> 75,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,800
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.01
</TABLE>
