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 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 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 April 30,
1999: 5,000,152
PART 1
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
March 31,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 212,400
Accounts receivable, net of allowance for doubtful
accounts of $139,000 348,600
Deferred taxes 649,200
Other current assets 488,900
----------
Total current assets 1,699,100
Property and equipment, net 4,028,200
Other assets 219,100
----------
$5,946,400
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 907,600
Bank debt 3,061,200
Payable to majority stockholder 320,000
Other current liabilities 87,500
----------
Total current liabilities 4,376,300
==========
Deferred taxes 905,000
Other liabilities 63,200
----------
Total liabilities 5,344,500
----------
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 561,900
----------
Total stockholders' equity 601,900
----------
$5,946,400
==========
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Revenues $1,354,300 $ 1,022,000
---------- ----------
Operating costs and expenses:
Cost of operations 1,142,600 839,500
Selling, general and administrative 612,800 483,600
Depreciation and amortization 307,500 244,100
---------- ----------
Total operating costs and expenses 2,062,900 1,567,200
---------- ----------
(Loss) from operations (708,600) (545,200)
Interest expense 71,600 60,600
---------- ----------
(Loss) before taxes (780,200) (605,800)
Income tax benefit 280,000 242,300
---------- ----------
Net (loss) $ (500,200) $ (363,500)
========== ==========
Net (loss) per share - Basic and diluted $ (0.10) $ (0.08)
========== ==========
Weighted average number of shares outstanding 5,000,152 4,416,819
========== ==========
</TABLE>
<TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED CASH FLOW
(Unaudited)
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (500,200) $ (363,500)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 307,500 244,100
Increase (decrease) in cash resulting from changes in:
Accounts receivable 290,000 96,500
Prepaid expenses and other assets (210,200) (284,300)
Accounts payable and accrued liabilities (264,000) (22,700)
Taxes payable (20,500) (28,000)
---------- ----------
Net cash used by operating activities (397,400) (357,900)
---------- ----------
Cash flows from investing activities:
Change in amounts due from related parties (14,600) 8,800
Purchase of property and equipment (156,900) (13,800)
---------- ----------
Net cash used by investing activities (171,500) (5,000)
---------- ----------
Cash flows from financing activities:
Advances from majority shareholder 320,000 -
Debenture payment to former shareholder (75,000) -
Principal payments on bank debt (6,300) (140,200)
Proceeds from bank borrowings - 250,000
Other 7,800 (16,300)
---------- ----------
Net cash provided by financing activities 246,500 93,500
---------- ----------
Net decrease in cash and cash equivalents (322,400) (269,400)
Cash and cash equivalents at beginning of period 534,800 586,100
---------- ----------
Cash and cash equivalents at end of period $ 212,400 $ 316,700
========== ==========
</TABLE>
TRIDENT MEDIA GROUP, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1999, and the consolidated
results of operations and cash flows for the three months ended March 31, 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. LOSS PER SHARE
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding for the periods ended March 31,
1999 and March 31, 1998. Options and warrants to purchase common stock of
720,000 and 100,000, respectively, are outstanding at March 31, 1999, but were
not included in the computation of diluted loss per share, because their effect
was antidilutive.
5. ADVANCES FROM MAJORITY STOCKHOLDER
During the three months ended March 31, 1999, the Company's majority
stockholder advanced $320,000 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. BANK DEBT
Bank debt of $3,061,200 at March 31, 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 March 31, 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 the second
quarter 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 period ended March
31, 1999.
<TABLE>
<CAPTION>
Network Services Telecommunication
Group Services Total
---------------- ---------------- ------------
<S> <C> <C> <C>
Revenues $ 1,089,000 $ 265,300 $ 1,354,300
Cost of Operations 959,200 173,800 1,133,000
Depreciation and Amortization 288,200 19,300 307,500
----------- ---------- -----------
Gross Profit $ (158,400) $ 72,200 (86,200)
=========== ===========
Selling, General & Administrative (622,400)
----------
Loss from Operations $ (708,600)
===========
Identifiable Assets $ 5,581,100 $ 365,300 $ 5,946,400
=========== =========== ===========
</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
- ---------------------
For the three months ended March 31, 1999, the Company reported a net loss
of $500,200 as compared to a net loss of $363,500 for the same period of 1998.
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. Contributing to the higher losses in 1999 (as
compared to 1998) were higher fixed general and administrative expenses
relating to operations that were started up or acquired during the last half of
1998. In addition to the start-up of the telephone calling card business
during 1998 the Company also acquired Steinley's Photochart, Systems, Inc.
("Steinley's") and On Track, Inc. ("OTI") which operated in the same business
segment as the Company's existing core business. These two acquisitions
contributed approximately $40,000 to pre-tax results for the three months ended
March 31, 1999.
Revenues
--------
The Company reported revenues of $1.4 million for the three months ended
March 31, 1999 as compared to $1.0 million for the three months ended March 31,
1998. The increase in revenues was directly related to the Company's telephone
calling card business (approximately $0.3 million) which was started up in
June of 1998 and the activities of Steinley's and OTI (approximately $0.4
million) which were not acquired until the second quarter of 1998. The
increase in revenue from these new activities was offset by a decrease in
revenue from the Company's existing core business which decreased from $1.0
million in 1998 to $0.7 million in 1999, primarily as a result in the mix of
client's from 1998 to 1999.
Cost of Operations
------------------
Cost of operations amounted to $1.1 million for the three months ended
March 31, 1999, as compared to $0.8 million for the three months ended March
31, 1998. The increase from 1998 to 1999 relates to costs incurred by the
Company's calling card activities ($0.2 million) and the operations of
Steinley's and OTI ($0.2 million), which didn't exist in the first quarter 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 $0.6
million for the three months ended March 31, 1999 as compared to $0.5 million
for the three months ended March 31, 1998. The increase is primarily
attributable to the start-up of the telephone calling card business and
selling, general and administrative expenses relating to acquisitions made
during 1999 which didn't exist in the first quarter of 1998.
Depreciation and Amortization
-----------------------------
Depreciation and amortization for the three months ended March 31, 1999,
was approximately the same as the comparable period of the prior year.
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 $1.7 million and current liabilities of
$4.4 million as of March 31, 1999. The deficit in working capital was due to
classifying all of the Company's bank debt as a current liability as of March
31, 1999 (see discussion below). Stockholders' equity decreased from $1.1
million at December 31, 1998 to $0.6 million at March 31, 1999, due to the net
loss reported for the three months ended March 31, 1999.
At March 31, 1999, the Company had a credit facility with its principal
lender consisting of a term loan of $2.6 million and a revolving line of credit
of $0.5 (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 March
31, 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 three months ended March 31, 1999, the
Company's majority shareholder loaned the Company over $320,000 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
On January 5, 1999, an action was commenced in the Superior Court of the
State of California by certain individuals involved in the activities of
Trident Telecard, Inc. (the Company's wholesale division of the prepaid
telephone calling card business) which the Company closed down as of December
31, 1998. As part of the Telecard Settlement Agreement (which did not involve
any payments on the Company's part) dated May 3, 1999, the suit was dismissed.
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: September 16, 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
10-QSB for the quarter ended March 31, 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> MAR-31-1999
<CASH> 212,400
<SECURITIES> 0
<RECEIVABLES> 487,600
<ALLOWANCES> 139,000
<INVENTORY> 20,900
<CURRENT-ASSETS> 1,699,100
<PP&E> 10,387,400
<DEPRECIATION> 6,359,200
<TOTAL-ASSETS> 5,946,400
<CURRENT-LIABILITIES> 1,315,100
<BONDS> 3,061,200
0
0
<COMMON> 5,000
<OTHER-SE> 596,900
<TOTAL-LIABILITY-AND-EQUITY> 5,946,400
<SALES> 0
<TOTAL-REVENUES> 1,354,300
<CGS> 0
<TOTAL-COSTS> 2,062,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,600
<INCOME-PRETAX> (780,200)
<INCOME-TAX> (280,000)
<INCOME-CONTINUING> (500,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500,200)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
