<PAGE>
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, 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 0-26368
TRANSMEDIA ASIA PACIFIC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3760219
------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
---------------------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
----------------------------
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 // No /X/
17,991,316 Shares, $.00001 par value, as of April 15, 1998
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date)
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I : CONSOLIDATED FINANCIAL INFORMATION
ITEM 1 Pages 1-15
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of March 31, 1998 and September 30, 1997
Consolidated Statement of Operations for the three months ended March 31, 1998
and 1997 and the six months ended March 31, 1998 and 1997
Consolidated Statement of Cash Flows for the six months ended March 31, 1998 and 1997
Notes to the Consolidated Financial Statements
ITEM 2 Pages 16-18
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION Page 19
SIGNATURES Page 19
</TABLE>
The consolidated financial statements are unaudited. However, management
believes that all necessary adjustments (which include only normal recurring
accruals) have been reflected to present fairly the financial position of the
company at September 30, 1997 and March 31, 1998, the results of its operations
for the three and six months ended March 31, 1998 and 1997 and the changes in
its cash flows for the six months ended March 31, 1998 and 1997
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited) (Audited)
------------- ---------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 937,435 $ 13,104
Trade accounts receivable 250,639 56,563
Restaurant credits (net of allowance for irrecoverable
credits of $125,207 at March 31, 1998 and of
$ 114,610 at September 30, 1997) 191,006 301,815
Amounts due from related parties (note 13) 68,409 258,533
Prepaid expenses and other current assets 473,453 18,784
----------- ---------
Total current assets 1,920,942 648,799
----------- ---------
Non current assets
Investment in affiliated company (Note 9) 2,539,608 2,715,442
Property and equipment, (net of accumulated
depreciation of $598,349 at March 31, 1998 and
$106,260 at September 30, 1997) 206,465 94,250
Intangible and other assets, (net of accumulated
amortisation of $705,965 at March 31, 1998 and
$ 643,847 at September 30, 1997)(note 10) 1,134,825 1,196,943
Goodwill, (net of accumulated
amortisation of $85,000 at March 31, 1998 and
$ Nil at September 30, 1997)(note 11) 4,254,657 0
Other assets 0 142,946
----------- ----------
Total assets $10,056,498 $4,798,380
----------- ----------
----------- ----------
</TABLE>
See accompanying notes
1
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited) (Audited)
---------- ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 290,790 $ 267,232
Deferred membership fee income 252,953 104,375
Accrued liabilities 799,608 330,908
Deferred cost of investment 3,350,220 0
Amount due to related parties (note 13) 1,396,972 1,345,712
---------- -----------
Total Current Liabilities $ 6,090,543 $ 2,048,227
---------- ------------
Stockholders' equity
Common stock, $0.00001 par value per share
Authorised 95,000,000 shares;
(17,991,316 issued and outstanding at March 31, 1998
and 15,249,221 at September 30, 1997) 180 153
Additional paid in capital 12,058,261 9,962,922
Cumulative foreign currency translation 459,048 163,719
adjustment
Accumulated deficit (8,626,620) (7,376,641)
---------- ----------
Total Stockholders' Equity 3,890,869 2,750,153
---------- ----------
Minority interest 75,083 0
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,056,498 $ 4,798,380
----------- -----------
----------- -----------
</TABLE>
See accompanying notes
2
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues 1,062,755 523,670 1,752,791 1,154,675
Cost of sales (296,248) (328,955) (578,357) (688,036)
------------ ------------ ------------ ------------
Gross profit 766,506 194,715 1,174,433 466,639
Selling, general and
administrative expenses (1,439,581) (927,443) (2,358,243) (1,664,282)
------------ ------------ ------------ ------------
Loss from operations (673,075) (732,728) (1,183,810) (1,197,643)
Share of profits/losses of associated company 37,542 0 5,978 0
Interest income 1,438 11,810 2,936 18,494
------------ ------------ ------------ ------------
Loss before income taxes (634,095) (720,918) (1,174,896) (1,179,149)
Income taxes 0 0 0 0
------------ ------------ ------------ ------------
Loss after income taxes (634,095) (720,918) (1,174,896) (1,179,149)
Minority Interest (37,298) 0 (75,083) 0
------------ ------------ ------------ ------------
Net loss $ (671,393) $ (720,918) $ (1,249,979) $ (1,179,149)
------------ ------------ ------------ ------------
Loss per common share $ (0.04) $ (0.05) $ (0.08) $ (0.09)
Weighted average number of common
shares outstanding 16,687,695 13,918,697 16,111,653 13,695,586
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes
3
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 1998 March 31, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from Operating Activities:
- Net loss $(1,249,979) $ (1,179,149)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation 22,315 15,991
- Amortization of intangible assets 147,118 61,360
- Provision for irrecoverable restaurant credits 100,000 26,564
- Share of associated company profits (5,978) 0
- Unrealised foreign exchange losses 249,339 0
Changes in assets and liabilities:
- Trade accounts payable (267,232) (13,930)
- Accrued liabilities 52,878 (14,326)
- Restaurant credits 10,809 106,635
- Prepaid expense and other current assets (32,617) 125,877
- Trade accounts receivable 35,880 0
- Deferred membership fees (46,570) (56,019)
- Write off of Hawaii option 0 150,000
-------------- --------------
Net cash used in operating activities (984,037) (776,997)
--------------- --------------
Cash flows from investing activities:
- Due from/(to) related parties 241,384 (380,510)
- Purchase of property and equipment 0 (21,151)
- Purchase of NHS option (1,072,614) (142,946)
- Purchase of Countdown option 0 (264,006)
- Loan from Countdown 181,812 0
--------------- --------------
Net cash used in investing activities (649,418) (808,613)
--------------- --------------
Cash flows from financing activities:
- Bank overdraft 0 (40,051)
- Net proceeds received from issuance of:
common stock 1,595,366 1,097,500
- NHS cash acquired 841,347 0
--------------- --------------
Net cash (used in)/provided by financing activities 2,436,713 1,057,449
--------------- --------------
Effect of foreign currency on cash 45,990 10,107
Minority Interest 78,083 0
--------------- --------------
Net (decrease)/increase in cash and
cash equivalents 924,331 (518,054)
Cash and cash equivalents at
beginning of period 13,104 1,171,305
--------------- --------------
Cash and cash equivalents at
at end of period. $937,435 $ 653,251
--------------- --------------
--------------- --------------
</TABLE>
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
4
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Item 1 - The Company
Transmedia Asia Pacific, Inc. ("TMAP" or "the Company") is a Delaware
corporation which was organized in March 1994 and commenced operations in
Sydney, Australia in November 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"), pursuant to a Master License
Agreement ("License Agreement") dated March 21, 1994. The rights acquired were
an exclusive license (the "License") to use certain trademarks and service
marks, proprietary computer software programs and know-how of Network in
establishing and operating a restaurant discount charge card business. The
licensed territories comprise all Asian and Pacific Rim countries including
Japan, China, Hong Kong, Taiwan, Korea, the Philippines and India (the "Licensed
Territories"). Network is an independent company which, through its affiliate
TMNI International Inc., ("TMNI"), is a shareholder of the Company.
On April 3, 1997 the Company acquired a 50% interest in Countdown Holdings plc
("Countdown"). In a simultaneous transaction Transmedia Europe, Inc. ("TME"), a
Delaware corporation which shares common directors and officers with the
Company, acquired the remaining 50% of Countdown. Founded 27 years ago,
Countdown is a leading international provider of shopping and leisure discount
benefits to approximately 6,500,000 members with over 100,000 participating
merchants in 47 countries. Countdown's head office is based in London with
further infrastructure support provided by licensees operating in 14 countries.
Within the UK market, there are approximately 25,000 participating merchants and
2,500,000 members.
On December 2, 1997, Transmedia Australia Holdings Pty Limited ("Transmedia
Australia), a company owned equally by the Company and TME, purchased 51% of the
common stock of Nationwide Helpline Services Pty. Limited ("NHS"), an Australian
company through a newly incorporated intermediary holding company. Transmedia
Australia also agreed to purchase the remaining 49% of the common stock of NHS
on or before June 30, 1998. The exercise period can be extended by the Company
and TME through September 30, 1998 (Refer Note 13 "Acquisitions" for further
details).
As of March 31, 1998, Transmedia Asia Pacific, Inc., had the following equity
interests in its direct subsidiaries and affiliates:
<TABLE>
<CAPTION>
Name Country of Incorporation % Owned
<S> <C> <C>
Transmedia Australia Pty Ltd Australia 100
Transmedia Australasia Pty Ltd New Zealand 100
Transmedia Australia Holdings Pty Ltd Australia 50
Countdown Holdings plc UK 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
</TABLE>
All references herein to "Company" and "TMAP" include Transmedia Asia Pacific,
Inc. and its subsidiaries unless otherwise indicated.
5
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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, 1998, the results of
operations for the three and six months ended March 31, 1998 and 1997 and the
changes in cash flows for the six months ended March 31, 1998 and 1997. The
results of operations for the three and six months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
The consolidated financial statements include the financial statements of the
Company and its subsidiaries and NHS. The consolidated balance sheet includes
the assets and liabilities of NHS and the consolidated statement of operations
includes the results of operations of NHS, notwithstanding the fact that the
Company's interest in the equity capital of Transmedia Australia (owner of 51%
of NHS) is 50%. This basis of presentation has been adopted because the Company
has effective control of Transmedia Australia. All significant intercompany
transactions have been eliminated in consolidation.
The September 30, 1997 balance sheet has been derived from the audited
consolidated financial statements at 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 financial statements and notes thereto included in
the Company's annual report on Form 10-K
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 and complete identified acquisitions. Management
remains confident, 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 and complete identified acquisitions.
However there can be no assurance given that the Company will obtain such
short-term or long-term outside financing or complete the acquisitions.
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
UK pound sterling and Australian 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.
6
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 3. Foreign Currencies (continued)
The average exchange rates during the three and six months ended March 31, 1998
and March 31, 1997 and the exchange rates in effect at March 31, 1998 and
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
UK Pound Australian
Sterling L Dollar
<S> <C> <C>
Average exchange rates
----------------------
3 months ended March 31, 1998 1.6500 0.6579
6 months ended March 31, 1998 1.6400 0.6667
3 months ended March 31, 1997 1.5700 0.7407
6 months ended March 31, 1997 1.5600 0.7353
Closing exchange rate
---------------------
September 30, 1997 1.6125 0.7251
March 31, 1998 1.6700 0.6452
</TABLE>
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 realised
Note 5. New Accounting Standards
Effective for the 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
7
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Revenues
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,
and
(ii) Travel agency commissions earned by the Teletravel division of NHS.
Transmedia card membership fees are recognised as revenue in equal monthly
instalments 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, 1998.
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.
8
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 9. Investment in Affiliated Company
Investment in affiliated company comprises the Company's interest in Countdown
which is made up as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Cost of investment $ 2,854,347 $ 2,854,347
Share of profits/(losses)
- Year ended 30 September, 1997 (202,905) (202,905)
- Six months ended 30 March, 1998 5,978 0
Amounts due from/(to) affiliates (117,812) 64,000
------------ ------------
$ 2,539,608 $ 2,715,442
------------ ------------
------------ ------------
</TABLE>
Note 10. Intangible Assets
Intangible assets 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 on October 1, 1993. The carrying value of the Transmedia License is
made up as follows:
Intangible assets consists of the following:
<TABLE>
<CAPTION>
License Costs
<S> <C>
Cost
Balance at September 30, 1997 1,840,790
Additions 0
-----------
Balance at March 31, 1998 1,840,790
-----------
Amortization
Balance at September 30, 1997 643,847
Charge for period 62,118
-----------
Balance at March 31, 1998 705,965
-----------
Net book value $ 1,134,825
-----------
</TABLE>
9
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 11. Goodwill
The Company recognises 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 being amortized on a straight line basis usually over
a period of fifteen years
<TABLE>
<CAPTION>
Goodwill
<S> <C>
Cost
Balance at September 30, 1997 0
Additions 4,339,657
-----------
Balance at March 31, 1998 4,339,657
-----------
Amortization
Balance at September 30, 1997 0
Charge for period 85,000
-----------
Balance at March 31, 1998 85,000
-----------
Net book value $ 4,254,657
-----------
</TABLE>
Note 12. Stockholders Equity
On August 7, 1997 the Company commenced a private placement (the
"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 December 31, 1997 upon the sale of 1,137,095
shares of common stock at $1.00 per share resulting in gross proceeds to the
company of $ $1,137,095. For every three shares purchased each purchaser
received a three year warrant to purchase one share of the common stock of the
Company at an exercise price of $1.00 per share for no additional consideration.
The warrants are exercisable at any time after the date of grant for a period of
three years. In addition, in consideration of their agreement to purchase, on a
standby basis, a number of shares in the Placement, certain holders of preferred
stock of the Company were granted three-year warrants to purchase an aggregate
of 327, 656 shares of Common Stock of the Company at an exercise price of $1.00
per share.
10
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 12. Stockholders Equity (continued)
On February 1, 1998 the Company commenced a private placement (the "February
Placement") of up to 1,400,000 shares of common stock at a price of $1.25 per
share. 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 closed on April 30, 1998 upon
the sale of 1,375,000 shares of common stock of the Company resulting in net
proceeds to the company of $1,718,750. For every three shares sold each
subscriber received a three year warrant to purchase one share of the common
stock of the Company at an exercise price of $1.25 per share for no additional
consideration. The warrants are exercisable at any time after the date of grant
for a period of three years.
Note 13. Acquisitions
On December 2, 1997, Transmedia Australia, a company owned equally by the
Company and TME, purchased 51% of the common stock of NHS, through a newly
incorporated intermediary holding company. Effective control over Transmedia
Australia is exercised by the Company 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$10,000,000 (approximately $7,150,000 as at 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 until September 30, 1998 by paying interest at 5% per annum ("Balance
Obligation"). If Transmedia Australia fails to make such payments all amounts
paid are not subject to recovery and the entire 51% interest in NHS previously
purchased will revert to its former owners for nil consideration.
The total consideration for the 51% interest in NHS was allocated by the sellers
as follows. Aus$6,000,000 for the equity capital of NHS and Aus$4,000,000 in
sign-on fees payable to the former principals of NHS. As originally structured
the Aus$10,000,000 was to be advanced to Transmedia Australia by the Company and
TME as follows:
Equity Capital Element:
<TABLE>
<CAPTION>
Company TME Total
<S> <C> <C> <C>
Deposit 200,000 200,000 400,000
1st Instalment 1,400,000 1,400,000 2,800,000
2nd Instalment 1,400,000 1,400,000 2,800,000
Total 3,000,000 3,000,000 6,000,000
</TABLE>
The deposit was advanced to Transmedia Australia and paid to the
sellers in June, 1997. The first instalment was paid in December, 1997. Of the
aggregate balance of Aus$2,800,000 paid in December 1997, 50% was paid in cash
and 50% by the issuance of 500,000 of the common stock of each of the Company
and TME (valued at the then market price). The second instalment payment date
was extended as provided by the terms of the agreement until May 1, 1998 and was
paid on that date along with interest of Aus$34,781.
11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 13. Acquisitions (continued)
Sign-on Fees
<TABLE>
<CAPTION>
Company TME Total
<S> <C> <C> <C>
1st Instalment 1,000,000 1,000,000 2,000,000
2nd Instalment 1,000,000 1,000,000 2,000,000
Total 2,000,000 2,000,000 4,000,000
</TABLE>
The first instalment was payable on January 31, 1998 of which an aggregate of
Aus$1,250,000 could be deferred until June 30, 1998. On January 31, 1998, in
lieu of the required minimum payment of Aus$750,000, Aus$203,571 was paid in
cash and the balance was represented by a promissory note in the sum of
Aus$546,428 payable on June 30, 1998. The Aus$1,250,000 due on May 1, 1998 was
paid together with accrued interest thereon at 5% per annum, approximately
Aus$15,240. The promissory note payable on June 30, 1998 also bears interest at
5% per annum (approximately Aus$11,228). The second instalment is due for
payment on June 30, 1998. This second instalment can be deferred until September
30, 1998 with interest accruing at 5% per annum. The Balance Obligation of
Aus$2,500,000 is due for payment on June 30, 1998 but can be deferred until
September 30, 1998 with the payment of interest at 5% per annum. If the Balance
Obligation is not paid on or before September 30, 1998 the ownership of NHS will
revert to its former owners for nil consideration.
The Company has previously described the terms of a letter of intent to acquire
a privately owned corporation engaged in a business complimentary to that of the
Company for approximately $8,500,000 of which the Company would be responsible
for one half ($4,250,000). The terms of the letter of intent were revised on
April 30, 1998. Under the revised terms the Company and TME have agreed to a
purchase price of $8,900,000, represented by 300,000 shares of the Company's
common stock plus 300,000 shares of TME plus a number of shares at closing equal
to $600,000 in value plus cash of $7,700,000. In addition the sellers will
receive earn out payments over a five year period if predetermined threshold
profit levels are achieved. To date the Company and TME have each issued 100,000
shares and made cash payments of $300,000 all of which will not be recovered if
the transaction does not close. In addition, Edward J Guinan III, Chairman of
the Company and TME, has pledged 200,000 shares of each of the Company and TME
owned by him, which shares will be replaced by new shares issued by the Company
and TME if the transaction closes.
The Company has previously described the terms of a letter of intent to acquire
a privately owned corporation, trading as Logan Leisure, engaged in a business
complimentary to that of the Company for one million pounds sterling
(approximately $1,650,000) of which the Company would be responsible for one
half (approximately $825,000). The terms of the letter of intent were revised in
March 1998. Under the revised terms, the Company and TME agreed to a total
purchase price of $1,749,000 represented by 200,000 shares of the Company's
common stock, 200,000 shares of the common stock of TME and $1,089,000 payable
in cash. The acquisition was completed on May 15, 1998 and will be more fully
described in a Form 8K to be filed no later than May 30, 1998.
12
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 13. Acquisitions (continued)
On January 9, 1998, the Company and TME entered into an agreement in principle
to purchase 85% of the issued and outstanding common stock of Network America
Inc. ("NAI"), a Texas corporation for a total consideration $400,000 payable in
cash ($200,000 each) and an undertaking from the Company and TME to fund NAI's
working capital requirements over an eighteen month period by way a monthly loan
advance of $55,555 in total ($27,777 each) an aggregate of $1,000,000 over the
eighteen month period, commencing April 1, 1998. The Company and TME advanced
the purchase consideration and the April working capital instalment against a
series of secured promissory notes. The acquisition was due to complete on April
24, 1998. Based upon recent developments at NAI the Company is seeking to
perfect its interest in the monies advanced. In this regard the Company may
seek, among other things, to take control of NAI in exchange for these advances.
It is undetermined at this point what, if any, working capital committment the
Company will make to the operations of NAI. (Refer Note 15 "Commitments and
Contingencies").
Note 14. Related party transactions
Amounts due from/(to) related parties consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Amounts due from
Transmedia Europe, Inc. $ 0 $ 190,124
Conestoga Partners Inc. 26,260 26,260
Paul Harrison 42,149 42,149
--------- ---------
$ 68,409 $ 258,523
--------- ---------
Amounts due to
J.V. Vittoria $1,121,973 $1,061,479
TMNI 274,299 284,233
--------- ---------
$1,396,972 $1,345,712
--------- ---------
</TABLE>
The Company has, effective January 16, 1998 accepted the resignation of
Christopher Radbone as a director of the Company and its subsidiary Countdown
plc. Contemporaneous with such resignation, Countdown plc has agreed to release
Mr. Radbone from his service contract, and Mr. Radbone granted an option to
Edward J. Guinan III to purchase the shares of Common Stock of the Company held
by him at a price of $1.00 per share
13
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 15. Commitments and Contingencies
Transmedia Australia
The Company is committed, jointly with its affiliate TME through Transmedia
Australia, 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 until
September 30, 1998 by paying interest at 5% per annum ("Balance obligation"). If
Transmedia Australia fails to make such payment, all amounts paid to date are
not subject to recovery and the entire 51% interest in NHS previously purchased
will revert to the former owners.
Management fully intends to acquire the balance of 49% of the equity capital of
NHS. However no assurance can be given that management will have the necessary
funds available to it.
The Company is also committed to repay a promissory note in the sum of
Aus$546,429 together with accrued interest of approximately Aus$11,228 on June
30, 1998. (Refer Note 13 "Acquisitions" for further details)
Network America, Inc. ("NAI")
The Company has advanced approximately $200,000 to NAI against a series of
secured promissory notes in respect of its acquisition of NAI. The acquisition
was due to complete on April 24, 1998. Based upon recent developments at NAI,
the Company is seeking to perfect its interest in the monies advanced. In this
regard the Company may seek, among other things, to take control of NAI in
exchange for these advances. It is undetermined at this point what, if any,
working capital committment the Company will make to the operations of NAI.
Legal proceedings
In the opinion of management there are no lawsuits or claims pending against the
Company.
14
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 16. Subsequent Events
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 (pound)250,000 (approximately $413,000) face amount,
8% promissory notes payable on November1, 1998 and one (pound)200,000
(approximately $330,000) face amount, 8% promissory note payable on the
same date. The holders of the (pound)250,000 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 (pound)200,000 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.
Transmedia Australia
On May 1, 1998 the Company, through Transmedia Australia, paid the
following as consideration for its 51% interest in the equity capital
of NHS.
(i) Aus$1,400,000 ($900,000) as second instalment for the purchase of
51% of the equity capital of NHS together with interest of Aus$17,390
($11,000).
(ii) Aus$625,000 ($400,000) as sign-on fees to the former principals of
NHS together interest of Aus$7,620 ($5,000).
(Refer Note 13 "Acquisitions" for further details)
15
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
General
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
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.
The future success of the Company is dependent upon its ability to increase its
membership base and broaden the range of member benefit programs offered. The
acquisition with TME of Countdown Holdings plc and 51% of the issued and
outstanding share capital of NHS has enabled the Company to commence
implementation of its strategy to create a broader based international member
benefits business.
The Company will continue to look for new opportunities within the member
benefits industry and expand its operations through acquisition and organic
growth. Management believes that while the industry has shown good growth, which
is expected to continue, this has been primarily in the United States. Outside
the United States, the international market is significantly less well-developed
providing an excellent opportunity for the Company to expand its operations from
its established base in Europe and Australasia and its network of sub-licensees
and franchisees in a number of other countries.
The Company recorded significant losses in its fiscal year ended September 30,
1997 and in prior years. Such losses and the Company's acquisition and expansion
program to date have been funded by the sale of equity securities and loan
finance. The Company's ability to continue as a going concern may depend on its
ability to obtain outside financing sufficient to support its operations and
expansion plans. Based upon the Company's history of obtaining necessary
financing, management remains confident that sufficient funds will be available
to the Company to enable it to operate for the foreseeable future and complete
identified acquisitions. However there can be no assurance given that the
Company will obtain such short-term or long-term outside financing or complete
such acquisitions. In addition there can be no assurance as to the acceptability
of the terms of any future financing.
16
<PAGE>
Results of Operations
Three Months ended March 31, 1998 compared to Three Months ended March 31, 1997
The Company generated revenues of $1,062,755 (1997: $523,670) in the three
months ended March 31, 1998, an increase of $539,085 or 103% over the
corresponding period in 1997, reflecting the impact of the NHS acquisition. NHS
generated revenues of $711,172 while the pre-existing business recorded a
decline in revenues of $172,087 due to lower card usage by cardholders as a
result of rationalization of the participating restaurant base.
Cost of sales totalled $296,248 (1997: $328,955) for the three months ended
March 31, 1998, generating a gross profit percentage of 72.1% (1997: 37.2%). The
increase in gross profit percentage reflects the impact of the higher margin NHS
business. The gross profit percentage achieved in the period by NHS was 86.9% as
compared to 35.1% by pre-existing operations.
Selling, general and administrative expenses totalled $1,439,581 (1997:
$927,443) for the three months ended March 31, 1997, an increase of $512,138 or
55.2% over the corresponding period in 1997. NHS accounted for $400,366 of the
increase. Selling, general and administrative expenses of pre-existing
operations were $1,039,215 an increase of 12.1% over the corresponding period in
1997. This increase is primarily due to professional fees associated with the
NHS acquisition.
The Company's share of profits of its associate Countdown was $37,542 for the
three months ended March 31, 1998 (1997: Nil).
The minority interest in the Company comprise the TME 50% interest in
Transmedia Australia.
Six months ended March 31, 1998 compared to the Six months ended March 31, 1997
Revenues totalled $1,752,791 (1997: $1,154,675) for the six months ended March
31, 1998, an increase of 51.8% over the corresponding period in 1997. NHS
revenues totalled $988,248 with the pre-existing business recording a decrease
in revenues of $390,132. This decrease is due to the impact of the refocusing
and rationalisation of the participating restaurant base and its effect on
cardholder usage.
Cost of sales totalled $578,357 (1997: $688,036) for the six months ended March
31, 1998, generating a gross profit percentage of 67.0% (1997: 40.4%) The
increase in gross profit percentage is primarily due to the impact of the high
margin NHS acquisition. NHS achieved a gross profit percentage 86.2%. The
pre-existing business recorded an increased gross profit percentage, 42.2% in
the six months ended March 31, 1998 as compared to 40.4% in 1997
Selling, general, and administrative expenses totalled $2,358,243 (1997:
$1,664,282) for the six months ended March 31, 1998, an increase of 41.7% over
the corresponding period in 1997. NHS Selling, general, and administrative
expenses totalled $701,413, with the pre-existing business achieving a decrease
of 1.5 % as compared to the corresponding period in 1997.
The Company's share of profits of its associate Countdown was $5,978 for the six
months ended March 31, 1998 (1997: Nil).
Minority interest comprises the TME 50% interest in Transmedia Australia.
17
<PAGE>
Liquidity and Capital Reserves
The Company's audited financial statements for the year ended September 30, 1997
recorded losses for the year then ended of $3,030,445, which, when taken with
prior year results, recorded an accumulated deficit of $7,376,641 as of
September 30, 1997.
During the six months ended March 31, 1998 the Company recorded further losses
of $1,249,979 resulting in net cash outflows from operating activities of
$984,037 compared to $776,997 for the corresponding period in 1997. During the
period the Company relied on net revenues and the net proceeds of equity
placements to fund its operating needs. Management has taken steps to reduce the
amount of cash used by operations, including reducing staffing levels, however
the Company's operations may not provide sufficient internally generated cash
flows to meet its projected requirements.
Additionally the Company is committed to funding a number of business
acquisitions, increasing its investment in NHS through Transmedia Australia, as
described in Notes 13 and 15 to the unaudited consolidated financial statements
for the quarter ended March 31, 1998.
Subsequent to March 31, 1998 the Company received net proceeds of $1million from
the private placement of 800,000 shares of common stock. To supplement the
funding of its operations and its acquisition program, the Company also obtained
net cash proceeds from short term loans of approximately $1,567,750 from
unaffiliated third parties (Refer Note 16 to the unaudited consolidated
financial statements).
The Company will require further capital infusions in order to meet its
acquisition commitments and the ongoing funding requirements of its operations.
Based upon the Company's history of obtaining necessary financing, management
remains confident that sufficient funds will be available to the Company to
operate in the foreseeable future and complete its investments and committed
acquisitions. However there can be no assurance given that the Company will be
able to obtain such funding. In addition there can be no assurance as to the
acceptability of the terms of any future financing.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the six months ended March 31, 1998, a situation which is
expected to continue for foreseeable future. The business of individual
Participating Restaurants may be seasonal depending on their location and the
types of food and beverage sold. However, the Company has no basis at this time
on which to project the seasonal effects, if any, on its business as a whole.
18
<PAGE>
Part II: OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 6 Exhibits and Reports on Forms 8-K
(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 authorised.
TRANSMEDIA ASIA PACIFIC, INC.
By:
--------------------------------
Paul Harrison
President and Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997 SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996 OCT-01-1997 OCT-01-1996
<PERIOD-END> MAR-31-1998 SEP-30-1997 MAR-31-1998 MAR-31-1997
<CASH> 937,435 13,104 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 250,639 56,563 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 1,920,942 648,799 0 0
<PP&E> 206,465 94,250 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 10,056,498 4,798,380 0 0
<CURRENT-LIABILITIES> 6,090,543 2,048,227 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 180 153 0 0
<OTHER-SE> 12,058,261 9,962,922 0 0
<TOTAL-LIABILITY-AND-EQUITY> 10,056,498 4,798,380 0 0
<SALES> 1,062,755 523,670 1,752,791 1,154,675
<TOTAL-REVENUES> 1,062,755 523,670 1,752,791 1,154,675
<CGS> 296,248 328,955 578,352 688,036
<TOTAL-COSTS> 296,248 328,955 578,352 688,036
<OTHER-EXPENSES> 1,439,581 927,443 2,358,243 1,664,282
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> (634,095) (720,918) (1,174,896) (1,179,149)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (634,095) (720,918) (1,174,896) (1,179,149)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (671,393) (720,918) (1,249,979) (1,179,149)
<EPS-PRIMARY> (0.04) (0.05) (0.08) (0.09)
<EPS-DILUTED> (0.04) (0.05) (0.08) (0.09)
</TABLE>
