UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
(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
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TABLE OF CONTENTS
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
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
- --------------------------------------------------------------------------------
March 31, September 30,
1998 1997
(Unaudited) (Audited)
----------- ---------
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 14) 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) 2,432,006 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 $84,828 at March 31, 1998 and
$ Nil at September 30, 1997)(note 11) 3,732,447 0
Other assets 0 142,946
---------- ----------
Total assets $9,426,685 $4,798,380
========== ==========
See accompanying notes
1
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TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
March 31, September 30,
1998 1997
(Unaudited) (Audited)
--------- -------
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 2,034,288 0
Amount due to related parties (note 14) 3,305,646 1,345,712
------------ ------------
Total Current Liabilities $ 6,683,285 $ 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 459,047 163,719
adjustment
Accumulated deficit (9,992,139) (7,376,641)
------------ ------------
Total Stockholders' Equity 2,525,349 2,750,153
------------ ------------
Minority interest 218,051 0
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,426,685 $ 4,798,380
============ ============
See accompanying notes
2
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TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
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<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 766,507 194,715 1,174,434 466,639
Selling, general and
administrative expenses (1,535,796) (927,443) (3,723,763) (1,664,282)
------------ ------------ ------------ ------------
Loss from operations (769,289) (732,728) (2,549,329) (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 (730,309) (720,918) (2,540,415) (1,179,149)
Income taxes 0 0 0 0
------------ ------------ ------------ ------------
Loss after income taxes (730,309) (720,918) (2,540,415) (1,179,149)
Minority Interest (37,298) 0 (75,083) 0
------------ ------------ ------------ ------------
Net loss $ (767,607) $ (720,918) $ (2,615,498) $ (1,179,149)
Loss per common share $ (0.05) $ (0.05) $ (0.16) $ (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 $(2,615,498) $(1,179,149)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation 22,315 15,991
- Amortization of intangible assets 146,946 61,360
- Provision for irrecoverable restaurant credits 100,000 26,564
- Accrued sign-on fees 1,120,418 --
- Share of associated company profits (5,978) --
- Unrealised foreign exchange losses 249,339 --
- Minority interest 75,083 --
Changes in assets and liabilities net of acquisitions:
- 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 (96,635) 125,877
- Trade accounts receivable 35,880 --
- Deferred membership fees (46,570) (56,019)
- Write off of Hawaii option -- 150,000
- Due from/(due) to related parties 241,384 (380,510)
----------- -----------
Net cash used in operating activities (976,861) (1,157,507)
----------- -----------
Cash flows from investing activities:
- Purchase of property and equipment 0 (21,151)
- Purchase of NHS option (763,323) (142,946)
- Purchase of Countdown option 0 (264,006)
- Loan from Countdown 181,812 0
----------- -----------
Net cash used in investing activities (581,511) (428,103)
----------- -----------
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
----------- -----------
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 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
Limited ("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 an 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"), an Australian company owned equally by the Company and TME,
purchased 51% of the shares of common stock of NHS Australia Pty Limited
("NHS"). NHS purchased the net assets and business of Nationwide Helpline
Services Pty Limited ("Nationwide"). Nationwide, established in 1989, is an
Australian based provider of "member benefit" programs primarily to
organizations with large consumer bases such as banks and insurance companies.
The operations of NHS are controlled by the Company and consolidated within the
Company's financial statements effective December 2, 1997. Transmedia Australia
also acquired an option to purchase the balance of 49% of the shares of common
stock of NHS, which was exercised on December 23, 1997. (Refer to 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:
Country of
Name Incorporation % Owned
Transmedia Australia Pty Ltd Australia 100
Transmedia Australasia Pty Ltd New Zealand 100
Transmedia Australia Holdings Pty Ltd Australia 50
Countdown Holdings Limited UK 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
All references herein to "Company" and "TMAP" include Transmedia Asia Pacific,
Inc. and its subsidiaries unless otherwise indicated.
5
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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. 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 the 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
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TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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:
UK Pound Australian
Sterling (pound) Dollar
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
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 realized
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
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TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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
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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:
March 31, September 30,
1998 1997
---- ----
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
Amortization of goodwill on investment (107,602)
----------- -----------
$ 2,432,006 $ 2,715,442
=========== ===========
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:
License Costs
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
----------
9
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TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Goodwill
The Company recognizes 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
Goodwill
Cost
Balance at September 30, 1997 $ 0
Additions 3,817,275
----------
Balance at March 31, 1998 3,817,275
----------
Amortization
Balance at September 30, 1997 0
Charge for period 84,828
----------
Balance at March 31, 1998 84,828
----------
Net book value $3,732,447
----------
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 1,497,095 shares of common stock at $1.00 per share resulting in
gross proceeds to the company of $1,497,095. 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.
10
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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 shares of the Company's 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 1,950,000 shares of common stock of the
Company resulting in net proceeds to the company of $2,437,500. 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 purchased 51% of the common
stock of NHS. NHS purchased the net assets and business of Nationwide.
Nationwide was established in 1989 and is an Australian based provider of
"member benefit programs". The operations of Transmedia Australia are
controlled by the Company and accordingly Transmedia Australia's accounts
are consolidated into the accounts of the Company. The total consideration
paid by Transmedia Australia for its 51% interest in the equity capital of
NHS was Aus$6,000,000 (approximately $4,290,000 as of December 2, 1997).
Transmedia Australia also agreed to purchase the balance of the equity
capital of NHS for Aus$2,500,000 (approximately $1,787,500) on June 30,
1998 with the right to extend such obligation ("Balance Obligation") until
September 30, 1998 by paying interest at 5% per annum. Transmedia
Australia exercised the extension right. In addition, the Company and TME
agreed to pay Aus$4,000,000 (approximately $2,860,000 as of December 2,
1997) in sign-on fees to the two former executive directors of Nationwide.
The Aus$6,000,000 required to complete the acquisition of 51% of NHS was
to be advanced to Transmedia Australia by the Company and TME as follows:
Company TME Total
Deposit 200,000 200,000 400,000
1st Installment 1,400,000 1,400,000 2,800,000
2nd Installment 1,400,000 1,400,000 2,800,000
Total 3,000,000 3,000,000 6,000,000
The deposit was paid to the sellers in June, 1997. The first installment
of Aus$2,800,000 was paid in December 1997, 50% in cash and the balance 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 installment was payable on
January 31, 1998. However, pursuant to the terms of the acquisition
agreement, such payment date was extended to May 1, 1998. As a result of
the extension of the payment date, Transmedia Australia became liable to
pay interest at the rate of 5% per annum during such extension period. The
second installment was paid on May 1, 1998 together with accrued interest
in the sum of Aus$34,781.
11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Acquisitions (continued)
In connection with the acquisition, NHS entered into employment contracts
with Mr. Kevin Bostridge ("Bostridge") and Mr. Robert Swinbourn
("Swinbourn"), shareholders and former executive directors of Nationwide.
Each of the contracts were for a fixed term of three years and provided
for the payment of an annual salary of Aus$200,000 to Bostridge and
Aus$150,000 to Swinbourn. As an inducement to Bostridge and Swinbourn to
enter into such employment contracts, the Company and TME agreed to
jointly pay sign-on fees of Aus$4,000,000 (approximately $2,860,000) in
aggregate to Bostridge and Swinbourn. Such sign-on fees were apportioned
to Aus$2,914,286 pertaining to Bostridge and Aus$1,085,714 pertaining to
Swinbourn and were payable by instalment.
The first installment was payable on January 31, 1998 of which an
aggregate of Aus$1,250,000 could be deferred until May 1, 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 settled by a promissory
note in the sum of Aus$546,429 payable on June 30, 1998. The promissory
note was guaranteed by Mr. Edward Guinan, Chairman of the Company. 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 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 installment 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
commitment 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:
March 31, September 30,
1998 1997
---- ----
Amounts due from
Transmedia Europe, Inc. $ 0 $ 190,124
Conestoga Partners Inc. 26,260 26,260
Paul Harrison 42,149 42,149
----------------------------
$ 68,409 $ 258,533
----------------------------
Amounts due to
J.V. Vittoria $1,121,973 $1,061,479
TMNI 274,999 284,233
Transmedia Europe, Inc 1,908,674
----------------------------
$3,305,646 $1,345,712
----------------------------
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
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TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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 for it to acquire the balance.
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 material lawsuits or claims
pending against the Company.
14
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TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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 to Note 13 "Acquisitions" for further details)
15
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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 Limited 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.
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 totaled $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 totaled $1,535,796 (1997: $927,443)
for the three months ended March 31, 1998, an increase of $608,353 or 65.6% over
the corresponding period in 1997. NHS accounted for $400,366 of the increase.
Selling, general and administrative expenses of pre-existing operations were
$1,135,430 an increase of $207,987 or 22.4% over the corresponding period in
1997. This increase is primarily due to costs associated with the NHS
acquisition and amortization of goodwill ($63,621).
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The Company's share of profits of its affiliate Countdown was $37,542 for the
three months ended March 31, 1998 (1997: Nil).
The minority interests in the Company comprise TME's 50% interest in Transmedia
Australia.
Six months ended March 31, 1998 compared to the Six months ended March 31, 1997
Revenues totaled $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 totaled $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
rationalization of the participating restaurant base and its effect on
cardholder usage.
Cost of sales totaled $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 totaled $3,723,763 (1997:
$1,664,282) for the six months ended March 31, 1998, an increase of 123.7% over
the corresponding period in 1997. NHS Selling, general, and administrative
expenses totaled $701,413. Costs associated with the pre-existing business
increased by 1,358,068 (81.6 %) as compared to the corresponding period in 1997.
This increase is primarily due to sign-on fees paid relating to the NHS
acquisition ($1,258,090) and amortization of goodwill ($84,828).
The Company's share of profits of its associate Countdown was $5,978 for the six
months ended March 31, 1998 (1997: Nil).
The minority interests in the Company comprise the TME 50% interest in
Transmedia Australia.
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Liquidity and Capital Resources
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 $2,615,498 resulting in net cash outflows from operating activities of
$976,861 compared to $1,157,507 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
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Part II: OTHER INFORMATION
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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.
/s/ Paul Harrison
- -------------------------------------
Paul Harrison
President and Chief Financial Officer
January 15, 1999
19
