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 June 30, 2000
-------------
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
------------------------
(Registrant's telephone
number 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 |X| No |_|
37,039,404 Shares, $.00001 par value, as of July 31, 2000
(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
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited) (Audited)
----------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 433,849 $ 548,576
Trade accounts receivable 651,030 267,771
Restaurant credits (net of allowance for irrecoverable
credits of $79,919 as of June 30, 2000 and
$65,761 as of September 30, 1999) -- 128,599
Amounts due from related parties 3,348,972 22,665
Prepaid expenses and other current assets 520,892 172,617
Prepaid fees 711,724 711,724
----------- -----------
Total current assets 5,666,467 1,851,952
----------- -----------
Non current assets
Investment in affiliated companies 7,405,559 9,437,824
Office furniture and equipment (net of accumulated
depreciation of $617,561as of June 30, 2000 and
$647,875 as of September 30, 1999) 254,637 132,870
Goodwill (net of accumulated amortization
and impairment write-down of $5,574,174 as of
June 30, 2000 and $ 642,545 as of September 30, 1999) 15,774,844 4,629,762
Other intangible assets (net of accumulated
amortization of $21,779 as of June 30, 2000
and $1,149,783 as of September 30, 1999) 144,770 691,791
Prepaid fees 177,934 711,724
Other assets 1,606,696 221,420
----------- -----------
Total non-current assets 25,364,440 15,825,391
----------- -----------
TOTAL ASSETS $31,030,907 $17,677,343
=========== ===========
</TABLE>
See accompanying notes
2
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 550,110 $ 630,694
Deferred income 245,899 70,258
Accrued liabilities 1,610,058 636,491
Amount due to related parties 1,689,178 2,051,188
Notes payable -- 3,688,186
Deferred payment -- 562,500
Bank line of credit -- 18,740
------------ ------------
Total current liabilities 4,095,245 7,658,057
------------ ------------
Minority interest 32,601 60,771
------------ ------------
Preferred stock
Authorized 5,000,000 shares, $0.01 par value per share
Issued and outstanding as of June 30, 2000 10,000
Series A convertible preferred shares
(nil as of September 30, 1999) (note 4) 10,000,000 --
------------ ------------
Stockholders' equity
Common stock $0.00001 par value per share
authorized 95,000,000 shares; (37,039,404 issued
and outstanding as of June 30, 2000
and 29,487,048 as of September 30, 1999) 370 295
Additional paid in capital 47,878,652 28,086,369
Cumulative foreign currency translation adjustment (22,068) (185,717)
Accumulated deficit (30,953,893) (17,942,432)
------------ ------------
Total stockholders' equity 16,903,061 9,958,515
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,030,907 $ 17,677,343
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 497,293 $ 995,143 $ 1,606,997 $ 3,030,012
Cost of revenues (214,113) (223,908) (505,398) (635,196)
------------ ------------ ------------ ------------
Gross profit 283,180 771,235 1,101,599 2,394,816
Selling, general and administrative expenses (3,091,272) (1,414,355) (6,037,623) (4,350,508)
Impairment writedown of underlying
goodwill in Nationwide Helpline Services (4,315,647) -- (4,315,647) --
------------ ------------ ------------ ------------
Loss from operations (7,123,739) (643,120) (9,251,671) (1,955,692)
Share of profits/losses and amortization of
goodwill of affiliated companies (800,026) (50,013) (2,167,695) (168,361)
Interest expense (48,137) (50,321) (442,106) (273,069)
Interest income 3,721 3,994 8,354 11,962
------------ ------------ ------------ ------------
Loss before income taxes (7,968,181) (739,460) (11,853,118) (2,385,160)
Income taxes (benefit) (1,196) 35,229 (2,245) 107,020
------------ ------------ ------------ ------------
Loss after income taxes (7,969,377) (704,231) (11,855,363) (2,278,140)
Minority interest -- 4,319 -- --
Preferred share dividends (130,556) -- (1,156,098) --
------------ ------------ ------------ ------------
Net loss (8,099,933) (699,912) (13,011,461) (2,278,140)
============ ============ ============ ============
Loss per common share $ (0.24) $ (0.03) $ (0.35) $ (0.10)
Weighted average number of common
shares outstanding 34,076,631 22,940,048 36,648,709 22,487,335
</TABLE>
See accompanying notes
4
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (8,099,993) $ (699,912) $(13,011,461) $ (2,278,140)
Other comprehensive income (loss)
Foreign currency translation
adjustment (426,818) (427,699) 689,656 (638,967)
------------ ------------ ------------ ------------
Comprehensive loss $ (8,526,811) $ (1,127,611) $(12,321,805) $ (2,917,107)
============ ============ ============ ============
</TABLE>
5
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
- Net loss $(13,011,461) $ (2,278,140)
Adjustment to reconcile net loss
to net cash used in operating activities:
- Depreciation 49,322 84,893
- Amortization of license 69,649 71,958
- Amortization of goodwill - subsidiaries 655,984 135,878
- Amortization of goodwill - affiliates 693,638 187,062
- Amortization of prepaid fees 533,790 --
- Goodwill impairment write-down 4,315,647
- Loss on termination of Transmedia license 255,733 --
- Share of losses of affiliates 1,474,056 (18,701)
- Preferred stock warrant dividend 1,025,542 --
- Provision for irrecoverable restaurant credits 14,158 15,298
- Provision for bad debts -- 8,286
- Shares issued re termination of employment contract 137,500 --
Changes in assets and liabilities:
- Trade accounts payable (98,270) 537,329
- Accrued liabilities 528,593 (482,969)
- Non-current liabilities (3,764) --
- Accounts receivable (279,569) (41,478)
- Restaurant credits 114,441 17,268
- Prepaid expense -- (157,540)
- Deferred income 3,400 (160,092)
- Accrued sign-on fees -- (296,500)
- Security deposit (1,528,856) --
- Other assets (92,837) (638,444)
------------ ------------
Net cash used in operating activities (5,143,304) (3,015,892)
------------ ------------
Cash flows from investing activities:
- Purchase of office furniture and equipment (149,943) (37,996)
- Purchase of NHS -- (1,233,451)
- Purchase of MonsterBook (137,275) --
- Investment in Countdown USA -- (24,967)
- Investment in Porkpine -- (25,575)
- Investment in DBS Direct (562,500) (500,000)
- Website development costs (55,355) --
------------ ------------
Net cash used in investing activities (905,073) (1,821,989)
------------ ------------
Cash flows from financing activities:
- Net proceeds received from issuance of
common stock 3,539,583 3,757,000
- Net proceeds from issuance of convertible
preferred stock 9,350,000 --
- Due from / (to) related parties (3,449,832) (2,079,502)
- Proceeds from (repayment of) notes payable (3,688,186) 2,616,464
- Bank credit line (18,740) 19,606
------------ ------------
Net cash provided by financing activities 5,732,825 4,313,568
------------ ------------
Decrease in cash and
cash equivalents carried forward $ (315,552) $ (524,313)
============ ============
</TABLE>
6
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Decrease in cash and
cash equivalents brought forward $ (315,552) $ (524,313)
Effect of foreign currency on cash 154,754 (516,163)
Cash acquired with MonsterBook 74,241 --
Minority interest (28,170) --
----------- -----------
Net decrease in cash and
cash equivalents (114,727) (1,040,476)
Cash and cash equivalents at beginning of period 548,576 1,504,921
----------- -----------
Cash and cash equivalents at end of period $ 433,849 $ 464,445
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 251,789 $ 235,637
Income taxes -- --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES
1. In March 2000 the Company issued 50,000 shares of its common stock to its
former Chief Executive Officer in part payment of a settlement agreement.
2. In April 2000 the Company issued 2,962,773 shares of its common stock as
part consideration for the acquisition of MonsterBook.
7
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - The Company
Transmedia Asia Pacific, Inc. ("the Company") is a global provider of
membership-based consumer and business services through its subsidiaries and
affiliates. These services are primarily marketed to major corporations
providing specifically designed loyalty programs to aid customer acquisition,
activation and retention. The Company's various member benefit programs are
currently offered in 28 countries and globally via the internet. The Company
estimates that it currently has over 9 million members participating in its
various loyalty programs.
The business of the Company today comprises four segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups. Additionally, the Company
provides member benefit packages to individuals on an international scale,
2. E-commerce and internet services and directories,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
History
The Company was incorporated under the laws of the State of Delaware in March
1994. On May 2, 1994 the Company acquired the right, pursuant to a Master
License Agreement ("License Agreement") dated March 21, 1994, an exclusive
license ("License") to use certain trademarks and service marks, proprietary
computer software programs and know-how of Transmedia Network, Inc. ("Network")
to establish and operate a discount restaurant charge card business in clearly
defined geographical areas. On April 7, 2000 the Company and Network executed a
termination agreement ("Termination Agreement") pursuant to which the Company
agreed to cancel the License (see "Recent Developments" below). The Company
commenced operations in Sydney, Australia in November 1994.
The Company has worked closely with Transmedia Europe, Inc. ("TME") for a number
of years. TME is a company which acquired a similar license to that of the
Company to operate a discount restaurant charge card business in Europe, Turkey
and certain other countries outside of Europe. TME commenced operations in the
United Kingdom in January 1994. TME also executed a termination agreement with
Network on April 7, 2000.
Through 1996 the operations of the Company consisted of a discount restaurant
charge card business in Australia. In 1996 management decided to expand the
Company's operations by providing broader based "member benefits" to its
corporate clients and individual members. Such benefits included discount
shopping, travel, hotel accommodation and telephone helpline services. TME made
a similar strategic decision. As a result the Company and TME jointly acquired
in April 1997 Countdown Holdings Limited ("Countdown"), an international
provider of membership based discount shopping services. In December 1997 the
Company and TME acquired control of NHS Australia Pty Limited ("NHS") through
Transmedia Australia Holdings Pty Limited ("Transmedia Australia"). NHS acquired
the business operations of Nationwide Helpline Services Pty Limited
("Nationwide"). NHS is a provider of telephone helpline services covering advice
on legal, tax, accounting, medical and home emergency. In addition, NHS offers
travel related products such as airline tickets, vacation packages, insurance
and provides international medical case management and repatriation services to
a number of insurance companies.
8
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - The Company (continued)
The Company and TME on May 14, 1998 jointly acquired Porkpine Limited
("Porkpine"). Porkpine, a company incorporated in Ireland, trades as Logan
Leisure, a business which produces and sells discount shopping and services
directories in Ireland. On May 22, 1998 the Company and TME jointly acquired,
through Transmedia Australia Travel Holdings Pty Limited ("Transmedia Travel"),
Breakaway Travel Club Pty Limited ("Breakaway"). Breakaway is a licensed travel
agent specializing in discount packaged vacations for individuals employed in
the travel industry in Australia. In July 1998 the Company and TME jointly
established Countdown USA, Inc. ("Countdown USA"), to offer member benefits in
the United States and in November 1998 Countdown USA acquired the membership
base and certain assets of National Association of Mature Americans, Inc.
("NAMA") a provider of discounted mail order and retail pharmacy products as
well as other benefit programs such as discounted eyewear, dental services and
leisure products. On November 17, 1998 Transmedia Australia acquired the balance
of 49% of the shares of common stock of NHS. Finally, on June 15, 1999 the
Company and TME jointly acquired DSS Direct Connect, L.L.C. ("DBS Direct"), a
marketer and full-service installer of DirecTV in the United States.
Recent Developments
In light of the close collaboration between the Company and TME since
incorporation and, more particularly, in view of the joint ownership of
Countdown, NHS, DBS Direct, Countdown USA, Logan Leisure and Breakaway Travel,
management of the Company and TME assessed the rationale of a merger of the two
entities. Management believed that keeping the two companies distinct and
separate was not appropriate or advantageous to shareholders and therefore on
December 28, 1999 the Company and TME executed a definitive merger agreement
("Merger Agreement"). Under the terms of the Merger Agreement, the Company will
issue one share of its common stock for each share of common stock of TME. The
merger, which is expected to be completed by December 31, 2000, is subject to a
number of conditions, including shareholder approval. The Company and TME each
established independent committees to determine the fairness of the proposed
transaction from a financial point of view.
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License in return for
forgiveness of a promissory note in default in the sum of $250,000 together with
accrued interest of approximately $73,000 and forgiveness of past due royalty
payments under the License in the sum of approximately $51,000. Net of the
carrying value of the License, the Company recorded a loss on termination of
approximately $256,000. The Company believed that termination of the License was
in the best interests of the Company because the Company derived direct
financial benefit from the Termination Agreement. Upon termination of the
license agreement, management of the Company conducted a detailed review of the
restaurant charge card business in Australia and concluded that it would not be
commercially viable to develop and establish a new dining product in Australia
post termination of the license agreement. In deciding not to continue its
restaurant card business in Australia, management considered a number of factors
including declining revenues in recent years and significant operating losses
since commencement of operations in 1994. Additionally, management believed that
its declining restaurant cardholder base in Australia could not be rebuilt
without significant investment of management time and marketing expense.
On April 13, 2000 the Company acquired MonsterBook.com, Inc. ("MonsterBook").
MonsterBook produces and distributes a printed e-business directory for the
Internet. Additionally, the e-business directory is available via the Internet
at http://www.monsterbook.com.
9
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - The Company (continued)
As of June 30, 2000, the Company had the following equity interests in its
direct subsidiaries:
Name Country of Incorporation % Owned
Transmedia Australia Pty Ltd Australia 100
Transmedia Australasia Pty Ltd New Zealand 100
Transmedia Australia Holdings Pty Ltd Australia 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
Asia Merger Sub I, Inc. United States 100
MonsterBook.com, Inc. United States 100
As of June 30, 2000, the Company had the following equity interests in its
affiliates:
Name Country of Incorporation % Owned
Countdown Holdings Limited UK 50
Porkpine Limited Channel Islands 50
Countdown USA, Inc. United States 50
DSS Direct Connect, LLC United States 50
All references herein to "Company" and "TMAP" include Transmedia Asia Pacific,
Inc. and its subsidiaries unless otherwise indicated.
Although the Company has significant influence over the operating and financial
decisions of its affiliates, it does not have effective control over their
operations and therefore they are accounted for under the equity method.
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 June 30, 2000, the results of
operations for the three and nine months ended June 30, 2000 and 1999 and the
changes in cash flows for the nine months ended June 30, 2000 and 1999. The
results of operations for the three and nine months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
The September 30, 1999 balance sheet has been derived from the audited
consolidated financial statements as of 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 audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
10
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies
(a) Principles of consolidation
The consolidated unaudited financial statements include the financial
statements of the Company and its subsidiaries and affiliates, including
50% held subsidiaries where effective control is exercised by the Company
over the financial and operational decisions of the subsidiary. All
significant inter-company transactions have been eliminated on
consolidation.
(b) Restaurant credits
Restaurant credits represent the total advances made to participating
restaurants in exchange for credits less the amount by which these food
and beverage credits are recouped by the Company as a result of Company
cardholders utilizing their cards at participating restaurants. The amount
by which such food and beverage credits are recouped amounts to
approximately 50% of the retail value of food and beverages consumed by
cardholders. The Company historically reviewed recoverability of
restaurant credits and established an allowance for restaurant credits to
restaurants that have ceased operations or whose credits may not be
utilized by cardholders. The allowance for irrecoverable restaurant
credits as of June 30, 2000 was further reviewed in light of management's
decision not to establish a new dining product post termination of the
Network License.
(c) Long-lived assets
Long-lived assets, such as office furniture and equipment, goodwill and
other intangibles, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the
use of these assets. When any such impairment exists, the related assets
are written down to fair value. An impairment of $4,315,647 was recorded
for the three month period to June 30, 2000.
(d) Intangible assets excluding goodwill
Other intangible assets consisted primarily of the cost of the Transmedia
License paid to Network in cash plus the fair value of shares of Common
Stock granted in exchange for the Transmedia License to operate in the
licensed territories using the systems, procedures and 'know how' of the
Transmedia business. The license cost was being amortized on a
straight-line basis over its estimated useful life of 15 years from the
commencement of operations in November 1994, until terminated in April
2000.
(e) Office furniture and equipment
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method
over the estimated lives which are between 3-5 years.
(f) Goodwill
The excess of cost of investments over the fair value of net assets
acquired which is not otherwise allocated is determined to be goodwill and
is amortized on a straight-line basis over a period of ten or fifteen
years.
11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(g) Income taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Accordingly, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted rates in
effect for the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. 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.
(h) Cash equivalents
For purposes of the statements of cash flows, the Company considers all
investments with an original maturity of three months or less to be a cash
equivalent.
(i) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, notes payable, restaurant credits and amounts due from/to
related parties and approximated fair value as of June 30, 2000 and
September 30, 1999 due to either short maturity or terms similar to those
available to similar companies in the open market.
(j) Revenue recognition
Revenues and fees comprise:
i) the retail value of food and beverages purchased from participating
restaurants by the Company's Transmedia cardholders (less the
cardholders' 20% or 25% discount) and cardholders' membership fees.
ii) NHS membership fees paid by sponsoring corporations;
iii) Travel agency commissions earned by the Teletravel division of NHS
and Breakaway.
iv) MonsterBook advertising fees, referral fees from sales initiated
through the MonsterBook website and commissions on third party
products and services sold to the MonsterBook membership base.
Transmedia card membership fees are recognized as revenue in equal monthly
installments over the membership period. All other components of revenue,
including NHS membership fees paid by corporations for the provision of
helpline services, are non-refundable and recognized as revenue when the
related services have been performed.
12
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(k) Foreign currencies
The reporting currency of the Company is the United States dollar. The
Company's functional currencies are the United States dollar, the
Australian dollar, UK pound sterling and the Irish punt. The Australian
dollar is the functional currency of the Company's member benefits and
travel businesses because it is the primary currency of the environment in
which the businesses operate as autonomous units. All cash generated and
expended by these businesses is primarily in Australian dollars. For the
same reasons the functional currency of the company's interest in
Countdown is the UK pound sterling because that business is located, and
primarily operates in, the United Kingdom. Similarly the functional
currency of the Company's interest in Porkpine is the Irish punt because
that business is located, and primarily operates in the Republic of
Ireland. For consolidation purposes, the assets and liabilities of
overseas subsidiaries are translated at the closing exchange rates.
Consolidated statements of income of such subsidiaries are consolidated at
the average rates of exchange during the period. Exchange differences
arising on the translation of subsidiaries' financial statements are
recorded in the cumulative foreign currency translation adjustment account
as a component of stockholders' equity. Transactions in foreign currencies
are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are translated using the rate of exchange ruling at the balance
sheet date and the gains or losses on translation are included in the
consolidated statement of operations.
The average exchange rates during the three and nine months ended June 30,
2000 and 1999 and the exchange rates in effect as of June 30, 2000 and
September 30, 1999 were as follows:
UK Pound Australian Irish
Sterling (pound) Dollar Punt
Average exchange rates:
3 months ended June 30, 2000 1.5310 0.5895 1.1850
3 months ended June 30, 1999 1.6067 0.6539 1.3415
9 months ended June 30, 2000 1.5683 0.6094 1.2184
9 months ended June 30, 1999 1.6455 0.6374 1.4213
Closing exchange rate:
June 30, 2000 1.5131 0.5981 1.2123
Setember 30, 1999 1.6463 0.6528 1.3513
13
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(l) Comprehensive income
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No.130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income (loss), its components and
accumulated balances. Comprehensive income (loss) is defined to include
all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No.130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income (loss) be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The only item of comprehensive income (loss) is
foreign currency translation adjustments.
(m) Recent accounting pronouncements not yet implemented
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities", which establishes standards for accounting for the various
derivative instruments commonly used in hedging activities. This standard
is now effective for fiscal years beginning after June 15, 2000. While
management is still reviewing the statement, it believes the adoption of
this statement will not have a material effect on the Company's
consolidated financial position, results of operations or cash flows, and
any effect will generally be limited to the form and content of its
disclosures.
14
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 4 - Series A Convertible Preferred Stock
On March 27, 2000 the Company sold, in 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,
10,000 shares of a newly designated Series A Convertible Preferred Stock, par
value $.01 ("Preferred Shares") resulting in net proceeds to the Company of
approximately $9,350,000. In connection with the Placement the Company paid due
diligence costs of $50,000 in cash and granted to the purchasers of the
Preferred Shares five year warrants to purchase in aggregate 385,542 shares of
the Company's common stock at an exercise price of $6.225 per share.
Additionally, the Company paid a cash fee of $600,000 for services in connection
with the Placement and granted them five year warrants to purchase an aggregate
of 250,000 shares of the Company's common stock at an exercise price of $6.225
per share. The value of the warrants issued to the purchasers of the Preferred
Shares totaled $1,025,542 using the Black-Scholes model and the Company recorded
such amount as preferred stock dividends in the quarter ended March 31, 2000,
with a related credit to additional paid-in capital. The cash fee paid for
services in connection with the Placement was applied to additional paid-in
capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued unless otherwise agreed to by the holders of
the Preferred Shares, and entitle the holder to dividends as declared on a
non-cumulative basis. The principal terms of the Preferred Shares are:
(i) Liquidation Preference: $1,000 per share plus 5% per annum subject
to certain adjustments. Neither a consolidation, merger nor sale of
all of the Company's assets shall in and of itself shall be
considered a liquidation.
(ii) Conversion: Preferred Shares can be converted into common stock
through December 27, 2000 at a price of $6.225 per share. Thereafter
the conversion ratio shall be the lower of $6.74375 and the average
market price determined as of December 27, 2000, as reset at the end
of each six month period thereafter through March 27, 2003. The
average market price shall be the average of the five lowest sale
prices for five of the twenty trading days immediately preceding the
relevant determination date. The applicable conversion price shall
also be reduced, on a weighted average basis, to adjust for
issuances of equity at a price per share lower than the conversion
price then in effect. In addition, adjustments shall be made to
reflect dividends made with respect to capital stock ranking junior
as to dividends or liquidation rights to the Preferred Shares as
well as the issuance of options or warrants. Additionally, holders
of the Preferred Shares can require redemption by the Company upon
the occurrence of certain events, including but not limited to,
delisting of the Company's shares of common stock from the NASDAQ
SmallCap market, absence of a closing bid price for five consecutive
trading days, restriction on sale for thirty or more days after a
registration statement covering the shares of common stock
underlying the Preferred Shares has been declared effective or the
taking of any action without the authorization of a majority in
interest of the holders of the Preferred Shares which would be
adverse to their rights.
15
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 4 - Series A Convertible Preferred Stock (continued)
(iii) Optional Redemption by the Company: Under certain circumstances
where the Company is in full compliance with all its obligations to
the holders of Preferred Shares, the Company shall have the right,
upon giving notice not later than twenty trading days nor more than
thirty trading days prior to the proposed redemption date to redeem
the Preferred Shares at the applicable redemption price. Such
redemption price shall be the higher of (A.) the product obtained by
multiplying (i) $1,000 plus (ii) accrued dividends calculated at 5%
thereof per annum times 120% or (B) the number of shares of common
stock which would be issuable upon conversion of the Series A
Convertible Preferred Stock on the date of determination times the
average closing bid price for the common stock for the five trading
days immediately preceding the redemption date.
(iv) Final Redemption: The Company shall have the right commencing March
28, 2003 to redeem the Series A Convertible Preferred Stock at any
time thereafter so long as it is in compliance with all requirements
and notice is given not less than thirty trading days nor more than
fifty trading days prior to the final redemption date. The final
redemption price shall be the sum of $1,000 plus accrued dividends
calculated thereon at 5% per annum.
(v) Voting Rights: Holders of the Preferred Shares do not have voting
rights other than with respect to matters adversely effecting the
rights of such holders.
Note 5 - Loss per common share
The following table summarizes securities that were outstanding at June 30, 2000
and 1999 but not included in the calculation of diluted loss per share because
such shares are anti-dilutive.
June 30, June 30,
2000 1999
Stock options and warrants 8,974,996 8,755,465
16
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 6 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in four lines of
business: member benefits/loyalty programs, travel services direct marketing and
e-commerce, with the latter being insignificant in the three and nine months
ended June 30, 2000 and 1999. The operations of subsidiary companies are
conducted in Australia and the United States and the operations of affiliates
are conducted in Europe and the United States. The accounting policies of the
segments are those described in Note 3 - Significant accounting policies.
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(a) Statement of operations
Revenues:
Member benefits/loyalty programs $ 415,242 $ 789,401 $ 1,220,186 $ 2,156,285
Internet Services/Directories 875 -- 875 --
Travel services 81,176 205,742 385,936 873,727
------------ ------------ ------------ ------------
Revenue for reportable segments
and consolidated revenues 497,293 995,143 1,606,997 3,030,012
============ ============ ============ ============
Operating loss:
Member benefits/loyalty programs (1,102,330) 89,273 (739,161) 67,712
Internet Services/Directories (1,088,783) -- (1,088,783) --
Travel services (96,000) (135,962) (210,533) (316,012)
Corporate overhead (520,979) (596,431) (2,897,547) (1,707,392)
Impairment write-down (4,315,647) -- (4,315,647) --
------------ ------------ ------------ ------------
Total operating loss for
reportable segments (7,123,739) (643,120) (9,251,671) (1,955,692)
------------ ------------ ------------ ------------
Share of affiliate profits/(losses):
Member benefits/loyalty programs (187,497) (50,013) (202,199) (168,361)
Direct marketing (612,529) -- (1,965,496) --
------------ ------------ ------------ ------------
Total share of affiliate profits
(losses) (800,026) (50,013) (2,167,695) (168,361)
------------ ------------ ------------ ------------
Net interest expense (44,416) (46,327) (433,752) (261,107)
------------ ------------ ------------ ------------
Loss before taxation and
minority interests (7,968,181) (739,460) (11,853,118) (2,385,160)
============ ============ ============ ============
Depreciation, amortization
and impairment write-down:
Member benefits/loyalty programs 4,475,278 178,912 5,229,146 536,737
Internet Services/Directories 19,565 -- 19,565 --
Travel services 10,980 10,511 33,572 33,648
------------ ------------ ------------ ------------
Total 4,505,823 189,423 5,282,283 570,385
============ ============ ============ ============
</TABLE>
17
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 6 - Industry and geographic area segments (continued)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Geographic region
Revenues
Australia 496,418 995,143 1,606,112 3,030,012
United States of America 875 -- 875 --
------------ ------------ ------------ ------------
$ 497,293 $ 995,143 $ 1,606,997 $ 3,030,012
============ ============ ============ ============
Net loss before taxation, minority
interests and dividends
Australia (4,793,515) (3,440) (5,417,817) (445,990)
United States of America (3,107,896) (709,773) (6,368,531) (1,886,062)
Europe (66,770) (26,247) (66,770) (53,108)
------------ ------------ ------------ ------------
$ (7,968,181) $ (739,460) $(11,853,118) $ (2,385,160)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of As of
June 30, September 30,
2000 1999
----------- -------------
<S> <C> <C>
Long-lived assets
Australia 201,216 4,835,009
United States of America 22,814,018 8,574,408
Europe 2,349,206 2,415,974
----------- -----------
$25,364,440 $15,825,391
=========== ===========
(b) Total assets
Member benefits/loyalty programs 2,002,945 5,182,421
Internet Services/Directories 14,741,169 --
Travel services 343,922 299,415
Investment in affiliates 7,108,519 9,437,824
Unallocated 6,834,352 2,757,683
----------- -----------
Total assets 31,030,907 17,677,343
=========== ===========
</TABLE>
18
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 7 - Stockholders' equity
On September 30, 1999 the Company commenced a private 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 October 5, 1999 upon the sale of 625,000 shares of common stock at $0.65 per
share resulting in net proceeds to the Company of $406,250.
On October 21, 1999 the Company commenced a private 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 November 20, 1999 upon the sale of 3,906,250 shares of common stock at $0.80
per share resulting in net proceeds to the Company of $3,125,000.
During the quarter ended March 31, 2000 the Company issued 50,000 shares of its
common stock in part payment of its obligations pursuant to a settlement
agreement executed by the Company and Michael R. Chambrello, former Chief
Executive Officer of the Company. Additionally, the Company issued 8,333 shares
of its common stock upon exercise of a warrant resulting in net proceeds to the
Company of $8,333.
Note 8 - Acquisition of MonsterBook.com, Inc.
On April 13, 2000 (the "Effective Date") the Company, Asia Merger Sub II, Inc.,
a wholly owned subsidiary of the Company ("Merger Sub"), and MonsterBook.com,
Inc. ("MonsterBook") consummated a merger (the "Merger") of Merger Sub with and
into MonsterBook pursuant to which MonsterBook became a wholly owned subsidiary
of the Company. The Merger was consummated pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of March 8, 2000, by and
among the Company, Merger Sub, MonsterBook and William H. McKee and Frank T.
Vega. The merger was accounted for as a purchase.
MonsterBook produces and distributes a printed e-business directory for the
Internet. Additionally, the e-business directory is available via the internet
at www.monsterbook.com. MonsterBook's headquarters are located in San Francisco,
California. The Company presently intends to operate MonsterBook as a subsidiary
under the name MonsterBook.com.
Pursuant to the terms of the Merger Agreement, as of the Effective Date, each of
the outstanding shares of common stock of MonsterBook, par value $0.0001 per
share, was converted into the right to receive either (a) $0.27105114 in cash,
without interest (the "Cash Consideration") or (b) 0.0735054 of a share of
common stock of the Company, par value $0.00001 per share (the "Stock
Consideration" and, together with the Cash Consideration, the "Merger
Consideration"). The Merger Consideration was negotiated by the parties at the
time they entered into the Merger Agreement. The Stock Consideration issued by
the Company was approximately 2,962,773 shares of its common stock, and the Cash
Consideration paid by the Company was approximately $138,000. Based on the
closing price of the Company's common stock on April 13, 2000 of $5.3125 per
share, the Stock Consideration had a value of approximately $15,739,732, and the
Merger Consideration had a value of approximately $15,877,732. The funds used by
the Company to pay the Cash Consideration were supplied by the Company's working
capital. In addition, the Company converted existing MonsterBook options into
options to acquire approximately 362,749 shares of the Company's common stock.
19
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described below and those presented elsewhere by management
from time to time. When used in this Quarterly Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
General
Historically, the business of the Company was the design and supply of a range
of member benefit programs to corporations, affinity groups and individuals. In
1996 the Company and TME decided to work closely to implement a strategy to
create a broader based international member benefits/loyalty marketing business.
As a result the Company currently has established business operations in
Australia and through its affiliates, Countdown, Countdown USA, DBS Direct and
Logan Leisure, has an interest in business operations in Europe and elsewhere.
In addition, the Company recently acquired MonsterBook.com, Inc.
In light of the close collaboration between the Company and TME since
incorporation and, more particularly, in view of the joint ownership of
Countdown, Countdown USA, DBS Direct, NHS, Logan Leisure and Breakaway Travel,
management of the Company and TME have executed a merger agreement, subject to
shareholder approval. Post completion of the merger the Company aims to become a
leading global provider of customized loyalty programs and services to
corporations worldwide, providing superior business to consumer solutions for
businesses. The Company's objective is to package online commerce and Internet
content with traditional offline commerce into a web-based and real world
affinity solution for corporations and associations. For members, online
offerings will include Internet access (free in some jurisdictions), a
customized multi-media portal, targeted e-commerce and global directory
services. The Company's (including its affiliates) offline content is currently
available in 28 countries and includes a wide range of products and services
such as discount shopping, discount dining, travel and telephone helpline
services. The future success of the Company is primarily dependent upon its
ability implement its strategy to leverage its existing assets to develop and
expand its internet activities and generate additional revenues from its member
and merchant bases.
20
<PAGE>
The business of the Company today comprises four segments:
1. The design and supply of a range of loyalty marketing and member
benefit programs to corporations and affinity groups. Additionally,
the Company provides member benefit packages to individuals on an
international scale,
2. E-commerce and internet services and directories,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
In its member benefit/loyalty marketing, the Company has recently focused its
sales effort as a loyalty and affinity marketing service to corporate clients.
Management will continue to build the Company's membership base and broaden the
range of member benefit programs offered. Management is actively recruiting
senior executives to strengthen the management team and facilitate such
development and expansion. The Company will continue to look for new
opportunities within the member benefits industry and may expand its operations
through further acquisitions.
Management believes there is significant opportunity for the Company in its
e-commerce and internet services business. Such opportunity includes revenue
generation, not only through the Countdown-Arcade shopping web site and the
Company's e-business directory business, but also by providing Internet services
to its merchant base, corporate clients and Countdown licensees. The Company
will continue to develop and expand its e-commerce and Internet activities
primarily through strategic alliances.
In the United States the Company intends to aggressively develop the business of
its subsidiary MonsterBook.com as well as its affiliates Countdown USA and DBS
Direct, through cross-marketing and strategic partnerships. The Company is
actively recruiting senior executives to be based in the United States to
support the development and expansion of MonsterBook, Countdown USA and DBS
Direct. This strengthening of the Company's United States based management team
will also help to facilitate the expansion of its e-commerce and other Internet
activities in the United States marketplace.
Results of Operations
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License in return for
forgiveness of debt, accrued interest and past due royalty payments under the
License, a total of approximately $374,000. Net of the carrying value of the
License, the Company recorded a loss on termination of approximately $256,000.
Upon termination of the license, management of the Company conducted a detailed
review of the restaurant charge card business in Australia and concluded that it
would not be commercially viable to develop and establish a new dining product
in Australia post termination. In deciding not to continue its restaurant card
business in Australia, management considered a number of factors including
declining revenues in recent years and significant operating losses since
commencement of operations in 1994. Additionally, management believed that its
declining restaurant cardholder base in Australia could not be rebuilt without
significant investment of management time and marketing expense.
In addition to reviewing its restaurant card business, management reviewed the
operating performance at NHS. NHS, as reported below, recorded a decline in
revenues in the three months ended June 30, 2000 of $259,014 or 44.8% ($571,219
or 38.5% in the nine months then ended). In light of the operating performance
of NHS and the operating losses of $426,108 incurred at NHS in the nine months
ended June 30, 2000 (1999: a profit of $209,827) management assessed the
carrying value of its interest in NHS. In line with the Company's accounting
policy with respect to long-lived assets, management evaluated the carrying
value of underlying goodwill in NHS. Management concluded that an impairment
write-down of approximately $4.3 million was required as such underlying
goodwill may not be recoverable through the estimated undiscounted future cash
flows from NHS operations.
21
<PAGE>
Three Months ended June 30, 2000 compared to Three Months ended June 30, 1999
The Company generated revenues of $497,293 (1999: $995,143) in the three months
ended June 30, 2000, a decrease of $497,850 or 50% over the corresponding period
in 1999. The Company's member benefit/loyalty marketing businesses, NHS and the
restaurant card business, recorded a decline in revenues of approximately
$259,014 (44.8%) and $115,145 (54.4%) respectively. Revenues at NHS were
impacted by the loss of a number of contracts earlier in the year. The decline
in revenues in the restaurant card business resulted from lower card usage by
cardholders and the Company's inability to fund advances to new restaurants.
Additionally, in light of termination of the Transmedia License, the Company has
not promoted its restaurant card business for some time. Teletravel and
Breakaway recorded a decline in revenues of $124,566 (60.5%) as compared to the
corresponding period in 1999. Both businesses experienced a downturn in trading
activity generally and suffered from high staff turnover. MonsterBook generated
revenues of $875 in the period post acquisition through June 30, 2000.
Management did not anticipate revenues at MonsterBook in the quarter as the next
printed directory is not due for publication until November 2000.
Cost of revenues totaled $214,113 (1999: $223,908) for the three months ended
June 30, 2000, generating a gross profit percentage of 56.9% (1999: 77.5%). The
gross profit percentage achieved in the period by NHS was 68.6% (1999: 83.1%)
and the restaurant card business achieved 9.9% (1999: 43.8%). The decline in the
restaurant card business gross margin is due to cardholders being given
additional discounts to encourage card usage to utilize restaurant credits prior
to termination of the License Agreement. The Company's travel businesses operate
at 100% gross margin.
Selling, general and administrative expenses totaled $3,091,272 (1999:
$1,414,355) for the three months ended June 30, 2000, an increase of $1,676,917
or 118.6% over the corresponding period in 1999. Excluding the impact of
MonsterBook, selling, general and administrative expenses increased year on year
by $979,625 or 69.3%. Selling, general and administrative expenses of NHS and
the restaurant card business recorded an increase of $93,347 as compared to the
corresponding period in 1999. The travel businesses recorded decreases in
selling, general and administrative expenses of $164,528. Head office selling,
general and administrative expenses increased by $1,056,464 as compared to the
corresponding period in 1999. The net increase primarily comprised an increase
in professional fees of $397,644, payroll $410,479 and amortization of
underlying goodwill on the MonsterBook acquisition $392,366. The increase in
professional fees included $177,931 amortization of prepaid fees to Gleacher &
Co., the Company's investment banker. In addition, the Company incurred a net
expense of $255,733 with respect to termination of the License Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $(99,509), $(612,524), $(26,247) and
$(61,746) respectively for the three months ended June 30, 2000 (1999: $15,178,
$(10,000), $(30,095) and $(25,096)). Such profits (losses) include amortization
of underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Nine months ended June 30, 2000 compared to nine months ended June 30, 1999
The Company generated revenues of $1,606,997 (1999: $3,030,012) in the nine
months ended June 30, 2000, a decrease of $1,423,015 or 47.0% over the
corresponding period in 1999. The Company's member benefit/loyalty marketing
businesses, NHS and the restaurant card business, generated revenues of
$1,220,186 (1999: $2,156,285), a decrease of 43.4%. Revenues in the Company's
travel operations totaled $385,936 (1999: $873,727), a decline of approximately
55.8%. Revenues in all business sectors were impacted in the nine months ended
June 30, 2000 by the loss of a number of contracts and limited working capital
for much of the period.
22
<PAGE>
Cost of revenues totaled $505,398 (1999: $635,196) for the nine months ended
June 30, 2000, generating a gross profit percentage of 68.6% (1999: 79.0%). The
gross profit percentage achieved in the period by NHS was 74.1% (1999: 81.7%)
and the restaurant card business achieved 12.9% (1999: 48.3%). The Company's
travel businesses operate at 100% gross margin.
Selling, general and administrative expenses totaled $6,037,623 (1999:
$4,350,508) for the nine months ended June 30, 2000, an increase of $1,687,115
or 38.8% over the corresponding period in 1999. Excluding the impact of
MonsterBook, selling, general and administrative expenses increased year on year
by $989,823 or 22.8%. Selling, general and administrative expenses of NHS and
the restaurant card business recorded an increase of $3,240. The travel
businesses recorded decreases in selling, general and administrative expenses of
$593,270. Decreases in expenses in all businesses were recorded across most cost
categories (primarily payroll) reflecting lower activity levels. Head office
selling, general and administrative expenses increased by $1,579,853 as compared
to the corresponding period in 1999. $533,793 of such increase relates to
amortization of prepaid fees to Gleacher & Co. Other significant year on year
cost increases comprised consulting fees $209,440, legal $214,477 and
amortization of underlying goodwill on the MonsterBook acquisition $392,366. In
addition, the Company incurred a net expense of $255,733 with respect to
termination of the License Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $(52,345), $(1,965,496), $(135,429) and
$(14,425) respectively for the nine months ended June 30, 2000 (1999: $(40,371),
(10,000), $(115,253) and $(2,737)). Such profits (losses) include amortization
of underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Nine months Ended
-----------------
June 30, 2000 June 30, 1999
Cash (used in)/provided by
Operating Activities $(5,143,304) $(3,015,892)
Cash used in
Investing activities $ (905,073) $(1,821,989)
Cash provided by financing
Activities $ 5,732,825 $ 4,313,568
The Company incurred a net loss of $13,011,461 in the nine months ended June 30,
2000, which when adjusted for non-cash items resulted in funds used in operating
activities totaling $5,143,304 net of working capital movements. Non-cash items
comprised preferred stock dividend $1,025,542, depreciation and amortization
charges $1,468,593, goodwill impairment write-down $4,315,647, amortization of
pre-paid fees $533,790, the Company's share of losses of affiliates of
$1,474,056, loss on termination of the Transmedia License $255,733, provision
against irrecoverable restaurant credits $14,158 and employment termination
compensation $137,500.
23
<PAGE>
Net cash used in investing activities of $905,073 in the nine months ended June
30, 2000 comprised the cash element of the Company's investment in MonsterBook
($137,275), an investment in its affiliate DBS Direct $562,500, purchase of
fixed assets $149,943 and website development costs $55,355. In the
corresponding period in 1999, net cash used in investing activities comprised
the cash elements of the Company's investment in Transmedia Australia to
complete the acquisition of NHS ($1,233,451), the Company's investment of
$550,542 in its affiliates DBS Direct ($500,000), Countdown USA ($24,967) and
Porkpine ($25,575). In addition, the Company invested $37,996 in fixed assets in
the nine months ended June 30, 1999.
To meet its cash requirements during the nine months ended June 30, 2000, the
Company issued in aggregate 4,531,250 shares of Common Stock in equity private
placements, resulting in net proceeds to the Company of $3,531,250. $406,250 of
the net cash proceeds were received in October 1999 and the balance in early
November. In March 2000, the Company sold, in a private placement 10,000 shares
of Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting
in net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
Additionally, the Company issued 8,333 shares of its common stock in January
2000 upon exercise of a warrant resulting in net proceeds to the Company of
$8,333.
In November 1998 the Company raised approximately $3,400,000 through the
issuance of a secured 10% promissory note. Such promissory note fell due for
payment on November 16, 1999. The Company repaid $400,000 of principal and
executed a new note representing the balance of $3 million on November 30, 1999.
The new note was payable on February 15, 2000, together with accrued interest.
The Company repaid the note, together with accrued interest, from the proceeds
of the Preferred Share placement. Cash generated by financing activities was
partially off set by the repayment of short-term loans totaling $3,688,186 and
advances to related parties of $3,449,832 net, primarily TME to fund the
operations of the Company's affiliates.
The Company will require further capital infusions in order to meet the ongoing
funding requirements of its operations. Based upon the Company's history of
obtaining necessary financing, management is confident that sufficient funds
will be available to the Company to operate in the foreseeable future. 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.
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the implementation of its strategy to create a broad
based international member benefit/loyalty marketing business primarily through
the joint acquisition of synergistic businesses with TME. The Company currently
has established business operations in Australia and the United States and
through its affiliates, Countdown, Countdown USA, DBS Direct and Logan Leisure,
has an interest in business operations in Europe, the United States and
elsewhere. While the Company will continue to operate cash negative in the short
term, management believes that after completion of the proposed merger with TME,
the Company and TME will be well positioned to achieve profitability in the
medium term. However, there can be no assurance given that the proposed merger
will be completed or when, if at all, profitability will be achieved.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the nine months ended June 30, 2000, a situation which is
expected to continue for foreseeable future. The business of Breakaway is to
some extent seasonal. However, the Company has no basis at this time on which to
project the effects, if any, on its business as a whole.
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Year 2000 disclosure issues
The Company has considered the guidance of the Statement of the Commission
regarding disclosure of Year 2000 issues for public companies (Release No.
33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues was
made in the Company's Annual Report on Form 10-K for the year ending September
30, 1999.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On September 29, 1999 NAMA of Texas filed a civil action against the Company,
TME and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of
NAMA, a business acquired by the Company and TME through Countdown USA in
November 1998. NAMA of Texas is claiming breach of contract pursuant to a
License and Consulting Agreement for the provision, by NAMA, of medical and
other benefit programs to NAMA of Texas. NAMA of Texas is claiming damages for
loss of business and income in the sum of $5 million, punitive damages in the
sum of $3 million, interest, attorney fees and all costs including court costs.
Management of the Company, TME and Countdown USA believe that the claims of NAMA
of Texas are unfounded and that they have meritorious defenses against such
claims. The Company, TME and Countdown USA filed their original answer on
November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal
Court. The Federal Court ordered an initial pre-trial conference for May 18,
2000. At the pre-trial conference the Judge dismissed the case against the
Company and TME with the condition that should Countdown USA ultimately lose the
case and is not capable of paying any judgment against it, then the Company and
TME could be enjoined again. As of the date hereof, the proceeding is at
deposition stage.
The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief
Executive Officer, with respect to amounts which the Company claims Mr. Guinan
owes to the Company and with respect to amounts which Mr. Guinan claims are owed
to him by the Company. Mr. Guinan's employment agreement was terminated for
cause on September 30, 2000 and the Company considers the employment agreement
to no longer be effective. Mr. Guinan's attorneys recently have challenged this
position and have also asserted claims for various advances which Mr. Guinan
asserts were made on behalf of the Company and for which he claims to be
entitled to reimbursement. No legal action has been commenced by the Company or
Mr. Guinan. At this time it cannot be determined when and if this dispute can be
resolved or what the net amount, if any, which Mr. Guinan owes to the Company or
the Company owes to Mr. Guinan.
The Company is engaged in a dispute with Carl Freyer, a former director and
consultant to the Company. Mr. Freyer claims that an agreement was reached in
December 1999 pursuant to which he, or his affiliate was granted warrants plus
cash payments in lieu of prior compensation arrangements. The Company asserts
that there is no such valid agreement and that the only rights of Mr. Freyer, or
his affiliate, relate to the Company's obligation to submit for shareholder
approval, warrants previously granted covering 300,000 shares exercisable at
$1.00 per share. At this time no litigation has been commenced.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 2. Change in Securities and Use of Proceeds
On September 30, 1999 the Company commenced a private 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 October 5, 1999 upon the sale of 625,000 shares of common stock at $0.65 per
share resulting in net proceeds to the Company of $406,250. The proceeds were
received in October 1999 and were applied to working capital.
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On October 21, 1999 the Company commenced a private 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 November 20, 1999 upon the sale of 3,906,250 shares of common stock at $0.80
per share resulting in net proceeds to the Company of $3,125,000. The proceeds
were received in November 1999 and were applied to loan repayments and working
capital.
In January 2000 the Company issued 8,333 shares of its common stock upon
exercise of a warrant, resulting in net proceeds to the Company of $8,333.
On March 27, 2000 the Company sold, in a private 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, 10,000 shares of
Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting in
net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued, unless otherwise agreed to by the holders of
the Preferred Shares. Holders of the Preferred Shares do not have voting rights
other than with respect to matters adversely affecting the rights of such
holders.
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None.
(B) Forms 8-K filed during quarter
(i) Acquisition of MonsterBook.com, Inc. on April 13, 2000, filed April
28, 2000.
(ii) Amendment #1 to Form 8K re. acquisition of MonsterBook.com, Inc. to
file audited financial statements and pro-forma financial
information, filed June 27, 2000.
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 authorized.
TRANSMEDIA ASIA PACIFIC, INC.
By: /S/ Grant White
---------------
President and Chief Executive Officer
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