FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _________________
COMMISSION FILE NUMBER 0-26368
TRANSMEDIA ASIA PACIFIC, INC.
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(exact name of registrant as specified in its charter)
Delaware 13-3760219
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(State or other jurisdiction of (I.R.S.
incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of principal executive offices)
Registrant's telephone number, including area code: U.K. 011-44-171-930-0706
Securities registered pursuant to Section 12(g) of the Act
Common Stock, par value $.00001 per share
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(Title of class)
Indicate by (X) 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|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of December 31, 1999 was $99,636,236 based upon the closing sale
price of a share of Common Stock on The National Association of Securities
Dealers Automated Quotation ("NASDAQ") Small Cap Market System.
Number of shares outstanding of the Registrant's Common Stock as of December 31,
1999 was 34,018,298.
Documents incorporated by reference: None
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Transmedia Asia Pacific, Inc.
Form 10-K for the year ended September 30, 1999
Index
Page
PART I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 16
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 33
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
Signatures 35
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This Annual Report on Form 10-K 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 Annual 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.
ITEM 1. BUSINESS.
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.
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. The License is currently limited to Australia and
New Zealand (the "Licensed Territories"). The Company commenced operations as a
discount restaurant charge card business in Sydney, Australia in November 1994.
Network was issued 590,790 shares of common stock, par value $.00001 per share
("Common Stock") of the Company, as part consideration for the License and has
the right to designate one director to the board of directors of the Company,
which right has not currently been exercised. Additionally, under the License
Agreement certain changes in key executives and principal shareholdings in the
Company require the prior written approval of Network.
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. 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 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. See "Countdown". In December 1997 the Company and TME
acquired control of NHS Australia Pty Limited ("NHS"). NHS owned 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
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tickets, vacation packages, insurance and provides international medical case
management and repatriation services to a number of insurance companies. See
"Nationwide Helpline Services".
The Company and TME on May 14, 1998 jointly acquired Porkpine Limited
("Porkpine"). Porkpine trades as Logan Leisure, a business which produces and
sells discount shopping and services directories in Ireland. See "Logan
Leisure". On May 22, 1998 the Company and TME jointly acquired 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. See "Breakaway". In July 1998 the Company and TME
jointly established Countdown America, 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. See "DBS
Direct".
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 in the second quarter of 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.
The Company currently holds the rights to the License with respect to Australia
and New Zealand. The Company is engaged in discussions with Network for many
months with a view to terminating the License Agreement. The principal terms of
the proposed termination agreement ("Termination Agreement") are that the
Company give up its rights under the License Agreement in return for forgiveness
of a promissory note in default in the sum of $250,000 together with accrued
interest of approximately $69,000, forgiveness of past due royalty payments
under the License Agreement in the sum of approximately $43,000 and return to
the Company of the balance of shares of Common Stock issued to Network and still
owned by Network. The Company believes that termination of the License Agreement
is in the best interests of the Company because the License Agreement is no
longer fundamental to the success of the Company's restaurant card business. The
restaurant card business is now an integral part of the Company's member
benefit/loyalty marketing operations and therefore is expected to operate more
favorably under a brand developed by the Company. Further, the Company developed
its own software and systems and therefore the Company has no benefit from the
systems and software provided under the License Agreement for the conduct of its
day-to-day operations. The Company will derive direct financial benefit from the
proposed
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Termination Agreement. There can be no assurance given however that the proposed
Termination Agreement will be executed or that the terms will not change
materially in the final stages of negotiation with Network.
Current Business Operations
The business of the Company comprises four segments: (i) member benefits/loyalty
marketing, (ii) e-commerce and internet services, (iii) travel services and (iv)
direct marketing.
Member Benefits/Loyalty Marketing Business
The Company's member benefit business is comprised of Nationwide Helpline
Services and the Restaurant Card and the various discount benefits offered by
its affiliates Countdown, Countdown USA and Logan Leisure. The Company is
increasingly positioning its member benefit business as a loyalty and affinity
marketing service to its corporate clients.
Nationwide Helpline Services
The Company has effective control over these operations and accordingly the
operations are consolidated in the financial statements of the Company. The NHS
member benefit programs consist primarily of telephone helpline services, credit
card registration and international medical case management and repatriation
services. The NHS telephone helpline services include telephone advice lines
covering legal, tax and accounting issues as well as some medical and home
emergency problems. NHS through a wholly owned subsidiary, IMAN, also provides
international medical case management and repatriation services for travelers on
behalf of a number of major insurance companies.
NHS is a loyalty marketing business which sells its member benefit programs on a
wholesale basis to a wide range of corporations who typically brand the services
under their own name. The programs offered by NHS enable it's corporate clients
to provide additional benefits to their own customer base. As of September 30,
1999 NHS had approximately 2.3 million members entitled to use the services.
The Telephone Helpline Services business operates through NHS's retention of the
services of outside lawyers, accountants and others ("Service Providers") to
provide a fixed amount of free advice to its members over the telephone. NHS
pays a retainer to such Service Providers in return for their being available to
provide advice to members. In addition to the retainer, Service Providers hope
to benefit by securing new clients when a member requires assistance beyond the
initial telephone advice. Members are recruited through NHS's sale of its
Telephone Helpline Services to corporations such as banks and insurance
companies who make it available to their customers as a benefit to their own
customers. NHS contracts to provide the Telephone Helpline Services to its
corporate clients for a period of 1 to 3 years. Such corporations benefit by
retaining existing customers and/or gaining new customers through offering a
product not offered by their competitors. NHS charges client corporations an
annual fee per customer. In order to provide the Telephone Helpline Services NHS
operates a 24-hour call center. The call center receives calls from members and
then redirects the call to the relevant Service Provider. Members are given a
unique telephone number for each category of help/advice offered. In addition,
such unique telephone numbers are different for each corporate client enabling
the call center to answer member calls as the corporate client's helpline
service. Members can be connected to the same advisor each time they call if a
matter is on going. The range of help/advice offered is broad, covering all
types of legal, tax and accounting issues that members may encounter in their
daily lives. In addition, NHS offers a stress and bereavement counseling service
and help and advice on a broad range of
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other issues from home emergency, home maintenance and security to credit card
registration and social security advice.
IMAN provides international medical case management and repatriation services
for travelers. IMAN has established an international network of doctors, nurses
and medical advisors who are available to assist travelers who require medical
assistance while abroad. The service extends to repatriation in cases where the
traveler must return home to receive treatment. The IMAN product is sold to a
number of major insurance companies who incorporate the services of IMAN within
their travel insurance coverage.
Restaurant Charge Card
The restaurant card is a charge card used by a cardholder in lieu of a credit
card to pay for purchases at participating restaurants. Using the restaurant
card for such purchases entitles the cardholder to a 25% discount on the food
and beverage element of purchases made at participating restaurants (i.e. the
total purchase price excluding taxes and service). The restaurant card charges
are collected from a credit card nominated by the cardholder when the restaurant
card is first issued.
Pursuant to the terms of the License Agreement the Company is authorized to
engage in the restaurant charge card business within the Licensed Territories in
the same manner that Network operates in the United States. Under the License
Agreement the Company must pay royalties to Network and certain changes in key
executives and principal shareholdings in the Company require the prior written
approval of Network. The Company's restaurant cardholders and cardholders of
Network and its franchisees can use the restaurant card in all territories
covered by the Company, Network and its franchisees. The Company realizes all
financial benefits from restaurant card usage within the Licensed Territories
but no financial benefit from usage outside the Licensed Territories. Upon
termination of the License Agreement, the Company's business will be independent
of Network's and only the Company's cardholders may use the service.
The restaurant charge card business operates as follows:
o The Company identifies restaurants suitable to participate in the program
and negotiates an agreement with them pursuant to which they agree to
become participating restaurants.
o The Company advances cash ("Restaurant Credits") to such Participating
Restaurants.
o An individual becomes a cardholder ("Cardholder") by completing an
application at which time they nominate a credit card through which
charges incurred using the restaurant charge card are recovered.
o Restaurant Credits entitle the Company to food and beverage at twice the
value of the Restaurant Credit referred to as "Food and Beverage Credits".
In effect the Company purchases food and beverage in advance at a 50%
discount for its cardholders.
o The Company recovers Food and Beverage Credits when food and beverage is
purchased at full retail value at Participating Restaurants by Cardholders
using their restaurant card.
o As food and beverage is purchased by Cardholders, the Food and Beverage
Credits outstanding are reduced by the retail value of such purchases and
the Restaurant Credits outstanding are reduced by one-half of such Food
and Beverage Credits used. The Company recovers the total value of the
purchase made from the Cardholder's credit card.
o The Company pays over to the Participating Restaurant the tax and service
elements of the total purchase.
o The Cardholder receives a credit equal to 25% of the value of the food and
beverage purchased.
o The Company retains the balance.
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o The Company pays a royalty of 2% of Food and Beverage Credits used to
Network and 1.3875% of Food and Beverage Credits used as sales
commissions.
o The total charge is listed on the cardholder's major credit card statement
along with a separate credit equal to 25% of the value of food and
beverage purchased at the participating restaurant.
o The Company maintains a current record of the amount of Food and Beverage
Credits outstanding at each Company Participating Restaurant.
The Company currently operates in Australia and New Zealand, and is not licensed
to expand beyond these countries. As of September 30, 1999, the Company had
approximately 120 (1998: 175) participating restaurants ("Participating
Restaurants") and approximately 14,752 (1998: 29,048) cardholders in Australia.
Countdown
Although the Company has significant influence over the operating and financial
decisions of Countdown, TME has effective control over the operations of
Countdown. Accordingly, Countdown's operations are accounted for under the
equity method in the financial statements of the Company.
The Countdown business is primarily a membership-based business which arranges
discounts with major suppliers of goods and services for its members. Countdown
has approximately 7 million members and approximately 75,000 participating
merchants in 28 countries. The Countdown business described below has been
dramatically expanded as an e-commerce and internet-based business as separately
described later in this section.
Countdown markets membership on a retail and corporate basis. Retail marketing
involves selling membership to individuals. Memberships sold on this basis
represent a very small portion of total membership. Members pay an annual
membership fee, currently approximately $83, which entitles them to a Countdown
card. Members present their Countdown card at the point of sale when making
purchases from participating merchants. Presentation of the Countdown card
entitles the cardholder to a discount, at the time of purchase, of between 5%
and 50% off the merchant's normal selling price. When members receive their
Countdown card they also receive a directory of participating merchants.
Directories are prepared on a geographical and product and service basis,
enabling Countdown to supply a directory of participating merchants to
cardholders specific to the geographical area in which the cardholder lives.
Corporate membership marketing involves the sale of membership packages to
corporations, professional organizations, trade unions, etc. In essence
corporate marketing is a loyalty marketing service provided to corporate
clients. In the case of corporate loyalty marketing, the group or organization
purchases a tailored membership for its own customers, members or employees.
Such customers, members or employees receive a Countdown card (typically a
co-branded card) and a directory for use as in the case of individual membership
described above. The annual fee charged on a wholesale basis is typically 10% or
less of the individual annual membership fee.
Countdown has approximately 75,000 participating merchants worldwide from over
45 different retail categories including clothing, household and leisure goods
and services. Countdown does not pay or receive any fee or royalty to or from
participating merchants. Countdown benefits from merchant participation by being
able to offer a wider range of discount opportunities to its members.
Participating merchants are carefully selected and benefit by attracting
incremental business.
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Countdown also operates a voucher system with United Kingdom based participating
merchants and others. This segment of the business involves Countdown purchasing
gift vouchers from major retailers which can be used to pay for goods and
services at such major retailer's outlets. Countdown sells such vouchers to its
members who can use the vouchers at face value to make purchases from the
issuing retailer. These vouchers are typically sold by Countdown to its members
at a discount from face value of approximately 5% - 10%.
Logan Leisure
Although the Company has significant influence over the operating and financial
decisions of Porkpine, TME has effective control over the operations of
Porkpine. Accordingly, the operations of Porkpine are accounted for under the
equity method in the financial statements of the Company.
Porkpine operates two businesses trading as Logan Leisure and Logan Leisure &
Entertainment. Both businesses produce and sell books of vouchers ("Voucher
Directories") which entitle the holder to discounts and savings on a range of
products and services including hotel accommodation, restaurants, golf clubs and
general merchandise. Logan Leisure in Northern Ireland and Logan Leisure and
Entertainment in the Republic of Ireland negotiate discounts from a range of
suppliers of goods and services who agree to the inclusion of a voucher
representing such discount in the Voucher Directory. Voucher Directories are
produced annually and are sold to consumers for approximately $160. To take
advantage of a particular discount, the consumer extracts the relevant voucher
from the Voucher Directory and presents it to the merchant at the point of sale
with his or her membership card.
Countdown USA
Although the Company has significant influence over the operating and financial
decisions of Countdown USA, TME has effective control over the operations of
Countdown USA. Accordingly, the operations of Countdown USA are accounted for
under the equity method in the financial statements of the Company. On March 23,
1999 Countdown USA changed its name to Countdown USA, Inc.
Healthcare products and services are the cornerstone of the Countdown USA
benefits program. Such products and services include mail order and retail
pharmacy, eye care and hearing products, medical supplies and equipment. In
November 1998 Countdown USA acquired the membership base and certain assets of
NAMA. The acquisition provided Countdown USA with an established membership base
as well as a defined set of benefit packages. Additionally, the acquisition
included a series of contracts pursuant to which NAMA provides customized
benefit packages, on a wholesale basis, to other membership based organizations
and corporations throughout the United States.
Travel Services Business
The Company's travel services business of Teletravel and Breakaway. Travel
products offered through Teletravel, include the sale of packaged vacations,
airline tickets, hotel accommodation and travel related products such as
insurance. Although TME has significant influence over the operations and
financial decisions of Teletravel and Breakaway, the Company has effective
control over the operations of these businesses. Accordingly, the operations of
Teletravel and Breakaway are consolidated in the financial statements of the
Company.
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Teletravel
Teletravel is a telephone based travel agency offering a full range of travel
services such as airline tickets, packaged tours, hotel accommodation, auto
rental and other travel related products such as insurance. The Teletravel
business was established to enable NHS to offer travel products to its corporate
clients, in particular those clients who purchase NHS products and services on a
co-branded basis. Teletravel employs its own travel agents who operate a call
center located in Sydney, Australia. Teletravel does not operate any travel
shops for consumers to utilize on a walk-in basis. Instead the business is
entirely telephone based whereby customers call the Teletravel call center where
an experienced travel consultant offers help and advice to the traveler and then
confirms the customers booking. Consumers can pay by check, credit card or money
order. When payment is received tickets and itineraries are forwarded to the
customer. Teletravel generates revenues from commissions received from airlines
and travel product providers. Teletravel believes it enjoys an economic
advantage over traditional travel agents who have to bear the costs associated
with their retail outlets.
Breakaway Travel
Breakaway, based in Sydney, Australia, commenced operations in 1995. Breakaway
is a licensed travel agent specializing in discount vacation packages for
individuals employed in the travel industry in Australia. Such individuals are
entitled to become members of Breakaway. Members of Breakaway pay an annual
membership fee of Aus$20 (approximately $12). Breakaway has negotiated
agreements with travel providers pursuant to which it can secure reduced rate
fares from such travel providers. Travel providers include airlines, hotels and
tour operators. These reduced rate fares are marketed to members by Breakaway.
E-Commerce and Internet Services Business
In November 1998 the Company and TME launched an internet shopping and services
program, Countdown Arcade. Management believes that the development of an
e-commerce business is key to the future success and growth of the Company.
Management further believes that the Countdown-Arcade can be developed to become
a full online international shopping web site offering a broad range of
merchandise and services at discounted prices by utilizing the existing
Countdown participating merchant base. The Countdown Arcade, can be found at
http://www.countdownarcade.com. As of the date hereof, the Countdown-Arcade
offers the ability to purchase over the internet a range of consumer products
from UK suppliers.
New products and services are added continuously. In addition, members have the
ability to search for merchandise on a country-by-country basis through
Countdown-Arcade link to the Countdown database of participating merchants
outside the UK. The Countdown-Arcade includes a variety of consumer products at
deeply discounted prices as well as a number of services including discounted
gift vouchers and a full on-line travel service.
The Countdown Arcade is available to both members and non-members of the
Countdown program. However, while non-members can make purchases, they cannot
take advantage of the discounts offered unless they become a Countdown member,
which they can do over the internet at any time.
The Countdown-Arcade is also offered as a co-branded product to add additional
services to third party web sites. The software developed is totally proprietary
to the Company and TME and offers the opportunity for licensing to third parties
on a global basis.
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Management believes that the Company's move into e-commerce will generate new
revenues from transaction commissions on products and services sold, as well as
advertising revenues from corporate sponsors.
Direct Marketing Business
On June 15, 1999 the Company and TME purchased DSS Direct Connect, L.L.C. ("DBS
Direct"). Although the Company has significant influence over the operating and
financial decisions of DBS Direct, TME has effective control over the operations
of DBS Direct. Accordingly, the operations of DBS Direct are accounted for under
the equity method in the financial statements of the Company.
DBS Direct is headquartered in Seattle where it commenced operations in July
1998. DBS Direct has the right, on a preferred basis, to provide localized
turn-key sales and installation services for DirecTV, the leading providers of
digital, "direct-to-the-home" multi-channel video programming services. The DBS
Direct contracts with DirecTV and its programming partner will allow it to
become the first nationwide telemarketing, door-to-door sales, and full-service
installer of DirecTV's Digital Broadcast Satellite in the United States. DBS
Direct has three contracts with DirecTV, one covering Single Family Units
("SFU's"), one covering Multi-Dwelling Units ("MDU's") and the third covering
commercial establishments such as hotels and restaurants. The "SFU" contract
grants DBS Direct the right to an initial coverage area which includes 12 major
metropolitan markets in the United States, representing approximately 25 million
television households, or 25% of the total television households in the United
States. DirecTV will add additional SFU markets to the DBS Direct SFU coverage
upon successful launch of its services in currently contracted markets. The
"MDU" contract grants DBS Direct the entire continental United States as its
territory, an additional 25 million television households.
As of the date hereof DBS Direct has three sales offices, two in Seattle and one
in Chicago. In addition, DBS Direct has appointed two franchisees, one in Los
Angeles and one in Phoenix, Arizona. DBS Direct pays a commission to its
franchisees for each DirecTV system sold.
Acquisitions
Countdown
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50% of the
outstanding capital stock of Countdown Holdings Limited, a privately owned
United Kingdom company based in London, England. The consideration paid by the
Company for its 50% interest in Countdown totalled $2,682,487. The purchase
consideration payable to Mr. Radbone was satisfied by the issuance of 1,330,524
shares (the "Radbone Shares") of the Common Stock and a cash payment of 500,000
UK pounds sterling (approximately $800,000 as of April 3, 1997). In addition,
Mr. Radbone was granted an option to purchase 277,193 shares of Common Stock at
$0.90 per share. The balance of the outstanding capital stock of Countdown was
simultaneously purchased by TME on similar terms.
The cash portion of the purchase price was funded by a $1,000,000 loan from Mr.
J. Vittoria, a director and shareholder of the Company. The loan, which bears
interest rate of 12% per annum, was originally scheduled to mature on September
27, 1997. By agreement between the Company and Mr. Vittoria, the loan has been
converted to a demand loan callable on 60 days notice. Interest continues to
accrue at 12% per annum. The loan is collateralised by a pledge of the Company's
entire interest in Countdown. In consideration for the loan, the Company granted
to the lender a five-year warrant to purchase 138,596 shares of Common Stock at
$1.13 per share, the market price of the shares at the time, and granted
piggyback registration rights with respect to such shares.
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In order to obtain the consent of Network to the Acquisition, the Company and
TME each agreed to pay $125,000 in cash to Network. In addition, the Company and
TME jointly issued to Network a promissory note in an aggregate joint principal
amount of $500,000, payable on April 2, 1998 and bearing interest at the rate of
10% per annum. The promissory note is convertible at the holder's option into
$250,000 in value of Common Stock of each issuer at the rate of $1.20 per share.
The note is currently in default. However, the Company has been in discussions
with Network for forgiveness of the promissory note together with accrued
interest.
NHS
On December 2, 1997, Transmedia Australia purchased 51% of the shares of common
stock of NHS. NHS purchased the net assets and business of Nationwide. 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. Transmedia Australia agreed to pay interest at 5% per annum on the
Balance Obligation for the three months ended September 30, 1998. Transmedia
Australia exercised the extension right. In addition, the Company and TME agreed
to pay Aus$4,000,000 in sign-on fees to the two former executive directors of
Nationwide, payable in two equal installments. The first installment was payable
on January 31, 1998 and the second installment was due for payment on June 30,
1998 but was deferred until September 30, 1998.
Transmedia Australia was unable to make the payments due on September 30, 1998.
However, Transmedia Australia commenced negotiations with Nationwide and on
October 21, 1998 reached an agreement pursuant to which the settlement date for
the Balance Obligation and the final settlement of the sign-on fees was extended
to November 16, 1998. In addition, the second installment of the sign-on fees
was reduced from Aus$1 million for each of the Company and TME (a total of Aus$2
million) to Aus$500,000 for each of the Company and TME (a total of Aus$1
million). Finally, it was agreed that the employment contracts of Messrs.
Bostridge and Swinbourn be terminated effective November 16, 1998 upon payment
of three months salary to each. On November 17, 1998 the Balance Obligation, the
reduced final installment of the sign-on fees and the three months salary to
Bostridge and Swinbourn were paid in full. In addition, accrued interest in the
amount of Aus$47,557 (approximately $29,960) was paid.
The final payments to Nationwide and Bostridge and Swinbourn were funded from
the proceeds of a One Year Secured Promissory Note ("Promissory Note") in the
principal sum of $3.4 million executed on November 16, 1998 between the Company
and FAI General Insurance, a shareholder of the Company. Interest on the
Promissory Note accrued at the rate of 10% per annum and was payable quarterly
in arrears. The Promissory Note was secured by a charge over Transmedia
Australia and was guaranteed by TME. The Promissory Note holder received a
three-year warrant to purchase 1 million shares of Common Stock at an exercise
price of $1.00 per share. In addition, the Company agreed to exchange warrants
to purchase 633,366 shares of Common Stock at exercise prices of $1.00 to $1.40,
already held by the Promissory Note holder, for a warrant to purchase 633,366
shares of Common Stock at an exercise price of $1.00. The warrant is exercisable
at any time from November 16, 1998 through November 15, 2001. The Promissory
Note holder also held warrants on similar terms to purchase 633,366 shares of
the common stock of TME. Such warrants were exchanged by TME for a new warrant
on the same terms as those of the Company. Interest on the Promissory Note was
paid to November 15, 1999 and the Company repaid $400,000 of principal in
November 1999. On November 30, 1999 the Promissory Note holder and the
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<PAGE>
Company executed a new note representing the balance of principal of $3 million.
The new note is payable on February 15, 2000 and bears interest at the rate of
10% per annum payable at maturity. The new note is secured by a charge over
Transmedia Australia and is guaranteed by TME.
DBS Direct
On June 15, 1999 the Company and TME each purchased 50% of DBS Direct.
The transaction (the "Acquisition") was consummated pursuant to an Equity
Purchase Agreement dated May 10, 1999, as amended June 11, 1999 (the
"Acquisition Agreement") among the Company, DBS Direct, the Sellers and TME. The
consideration paid by the Company for its 50% interest in DBS Direct comprised
4,589,732 shares of Common Stock. TME paid 4,831,057 shares of its common stock
for the remaining 50% DBS Direct. In addition the Company and TME each
contributed $500,000 to the capital of DBS Direct at the closing of the
Acquisition. Such capital contribution was used to repay existing indebtedness
of DBS Direct. Additionally, the Company and TME agreed to each contribute a
further $1 million to the capital of DBS Direct to fund the expansion of its
network of sales offices nationally. As of the date hereof such additional
capital contributions have been advanced in full by the Company and TME.
Pursuant to the terms of the Acquisition Agreement, William D. Marks entered
into an employment agreement with DBS Direct and joined the board of directors
of the Company and TME. Mr. Marks resigned as a director of TME on October 25,
1999. The employment agreement is for a period of three years and provides for
an annual salary of $175,000. Mr. Marks will serve as President of DBS Direct.
The employment agreement also provides for participation in any incentive stock
option plans that may be established in the future by the Company and TME.
Competition
The "membership based" benefits and loyalty marketing business is highly
competitive. The Company competes with a number of other operators, both
internationally and in the individual countries in which it operates. The
Company's competitors range from small private companies to major corporations
who collectively offer a full range of "membership based" benefit programs. Such
benefit programs include discount shopping, hotel accommodation, travel, dining,
and leisure activities. Additionally, the Company competes with other telephone
helpline service operators and loyalty reward programs such as "air miles".
In its Restaurant Card business the Company competes against other discount
programs. Competitors include programs offered by credit card companies such as
American Express, Visa, Mastercard and Diners Club. Additionally, other
companies offer different kinds of discount programs. The Company is not aware
of any restaurant discount charge card business, similar to that of the Company,
in the Licensed Territories at this time. The unique nature of the restaurant
discount charge card is the principal method used to secure business. However,
there can be no assurance given that new entrants will not enter the market in
the future.
NHS competes with other helpline service providers and membership based benefit
providers. NHS also competes with its product and service providers who promote
their businesses independently of their arrangements with NHS. The principal
methods used by NHS to compete effectively are beneficial prices, quality of
service and the range of products and services offered. The market sector
serviced by NHS is highly attractive to new entrants,
12
<PAGE>
particularly insurance and financial services providers who are seeking to
diversify their product offerings.
The Company's travel businesses compete with travel agents and other operators
in the hotel and travel industries, including retail travel agents, airlines and
hotel groups. The Teletravel business competes on price and convenience when
compared with retail travel agents where the consumer usually is required to
visit the travel agents premises. Breakaway competes primarily on price as well
as offering its services only to employees of the travel industry.
The Company's affiliate, Countdown, competes directly with a full range of
discount shopping programs offered by a number of other operators. The Company
believes that the Countdown program, with over 75,000 participating merchants in
28 countries, is broader based than the programs offered by its competitors.
Management believes that the size of its merchant base, the international spread
of such merchants and its varied communication channels such as in-store
shopping, special offers, telephone shopping services and the internet, give
Countdown an advantage over its competitors. Such merchant base and program
pricing are the principal methods used by Countdown to retain existing business
and secure new business opportunities over its competitors.
The e-commerce and internet services business is also highly competitive. While
the Company's e-commerce business competes with other online discount shopping
and services businesses, management believes that the combination of its
proprietary software, its international network of merchants and the range of
product and service providers uniquely position the Company in this sector.
DBS Direct competes with retail distributors of DirecTV in the United States.
However, its position as a full service marketer of the DirecTV product
differentiates it significantly from its competitors. Retail sellers of DirecTV
appeal strongly to "single family unit" homes who tend to install the product
themselves. DBS Direct's position as a provider of a "one-stop-shop" DirecTV
solution covering direct sales to distribution and installation is targeted at
the high-value more complex requirement of a multi TV household.
The Company is not aware of any dominant operators in its business sector and
geographical markets. However, many of the Company's competitors have
substantially greater financial, personnel, technological, marketing,
administrative and other resources than the Company.
Intellectual Property
The Company operates its restaurant card business pursuant to the rights
acquired through the License Agreement with TMNI. While the License Agreement
grants the Company the right to use certain proprietary software and systems,
the Company found it necessary to develop its own systems and practices for
sales tax and other considerations. Accordingly, the Company is not reliant on
the License Agreement for the conduct its day-to-day operations. However,
TRANSMEDIA is a registered trademark and therefore the Company relies on the
rights it acquired under the License Agreement to use such trademark and such
other trademarks and service marks as Network may apply for in the Licensed
Territories.
Countdown is a registered trademark of the Company's affiliate, Countdown
Holdings Limited. Countdown has been established for over 28 years and
management believes that the business of Countdown is, to some extent, dependent
on the consumer goodwill and the recognition attaching to the Countdown name.
The trademark is registered and protected in all countries of operation.
Countdown-Arcade operates using proprietary software developed in-house and
wholly owned by the Company and TME.
13
<PAGE>
Employees
As of September 30, 1999 the Company employed 48 full-time employees. None of
the Company's employees are represented by a labor union, and the Company
considers its employee relations to be good.
ITEM 2. PROPERTIES.
The Company currently leases office space totaling approximately 11,000 square
feet at 19-31 Pitt Street, Sydney, Australia ("Pitt Street"). The lease expires
on August 31, 2004. The rental obligation is approximately Aus $345,000
($205,000) per annum. In the fourth quarter of 1998 the Company relocated all
its Sydney based businesses to the Pitt Street office.
Through December 1999 the Company and TME shared offices of approximately 2,500
square feet at 11 St James's Square, London, England. In December 1999 the
Company and TME reduced space usage to approximately 1,100 square feet. The
lease is held by TME. The lease expires in February, 2004. During the year ended
September 30, 1999 the Company reimbursed TME the sum of $70,991 (1998: $56,742)
in respect of its share of the rent and service charge cost.
On December 9, 1999 the Company executed a short term lease of Suites 135 and
136 at 1177 High Ridge Road, Stamford, Connecticut at a monthly rental of
$1,900. The office, which is furnished and fully serviced, comprises
approximately 300 square feet. The lease commenced on December 13, 1999 and
expires on March 31, 2000 subject to automatic renewal for an additional 12
month period unless the Company notifies the Landlord in writing by March 1,
2000 of its intent to cancel the lease.
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<PAGE>
ITEM 3. 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 court has ordered an initial pre-trial conference on April 10, 2000.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders of the Company during the
fourth quarter of the year ended September 30, 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information. The Company's Common Stock is traded on the Nasdaq
SmallCap Market under the symbol "MBTA". The following table sets forth
the high and low bid prices as reported on Nasdaq for the periods
indicated below. These quotations have been obtained from Nasdaq
Quotations through September 30, 1999.
Quarter ended High Low
December 31, 1997 1.500 1.000
March 31, 1998 1.375 0.500
June 30, 1998 1.250 0.500
September 30, 1998 1.375 0.500
December 31, 1998 2.500 1.000
March 31, 1999 1.969 0.625
June 30, 1999 1.875 0.281
September 30, 1999 1.938 0.875
(b) Holders. As of December 22, 1999 there were approximately 236 holders of
record of Common Stock. The Company is aware that a significant number of
beneficial owners of Common Stock hold their shares in "street name". The
number of round lot holders of the Common Stock as of December 9, 1999 was
reported by ADP Proxy Services to be 615.
(c) Dividends. Holders of Common Stock are entitled to dividends when, as, and
if declared by the Board of Directors out of funds legally available
therefor. The Company has not paid any cash dividends on its Common Stock
and, for the foreseeable future, intends to retain future earnings, if
any, to finance the operations, development and expansion of its business.
Future dividend policy is subject to the discretion of the Board of
Directors.
Recent Sales of Unregistered Securities
On February 1, 1998 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 April 30, 1998 upon the sale of 1,950,000 shares of Common Stock at $1.25 per
share resulting in net proceeds to the Company of $2,437,500. For every three
shares purchased each subscriber received a warrant to purchase one share of
Common Stock at an exercise price of $1.00 per share for no additional
consideration. The warrants are exercisable at any time after issuance for a
period of three years.
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 250,000 pounds sterling
(approximately $425,000) face amount 8% promissory notes payable on November 1,
1998 and one 200,000 pounds sterling (approximately $340,000) face amount 8%
promissory note payable on the same date. The holders of the 250,000 pounds
sterling promissory notes each received a three and a half year
16
<PAGE>
warrant to purchase 41,660 shares of the Common Stock at an exercise price of
$2.00 per share and the holder of the 200,000 pounds sterling promissory note
received a warrant to purchase 33,328 shares on the same terms. The Company
failed to pay the promissory notes on the due date and accordingly, pursuant to
the terms of the promissory notes, the holders each received additional warrants
for the same number of shares and exercisable on the same terms as the original
warrants. The warrants are exercisable at any time after issuance through
November 1, 2001. The Company has now repaid all the promissory notes in full,
together with accrued interest.
In consideration for extending the time available to the Company to repay the
balance of the promissory notes, two of the note holders received additional
warrants to purchase in aggregate 74,988 shares of Common Stock at an exercise
price of $1.00 per share. Such warrants are exercisable at anytime through
November 1, 2001. In addition, the Company agreed to adjust the exercise price
of all warrant issued to the four note holders to $1.00 per share.
On October 16, 1998 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 30, 1998 upon the sale of 842,666 shares of common stock at $0.75
per share resulting in net proceeds to the Company of $632,000.
On November 17, 1998 the Company and TME executed a One Year Secured Promissory
Note ("Promissory Note") in the principal sum of $3.4 million with FAI General
Insurance, a shareholder of the Company. Interest on the Promissory Note accrued
at the rate of 10% per annum and was payable quarterly in arrears. The
Promissory Note was secured by a charge over Transmedia Australia and was
guaranteed by TME. The Promissory Note holder received a three-year warrant to
purchase 1 million shares of Common Stock at an exercise price of $1.00 per
share. In addition, the Company agreed to exchange warrants to purchase 633,366
shares of Common Stock at exercise prices of $1.00 to $1.40, already held by the
Promissory Note holder, for a warrant to purchase 633,366 shares of Common Stock
at an exercise price of $1.00. The warrant is exercisable at any time from
November 16, 1998 through November 15, 2001. The Promissory Note holder also
held warrants on similar terms to purchase 633,366 shares of the common stock of
TME. Such warrants were exchanged by TME for a new warrant on the same terms as
those of the Company. Interest on the Promissory Note was paid to November 15,
1999 and the Company repaid $400,000 of principal in November 1999. On November
30, 1999 the Promissory Note holder and the Company executed a new note
representing the balance of principal of $3 million. The new note is payable on
February 15, 2000 and bears interest at the rate of 10% per annum payable at
maturity. The new note is secured by a charge over Transmedia Australia and is
guaranteed by TME.
On January 25, 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 February 24, 1999 upon the sale of 700,000 shares of common stock at $1.25
per share resulting in net proceeds to the Company of $875,000.
On February 5, 1999 the Company commenced a private placement of debt securities
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 a $500,000 face amount zero coupon promissory note
payable on March 5, 1999. The note holder received a warrant to purchase 100,000
shares of Common Stock at an exercise price of $1.25 per share for no additional
consideration. The warrant is exercisable at any time after issuance through
February 4, 2002. The Company failed to pay the promissory note on the
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<PAGE>
due date but the holder agreed to extend the payment date to June 21, 1999. In
consideration for the additional granted by the holder to pay the promissory
note, the Company granted the holder an additional warrant to purchase 100,000
shares of Common Stock at an exercise price of $1.25 per share for no additional
consideration. The additional warrant is exercisable at any time after issuance
through February 4, 2002. The Company also granted the holder the right, prior
to repayment, to convert the promissory note in whole or in part into shares of
Common Stock at a conversion price of $0.75 per share. On June 18, 1999 the
promissory note holder exercised his conversion privilege and the Company issued
666,667 shares of Common Stock in full satisfaction of the promissory note.
On May 11, 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 June 25, 1999 upon the sale of 3 million shares of common stock at $0.75 per
share resulting in net proceeds to the Company of $2,250,000.
On August 11, 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 September 10, 1999 upon the sale of 166,666 shares of common stock at $0.75
per share resulting in net proceeds to the Company of $125,000.
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.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected statements of operations and balance sheet data set forth below are
derived from the audited financial statements of the Company. The information
set forth below should be read in conjunction with the audited consolidated
financial statements of the Company and notes thereto. See Item 8 "Financial
Statements and Supplemental Data" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations". On December 2, 1997
the Company and TME, through Transmedia Australia, acquired a 51% interest in
NHS. On November 17, 1999 Transmedia Australia acquired the balance of the
issued and outstanding equity capital of NHS. On May 22, 1998 Transmedia
Holdings acquired Breakaway. The results of NHS and Breakaway have been
consolidated by the Company from the date of acquisition using the purchase
method of accounting.
<TABLE>
<CAPTION>
Income Statement Data
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Revenues $ 3,991,539 $ 4,667,556 $ 2,129,362 $ 1,890,476 $ 1,103,081
Gross profit 3,139,033 3,593,453 871,593 791,810 400,358
S,G & A (6,499,711) (6,842,906) (3,649,441) (2,816,756) (2,476,105)
Operating loss (3,360,678) (3,249,453) (2,777,848) (2,024,946) (2,075,747)
Share of losses and amortization of
goodwill of affiliated companies (890,130) (1,186,734) (202,905) 0 0
Interest, net (1,485,623) (258,502) (49,692) 18,688 85,459
Income (tax) benefit 29,977 (188,198) 0 0 0
Minority interest (119,526) 143,076 0 0 0
Net loss $ (5,825,980) $ (4,739,811) $ (3,030,445) $ (2,006,258) $ (1,990,288)
Net loss per share $ (0.20) $ (0.27) $ (0.22) $ (0.16) $ (0.17)
<CAPTION>
Balance Sheet Data
-------------------------------As of Sept. 30-------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current Assets $ 1,851,952 $ 2,764,972 $ 648,799 $ 2,065,308 $ 2,301,830
Total Assets 17,677,343 10,958,762 4,798,380 3,954,947 4,312,460
Working Capital (Deficiency) (5,806,105) (5,067,882) (1,399,428) 1,288,958 1,674,014
Stockholders Equity 9,958,515 2,496,124 2,750,153 3,178,597 3,684,644
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in Item 8 of this
report, and is qualified in its entirety by reference 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 and TME have recently established business operations
in the United States and in November 1998 Countdown launched its transactional
web site business, Countdown Arcade.
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,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
The future success of the Company is primarily dependent upon its ability to
develop and expand its current business operations in each of these segments. 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 broadening
the range of member benefit programs offered. As of the date hereof, management
is actively recruiting senior sales and marketing 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, but also by
providing internet services to its merchant base, corporate clients and its
affiliate, 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 affiliates Countdown USA and DBS Direct, through cross-marketing and
strategic partnerships. The Company is actively recruiting senior sales,
marketing and program executives to be based in the United States to support the
development and expansion of 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.
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
20
<PAGE>
have executed a merger agreement, subject to shareholder approval. The proposed
merger is also subject to fairness opinions by independent investment advisers.
Results of Operations
Fiscal 1999 compared to Fiscal 1998
The Company generated revenues of $3,991,539 (1997: $4,667,556) in the year
ended September 30, 1999, a decrease of $676,017 or 14.5% over the corresponding
period in fiscal 1998. The Company's member benefit/loyalty marketing businesses
NHS and the restaurant card business recorded a decline in revenues of $669,885
and $605,347, respectively. Revenues at NHS were impacted by the loss of a
number of contracts, in particular its largest contract, which it lost in
November 1998. Additionally, NHS was consolidated with the Company from December
1997 and therefore fiscal 1998 covered a 10-month period only. The decline in
revenues in the restaurant card business resulted from lower card usage by
cardholders as a result of rationalization of the participating restaurant base.
Additionally, the Company was not able to add new restaurants due to its
inability to fund advances to such restaurants. The Company has recruited
additional sales and marketing staff to progress new business opportunities. The
travel services business recorded an increase in revenues of $589,509 as
compared to fiscal 1998. This increase was primarily due to Breakaway only being
consolidated with the Company from May 1998, the date it was acquired.
Cost of sales totaled $852,506 (1998: $1,074,103) for the year ended September
30, 1999, generating a gross profit percentage of 78.6% (1998: 77.0%). The
increase in gross profit percentage reflected the impact of the higher margin
travel services businesses. The gross profit percentages achieved by NHS and the
restaurant card were 77.3% and 43.6% respectively in fiscal 1999 as compared to
87.6% and 43.1% in fiscal 1998. The travel services businesses generate a gross
profit margin of 100%.
Selling, general and administrative expenses totaled $6,499,711 (1998:
$6,842,906) for the year ended September 30, 1999, a decrease of $343,195 or
5.0% as compared to fiscal 1998. The member benefit/loyalty marketing business
recorded a decline in selling, general and administrative expenses of $905,917
in fiscal 1999. NHS accounted for $758,424 of such decrease and the restaurant
card business $147,493. The decrease in selling, general and administrative
expenses at NHS included a reduction in doubtful debt provision of $370,253.
Other cost decreases year on year were recorded in payroll, professional fees
and communication due to lower activity levels in fiscal 1999. The travel
services business recorded an increase of $1,011,439 in selling, general and
administrative in fiscal 1999 as compared to fiscal 1998 primarily due to the
impact Breakaway only being consolidated from May in fiscal 1998. Head office
expenses totaled $2,441,264 in fiscal 1999, a decrease of $462,305 or 15.9% as
compared to fiscal 1998. Selling, general and administrative expenses in fiscal
1998 included sign-on fees in relation to the NHS acquisition ($925,000
approximately) and a write-off of approximately $463,000 relating to an aborted
acquisition. Such year on year decreases were off set primarily by office
relocation costs of $328,916 and by increases in amortization charges of
$252,623, payroll costs of $187,324 and equipment rental charges of $92,304. The
increase in amortization charges reflects amortization of the underlying
goodwill in the acquisition of the balance of 49% of NHS in November 1998, which
has been applied effective December 1997, the date of acquisition of the
original 51% interest in NHS.
The Company's share of losses of its affiliates Countdown, Countdown USA, DBS
Direct and Logan Leisure were $890,130 (1998: $1,186,734 Countdown and Logan
Leisure only) for the year ended September 30, 1999, including amortization of
underlying goodwill in the Company's investment in such affiliates of $446,895.
(1998: $237,267 Countdown and Logan Leisure only).
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<PAGE>
The minority interests in the Company comprise TME's 50% interest in Transmedia
Australia and Transmedia Holdings.
The Company has net operating losses carried forward for income tax purposes. No
deferred tax benefit has been recognized for the year ended September 30, 1999.
Fiscal 1998 compared to Fiscal 1997
The Company generated revenues of $4,667,556 (1997: $2,129,362) in the year
ended September 30, 1998, an increase of $2,538,194 or 119% over the
corresponding period in 1997, reflecting the impact of the NHS and Breakaway
acquisitions. NHS and Breakaway generated revenues of $2,959,970 and $362,147
respectively while the pre-existing business recorded a decline in revenues of
$783,921 to $1,345,440 due to lower card usage by cardholders as a result of
rationalization of the participating restaurant base.
Cost of sales totaled $1,074,103 (1997: $1,257,769) for the year ended September
30, 1998, generating a gross profit percentage of 77.0% (1997: 40.9%). The
increase in gross profit percentage reflected the impact of the higher margin
NHS and Breakaway Travel businesses. The gross profit percentages achieved by
NHS and Breakaway respectively were 89.5% and 100% in fiscal 1998 as compared to
43.4% by pre-existing operations.
Selling, general and administrative expenses totaled $6,842,906 (1997:
$3,649,441) for the year ended September 30, 1998, an increase of $3,193,465 or
87.5% over fiscal 1997. NHS and Breakaway accounted for $2,742,323 and $340,928
of such increase respectively. Selling, general and administrative expenses of
pre-existing operations and head office were $3,759,655 in fiscal 1998, an
increase of $110,214 or 3.0% as compared to fiscal 1997. Selling, general and
administrative expenses in fiscal 1998 included sign-on fees in relation to the
NHS acquisition ($925,000 approximately) and a write-off of approximately
$463,000 relating to an aborted acquisition. These expenses were partially
offset by cost reductions realized in pre-existing operations of approximately
$787,000. Such cost reductions were primarily in payroll, selling and
communication expenses. In addition, in fiscal 1997 the Company recorded
significant non-recurring costs and other charges including an impairment write
down of $276,476 in respect of the restaurant card License, a termination
settlement of $112,875 to a former employee and $150,000 to write off an option
to expand the restaurant card business to Hawaii.
The Company's share of losses of its affiliates Countdown and Logan Leisure were
$1,186,734 for the year ended September 30, 1998, including amortization of
underlying goodwill in the Company's investment in such affiliates of $237,267.
(1997: $ nil). The Company did not amortize underlying goodwill in its
investment in Countdown in fiscal 1997.
The minority interests in the Company comprise TME's 50% interest in Transmedia
Australia and Transmedia Holdings and the 49% third party interest in NHS.
The Company has net operating losses carried forward for income tax purposes. No
deferred tax benefit has been recognized for the year ended September 30, 1998.
22
<PAGE>
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:
Twelve Months Ended
-------------------
September 30, 1999 September 30, 1998
Cash used in
Operating Activities $(4,484,588) $(2,523,744)
Cash used in
Investing activities $(2,950,662) $(2,437,248)
Cash provided by financing
Activities $6,473,926 $5,549,595
The Company incurred a net loss of $5,825,980 for the year ended September 30,
1999. Such loss, adjusted for non-cash items, such as depreciation and
amortization charges $1,387,381 debt discount expense $980,000, write down of an
intangible asset to fair value $260,722, the Company's share of losses incurred
by its affiliates of $443,235,minority interest $119,526, accrued sign-on fees
($296,500), accrued interest expense $176,825,loss on sale of fixed assets
$33,390 and a provision against irrecoverable restaurant credits $17,728
resulted in funds used in operating activities totaling $4,484,588, net of
working capital movements.
The fiscal 1999 net cash used in investing activities of $2,950,662 comprised
the cash elements of the Company's investments in its subsidiary NHS $1,996,665,
its affiliate DBS Direct $937,500, its affiliate Logan Leisure $25,575 net of
the proceeds of fixed assets sales, $9,078. In fiscal 1998 net cash used in
investing activities of $2,437,248 comprised the cash elements of the Company's
investments in its subsidiaries NHS ($1,702,559) and Breakaway ($126,748). In
addition, the Company invested $570,623 in its affiliate Logan Leisure and
$37,318 in fixed assets.
To meet its cash requirements during fiscal 1999, the Company issued in
aggregate 5,376,000 shares of Common Stock in equity private placements,
resulting in net proceeds to the Company of $4,380,923. In addition, 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
is payable on February 15, 2000, together with accrued interest. In fiscal 1999
cash generated by financing activities was partially off set by the repayment of
short term loans ($1,326,814) and a reduction in bank credit line utilization of
$18,740.
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 through its affiliates,
Countdown, Countdown USA, DBS Direct and Logan Leisure, has an interest in
business operations in Europe, the United States and elsewhere. In addition, in
November 1998 the Company and TME launched their transactional web site
business, Countdown-Arcade. 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.
23
<PAGE>
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 fiscal year ended September 30, 1999, a situation which is
expected to continue for foreseeable future. Some of the Company's individual
businesses such as Teletravel and Breakaway are seasonal, as is the Company's
restaurant card business albeit to a lesser extent. However, the Company has no
basis at this time on which to project the seasonal effects, if any, on its
business as a whole.
Effect of Year 2000
In fiscal 1998 the Company established a Year 2000 group to evaluate the
potential exposure of the Company's computer systems and computer reliant
systems to Year 2000 issues. The working group completed its evaluation and
developed a plan to address its possible exposure related to the impact of the
Year 2000 on its computer systems. Key operating, financial and management
information systems were assessed and plans developed to address required
systems modifications by December 31, 1999. The financial impact of making the
required system changes was not material to the Company's consolidated financial
position, results of operations or cash flow. The cost of system modifications
was approximately $50,000.
The core business system used in the Company's restaurant card business was not
Year 2000 compliant and could have failed to operate into the next millennium
without corrective action. The system was scheduled to be re-written in any
event, with completion planned for the fourth quarter of 1999. Interim systems,
Year 2000 compliant, were developed and implemented during the first quarter of
1999. The system is scheduled to be replaced in its entirety in fiscal 2000. In
other areas of the Company's operations systems were Year 2000 compliant.
Breakaway was fully compliant, as were the telephone systems used by NHS. Non
core business applications such as word processing and management information
reporting systems required some minor modification. Computer hardware has been
substantially upgraded to appropriate processors. The systems of the Company's
affiliate, Countdown, were also evaluated and as a result some modification and
upgrading was completed in the first quarter of 1999
The Company communicated with others with whom it does business, including but
not limited to, financial institutions and key customers, to determine their
Year 2000 compliance readiness and the extent to which the Company is vulnerable
to any third party Year 2000 issues. There can be no assurance that the systems
of third parties, on which the Company's systems rely, have been converted on a
timely basis, or that a failure to convert or a conversion that is incompatible
with the Company's systems would not have a material adverse effect on the
Company.
New U.S. Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
as including all changes in equity except those resulting from investments by
owners and distributions to owners. The Company adopted SFAS No. 130 in the
first quarter of fiscal 1999. In June 1997, FASB issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," effective
24
<PAGE>
for fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about operating
segments in financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas and
major customers. The Company adopted SFAS No. 131 in fiscal 1999.
Both of the above standards require comparative information to be restated.
Results of operations and financial position were unaffected by implementation
of these new standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" (SFAS No. 132), which revises
employers' disclosures about pension and other post-retirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. This standard does not currently apply to the Company.
In June 1998, the FASB issued SFAS No. 133, Accounting for derivative
Instruments and Hedging Activities", which establishes standards for various
derivative instruments commonly used in hedging activities. The Company will be
required to adopt SFAS No. 133 in fiscal 2000.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk is foreign exchange rate variability. The
Company's reporting currency is the United States dollar. However, the
functional currencies of the Company's operating subsidiaries and affiliates
additionally include sterling, the Irish punt and the Australian dollar.
Management believes that fluctuations in currency exchange rates in the near
term will not materially affect the Company's consolidated operating results,
financial position or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is submitted in a separate section of this report. See pages
F-1, et. seq.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 26, 1997 KPMG resigned as the Company's independent
auditors. On the same date the Company appointed BDO Stoy Hayward as the
Company's independent auditors. This action was recommended by the Audit
Committee and approved by the Board of Directors.
In connection with their audit of the Company's consolidated financial
statements for the fiscal year ended September 30, 1996, and in the subsequent
interim period, there were no disagreements between KPMG and the Company on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope and procedures which, if not resolved to the satisfaction of
KPMG, would have caused KPMG to make reference to such matters in their report.
Notwithstanding the foregoing, by letter dated February 13, 1998, KPMG informed
the Company that it would not agree to file a consent to the inclusion of its
prior audit reports in
25
<PAGE>
the Company's Annual Report on Form 10-K for the year ended September 30, 1997.
The Company believes that there was no basis for this action by KPMG.
The position of KPMG was set out in a letter dated February 13, 1998, which
stated that:
"Based on an evaluation of circumstances and recent events we have decided that
we are not willing to accept an assignment to consider whether we would re-sign
our audit report as of September 30, 1996 and for the year then ended for
inclusion in the Form 10-K filing of Transmedia Asia Pacific, Inc. for the year
ended September 30, 1997".
The financial statements for the fiscal year ended September 30, 1996 were
re-audited by BDO Stoy Hayward and their report was included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- ---- --- --------
Joseph V. Vittoria (1)(2) 65 Director and Chairman of the Board of Directors
Michael R. Chambrello (3) 42 Director, Chief Executive Officer and Principal
William D. Marks (4) 35 Director
James J. Fyfe (5) 45 Director
Charles Taylor (6) 40 Chief Operating Officer
- ----------
(1) Member of the Audit Committee.
(2) Appointed Chairman of the Board of Directors on August 16, 1999.
(3) Appointed October 1, 1999
(4) Appointed June 15, 1999
(5) Appointed October 25, 1999
(6) Appointed August 16, 1999
Directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. All officers hold office until
the meeting of the Board of Directors following the next annual meeting of
stockholders or until their earlier resignation or removal. There are no family
relationships between any of the directors or executive officers of the Company.
Joseph V. Vittoria
Director
Mr. Vittoria has been a director of the Company since inception and was
appointed Chairman of the Board on August 16, 1999. Mr. Vittoria is Chairman and
Chief Executive Officer Travel Services International, Inc. a position he has
held since that company's inception in 1997. From September 1987 to January
1997, Mr. Vittoria was Chairman and Chief Executive Officer of Avis Inc., having
been a senior executive at Avis from 1982. Mr. Vittoria was a director of TME
until October 25, 1999.
Michael R.. Chambrello
Director Chief Executive Officer and Principal Financial Officer
Michael R. Chambrello was appointed Chief Executive Officer on October 1, 1999
and joined the boards of directors of the Company and TME on that date. Mr.
Chambrello resigned from the board of TME on October 25, 1999. Prior to joining
the Company and TME Mr. Chambrello spent 16 years with Gtech Holdings
Corporation, a worldwide supplier of lottery and entertainment systems. He was
President of Gtech Corporation and Executive Vice President of Gtech Holdings
Corporation from October 1996 to August 1998. From 1992 to September 1996 Mr.
Chambrello was Senior Vice President, Worldwide Operations of Gtech Holdings
Corporation.
27
<PAGE>
William D. Marks
Director and Chief Operating Officer DSS Direct Connect LLC
William Marks joined the boards of directors of the Company and TME on June 15,
1999 concurrent with the joint acquisition of DBS Direct by the Company and TME.
Mr. Marks resigned from the board of TME on October 25, 1999. Mr. Marks is a
graduate of the University of Virginia, with degrees in Economics and
Communications. For the past fifteen years, Mr. Marks has worked in the cable
television and telecommunications industries and his experience has ranged from
installations and operations management to Finance. From 1992 to 1998, Mr. Marks
served as Vice President and Chief Operating Officer for The Marks Group, a
multiple system cable television operator serving subscribers in Southern
California. In 1995, Mr. Marks formed Star Cable Services, Inc. to perform all
types of telecommunications construction and installations.
James J. Fyfe
Director
James Fyfe is an independent business consultant specializing in corporate
restructuring, strategic planning and turn-round situations. Since April 1998
his clients have included the Company and TME. He has been a director of
Corniche Group Incorporated since May 1995 and served that company as Vice
President and Chief Operating Officer from May 1995 until May 1998. From January
1991 to May 1995 he was an independent business consultant. From May 1996
through August 1997 he was an outside director of Medical Laser Technologies,
Inc. Additionally, he has been an outside director of Machine Vision Holdings,
Inc. since January 1998.
Charles M. Taylor
Chief Operating Officer
Charles Taylor joined the Company and TME in February 1999 as Head of internet
Services. On August 16, 1999 he was appointed Chief Operating Officer of the
Company and TME. He joined the board of directors of TME on October 25, 1999.
Prior to February 1999 Mr. Taylor was managing director of Digital Media, a
division of Aspen Group Plc, a United Kingdom listed, European based advertizing
and marketing agency, a position he held from October 1, 1995. Prior to October
1995 he was Chief Executive Officer of Specialix Plc, a designer and
manufacturer of high speed communication hardware for the internet industry in
the United States, Asia and Europe.
Reports under Section 16 (a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and 10% shareholders to file with the Securities
and Exchange Commission ("SEC") certain reports regarding such persons'
ownership of the Company's securities. The Company is aware that Edward J.
Guinan, a former director and officer, is delinquent in his filings with respect
to transactions in Common Stock owned by him and pledged by him to secure a
contemplated acquisition and Common Stock pledged to secure a Promissory Note
executed by TME. As far as the Company is aware, despite a number of requests
and offers by the Company to assist him in bringing his filings up-to-date, Mr.
Guinan has not, as of the date hereof, completed such filings.
The Company is not aware of any other late filings of reports under Section 16.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid during the three
years ended September 30, 1999 to the Company's Chief Executive Officer and any
other executive officer of the Company earning in excess of $100,000 for
services rendered during fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term Other
Compensation Compensation Compensation
Name and Principal Fiscal All Other
Position Year Notes Salary Options/SAR's Compensation
<S> <C> <C> <C> <C> <C>
Edward J. Guinan III
Chief Executive Officer 1999 (1)(2) $156,887 0 $408,090
(resigned as of
August 16, 1999) 1998 (3)(2) 165,330 2,500,000 80,359
1997 (4)(2) 162,100 0 38,472
Paul L. Harrison
President 1999 (1)(2)(5) $156,887 0 19,090
(resigned as of
September 30, 1999) 1998 (3)(5) 165,330 0 8,668
1997 (4)(5) 154,000 0 0
</TABLE>
(1) Based upon an exchange rate of 1 pound sterling = $1.5689
(2) Represents reimbursement of travel and entertainment expenses
(3) Based upon an exchange rate of 1 pound sterling = $1.6533
(4) Based upon an exchange rate of 1 pound sterling = $1.5400
(5) 50% of Mr. Harrison's salary was recharged to TME
Option/SAR Grants in Last Fiscal Year
The Company did not grant any stock options during the fiscal year ended
September 30, 1999.
Aggregate Options/SAR Exercises in Last Fiscal Year and FY-End Options/Values
As of September 30, 1999, no executive officer of the Company held exercisable
or non exercisable options to purchase shares of the Company's common stock.
Employment Agreements
On October 1, 1999 the Company and Michael R. Chambrello entered into an
Employment Agreement for a term ending on September 30, 2002. The Employment
Agreement provides for an annual salary of $150,000 and participation in
executive benefit programs if and when put into effect by the Company. In
addition, the Employment Agreement provides that Mr. Chambrello be entitled to
29
<PAGE>
receive, stock options pursuant to the Company's 1994 Stock Option Plan, to be
amended subject to shareholder approval, having a term of 5 years and covering
1,250,000 shares of the Company's Common Stock. The stock options have an
exercise price and vest as follows:
# of Shares Vesting Date Exercise Price
250,000 October 1, 1999 $0.875
250,000 October 1, 2000 $0.875
187,500 February 1, 2001 Note (i)
375,000 February 1, 2002 Note (ii)
187,500 February 1, 2003 Note (iii)
- --------------------------------------------------------------------------------
(i) 110% of market price on February1, 2000
(ii) 187,500 shares at 110% of market price on February 1, 2000 and 187,500
shares at 110% of market price on February 1, 2001
(iii) 110% of market price on February1, 2001
The Employment Agreement includes confidentiality and non-compete restrictions
during the term of the Employment Agreement and for a period of 18 months
thereafter. Mr. Chambrello may be discharged for cause including failure or
refusal to perform his duties, dishonesty, conviction of a felony or fraud,
engagement in acts detrimental to the Company, material breach of any provision
of the Employment Agreement, disability or death. Mr. Chambrello is required to
devote substantial business efforts to the Company. Mr. Chambrello is also
employed by TME and the Employment Agreement provides that Mr. Chambrello's
other business activities shall not conflict with the terms of the Employment
Agreement.
Mr. Edward J. Guinan III was Chief Executive Officer of the Company until August
16, 1999 when he tendered his resignation. Mr. Guinan was employed by the
Company pursuant to the terms of an employment agreement dated March 2, 1998.
The employment agreement was for a term ending on March 1, 2001. Based on other
employment of Mr. Guinan, the Company considers Mr. Guinan's employment contract
to have ended on September 30, 1999. The Company and Mr. Guinan have yet to
finalize amounts which the Company believes are owed by Mr. Guinan to the
Company and/or shares which Mr. Guinan asserts should be issued to him.
Stock Option Plans
Effective May 2, 1994, the Company adopted the 1994 Stock Option Plan ("the 1994
Plan"). The 1994 Plan was established to attract and retain personnel of the
highest calibre and to offer an incentive for officers and employees to promote
the business of the Company. The 1994 Plan authorizes the granting of incentive
stock options or non-qualified stock options to purchase the shares of common
stock of the Company, subject to adjustment in the event of stock splits, stock
dividends, recapitalizations, mergers, reorganizations, exchanges of shares and
other similar changes affecting the Company's common stock. Unless terminated
earlier, the 1994 Plan expires on April 1, 2004. Officers, employees and other
independent contractors who perform services for the Company or any of its
subsidiaries are eligible to receive incentive stock options. The 1994 Plan is
administered by the Board of Directors (or a committee appointed by it), which
determines the persons to whom awards will be granted, number of share options
to be granted and the specific terms of each grant. Under the 1994 Plan, no
stock option may be granted having an exercise price less than the fair market
value of the Company's common stock on the date of grant.
In January 1996, the Company's Board of Directors approved, and on April 25,
1996 the Company's stockholders approved, the 1995 Outside Directors Stock
Option Plan (the "Outside Directors Plan"). The purpose of the Outside Directors
Plan is to attract and retain the services of experienced and
30
<PAGE>
knowledgeable independent directors. The Outside Directors Plan provides,
commencing January 1, 1996, for the automatic granting to each non-employee
director of the Company a stock option to purchase 10,000 shares of common stock
of the Company on January 1 each year. In addition the Outside Directors Plan
provided that Mr. Vittoria and another non-employee director (who has since
resigned) would each receive an option to purchase an additional 20,000 shares
in recognition of their services as directors prior to adoption of the Outside
Directors Plan. The maximum number of shares of Common Stock which may be issued
under the Outside Directors Plan is 300,000 subject to adjustment in the event
of stock splits, stock dividends, recapitalizations, mergers, reorganizations,
exchanges of shares and other similar changes affecting the Company's issued
Common Stock. Each option issued under the Outside Directors Plan will be
exercisable by the optionee for a period of five years from the date of the
grant. Unless sooner terminated, the Outside Directors Plan expires on January
11, 2006. The Outside Directors Plan is administered by the Company's employee
directors. Options granted under the Outside Directors Plan will have an
exercise price equal to the fair market value of the Common Stock on the last
date preceding the date of grant.
As of December 31, 1999, 80,000 options have been granted under the Outside
Directors Plan.
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the number of shares of Common
Stock beneficially owned, as of December 31, 1999, by (i) each beneficial owner
of more than five percent of the outstanding Common Stock, (ii) each current
named executive officer and director and (iii) all current executive officers
and directors of the Company as a group. All shares are owned both beneficially
and of record unless otherwise indicated. Additionally, unless otherwise
indicated, the address of each beneficial owner is c/o Transmedia Asia Pacific,
Inc. 11 St. James's Square, London SW1Y 4LB, England.
Number and Percentage of Shares of Common Stock Owned
<TABLE>
<CAPTION>
Name and Address Notes # of Shares Owned Percentage Owned
<S> <C> <C> <C>
FAI General Insurance Company Pty Ltd
333 Kent Street
Sydney, NSW 1026, Australia. (2) 2,695,966 7.6%
Edward J. Guinan III
12 St. James's Square
London (3) to (6) 5,233,882 15.3%
Gleacher & Co. LLC
660 Madison Avenue
New York, NY 10021 (7) 3,000,000 8.1%
Pictet & Cie Nominees
Cie 29 Blvd.
Georges Favon1204
Geneva Switzerland (8) 2,658,334 7.8%
Michael R. Chambrello (9) 1,250,000 3.5%
Joseph V. Vittoria (10)(11) 1,506,969 4.4%
William D. Marks (12) 2,226,020 6.5%
All directors and officers (9) to
As a group (three persons) (12) 4,982,989 14.0%
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on 34,018,298 shares of Common Stock outstanding on December 31,
1999.
(2) Includes 1,633,366 shares of Common Stock issuable upon exercise of
warrants granted November 1998.
(3) Includes 450,000 shares of Common Stock owned by Conestoga Partners II,
Inc. ("Conestoga") which Mr. Guinan may be deemed to beneficially own. Mr.
Guinan is Chief Executive Officer, President and Director of Conestoga and
is beneficial owner 75% of the outstanding capital stock of Conestoga.
32
<PAGE>
(4) Includes 800,000 shares of Common Stock placed in trusts set up for Mr.
Guinan's children and certain other shares for which Mr Guinan disclaims
beneficial ownership. Does not include 93,750 shares of Common Stock owned
by Edward J Guinan Jr., Mr. Guinan's father, which Mr. Guinan disclaims
beneficial ownership of.
(5) Includes 133,332 shares of Common Stock issuable upon exercise of warrants
granted as part of the February 1998 Private Placement.
(6) Includes 3,050 shares of Common Stock owned by International Advance, Inc.
("IA") which Mr. Guinan may be deemed to beneficially own. Mr. Guinan is a
director, President, Chief Executive Officer and the controlling
stockholder of IA.
(7) Includes 3,000,000 shares of Common Stock issuable upon exercise of
warrant granted for services.
(8) Includes 200,000 shares of Common Stock issuable upon exercise of warrants
granted as part of a short term loan facility in February 1999.
(9) Includes 1,250,000 shares of Common Stock issuable upon exercise of
options granted October 1999, subject to shareholder approval
(10) Includes 60,000 shares of Common Stock issuable upon exercise of warrants
granted under the 1996 Outside Directors Stock Option Plan.
(11) Includes 138,596 shares of Common Stock issuable upon exercise of warrants
granted in April 1997 in relation to the acquisition of Countdown, 167,873
shares of Common Stock issuable upon exercise of warrants granted as part
of the August 1997 Private Placement.
(12) Excludes 1,858,842 shares of Common Stock owned by Mrs. Donna Marks, Mr.
Marks stepmother, which Mr. Marks disclaims beneficial ownership of.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1999 the Company was charged a management fee of $1,210,939 (1998:
$1,060,526) by TME in respect of the Company's share of corporate office
expenses comprising salaries, professional fees, rent, travel and other
corporate costs.
As of September 30, 1999 the Company owed $269,506 to Transmedia Europe, Inc.
Such payable is non-interest bearing and is repayable on demand.
Messrs. Harrison and Freyer are directors of Transmedia Europe, Inc. Messrs
Guinan and Vittoria were directors of Transmedia Europe, Inc until October 1999.
See "Directors and Executive Officers of Registrant".
During fiscal 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria
advanced a loan of $1,000,000 to the Company. The purpose of the loan was to
enable the Company to pay the cash element of the purchase of the Company's
interest in Countdown Holdings Limited ("Countdown"). The loan, which bears
interest at 12% per annum and is collateralized by a pledge of all the shares of
Countdown purchased by the Company, was originally scheduled to mature on
September 27, 1997. The loan was renewed upon maturity for an indefinite period
by agreement between the Company and Mr. Vittoria. The loan is repayable on 60
days notice from Mr. Vittoria.
On May 11, 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 June 25, 1999 upon the sale of 3 million shares of Common Stock at $0.75 per
share resulting in net proceeds to the Company of $2,250,000. Of the shares sold
Mr. Vittoria purchased 666,666, an investment of $500,000.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report.
(a)(1) Financial Statements:
Transmedia Asia Pacific, Inc.
See "Index to Financial Statements" contained in Part II, Item 8
(a)(2) Financial Statement Schedules:
II Schedule of Valuation and Qualifying Accounts
(a)(3) Exhibits:
None
(b) Reports on Form 8-K
None.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
(Registrant)
Date: January 13, 2000 /s/ Michael R. Chambrello
--------------------------------------------
Michael R. Chambrello
Chief Executive Officer, Principal Financial
Officer and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Date: January 13, 2000 /s/ Michael R. Chambrello
--------------------------------------------
Michael R. Chambrello
Chief Executive Officer, Principal Financial
Officer and Director
Date: January 13, 2000 /s/ Joseph Vittoria
--------------------------------------------
Joseph Vittoria
Chairman and Director
Date: January 13, 2000 /s/ William D. Marks
--------------------------------------------
William D. Marks
Director
Date: January 13, 2000 /s/ James J. Fyfe
--------------------------------------------
James J. Fyfe
Director
35
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Page:
Report of BDO Stoy Hayward, Independent Auditors F-1
Consolidated balance sheets
as of September 30, 1999 and 1998 F-2
Consolidated statement of operations
for the years ended September 30, 1999, 1998 and 1997 F-4
Consolidated statements of stockholders' equity and comprehensive
income/(loss) for the years ended September 30, 1999, 1998 and 1997 F-5
Consolidated statements of cash flows
for the years ended September 30, 1999, 1998 and 1997 F-7
Notes to consolidated financial statements F-10
Schedule II - Valuation and qualifying accounts and reserves F-29
<PAGE>
Independent Auditors Report
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Transmedia Asia Pacific, Inc.
We have audited the accompanying consolidated balance sheets of Transmedia
Asia Pacific, Inc. and subsidiaries as of September 30, 1999 and 1998 and
the related consolidated statements of operations, stockholders' equity,
comprehensive income (loss), and cash flows for each of the three years in
the period ended September 30, 1999. We have also audited the financial
statement schedule listed in the accompanying index. These consolidated
financial statements and schedule are the responsibility of the management
of Transmedia Asia Pacific, Inc. and subsidiaries. Our responsibility is
to express an opinion on these consolidated financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements and schedule are free from material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Transmedia Asia Pacific, Inc. and subsidiaries as of September
30, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years ended September 30, 1999 in conformity
with generally accepted accounting principles in the United States. Also,
in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Stoy Hayward
London
England
January 13, 2000
F-1
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated balance sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
Note 1999 1998
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 548,576 $ 1,504,921
Trade accounts receivable 267,771 446,193
Restaurant credits, (net of allowance
for irrecoverable credits of $65,761
at September 30, 1999 and of $48,033
at September 30, 1998) 128,599 195,548
Amounts due from related parties 3 22,665 591,916
Prepaid expenses and other current assets 172,617 26,394
Prepaid fees 12 711,724 --
------------ ------------
Total current assets 1,851,952 2,764,972
------------ ------------
Non current assets
Investments in affiliated companies 4 9,437,824 2,877,728
Office furniture and equipment (net
of accumulated depreciation of $647,875
at September 30, 1999 and $509,874
at September 30, 1998) 132,870 240,269
Goodwill (net of accumulated amortization
of $642,545 at September 30, 1999 and
$204,897 at September 30, 1998) 5 4,629,762 3,759,284
Other intangible assets (net of accumulated
amortization of $1,149,783 at September, 1999
and $768,277 at September 30, 1998) 5 691,791 1,073,297
Other assets 221,420 243,212
Prepaid fees 12 711,724 --
------------ ------------
Total non current assets 15,825,391 8,193,790
------------ ------------
TOTAL ASSETS $ 17,677,343 $ 10,958,762
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-2
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated balance sheets (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
Note 1999 1998
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Trade accounts payable $ 630,694 $ 538,708
Deferred income 70,258 467,588
Accrued liabilities 636,491 990,672
Sign-on fees payable -- 296,500
Amount due to related parties 3 2,051,188 3,924,386
Notes payable 7 3,688,186 1,615,000
Deferred payment 562,500 --
Bank line of credit 18,740 --
------------ ------------
Total current liabilities 7,658,057 7,832,854
------------ ------------
Minority interest 60,771 629,784
------------ ------------
Stockholders' equity
Preferred stock $0.1 par value per share
authorised 5,000,000 shares, issued and
outstanding shares -- --
Common stock $0.00001 par value per share
authorised 95,000,000 shares (29,487,048
issued and outstanding at September 30, 1999
19,521,316 at September 30, 1998) 295 196
Additional paid in capital 28,086,369 14,823,648
Cumulative foreign currency translation
adjustment (185,717) (211,268)
Accumulated deficit (17,942,432) (12,116,452)
------------ ------------
Total stockholders' equity 9,958,515 2,496,124
------------ ------------
TOTAL LIBAILITIES AND
STOCKHOLDERS' EQUITY $ 17,677,343 $ 10,958,762
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
Note 1999 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 3,991,539 $ 4,667,556 $ 2,129,362
Cost of revenues (852,506) (1,074,103) (1,257,769)
------------ ------------ ------------
Gross profit 3,139,033 3,593,453 871,593
Selling, general and administrative
expenses 3,5, & 6(a) (6,499,711) (6,842,906) (3,649,441)
------------ ------------ ------------
Loss from operations (3,360,678) (3,249,453) (2,777,848)
Share of losses and amortization of
goodwill of affiliated companies 4 (890,130) (1,186,734) (202,905)
Interest expense (including debt
discount expense of $980,000 in
fiscal 1999) 7(b) (1,503,864) (277,751) (73,889)
Interest income 18,241 19,249 24,197
------------ ------------ ------------
Loss before income tax and minority interest (5,736,431) (4,694,689) (3,030,445)
Income (tax) benefit 9 29,977 (188,198) --
Minority interest (119,526) 143,076 --
------------ ------------ ------------
Net loss $ (5,825,980) $ (4,739,811) $ (3,030,445)
============ ============ ============
Net loss per common share:
Basic and diluted 10 $ (0.20) $ (0.27) $ (0.22)
Weighted average number of common
shares outstanding, basic and diluted 10 29,487,048 17,691,690 13,802,812
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of changes in shareholders' equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
foreign
Number of Additional currency
common Common paid-in translation Accumulated
shares stock capital adjustment deficit
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996 13,362,447 $ 134 $ 7,470,749 $ 53,910 $ (4,346,196)
Issuance of common stock for cash 556,250 6 1,097,494 -- --
Issuance of common stock relating to acquisition
of Countdown 1,330,524 13 1,222,819 -- --
Net loss -- -- -- -- (3,030,445)
Effect of foreign currency translation -- -- -- 109,809 --
Option re Countdown -- -- 171,860 -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 15,249,221 $ 153 $ 9,962,922 $ 163,719 $ (7,376,641)
Issuance of common stock for cash 3,447,095 35 3,934,560 -- --
Issuance of common stock relating to acquisition
of NHS 500,000 5 499,995 -- --
Issuance of common stock relating to acquisition
of Porkpine 225,000 2 326,172 -- --
Issuance of common stock relating to failed
acquisition 100,000 1 99,999 -- --
Net loss -- -- -- -- (4,739,811)
Effect of foreign currency translation -- -- -- (374,987) --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 19,521,316 $ 196 $ 14,823,648 $ (211,268) $(12,116,452)
<CAPTION>
Comprehensive
income/(loss) Total
<S> <C> <C>
Balance, September 30, 1996 $ (4,292,286) $ 3,178,597
Issuance of common stock for cash -- 1,097,500
Issuance of common stock relating to acquisition
of Countdown -- 1,222,832
Net loss (3,030,445) (3,030,445)
Effect of foreign currency translation 109,809 109,809
Option re Countdown -- 171,860
------------ ------------
Balance, September 30, 1997 $ (7,212,922) $ 2,750,153
Issuance of common stock for cash -- 3,934,595
Issuance of common stock relating to acquisition
of NHS -- 500,000
Issuance of common stock relating to acquisition
of Porkpine -- 326,174
Issuance of common stock relating to failed
acquisition -- 100,000
Net loss (4,739,811) (4,739,811)
Effect of foreign currency translation (374,987) (374,987)
------------ ------------
Balance, September 30, 1998 $(12,327,720) $ 2,496,124
</TABLE>
F-5
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of changes in shareholders' equity (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
foreign
Number of Additional currency
common Common paid-in translation Accumulated
shares stock capital adjustment deficit
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1998 19,521,316 $ 196 $ 14,823,648 $ (211,268) $(12,116,452)
Issuance of common stock for cash 4,709,333 47 3,881,953 -- --
Issuance of common stock relating
to conversion of notes payable (Note 7(c)) 666,667 7 499,993 -- --
Issuance of common stock relating to
acquisition of DBS Direct 4,589,732 45 6,038,775 -- --
Net loss -- -- -- (5,825,980)
Effect of foreign currency translation -- -- -- 25,551 --
Debt discount (Note 7(b)) -- -- 1,122,000 -- --
Prepaid fees (Note 12) -- -- 1,720,000 -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 29,487,048 $ 295 $ 28,086,369 $ (185,717) $(17,942,432)
============ ============ ============ ============ ============
<CAPTION>
Comprehensive
income/(loss) Total
<S> <C> <C>
Balance, September 30, 1998 $(12,327,720) $ 2,496,124
Issuance of common stock for cash -- 3,882,000
Issuance of common stock relating
to conversion of notes payable (Note 7(c)) -- 500,000
Issuance of common stock relating to
acquisition of DBS Direct -- 6,038,820
Net loss (5,825,980) (5,825,980)
Effect of foreign currency translation 25,551 25,551
Debt discount (Note 7(b)) -- 1,122,000
Prepaid fees (Note 12) -- 1,720,000
------------ ------------
Balance, September 30, 1999 $(18,128,149) $ 9,958,515
============ ============
</TABLE>
F-6
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of cash flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(5,825,980) $(4,739,811) $(3,030,445)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 85,502 113,342 38,195
Loss from the sale of fixed assets 33,390 -- --
Amortization of license 120,784 (113,621) 122,720
Amortization of goodwill - subsidiaries 437,648 204,897 --
Amortization of goodwill - affiliates 446,895 -- --
Amortization of prepaid fees 296,552 -- --
Write down of license to fair value 260,722 -- 276,472
Provision for irrecoverable restaurant credits 17,728 -- (5,152)
Write off of Hawaii option -- -- 150,000
Share of loss of affiliates 443,235 1,186,734 202,905
Accrued interest expense 176,825 250,412 --
Debt discount expense 980,000 -- --
Accrued sign-on fees (296,500) 296,500 --
Reserve against non-trade receivable -- 452,427 --
Minority interest 119,526 143,076 --
Changes in assets and liabilities
Trade accounts payable 91,986 (288,932) 13,800
Accrued liabilities (391,006) (36,268) 80,556
Accounts receivable 178,422 36,324 --
Restaurant credits 49,221 106,267 340,145
Prepaid expenses and other current assets (146,223) (153,876) (9,956)
Deferred income (397,330) 160,291 (34,840)
Due from/(to) related parties (1,443,938) (2,297) (271,264)
Due from/(to) affiliate companies 114,161 -- --
Other assets 163,792 (139,209) --
----------- ----------- -----------
Net cash used in operating activities (4,484,588) (2,523,744) (2,126,864)
----------- ----------- -----------
Cash flows from investing activities
Cash paid for interest in DBS Direct (937,500) -- --
Cash paid for interest in other affiliates (25,575) (570,623) (1,209,655)
Net cash paid to acquire NHS (1,996,665) (1,702,559) --
Net cash paid to acquire Breakaway -- (126,748) --
Net proceeds (cash paid) on fixed assets 9,078 (37,318) 4,045
----------- ----------- -----------
Net cash used in investing activities (2,950,662) (2,437,248) (1,205,610)
----------- ----------- -----------
</TABLE>
F-7
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of cash flows (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from financing activities
Net proceeds received from issuance of common
stock 3,882,000 3,934,595 1,097,500
Loans from related parties re Countdown acquisition -- -- 1,000,000
Bank credit line 18,740 -- (40,051)
Proceeds from notes payable 3,900,000 1,615,000 --
Repayment of notes payable (1,326,814) -- --
----------- ----------- -----------
Net cash provided by financing activities 6,473,926 5,549,595 2,057,449
----------- ----------- -----------
Effects of exchange rate changes on cash 4,979 (112,196) 116,824
----------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (956,345) 476,407 (1,158,201)
Cash and cash equivalents at beginning of period 1,504,921 13,104 1,171,305
Cash acquired as part of acquisitions -- 1,015,410 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 548,576 $ 1,504,921 $ 13,104
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 347,039 $ 73,494 $ Nil
Taxes paid $ Nil $ 395 $ Nil
</TABLE>
Supplemental disclosures of non-cash investing and financing activities
(1) In April, 1997, the Company issued 1,330,524 shares of its common stock as
part payment for its investment in Countdown Holdings Limited
("Countdown"). The consideration paid totalled $2,682,487 made up as
follows:
Cash payment $ 1,209,655
Issuance of 1,330,524 shares of Common Stock 1,222,832
Loan note in favour of TMNI International, Inc. 250,000
-----------
$ 2,682,487
===========
F-8
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Consolidated statements of cash flows (Continued)
- --------------------------------------------------------------------------------
(2) In December, 1997, the Company issued 500,000 shares of its common stock
as part payment for the acquisition by NHS Australia Pty Limited of the
business of Nationwide Helpline Service Pty Limited. In November, 1998,
the Company and TME jointly acquired the remaining 49% of NHS. The
consideration paid totalled $4,199,224 made up as follows:
Cash payment $ 1,702,559
Issuance of 500,000 shares of Common Stock 500,000
-----------
As of September 30, 1998 2,202,559
Cash payment 1,996,665
-----------
As of September 30, 1999 $ 4,199,224
===========
(3) In May, 1998, the Company issued 225,000 shares of its common stock as
part payment for its investment in Porkpine Limited ("Porkpine"). The
consideration paid totalled $922,372 made up as follows:
Cash payment $ 570,623
Issuance of 225,000 shares of Common Stock 326,174
-----------
As of September 30, 1998 896,797
Cash payment 25,575
-----------
As of September 30, 1999 $ 922,372
===========
(4) In June, 1999, the Company issued 4,589,732 shares of its common stock as
part payment for its 50% investment in DSS Direct Connect, LLC ("DBS
Direct"). The remaining interest of 50% was acquired by TME. The
consideration paid totalled $7,538,821 made up as follows:
Issuance of 4,589,732 shares of Common Stock $ 6,038,821
Capital contribution
Paid 937,500
Deferred 562,500
-----------
$ 7,538,821
===========
The deferred capital contribution was paid in November and December 1999.
F-9
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
1 The Company
Transmedia Asia Pacific, Inc. ("the Company" or "TMAP" ) is a
Delaware corporation which was organised in March 1994 and commenced
operations in Sydney, Australia in November 1994. TMAP is a provider
of member benefit programs and travel services.
On December 2, 1997, Transmedia Australia Holdings Pty Limited
("Transmedia Australia"), a company owned equally by the Company and
Transmedia Europe, Inc. ("TME"), purchased 51% of the Common Stock
of NHS Australia Pty Limited ("NHS"). On November 17, 1998
Transmedia Australia acquired the remaining 49% of NHS.
On May 14, 1998 the Company and TME purchased jointly 100% of the
outstanding Common Stock of Porkpine Limited ("Porkpine").
On May 22, 1998 Transmedia Australia Travel Holdings Pty Limited
("Transmedia Holdings"), a company owned equally by the Company and
TME acquired 100% of the issued share capital of Breakaway Travel
Club Pty Limited ("Breakaway").
In July 1998, the Company and TME jointly incorporated Countdown
America, Inc. which changed its name to Countdown USA, Inc. on March
23, 1999 ("Countdown USA").
On June 15, 1999 the Company and TME purchased jointly 100% of the
outstanding Common Stock of DSS Direct Connect, LLC ("DBS Direct").
As of September 30, 1999, the Company had the following equity
interests in its direct subsidiaries and affiliates:
<TABLE>
<CAPTION>
Country of
Name incorporation % owned
<S> <C> <C>
Subsidiaries
Transmedia Australia Pty Limited Australia 100
Transmedia Australasia Limited New Zealand 100
Transmedia Australia Holdings Pty Limited Australia 50
Transmedia Australia Travel Holdings
Pty Limited Australia 50
Affiliates
Countdown Holdings Limited UK 50
Porkpine Limited Channel Islands 50
DSS Direct Connect, LLC USA 50
Countdown USA, Inc. USA 50
</TABLE>
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 the affiliates the Company does not have
effective control over their operations and therefore they are
accounted for under the equity method.
F-10
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
2 Significant accounting policies
(a) Principles of consolidation
The consolidated 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 intercompany transactions have been
eliminated on consolidation.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern.
(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 utilising 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 reviews recoverability of restaurant credits and establishes
an allowance for restaurant credits to restaurants that have ceased
operations or whose credits may not be utilised by cardholders.
The amount of funds advanced to participating restaurants are
generally unsecured and are recoverable as cardholders utilise their
restaurant charge card at the respective restaurant. In certain
cases the Company may request a personal guarantee from the owner of
a restaurant with respect to the recoverability of the advance if
the restaurant ceases operations or ceases to be a participating
restaurant. Generally no other forms of collateral or security are
obtained from the restaurant owners.
(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 will be written down to fair
value. An impairment write-down was necessary for fiscal 1999 of
$260,722 against the Transmedia license (fiscal 1998 - $Nil; fiscal
1997 - $276,472).
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the
Transmedia License paid to TMNI International, Inc. ("TMNI") in cash
plus the fair value of Company shares 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 is being amortized on a straight-line basis over
its estimated useful life of 15 years from the commencement of
operations in November 1994.
F-11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
2 Significant accounting policies (Continued)
(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.
(g) Income taxes
The Company recognises 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 recognised 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 realised.
(h) 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.
Transmedia card membership fees are recognised as revenue in equal
monthly instalments 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
recognised as revenue when the related services have been performed.
F-12
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
2 Significant accounting policies (Continued)
(i) Foreign currencies
The reporting currency of the Company is the United States dollar.
The Company's functional currencies are the Australian dollar, the
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. In the year ended September 30, 1999 the Company
recorded an exchange gain of $212,461 (fiscal 1998 - loss of
$80,017; fiscal 1997 - loss of $176,575).
The average exchange rates for the years ended September 30, 1999,
1998 and 1997 and the exchange rates in effect as of September 30,
1999 and 1998 were as follows:
UK pound Australian Ireland
sterling dollar punt
Average exchange rates
Year ended September 30, 1999 1.6244 0.6649 1.3773
Year ended September 30, 1998 1.6533 0.6470 1.4215
Year ended September 30, 1997 1.6200 0.7302 N/A
Closing exchange rate
September 30, 1999 1.6463 0.6528 1.3513
September 30, 1998 1.7000 0.5930 1.4995
September 30, 1997 1.6125 0.7251 1.4545
(j) 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.
F-13
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
2 Significant accounting policies (Continued)
(k) Use of Estimates
In preparing the consolidated financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the consolidated financial statements and
revenues and expenses during the reported period. Actual results
could differ from these estimates.
(l) 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 September
30, 1999 and 1998 due to either short maturity or terms similar to
those available to similar companies in the open market.
(m) 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.
(n) 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.
F-14
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
3 Related party transactions
The net amounts due from/to related parties are made up as follows:
September 30, September 30,
1999 1998
Amounts due from:
Transmedia UK plc $ -- $ 383,507
International Advance, Inc. -- 140,000
Conestoga Partners, Inc. -- 26,260
Paul Harrison -- 42,149
Countdown 22,665 --
---------- ----------
$ 22,665 $ 591,916
========== ==========
Amounts due to:
J V Vittoria $1,302,137 $1,182,137
TMNI 355,443 287,533
TME 269,506 2,454,716
Countdown USA (see also Note 4) 124,102 --
---------- ----------
$2,051,188 $3,924,386
========== ==========
Loans to related parties are unsecured, non-interest bearing and
repayable upon demand except as noted below.
During fiscal 1997 the Company entered into an agreement with Mr J
Vittoria, a director and shareholder of the Company, whereby Mr
Vittoria advanced a loan of $1,000,000 to the Company. The purpose
of the loan was to enable the Company to pay the cash element of the
purchase of the Company's interest in Countdown. The loan, which
bears interest at 12% per annum and is collaterized by a pledge of
all the shares of Countdown purchased by the Company, was originally
scheduled to mature on September 27, 1997. The loan was renewed upon
maturity for an indefinite period by agreement between the Company
and Mr Vittoria. The loan is repayable on 60 days notice from Mr
Vittoria.
The Company and TME issued a joint promissory note together in the
total principal amount of $500,000 to TMNI for which the liability
has been split between the two companies equally. The promissory
note was payable in April 2, 1998, bears interest at the rate of 10%
per annum, and is convertible at the holder's option into common
stock of each issuer at the rate of $1.20 per share. To date this
promissory note has not been repaid or converted.
During the year ended September 30, 1999, the Company was charged a
corporate management fee of $1,210,939 (fiscal 1998 - $1,060,526;
fiscal 1997 - $679,787) from TME in respect of the Company's share
of head office expenses, comprising salaries, rent, travel and other
associated office and professional costs.
F-15
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
4 Investment in affiliated companies
(a) Investments in affiliated companies is made up as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
<S> <C> <C>
Countdown
Cost of investment $ 2,682,487 $ 2,682,487
Cost of option 171,860 171,860
Shares of profits/(losses)
- Year ended September 30, 1997 (202,905) (202,905)
- Year ended September 30, 1998 (651,311) (651,311)
- Year ended September 30, 1999 55,942 --
Amortization of goodwill on investment (405,503) (215,204)
Amounts due from Countdown -- 278,956
----------- -----------
$ 1,650,570 $ 2,063,883
----------- -----------
Porkpine
Cost of investment $ 922,372 $ 896,797
Shares of losses
- From acquisition date to September 30, 1998 (60,889) (60,889)
- Year ended September 30, 1999 (14,230) --
Amortization of goodwill on investment (81,849) (22,063)
----------- -----------
$ 765,404 $ 813,845
----------- -----------
DBS Direct
Cost of investment $ 7,538,821 $ --
Amortization of goodwill on investment (196,810) --
Shares of losses
- From acquisition date to September 30, 1999 (320,161) --
----------- -----------
$ 7,021,850 $ --
----------- -----------
Total investment in affiliates $ 9,437,824 $ 2,877,728
=========== ===========
</TABLE>
F-16
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
4 Investment in affiliated companies (Continued)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
<S> <C> <C>
Countdown USA
Cost of investment $ 24,990 $ 24,990
Shares of losses
- Year ended September 30, 1998 (21,816) (21,816)
- Year ended September 30, 1999 (164,786) --
Amounts due from Countdown USA 37,510 (3,174)
----------- -----------
Included within related parties (See also Note 3) $ (124,102) $ --
=========== ===========
(b) DBS Direct summary financial information
Current assets $ 1,356,564 $ 284,254
Non current assets
Office furniture and equipment 238,957 40,693
----------- -----------
Total assets $ 1,595,521 $ 324,947
=========== ===========
Current liabilities $ 651,637 $ 218,033
Non current liabilities -- 551,000
----------- -----------
Total liabilities $ 651,637 $ 769,033
=========== ===========
Net revenues $ 579,078 $ 145,447
=========== ===========
Operating loss $ (630,183) $ (446,988)
=========== ===========
Net loss $ (640,322) $ (449,086)
=========== ===========
</TABLE>
F-17
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
5 Goodwill and other intangible assets
Goodwill is made up as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
<S> <C> <C>
Acquisition of NHS $ 5,213,510 $ 3,905,384
Acquisition of Breakaway 58,797 58,797
----------- -----------
5,272,307 3,964,181
Less: Accumulated amortization (642,545) (204,897)
----------- -----------
$ 4,629,762 $ 3,759,284
=========== ===========
Other intangible assets is made up as follows:
Formation expenses $ 784 $ 784
Transmedia license 1,840,790 1,840,790
----------- -----------
1,841,574 1,841,574
Less: Accumulated amortization (889,061) (768,277)
Impairment write-down (260,722) --
----------- -----------
$ 691,791 $ 1,073,297
=========== ===========
</TABLE>
6 Acquisitions
(a) NHS
On December 2, 1997, Transmedia Australia, a company owned equally
by the Company and TME but controlled by the Company, purchased 51%
of the common stock of NHS, a newly incorporated company. NHS
purchased the net assets and business of Nationwide Helpline
Services Pty Limited ("Nationwide"). Nationwide was an Australian
provider of telephone helpline services and other member benefit
programs. The total consideration paid by Transmedia Australia for
its 51% interest in the equity of NHS was Aus$6,000,000
(approximately $4,290,000 as of December 2, 1997). Transmedia
Australia also exercised their right to purchase the balance of the
equity of NHS for Aus$2,500,000 payable 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 in sign-on fees to the two former
executive directors of Nationwide. On October 21, 1998 the Company
and TME reached agreement to reduce these sign-on fees by
Aus$1,000,000.
F-18
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
6 Acquisitions (Continued)
(a) NHS (Continued)
On November 17, 1998 the Company and TMAP acquired the remaining 49%
and settled the Balance Obligation. The Company and TME also paid
the reduced sign-on fees on that date.
The total revised sign-on fees of Aus$3,000,000 (approximately
$1,940,000) have been charged as compensation expense equally in the
statement of operations of the Company and TME for the year ended
September 30, 1998.
The proforma income statement for the Company assuming the
acquisition of NHS had occurred as of October 1, 1997 is as set out
below.
September 30, September 30,
1999 1998
Total revenues $ 3,991,539 $ 5,170,740
=========== ===========
Operating loss $(3,360,678) $(3,250,514)
=========== ===========
Net loss $(5,825,980) $(4,781,706)
=========== ===========
Loss per share $ (0.20) $ (0.27)
=========== ===========
(b) Breakaway
On May 22, 1998 the Company and TME jointly acquired Breakaway
Travel Club Pty Limited. The total consideration paid was
Aus$375,000 (approximately $230,000) plus acquisition costs of
$16,000. The acquisition was accounted for as a purchase and the
excess purchase price attributable to goodwill was $58,797.
7 Notes payable
(a) On April 29, 1998 the Company engaged in a private placement of debt
securities (the "April Loan Notes"). 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 250,000 pounds sterling
(approximately $425,000) face amount, 8% promissory notes payable on
November 1, 1998 and one 200,000 pounds sterling (approximately
$340,000) face amount, 8% promissory note payable on the same date.
The holders of the 250,000 pound sterling 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 200,000 pounds sterling promissory notes
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.
F-19
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
7 Notes payable (Continued)
The Company failed to pay the promissory notes on the due date and
pursuant to the terms of the promissory notes, the holders each
received additional warrants for the same number of shares and
exercisable on the same terms as the original warrants.
During the course of negotiations with the note holders, the Company
granted two of the 250,000 pounds sterling promissory note holders
an additional warrant each to purchase 41,660 shares of common stock
and agreed to adjust the exercise price of all warrants issued to
all note holders from $2.00 to $1.00.
As of September 30, 1999 an amount of $288,186 was outstanding. The
Company has now repaid the sterling promissory notes in full,
together with interest.
(b) On November 16, 1998 the Company entered into a One Year Secured
Promissory Note ("Note") in the principal sum of $3.4 million
executed with FAI General Insurance, a shareholder of the Company
and TME. Interest on the Note accrued at the rate of 10% per annum
and was payable quarterly in arrears. The Note was secured by a
charge over Transmedia Australia and was guaranteed by TME. The Note
was repayable on November 16, 1999.
Interest on the Promissory Note was paid to November 15, 1999 and
the Company repaid $400,000 of principal in November 1999. On
November 30, 1999 the Note holder and the Company executed a new
note representing the balance of principal of $3 million. The new
note is payable on February 15, 2000 and bears interest at the rate
of 10% per annum payable at maturity. The new note is secured by a
charge over Transmedia Australia and is guaranteed by TME.
The Note holder received a three year warrant to purchase 1,000,000
shares of common stock of the Company at an exercise price of $1.00
per share. In addition the Company agreed to exchange warrants to
purchase 633,366 shares of common stock exercisable at prices
between $1.00 and $1.40, for a warrant to purchase shares at an
exercise price of $1.00.
The warrants were valued at approximately $1,122,000 using the
Black-Scholes model and the Company has recorded the amount as a
debt discount, with a related credit to additional paid-in capital.
The debt discount is being amortized over the life of the Note. As
of September 30, 1999 the balance of the debt discount, net of
amortization, was $142,000.
(c) On February 5, 1999 the Company engaged in a private placement of
debt securities. The Placement was made pursuant to the exemption
from registration afforded by Section 4(2) of the Securities Act
1933, as amended, and Regulation D promulgated thereunder. The
placement consisted of a $500,000 face amount zero coupon promissory
note payable on March 5, 1999. The note holder received a three year
warrant to purchase 100,000 shares of the common stock of the
Company at an exercise price of $1.25 per share. The warrant is
exercisable at any time after issuance through February 4, 2002. The
Company failed to pay the note on the due date but the note holder
agreed to extend the repayment date to June 21, 1999.
F-20
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
7 Notes payable (Continued)
In consideration for the additional time granted by the holder to
pay the promissory note, the Company granted the holder an
additional warrant to purchase 100,000 shares of Common Stock at an
exercise price of $1.25 per share for no additional consideration.
The additional warrant is exercisable at any time after issuance
through February 4, 2002. The Company also granted the holder the
right, prior to repayment, to convert the promissory note in whole
or in part into shares of Common Stock at a conversion price of
$0.75 per share. On June 18, 1999 the promissory note holder
exercised his conversion privilege and the Company issued 666,667
shares of Common Stock in full satisfaction of the promissory note.
8 Stockholders equity
On February 1, 1998 the Company commenced a private placement of
common shares pursuant to the exemption from registration afforded
by Section 4(2) of the Securities Act of 1993, 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 at $1.25
per share 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.
On October 16, 1998 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 30, 1998
upon the sale of 842,666 shares of common stock at $0.75 per share
resulting in net proceeds to the Company of $632,000.
On January 25, 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 February 24, 1999
upon the sale of 700,000 shares of common stock at $1.25 per share
resulting in net proceeds to the Company of $875,000.
On May 11, 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 June 25, 1999 upon the sale of
3,000,001 shares of common stock at $0.75 per share resulting in net
proceeds to the Company of $2,250,000.
On August 11, 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 September 10, 1999
upon the sale of 166,666 shares of common stock at $0.75 per share
resulting in net proceeds to the Company of $125,000.
Refer also Note 15 "Subsequent Events"
F-21
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
9 Income (tax) benefit
Income taxes reflected in the accompanying consolidated statements
of operations differed from the amounts computed by applying the US
federal tax rate of 35% to loss before taxes as a result of the
following:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
Computed 'expected' tax benefit $ 2,007,751 $ 1,121,895 $ 707,000
Change in valuation allowance against
deferred tax assets (1,454,762) (1,036,272) (683,000)
Non deductible expenses (582,966) (212,821) --
Other (net) -- (61,000) (24,000)
----------- ----------- -----------
$ 29,977 $ (188,198) $ --
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred
tax assets are as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 4,517,034 $ 3,062,272 $ 1,999,000
Pre-operating costs capitalised for
tax purposes -- -- 27,000
----------- ----------- -----------
Total 4,517,034 3,062,272 2,026,000
Less valuation allowance (4,517,034) (3,062,272) (2,026,000)
----------- ----------- -----------
Net deferred tax assets $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-22
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
10 Loss per common share
The following table summarises securities that were outstanding at
September 30, 1999, 1998 and 1997, but not included in the
calculation of diluted loss per share because such shares are
anti-dilutive.
<TABLE>
<CAPTION>
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
Stock options and warrants 7,692,965 3,952,145 2,038,825
</TABLE>
11 Leases
The Company leases certain office space under lease agreements.
Future minimum lease payments under non-cancellable operating leases
as of September 30, 1999, are as follows:
Year ending September 30, 2000 238,000
Year ending September 30, 2001 307,000
Year ending September 30, 2002 307,000
Year ending September 30, 2003 315,000
Year ending September 30, 2004 289,000
Thereafter --
-----------
$ 1,456,000
===========
The amount charged to the consolidated statement of operations for
rent expense in the year ended September 30, 1999 was $187,588
(fiscal 1998 - $218,264; fiscal 1997 - $42,465).
F-23
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
12 Stock options and warrants
Under the Company's 1994 Stock Option and Rights Plan (the "Plan"),
the Company may grant stock options and stock appreciation rights to
persons who are now or who during the term of the Plan become key
employees (including those who are also directors) and to
independent sales agents. The Plan provides that the Stock Option
Committee of the Board of Directors may grant stock options or stock
appreciation rights with respect to a maximum of 250,000 shares of
common stock at an exercise price not less than the fair market
value at the date of grant for qualified and non-qualified stock
options.
The Company issued options for 40,000 shares of Common Stock in 1996
(of which 10,000 were cancelled in 1997) and 10,000 in 1997 under
the Company's 1996 Stock Option Plan for Outside Directors ("the
1996 Plan"). The 1996 Plan provides that the Stock Option Committee
of the Board of Directors may grant stock options with respect to a
maximum of 300,000 shares of common Stock. The options have a five
year term.
In prior years the Company has also issued warrants to purchase
497,619 shares of common stock at an exercise price ranging from
$1.40 to $1.50 per share. The warrants have a three to five year
term ending through July 2000.
In April 1997, the Company granted an option to purchase up to
277,193 shares of Common Stock at a purchase price of $0.90 per
share to the owner of Countdown as part of the consideration given
for the 50% purchase of Countdown. In addition, the Company issued
warrants to purchase 138,596 shares of Common Stock at an exercise
price of $1.13 per share with an expiration date of April 2002.
In April and July 1999 the Company issued 3,000,000 warrants in lieu
of payment to external advisors. The warrants were valued at
approximately $1,720,000 using the Black-Scholes model and the
Company has recorded the amount as prepaid fees with a related
credit to additional paid-in capital. The prepaid fees are being
charged to the statement of operations over the minimum period of
the services to be provided.
Stock option and warrant activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Options Weighted Warrants Weighted
number of average number of average
shares exercise price shares exercise price
<S> <C> <C> <C> <C>
Balance at September 30, 1996 840,000 $ 1.04 597,619 $ 1.62
Granted 297,193 0.90 324,013 1.57
Cancelled (20,000) (1.78) -- --
---------- ---------- ---------- ---------
Balance at September 30, 1997 1,117,193 $ 1.00 921,632 $ 1.62
Granted 120,000 1.50 1,793,320 1.20
---------- ---------- ---------- ---------
Balance at September 30, 1998 1,237,193 $ 1.05 2,714,952 $ 1.35
Granted 20,000 $ 1.59 5,720,802 0.88
Cancelled (100,000) 1.50 (799,982) 1.60
Expired (800,000) 1.00 (300,000) 1.83
---------- ---------- ---------- ---------
Balance at September 30, 1999 357,193 $ 1.06 7,335,772 $ 0.94
========== ========== ========== =========
</TABLE>
F-24
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
12 Stock options and warrants (Continued)
The range of exercise prices for the options is $1.00 to $1.78. The
range of exercise prices for the warrants is $0.75 to $2.00. All the
options and warrants shown as at September 30, 1999 and 1998 were
exercisable at that date.
The Company applies APB Opinion No. 25 in accounting for its stock
options and warrants and, accordingly, other than in respect of that
stated in Note 7(b) and that stated above no compensation cost has
been recognized for its employee stock options and warrants in the
financial statements. Had the Company determined compensation cost
based upon the fair value at the grant date for its stock options
and warrants under SFAS No. 123, the Company's net losses would have
been increased to the proforma amounts indicated below:
<TABLE>
<CAPTION>
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C> <C>
Net loss - As reported $ (5,825,980) $ (4,739,811) $ (3,030,445)
- Proforma $ (6,103,164) $ (4,791,495) $ (3,044,470)
Loss per share - As reported
- Basic $ (0.20) $ (0.27) $ (0.22)
- Diluted $ (0.20) $ (0.27) $ (0.22)
Loss per share - Proforma
- Basic $ (0.21) $ (0.27) $ (0.22)
- Diluted $ (0.21) $ (0.27) $ (0.22)
</TABLE>
In arriving at such proforma amounts, the Company estimates the fair
value of each stock option on the grant date by using the Black
Scholes Valuation Method with the following weighted average
assumptions used for grants in fiscal 1999, 1998 and 1997
respectively: no dividends paid for all years; expected volatility
of 45.8%; a risk free interest rates ranging between 4.13% and 6.7%
and an expected life being the remaining term of the option. The per
share weighted fair value of the stock options granted in 1999, 1998
and 1997 were $0.42, $1.05 and $0.74 respectively.
13 Business and credit concentrations
The Company's customers are primarily located in the Australia and
New Zealand. No one corporate customer accounts for more than 10% of
sales revenue for the year ended September 30, 1999.
No single restaurant credit receivable was greater than 10% of the
Company's total restaurant credit receivable balance as of September
30, 1999.
F-25
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
14 Commitments and contingencies
Legal proceedings
From time to time the Company is subject to legal proceedings and
claims in the ordinary course of business.
On September 29, 1999 the National Association of Mature Americans
Inc. ("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 defences 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
court has ordered an initial pre-trial conference on April 10, 2000.
The Company is not aware of any legal proceedings or claims against
the Company that will have, individually or in aggregate a material
adverse affect on the Company's business, prospects, financial
condition and results of operations.
15 Subsequent Events
(a) Equity Private Placement
On September 30, 1999 the Company commenced a private placement
pursuant to the exemption from registration 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
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 proceeds to the Company of $3,125,000.
(b) Loan Note
On November 30, 1999 the Company and FAI General Insurance executed
a new promissory note representing the balance of principal of $3
million due on a promissory note in the sum of $3.4 million executed
on November 16, 1998 (See Note 7(b) - Notes payable). The new note
is payable on February 15, 2000 and bears interest at the rate of
10% per annum payable at maturity. The new note is secured by a
charge over Transmedia Australia and is guaranteed by TME.
F-26
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
16 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 fiscal 1999. Operations of the subsidiary companies are conducted
in Australia and New Zealand. The following is a summary of the
Company's operations by business segment and by geographical
segment. The accounting policies of the segments are the same as
those described in Note 2 - Significant accounting policies
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1999 1998 1997
<S> <C> <C> <C>
(a) Statement of operations
Revenues
Member benefits/loyalty programs $ 2,595,829 $ 3,861,355 $ 2,192,362
Travel services 1,395,710 806,201 --
----------- ----------- -----------
Revenues for reportable segments
and consolidated revenues 3,991,539 4,667,556 2,192,362
----------- ----------- -----------
Operating loss
Member benefits/loyalty programs (1,041,601) (605,154) (697,024)
Travel services (205,802) (23,505) --
Corporate overhead (2,113,275) (2,620,794) (2,080,824)
----------- ----------- -----------
Total operating loss for reportable segments (3,360,678) (3,249,453) (2,777,848)
----------- ----------- -----------
Share of affiliate losses
Member benefits/loyalty programs (373,159) (1,186,734) (202,905)
Direct marketing (516,971) -- --
----------- ----------- -----------
(890,130) (1,186,734) (202,905)
----------- ----------- -----------
Net interest expense (1,485,623) (258,502) (49,692)
----------- ----------- -----------
Loss before taxation and minority interests $(5,736,431) $(4,694,689) $(3,030,445)
=========== =========== ===========
Depreciation and amortization
Member benefit/loyalty programs 397,102 310,371 160,915
Travel services 24,986 20,297 --
----------- ----------- -----------
$ 422,088 $ 330,668 $ 160,915
=========== =========== ===========
</TABLE>
The only geographic segment is Australasia from which all the
revenues are derived and to which all but $691,007 of the long-lived
assets relate.
F-27
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Notes to consolidated financial statements (Continued)
- --------------------------------------------------------------------------------
16 Industry and geographic area segments (Continued)
September 30, September 30,
1999 1998
(b) Total assets
Member benefits/loyalty programs $ 5,882,396 $ 5,317,046
Travel services 553,131 1,006,375
Investment in affiliates 9,437,824 2,877,728
Unallocated 1,803,992 1,757,613
----------- -----------
$17,677,343 $10,958,762
=========== ===========
F-28
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
Valuation and qualifying accounts Schedule II
for the years ended September 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Description Charged to Acquisition Balance
Balance at costs and of Deductions at end
beginning of period expenses subsidiaries (describe) of period
<S> <C> <C> <C> <C>
Allowances for irrecoverable
restaurant credits 1997 119,762 (5,152) 114,610
1998 114,610 (66,577) 48,033
1999 48,033 17,728 65,761
</TABLE>
The deduction of $17,728 relates to the write-off of certain irrecoverable
restaurant credits and as of September 30, 1999.
F-29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 548,576
<SECURITIES> 0
<RECEIVABLES> 267,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,851,952
<PP&E> 780,745
<DEPRECIATION> 647,875
<TOTAL-ASSETS> 17,677,343
<CURRENT-LIABILITIES> 7,658,057
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 9,958,220
<TOTAL-LIABILITY-AND-EQUITY> 17,677,343
<SALES> 0
<TOTAL-REVENUES> 3,991,539
<CGS> 852,506
<TOTAL-COSTS> 6,499,711
<OTHER-EXPENSES> 2,375,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,503,864
<INCOME-PRETAX> (5,736,431)
<INCOME-TAX> 29,977
<INCOME-CONTINUING> (5,736,431)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,825,980)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
