1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
----------------------
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 0-24404
-------
TRANSMEDIA EUROPE, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3701141
--------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
-------------------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
------------------------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.00001 par
value, as of February 10, 1997: 12,678,792
2
INDEX
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART I : CONDENSED CONSOLIDATED FINANCIAL INFORMATION
ITEM 1 .................................................................................. Pages 1-8
Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the three months ended
December 31, 1995 and 1996 (unaudited) and the fiscal years ended September 30,
1995 and 1996.
Condensed Consolidated Balance Sheets as of:
- - September 30, 1996
- - December 31, 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 1995 and 1996 (unaudited) and the fiscal years ended September 30,
1995 and 1996.
Condensed Consolidated Statement of Changes in Stockholders Equity for the three
month periods ended December 31, 1995 and 1996 (unaudited) and for the fiscal
years ended September 30, 1995 and 1996.
Notes to the Condensed Consolidated Financial Statements
ITEM 2 .................................................................................. Pages 9-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION ............................................................. Page 12
SIGNATURES .............................................................................. Page 13
3
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Three months Three months
ended ended
December 31, December 31 Year ended Year ended
1995 1996 September 30, September 30,
(unaudited) (unaudited) 1995 1996
------------ ------------ ------------ ------------
Revenues $ 797,274 $ 910,845 $ 3,399,831 $ 3,125,975
Membership fees 146,017 123,000 518,166 570,425
Other income - - 50,000 -
------------ ------------ ------------ ------------
Total revenues and fees 943,291 1,033,845 3,967,997 3,696,400
Cost of sales (531,515) (601,907) (2,266,586) (2,085,905)
------------ ------------ ------------ ------------
Gross profit 411,776 431,938 1,701,411 1,610,495
Selling, general and
administrative expenses (861,385) (998,745) (3,816,386) (3,670,307)
------------ ------------ ------------ ------------
Loss from operations (449,609) (566,807) (2,114,975) (2,059,812)
Share of losses of associated company (61,240) (126,752) (92,455) (509,404)
Interest income 2,353 3,670 28,978 8,112
------------ ------------ ------------ ------------
Loss before income taxes (508,496) (689,889) (2,178,452) (2,561,104)
Income taxes - - - -
------------ ------------ ------------ ------------
Net loss before preferred share dividends (508,496) (689,889) (2,178,452) (2,561,104)
Preferred share dividends (33,605) (33,605) (37,000) (134,420)
------------ ------------ ------------ ------------
Net loss after preferred share dividends $ (542,101) $ (723,494) $ (2,215,452) $ (2,695,524)
------------ ------------ ------------ ------------
Loss per common share $ (0.05) $ (0.06) $ (0.19) $ (0.24)
Weighted average number of common
shares outstanding 11,426,680 12,237,420 11,423,680 11,448,212
------------ ------------ ------------ ------------
See accompanying notes to the condensed consolidated financial statements.
1
4
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, December 31,
1996 1996
(unaudited)
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash (including temporary cash investments
of $562,268 at December 31, 1996 and
$nil at September 30, 1996) $ 61,661 $ 848,542
Trade accounts receivable 105,167 37,182
Restaurant credits, (net of allowance for irrecoverable
credits of $463,375 at December 31, 1996 and of $399,328
at September 30, 1996) 1,309,279 1,492,933
Amounts due from related parties (note 3) 114,246 308,084
Prepaid expenses and other current assets 264,478 232,461
---------- ----------
TOTAL CURRENT ASSETS 1,854,831 2,919,202
NON-CURRENT ASSETS
Investment in and advances to affiliated company (note 2) 698,141 567,653
Property and equipment (net of accumulated
depreciation of $104,262 at September 30, 1996
and $126,170, at December 31, 1996) 76,357 71,433
Intangible and other assets (net of accumulated
amortization of $324,248 at September 30, 1996
and $351,279 at December 31, 1996) 1,297,026 1,404,746
---------- ----------
TOTAL ASSETS $3,926,355 $4,963,034
---------- ----------
See accompanying notes to the condensed consolidated financial statements.
2
5
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, December 31,
1996 1996
(unaudited)
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 483,229 $ 618,083
Deferred membership fee income 352,542 384,820
Accrued liabilities 438,395 514,331
Amount due to related party (note 3) - 251,806
------------ ------------
TOTAL CURRENT LIABILITIES 1,274,166 1,769,040
NON-CURRENT LIABILITIES
Deferred license fee income 500,000 500,000
------------ ------------
Total liabilities 1,774,166 2,269,040
------------ ------------
STOCKHOLDERS' EQUITY
6 1/2 % Convertible Preferred Shares, $0.01 par value, 5,000,000 shares
authorised, 590,857 issued and outstanding shares at December 31, 1996
and September 30, 1996 5,909 5,909
Common stock, $.00001 par value, 95,000,000 shares authorised,
12,875,787 issued and outstanding at December 31, 1996
and 12,319,537 at September 30, 1996 123 128
Additional paid in capital 9,647,072 10,744,567
Accumulated deficit (6,908,928) (7,632,422)
Treasury Stock (196,995 shares) (517,112) (517,112)
Unearned compensation -restricted stock (78,000) -
Cumulative foreign currency translation
adjustment 3,125 92,924
------------ ------------
Total stockholders' equity $ 2,152,189 $ 2,693,994
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,926,355 $ 4,963,034
============ ============
See accompanying notes to the condensed consolidated financial statements.
3
6
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
Three months Three months
ended ended Year ended Year ended
December 31, December 31, September 30, September 30,
1995 1996 1995 1996
(unaudited) (unaudited)
----------- ----------- ----------- -----------
Cash flows from Operating Activities:
- Net loss before preferred dividends $ (508,496) $ (689,889) $(2,178,452) $(2,561,104)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation and amortization 37,375 38,414 149,497 151,265
- Amortization of deferred compensation 81,000 78,000 324,000 324,000
- Provision for irrecoverable restaurant credits 23,918 64,047 281,357 41,771
- Share of losses of affiliated company 61,240 126,752 92,455 509,404
Changes in assets and liabilities:
- Trade accounts payable 17,951 62,370 125,409 173,244
- Accrued liabilities (38,883) 52 (53,114) 84,590
- Restaurant credits (72,080) (51,310) (323,052) 206,619
- Trade accounts receivable 82,100 83,761 (17,426) 21,125
- Prepaid expense and other current assets - 35,753 (41,465) (150,838)
- Deferred membership fees (34,137) (20,603) 69,295 10,001
- Deferred license fee income - - 500,000 -
----------- ----------- ----------- -----------
Net cash used in operating activities (350,012) (272,653) (1,071,496) (1,189,923)
----------- ----------- ----------- -----------
Cash flows from investing activities:
- Due from/(to) related parties (131,181) 57,968 (55,965) (338,053)
- Purchase of property and equipment - - (17,594) (18,141)
- Loan to affiliated company (22,466) - (30,868) 30,868
- Net investment in associated company - - (1,000,000) (300,000)
- Purchase of NHS option - (134,741) - -
----------- ----------- ----------- -----------
Net cash used in investing activities (153,647) (76,773) (1,104,427) (625,326)
----------- ----------- ----------- -----------
Cash flows from financing activities:
- Net proceeds received from issuance of:
common stock - 1,097,500 - 1,235,000
convertible preferred shares - - 1,964,600 -
- Payment of preferred share dividends (48,202) (23,481) - (71,685)
- Bank overdraft (36,962) - 109,422 (109,422)
- Proceeds from stock options exercised - - 6,000 -
----------- ----------- ----------- -----------
Net cash (used in)/provided by financing activities (85,164) 1,074,019 2,080,022 1,053,893
----------- ----------- ----------- -----------
Effect of foreign currency on cash - 62,288 377 26,106
----------- ----------- ----------- -----------
Net (decrease)/increase in cash and
cash equivalents (588,823) 786,881 (95,524) (735,250)
Cash and temporary cash investments at
beginning of period 796,911 61,661 892,435 796,911
----------- ----------- ----------- -----------
Cash and temporary cash investments at
at end of period $ 208,088 $ 848,542 $ 796,911 $ 61,661
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
No amounts of cash were paid for interest or income taxes for each of the
periods presented. See accompanying notes to the financial statements.
4
7
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER OF COMMON NUMBER OF PREFERRED ADDITIONAL
COMMON SHARES STOCK PREFERRED SHARES STOCK PAID- IN
CAPITAL
Balance, September 30, 1994 11,420,680 $ 114 - $ - $ 6,447,390
Issuance of common stock
due to exercise of options 6,000 - - - 6,000
Issuance of convertible
preferred stock - - 590,857 5,909 2,062,091
Issue costs - - - - (103,400)
Net loss after preferred
share dividends - - - - -
Effect of foreign currency
translation - - - - -
Compensation expense -
restricted stock - - - - -
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1995 11,426,680 $ 114 590,857 $ 5,909 $ 8,412,081
Issuance of common stock 892,857 9 - - 1,249,991
Issue costs - - - - (15,000)
Net loss after preferred
share dividends - - - - -
Effect of foreign currency
translation - - - - -
Compensation expense -
restricted stock - - - - -
Treasury stock - - - - -
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 12,319,537 $ 123 590,857 $ 5,909 $ 9,647,072
Issuance of common stock 556,250 5 - - 1,112,495
Issue costs - - - - (15,000)
Net loss after preferred
share dividends - - - - -
Effect of foreign currency
translation - - - - -
Compensation expense -
restricted stock - - - - -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 12,875,787 $ 128 590,857 $ 5,909 $ 10,744,567
------------ ------------ ------------ ------------ ------------
TREASURY CUMULATIVE UNEARNED ACCUMULATED TOTAL
STOCK FOREIGN COMPENSATION DEFICIT
CURRENCY RESTRICTED
ADJUSTMENT STOCK
Balance, September 30, 1994 - $ 8,060 $ (726,000) $ (1,997,952) $ 3,731,612
Issuance of common stock
due to exercise of options - - - - 6,000
Issuance of convertible
preferred stock - - - - 2,068,000
Issue costs - - - - (103,400)
Net loss after preferred
share dividends - - - (2,215,452) (2,215,452)
Effect of foreign currency
translation - 2,300 - - 2,300
Compensation expense -
restricted stock - - 324,000 - 324,000
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1995 - $ 10,360 $ (402,000) $ (4,213,404) $ 3,813,060
Issuance of common stock - - - - 1,250,000
Issue costs - - - - (15,000)
Net loss after preferred
share dividends - - - (2,695,524) (2,695,524)
Effect of foreign currency
translation - (7,235) - - (7,235)
Compensation expense -
restricted stock - - 324,000 - 324,000
Treasury stock (517,112) - - - (117,112)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 $ (517,112) $ 3,125 $ (78,000) $ (6,908,928) $ 2,152,189
Issuance of common stock - - - - 1,112,500
Issue costs - - - - (15,000)
Net loss after preferred
share dividends - - - (723,494) (723,494)
Effect of foreign currency
translation - 89,799 - - 89,799
Compensation expense -
restricted stock - - 78,000 - 78,000
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $ (517,112) $ 92,924 $ - $ (7,632,422) $ 2,693,994
------------ ------------ ------------ ------------ ------------
See accompanying notes to the condensed financial statements.
5
8
TRANSMEDIA EUROPE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated balance sheet as of September 30, 1996 was derived
from the Company's audited financial statements.
The condensed consolidated financial statements included herein have
been prepared in conformity with generally accepted accounting
principles in the United States and should be read in conjunction with
the September 30, 1996 Form 10-K filing. The information presented in
the unaudited condensed consolidated financial statements, in the
opinion of management, reflects all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results
for all interim periods. The results for any interim period presented
are not necessarily indicative of the results to be expected for the
full year.
(b) Description of business
Transmedia Europe, Inc. ('the Company') was incorporated in Delaware on
February 9, 1993.
The Company's main business activity through its wholly owned
subsidiary company, Transmedia UK plc, is to make cash advances to
restaurants for food and beverage credits from certain participating
restaurants, which are then recovered as the Company's cardholders
utilise their restaurant charge card (see note 1(c)). Presently, the
Company's operations are in the United Kingdom and there is an
affiliate company operating in France.
The Company has been granted a license, (the 'Transmedia License'), to
operate a specialised restaurant charge card business in Europe, Turkey
and the other countries outside of Europe that were formerly part of
the Union of Soviet Socialist Republics (the 'Licensed Territories') by
Transmedia Network Inc. ("Network"), a corporation which is
incorporated in the United States of America. The agreement to purchase
the Transmedia License was initially entered into by Conestoga Partners
Inc. ('Conestoga'), a corporation which is related to the Company by
virtue of the majority shareholding in Conestoga held by Edward J
Guinan III, the President, Chief Executive Officer and Director of the
Company (see note 3).
The Company intends to expand operations in other portions of the
licensed territories through wholly-owned subsidiaries, unaffiliated
sublicensees and franchisees or through joint ventures.
As of December 31, 1996, Transmedia Europe, Inc. had equity interests
in the following companies:
Name Country of Incorporation % Owned
Transmedia Europe plc United Kingdom 100
Transmedia UK plc United Kingdom 100
Transmedia UK Inc. United States of America 100
Transmedia La Carte Restaurant S.A
('Transmedia France') France 36
(c) Restaurant Credits
Restaurant credits represent the total advances made to participating
restaurants in exchange for credits less the amount by which these
credits are recouped by the Company as a result of Company cardholders
utilising their cards at participating restaurants. The amount by which
such credits are recouped amounts to approximately 50% of the retail
value of food and beverages consumed by cardholders. The Company
reviews recoverability of credits and establishes an allowance for
credits to restaurants that have ceased operations or whose credits may
not be utilised by cardholders.
The 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 of 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.
6
9
TRANSMEDIA EUROPE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(d) Revenues
Revenues represent the retail value of food and beverages acquired from
participating restaurants by the Company's cardholders, less the 20% or
25% discount offered to cardholders. Membership fees collected on the
25% discount card are deferred and recognised as revenue in equal
monthly instalments over the periods benefited.
(e) License Cost
The Company evaluates the carrying value of its investment in License
Costs for impairment based on an estimate of future undiscounted net
cash flows that are expected to be generated and are directly
attributable to the Transmedia License. If the sum of those estimated
future undiscounted cash flows is less than the carrying value of the
license costs, it is the policy of the Company to measure impairment on
the basis of the fair value of the license costs, using a discounted
cash flow technique. In the opinion of management, there was no
permanent impairment in the carrying value of the license costs at
September 30, 1996 or at December 31, 1996.
2. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANY
The investment in Transmedia France consists of the following:
September 30, December 31,
1996 1996
(unaudited)
----------- -----------
Cost of investment $ 1,800,000 $ 1,800,000
Less: Share of license fee (466,667) (458,334)
----------- -----------
1,333,333 1,341,666
Share of losses (635,192) (774,013)
Amounts due from affiliate - -
----------- -----------
$ 698,141 $ 567,653
=========== ===========
Due to the provision of "put" and "call" options in the shareholders
agreement which establish a basis under which Transmedia France may
become a wholly owned subsidiary, $500,000 of the $1,000,000
sub-license fee paid to the Company by Transmedia France in 1995 has
not been recognised but instead has been deferred until such time as
these options are exercised or expire. The remaining balance of
$500,000 has also been deferred against the investment in the
Transmedia France and is being amortised over a 15 year period
commencing October 1995.
The Transmedia License requires the payment of a royalty to Network in
the event that the Company opens in another country being the greater
of $250,000 or 25% of the initial fee.
On April 19, 1996 Transmedia France completed a rights issue of shares.
Whilst the Company declined to subscribe it did acquire 15,000 shares,
in an unrelated transaction, from International Advance, Inc., a
company of which Edward J Guinan III, President of the Company, is the
principal shareholder and an officer and director, in exchange for
$300,000 and certain rights to jointly develop systems unrelated to the
business of Transmedia France. Accordingly the Company's interest was
reduced to 36%. In January 1997 the Company acquired 37,500 shares from
other shareholders in Transmedia France and in addition subscribed for
67,500 partly paid shares, increasing the Company's interest to 60%. In
January 1997 the Bank of France granted Transmedia France an
unconditional banking license, replacing its previous provisional
license.
In December 1996 the Company reached an agreement with Transmedia
France under which it will grant sub-licenses for Belgium/Luxembourg,
Spain, Italy and French speaking Switzerland for 9,250,000Ffr
(approximately $1,780,000). Network has agreed to defer the 25%
royalties due upon the completion of the agreement ($800,000 in
aggregate) with payment to be made of $250,000 as each country area is
opened, except for $50,000 for French speaking Switzerland. Under
certain circumstances the payment schedule can be accelerated.
7
10
TRANSMEDIA EUROPE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
The net amounts due from/(to) related parties consist of the following:
September 30, December 31,
1996 1996
---- ----
E Guinan III $ - $ -
International Advance Inc 20,946 308,084
Transmedia Asia Pacific, Inc. 93,300 (251,806)
------------ ------------
$ 114,246 $ 56,278
============ ============
The loans are unsecured and non interest bearing. Information regarding
the activity with respect to the amounts due from/(to) related parties
is as follows:
E Guinan III International Transmedia
------------ ------------- ----------
Advance Asia Pacific
------- ------------
Inc.
---
Balance at September 30, 1996 $ - $ 20,946 $ 93,300
Additions 80,800 146,425 21,654
Amounts charged - 140,713 86,990
Amounts collected (80,800) - (453,750)
------------ ------------ -----------
Balance at December 31, 1996 $ - $ 308,084 (251,806)
------------ ------------ -----------
4. PROPOSED MERGER
The Company entered into an Agreement and plan of Reorganization (the
'Agreement'), dated as of February 10, 1997, with Transmedia Asia
Pacific, Inc., a Delaware corporation, the Common Stock of which is
quoted on the NASDAQ Small Cap Market ('Transmedia Asia'), Transmedia
Europe Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company ('Europe Acquisition'), and Transmedia Asia
Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company ('Asia Acquisition').
Under the terms of the Agreement, among other things (i) the Company
will make a contribution to the capital of Europe Acquisition by
conveying substantially all of the Company's assets, except for its
equity interest in Transmedia La Carte Restaurant S.A. , to Europe
Acquisition; and (ii) immediately thereafter Asia Acquisition will
merge with and into Transmedia Asia pursuant to which Transmedia Asia
will be the surviving entity and become a wholly-owned subsidiary of
the Company and stockholders of Common Stock of Transmedia Asia will be
entitled to receive 0.9109 of a share of Common Stock of the Company.
5. CONTINGENT LIABILITY
The Company has not withheld any amount from Edward J Guinan III's
remuneration with respect to either U.S. or U.K. taxes. Such treatment
has been used pending resolution by Edward J Guinan III of his tax
residence. At this time there is insufficient information to assess the
potential adverse effect on the Company.
8
11
ITEM 2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The discussion and analysis of financial condition and results of operations
should be read in conjunction with the consolidated financial statements, the
related disclosures and the selected financial data.
The nature of the Company's business is such that there is a lead time before
profitable operations can be anticipated. This is demonstrated in the financial
results for the three month periods ended December 31, 1996 and 1995 and the
years ended September 30, 1996 and 1995. The success of the Company is dependent
upon increasing the number of cardholders ('Company Cardholders') of the
Company's card ('The Restaurant Card') and the number of restaurants ('Company
Participating Restaurants'), as well as obtaining increased usage of The
Restaurant Card by Company Cardholders. The Company's joint venture marketing
partners are predominantly large size organisations, with lengthy internal
procedures. Consequently, preparing campaigns for launch and the resulting
anticipated increase in Company Cardholders is taking considerably longer than
was initially anticipated. As of February 10, 1997 the Company had approximately
48,100 Company Cardholders and 460 Company Participating Restaurants.
Certain statements in this Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding future cash requirements. 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, the following: the loss of a large number of
Company Cardholders or Company Participating Restaurants; general economic and
business conditions; industry capacity; industry trends; demographic changes;
competition; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; changes in, or
the failure to comply with, government regulations; and other factors referenced
in this Report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
The Company generated revenues of $910,845 (an increase of 14% over 1995) for
the three months ended December 31, 1996. The increase in revenues is
principally due to the increased number of Company Cardholders. These grew from
approximately 19,000 at December 31, 1995 to 48,000 at December 31, 1996 largely
as a result of the 26,000 Company Cardholders produced by the MBNA campaign
since August 1996. The Company marginally decreased its number of Company
Participating Restaurants from 465 at December 31, 1995 to 420 at December 31,
1996. This decrease is attributable to the Company's policy of rationalising
Participating Restaurants with low levels of business. Membership fees for the
three months ended December 31, 1996 of $123,000 are 15% lower than for the
three months ended December 31, 1995. This decrease is as a result of a
combination of membership fees in the UK being subject to UK sales tax (VAT)
since May 1996, which the Company has borne as a cost, together with an
increased number of 20% saving Company Cardholders (no membership fee payable),
netted against an overall increase in the Cardholder base.
Cost of sales amounted to $601,907 (an increase of 13% over 1995) for the three
months ended December 31, 1996, in line with the 14% increase in revenues. Cost
of sales are approximately 50% of the gross food and beverages value consumed by
Company Cardholders and represents the recovery of the advances ('Restaurant
Credits') made by the Company to the respective Company Participating
Restaurants.
Selling, general and administrative expenses, consisting primarily of the costs
of operations, for the three months ended December 31, 1996 amounted to $998,775
representing an increase of 16% over 1995. The increase can be mainly attributed
to incremental overhead costs associated with the MBNA campaign and the
subsequent large increase in Company Cardholder numbers together with other
marketing related costs.
Transmedia France incurred losses of approximately $339,000 after revenues of
$53,000 for the three months ended December 31, 1996. The Company's share of
those losses amounted to $126,752. For the three months ended December 31, 1995
Transmedia France incurred pre-trading losses of approximately $122,480. The
Company's share of those losses amounted to $61,240.
The Company earned $3,670 for the three months ended December 31, 1996 from the
temporary investment of excess cash funds. The Company remains in a net
operating loss carry forward position for income tax purposes and no tax benefit
has been recognised for the three months ended December 31, 1996.
9
12
ITEM 2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
The Company generated revenues of $3,125,975 (a decrease of 8% over 1995) for
the year ended September 30, 1996. The decrease in revenues is principally due
to the fact that The Times of London and Sunday Times promotions in 1995 gave
rise to a high level of non repeat business which has not been fully replaced by
the revenues generated by the 1996 campaigns. The Company increased its number
of Company Cardholders from 19,000 to 43,500 at September 30, 1995 and at
September 30, 1996 respectively, largely as a result of the 17,500 Company
Cardholders produced by the MBNA campaign since August 1996. The Company
marginally decreased its number of Participating Restaurants from 460 to 440 at
September 30, 1995 and at September 30, 1996 respectively. This decrease is
attributable to the Company's policy of rationalizing Company Participating
Restaurants with low levels of business. Membership fees for the year ended
September 30, 1996 of $570,425 are 10% higher than 1995 as a result of the
increasing numbers of Company Cardholders.
Cost of sales amounted to $2,085,905 (a decrease of 8% over 1995) for the year
ended September 30, 1995, in line with the 8% decrease in revenues.Selling,
general and administrative expenses, consisting primarily of the costs of
operations, for the year ended September 30, 1996 amounted to $3,670,307
representing a decrease of 4% over 1995. The decrease can be attributed to a
cost evaluation exercise that was undertaken in June 1996 which resulted in
savings in printing and staff costs.
Transmedia France incurred losses of approximately $1,250,000 after revenues of
$156,370, for the year ended September 30, 1996, being its first year of
operations which commenced on a trial basis in April 1996. The Company's share
of those losses amounted to $509,404. For the year ended September 30, 1995
Transmedia France incurred pre-trading losses of approximately $182,624. The
Company's share of those losses amounted to $92,455.
The Company earned $8,112 for the 1996 fiscal year from the temporary investment
of excess cash funds. The Company remains in a net operating loss carry forward
position for income tax purposes and no tax benefit has been recognised for the
year ended September 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company was initially capitalised with 6,206,896 shares of Common Stock,
(after giving retroactive effect to stock dividends,) for consideration of $500.
On August 11, 1993, the Company issued 3,718,784 shares of Common Stock of which
(i) 225,000 shares were issued to Conestoga, a corporation which is related to
the Company by virtue of the majority shareholding in Conestoga held by Edward
J. Guinan III, the President, Chief Executive Officer and Director of the
Company, in consideration of costs incurred on behalf of the Company by
Conestoga, with respect to raising capital for the Company; (ii) 496,284 shares
were issued to Network, as partial consideration for the purchase of the
Transmedia License; (iii) 275,000 shares were issued to Conestoga as
reimbursement for a down payment of $275,000 made by Conestoga to Network for
the purchase of the Transmedia License; and (iv) the remaining 2,722,500 shares
were sold to private investors in a private placement at an offering price of $1
per share. In addition, the Company issued 85,000 shares of Common Stock as
consideration for services rendered in connection with the raising of capital in
the Company's private placement of shares in August 1993, of the cash proceeds
of $2,722,500, $850,000 was paid to Network for further consideration for the
purchase of the Transmedia License from the private placement of shares, leaving
a balance, after issue costs, of $1,744,623 available to the Company for use as
working capital in respect of the utilisation by the Company of its rights under
the Transmedia License.
In February 1994, the Company completed a second private placement of 700,000
shares of Common Stock at a price of $3 per share. The net proceeds of such
private placement were used as working capital in respect of the
utilisation by the Company of its rights under the Transmedia License. In
addition, the Company separately issued 10,000 shares of Common Stock as
consideration for services rendered in connection with the raising of capital in
the second private placement in February 1994.
On October 15, 1993 the Company entered into an agreement with Bostoner
International, pursuant to which Bostoner International agreed to Provide
certain consulting and financial advisory services to the Company through
December 31, 1996. Pursuant to such agreement, the Company has issued 700,000
shares of restricted Common Stock to Bostoner International.
In July 1995 the Company issued 590,857 shares of 6 1/2 % Convertible Preferred
Stock at a price of $3.50 per share. The net proceeds of $1,964,600 have been
used to finance the Company's investment in Transmedia France and to provide
working capital to existing operations.
In July 1996 the Company completed a private placement of 892,857 shares of
Common Stock at a price of $1.40 per share. The net proceeds of $1,235,000 have
been used for working capital to existing operations. In December 1996 the
Company issued, in a private placement, 556,250 shares of Common Stock at a
price of $2.00 per share together with warrants to purchase 185,417
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ITEM 2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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shares of Common Stock, which expire in December 1999 and have an exercise price
of $2.00 per share. The net proceeds of $1,097,500 are being used to provide
working capital to existing operations.
Net cash used in operating activities for the three months ended December 31,
1996 and 1995 were $326,494 and $350,012, respectively, and mainly results from
the net loss for the periods. Of these amounts $51,310 and $72,080,
respectively, represents the net cash outflow for advances to Company
Participating Restaurants. These cash outflows were funded by the 1995 issue of
6 1/2% Convertible Preferred Stock and the two 1996 issues of Common Stock.
In December 1996 Transmedia Network, Inc. and its affiliate Transmedia
International, Inc. agreed, at the Company's request, to amend the Transmedia
License. The principal revisions are that the Company is now permitted to expand
into new businesses, acquire Countdown PLC and undertake a corporate
restructuring. In consideration a $750,000 fee will be payable when, and if, the
acquisition of Countdown PLC is completed and a $250,000 fee will be payable
when, and if, a corporate restructuring is completed.
In October 1996 the Company made an investment of $134,741 to acquire a
renewable 6 month option over 50% of the share capital of National Helpline
Services Pty Limited ('NHS'). NHS is an Australian business based in Sydney
which operates an innovative telephone helpline and medical evacuation business.
Its main clients are businesses in the financial services sector who are seeking
to augment the package offered to their customers. As of December, 1996, NHS had
approximately 4 million members in Australia. Transmedia Asia Pacific, Inc.
acquired an option, on identical terms to the Company, over the remaining 50%
share capital of NHS.
The other investing activities for the three months ended December 31, 1996 and
1995 were cash flows from related parties of $57,968 and to related parties of
$131,181, respectively, of which $534,550 and $48,000, respectively, was repaid.
The Restaurant Credits are generally unsecured and are recoverable only as
Company Cardholders utilise The Restaurant Card at the respective Company
Participating Restaurant. In a small number of cases, the Company may request a
personal guarantee from the owner. Generally, no other forms of collateral or
security are obtained from restaurant owners. Recovery of Restaurant Credits as
well as generation of gross profit from operations is strongly dependent upon
the frequency of use by existing Company Cardholders of The Restaurant Card. The
Company makes provisions for irrecoverable restaurant credits.
With the exception of the commitments made to the joint venture in France and
those made under the Transmedia License as disclosed above, the Company has not
made any other significant capital commitment. The Company does not have an
immediate plan to make other significant capital commitments related to the
operation of its business in the United Kingdom.
Although the Company anticipates that its current cash, together with revenues
expected to be derived from operations, should, based upon its internal
calculations, be sufficient to fund operating, and other capital needs for the
next year, the Company will be required to seek additional financing during such
period in the event it either intends to make acquisitions or that there are
delays, cost overruns, sales declines or unanticipated expenses. While the
Company is confident that sufficient funds will be available to meet its
anticipated business expansion needs for the next year there can be no assurance
that the Company will be able to obtain such additional financing in the
remainder of fiscal year 1997.
The Company entered into an Agreement and plan of Reorganization (the
'Agreement'), dated as of February 10, 1997, with Transmedia Asia Pacific, Inc.,
a Delaware corporation, the Common Stock of which is quoted on the NASDAQ Small
Cap Market ('Transmedia Asia'), Transmedia Europe Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company ('Europe
Acquisition'), and Transmedia Asia Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company ('Asia Acquisition').
Under the terms of the Agreement, among other things (i) the Company will make a
contribution to the capital of Europe Acquisition by conveying substantially all
of the Company's assets, except for its equity interest in Transmedia La Carte
Restaurant S.A. , to Europe Acquisition; and (ii) immediately thereafter Asia
Acquisition will merge with and into Transmedia Asia pursuant to which
Transmedia Asia will be the surviving entity and become a wholly-owned
subsidiary of the Company and stockholders of Common Stock of Transmedia Asia
will be entitled to receive 0.9109 of a share of Common Stock of the Company.
The Company has not withheld any amount from Edward J. Guinan III's
remuneration with respect to either U.S. or U.K. taxes. Such treatment has
been used pending resolution by Edward J. Guinan III of his tax residence. At
this time there is insufficient information to assess the potential adverse
effect on the Company.
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially influenced
by inflation. The business of individual Company Participating Restaurants may
be seasonal depending on their location and the type of food and beverages
served. However, the Company at this time has no basis on which to project
seasonal effects, if any, to its business as a whole.
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TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
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PART II: OTHER INFORMATION
Items 1, 3, 4 and 5
Items 1, 3, 4 and 5 of Part II are either not applicable or are answered in the
negative and are omitted pursuant to the instructions to Part II.
Item 2: Recent sales of unregistered securities
In July 1996 the Company completed a non-underwritten private placement of
892,857 shares of Common Stock at a price of $1.40 per share. The net proceeds
of $1,235,000 have been used for working capital to existing operations. In
December 1996 the Company issued, in a non-underwritten private placement,
556,250 shares of Common Stock at a price of $2.00 per share together with
warrants to purchase 185,417 shares of Common Stock, which expire in December
1999 and have an exercise price of $2.00 per share. The net proceeds of
$1,097,500 are being used to provide working capital to existing operations.
With regard to both private placements, the Company has claimed an exemption
from the registration requirements of the Securities Act of 1933, as amended
('Securities Act') by relying on section 4 (2) of the Securities Act, which
allows for an exemption for transactions by an issuer not involving a public
offering, and the rules and regulations thereunder.
Exhibit and Reports on Form 8-K
a) Exhibits:
10.1 (r) Agreement and plan of reorganisation dated as of February 10,
1997 by and among Transmedia Europe, Inc., Transmedia Asia Acquisition
Corporation, Transmedia Asia Pacific, Inc. and Transmedia Europe
Acquisition Corporation
b) Reports on Form 8-K - no reports on Form 8-K were filed during quarter
ended December 31, 1996.
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TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused their Report to be signed on its behalf by the
undersigned thereunto duly authorised.
TRANSMEDIA EUROPE, INC.
By /s/ William H. Price
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William H. Price
Chief Financial Officer and
Principal Financial Officer
February 13, 1997
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