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, 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 0-24404
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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 or Organization) Identification Number)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of Principal Executive Offices) (Zip Code)
U.K. 011-44-171-930-0706
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Registrant's Telephone Number, Including Area Code
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Former Name, Address, and Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes |_| No |X|
34,867,431 Shares, $.00001 par value, as of May 19, 2000
- --------------------------------------------------------------------------------
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date)
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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December 31, September 30,
1999 1999
(Unaudited) (Audited)
----------- ----------
Assets
- ------
Current assets
Cash and cash equivalents $ 2,367,231 $ 340,511
Trade accounts receivable 423,692 441,869
Restaurant credits (net of allowance for irrecoverable
credits of $ 42,285 as of December 31, 1999 and
$ 36,449 as of September 30, 1999) 642,889 705,996
Amounts due from related parties (note 6) 2,052,722 1,095,783
Other current assets 419,513 419,108
Prepaid fees 406,000 406,000
----------- -----------
Total current assets 6,312,047 3,409,267
----------- -----------
Non current assets
Investment in affiliated company (Note 4) -- 21,269
Office and equipment, (net of accumulated
depreciation of $ 926,607 as of December 31, 1999 and
$988,807 as of September 30, 1999) 434,025 430,792
Goodwill, (net of accumulated
amortization of $ 1,413,281 as of December 31, 1999 and
$ 1,170,311 as of September 30, 1999)(note 5) 9,790,599 10,033,569
Intangible and other assets, (net of accumulated
amortization of $ 797,050 as of December 31, 1999 and
$ 763,362 as of September 30, 1999) (note 5) 1,224,233 1,257,922
Other assets 230,563 320,753
Prepaid fees 304,500 406,000
----------- -----------
Total non-current assets 11,983,920 12,470,305
----------- -----------
TOTAL ASSETS $18,295,967 $15,879,572
=========== ===========
See accompanying notes
2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
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December 31, September 30,
1999 1999
(Unaudited) (Audited)
------------ --------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Trade accounts payable $ 1,168,906 $ 1,511,409
Bank lines of credit 51,316 449,142
Deferred income 1,823,849 1,029,550
Accrued liabilities 1,962,258 2,088,184
Amount due to related parties (note 6) 2,170,324 1,138,872
Notes payable 2,495,440 3,132,425
------------ ------------
Total Current Liabilities 9,672,093 9,349,582
Non-current liabilities
Amount due to related party -- 1,302,137
Other assets 52,949 41,514
------------ ------------
Total liabilities 9,725,042 10,693,233
------------ ------------
Minority interest 1,054 389,864
Stockholders' equity
6 1/2 % Convertible preferred stock, $0.01 par value per share, 5,000,000 shares
authorized, 590,857 issued and outstanding shares as of December 31,1999
and September 30, 1999 5,909 5,909
Common stock, $0.00001 par value per share
Authorised 95,000,000 shares;
(34,809,098 issued and outstanding as of December 31, 1999
and 28,516,843 as of September 30, 1999) 348 285
Additional paid in capital 33,887,492 28,947,501
Treasury stock (at cost, 196,995 shares) (517,112) (517,112)
Cumulative foreign currency translation 224,916 155,248
adjustment
Accumulated deficit (25,031,682) (23,795,356)
------------ ------------
Total Stockholders' Equity 8,569,871 4,796,475
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,295,967 $ 15,879,572
============ ============
See accompanying notes
3
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
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Three months Three months
ended ended
December 31, December 31,
1999 1998
------------ ------------
Total revenues 3,110,162 2,720,439
Cost of revenues (1,613,056) (1,713,712)
------------ ------------
Gross profit 1,497,106 1,006,727
Selling, general and
administrative expenses (2,954,101) (1,690,308)
------------ ------------
Loss from operations (1,456,995) (683,581)
Share of profits/(losses) and amortization
goodwill of affiliated companies (164,435) (31,959)
Interest income/(expense) (7,603) (136,515)
------------ ------------
Loss before income taxes (1,629,033) (852,055)
Income taxes -- --
------------ ------------
Loss after income taxes (1,629,033) (852,055)
Minority Interest 426,312 (87,037)
Preferred share dividends (33,605) (33,605)
------------ ------------
Net loss $ (1,236,326) $ (972,697)
============ ============
Loss per common share $ (0.04) $ (0.05)
Weighted average number of common
shares outstanding 32,623,094 19,199,642
============ ============
See accompanying notes
4
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
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Three months Three months
ended ended
December 31, December 31,
1999 1998
------------ ------------
Net loss $(1,236,326) $ (972,697)
Other comprehensive income (loss)
Foreign currency translation adjustment 69,668 (86,329)
----------- -----------
Comprehensive loss $(1,166,658) $(1,059,026)
=========== ===========
5
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
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Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------ ------------------
Cash flows from Operating Activities:
- - Net loss $(1,236,326) $ (972,697)
Adjustment to reconcile net loss
to net cash used in operating activities
- - Depreciation of property and equipment 22,548 119,209
- - Amortization: Goodwill 242,970 73,827
- - Amortization: Affiliates 3,325 2,292
- - Amortization: Intangibles 33,689 30,576
- - Provision for irrecoverable restaurant credits 8,779 (92,766)
- - Share of losses of affiliates 161,110 29,667
- - Minority interests -- 87,037
- - Prepaid fees 101,500 --
Changes in assets and liabilities:
- - Trade accounts payable (342,503) (534,502)
- - Accrued liabilities (125,926) (169,484)
- - Restaurant credits 54,328 274,120
- - Other current assets (405) 87,340
- - Trade accounts receivable 18,177 140,840
- - Deferred income 794,299 63,424
- - Accrued sign-on fees -- (296,500)
- - Other non currentassets 90,190 (10,499)
- - Accrued interest 36,041 7,831
- - Non-current liabilities (290,702) 30,839
----------- -----------
Net cash used in operating activities (428,906) (1,129,446)
----------- -----------
Cash flows from investing activities:
- - Purchase of NAMA -- (100,000)
- - Purchase of Porkpine -- (25,575)
- - Purchase of property and equipment (25,781) (88,496)
----------- -----------
Net cash used in investing activities (25,781) (214,071)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of common stock 3,531,250 632,000
- - Due from/(to) related parties (170,890) 1,147,016
- - Loan from related party 100,000 --
- - Repayment of Loan Notes (636,985) (159,330)
- - Repayment of Line Credit (397,826) (207,191)
----------- -----------
Net cash provided by financing activities 2,425,549 1,412,495
----------- -----------
Effect of foreign currency on cash 55,858 (137,021)
----------- -----------
Net increase/(decrease) in cash and cash equivalents 2,026,720 (68,043)
Cash and cash equivalents at beginning of period 340,511 747,913
----------- -----------
Cash and cash equivalents at end of period $ 2,367,231 $ 679,870
=========== ===========
See accompanying notes
6
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
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SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
1. Interest and income tax cash payments during the periods presented were as
follows:
Three months ended Three months ended
December 31, 1999 December 31, 1998
------------------ ------------------
Interest $6,748 $1,762
Income Taxes -- --
2. Supplemental disclosures of non-cash investing and financing activities:
In December 1998 the Company issued 600,000 shares of its common stock to
acquire the interests of minority shareholders in Transmedia France.
In November 1999 the Company issued 1,636,005 shares of its common stock
to J. Vittoria to fully repay a loan note, together with accrued interest,
totaling $1,308,804 .
In November 1999 the Company issued 152,000 shares of its common stock to
M. Chambrello to fully repay a loan of $100,000.
7
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 1 - The Company
Transmedia Europe, Inc. ("TME" or "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 assist in 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 February
1993. On May 19, 1993 the Company acquired, pursuant to a Master License
Agreement ("License Agreement") dated December 14, 1992, as amended April 12,
and August 11, 1993 an exclusive license (the "License") to use certain
trademarks and service marks, proprietary computer software programs and
know-how of Transmedia Network, Inc. ("Network") to establish and operate a
discount restaurant charge card business in clearly defined geographical areas.
On April 7, 2000 the Company and Network executed a termination agreement
("Termination Agreement") pursuant to which the Company agreed to cancel the
License Agreement. See "Recent Developments" below. The License was limited to
the United Kingdom and France (the "Licensed Territories"). The Company
commenced operations as a discount restaurant charge card business in the United
Kingdom in January 1994 and in France in March 1996. Network was issued 496,284
shares of common stock, par value $.00001 per share ("Common Stock") of the
Company, as part consideration for the License and had the right to designate
one director to the board of directors of the Company, which right was not
exercised. Additionally, under the License Agreement certain changes in key
executives and principal shareholdings in the Company required the prior written
approval of Network.
The Company has worked closely with Transmedia Asia Pacific, Inc. ("TMAP") for a
number of years. TMAP acquired a similar license to that of the Company to
operate a discount restaurant charge card business in Asia and other Pacific Rim
countries. TMAP commenced operations in Sydney, Australia in November 1994. TMAP
also executed the Termination Agreement on April 7, 2000.
Through 1996 the Company operated solely a discount restaurant charge card
business in the United Kingdom through its wholly owned subsidiary Transmedia UK
PLC. In late 1996 management identified the need to expand the Company's
operations to become a broader based "member benefits" provider, believing that
the Company needed a range of benefits to offer its corporate clients and
individual members, in addition to discount dining. Such benefits included
discount shopping, travel, hotel accommodation and telephone helpline services.
TMAP made a similar strategic decision. As a result the Company and TMAP jointly
acquired in April 1997 Countdown Holdings Limited ("Countdown"), an
international provider of membership based discount shopping and services. In
December 1997 the Company and TMAP acquired control of NHS Australia Pty Limited
("NHS"), through Transmedia Australia Holdings Pty Limited ("Transmedia
Australia"). 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 tickets, vacation
packages, insurance and provides international medical case management and
repatriation services to a number of insurance companies.
8
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 1 - The Company (continued)
On May 14, 1998 the Company and TMAP jointly acquired Porkpine Limited
("Porkpine"). Porkpine trades as Logan Leisure, a business which produces and
sells discount shopping and services directories in Ireland. On May 22, 1998 the
Company and TMAP 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.
In July 1998 the Company and TMAP jointly established Countdown USA, Inc.
("Countdown USA") to offer member benefits in the United States and in November
1998 Countdown USA acquired the membership base and certain assets of National
Association of Mature Americans, Inc. ("NAMA"), a provider primarily of
discounted mail order and retail pharmacy products. On November 17, 1998,
Transmedia Australia acquired the balance of 49% of the shares of common stock
of NHS. In November 1998 Countdown launched an internet shopping web-site,
Countdown-Arcade. Finally, on June 15, 1999 the Company and TMAP jointly
acquired DSS Direct Connect, L.L.C. ("DBS Direct") a marketer and full-service
installer of DirecTV.
Recent Developments
In light of the close collaboration between the Company and TMAP since
incorporation and, more particularly, in view of their joint ownership of
Countdown, DBS Direct, Countdown USA, Logan Leisure, NHS, and Breakaway Travel,
management of the Company and TMAP assessed the rationale for a merger of the
two entities. Management believed that keeping the two companies distinct and
separate is not appropriate or advantageous to shareholders and therefore on
December 28, 1999 they executed a definitive merger agreement ("Merger
Agreement"). Under the terms of the Merger Agreement, TMAP will issue on share
of its common stock for each share of Common Stock of the Company. The merger,
which is expected to be completed in the third quarter of 2000, is subject to a
number of conditions, including shareholder approval. The Company and TMAP each
established independent committees to determine the fairness of the proposed
transaction from a financial point of view.
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License 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 a non-interest
bearing promissory note in default in the sum of $750,000 and forgiveness of
past due royalty payments under the License Agreement in the sum of
approximately $170,000. The Termination Agreement provides for a transition
period through June 30, 2000 during which period the Company will transfer its
restaurant cardholder and participating restaurant bases to a new
discount-dining product. The Company believes that termination of the License
Agreement is in the best interests of the Company because the License Agreement
was 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 received no
benefit from the systems and software provided under the License Agreement for
the conduct of its day-to-day operations. The Company derived direct financial
benefit from the Termination Agreement.
9
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
As of December 31, 1999, Transmedia Europe, Inc., had the following equity
interests in its direct subsidiaries and affiliates:
Country of % Owned
Name Incorporation
Subsidiaries:
Transmedia UK plc United Kingdom 100
Countdown Holdings Limited United Kingdom 50
Porkpine Limited Channel Islands 50
Countdown USA, Inc. United States 50
DBS Direct Connect LLC United States 50
Affiliates:
Transmedia Australia Holdings Pty Ltd Australia 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
All references herein to "Company" and "TME" include Transmedia Europe, Inc. and
its subsidiaries unless otherwise indicated.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, the statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of December 31, 1999, the results of
operations for the three months ended December 31, 1999 and 1998 and the changes
in cash flows for the three months ended December 31, 1999 and 1998. The results
of operations for the three months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
The September 30, 1999 balance sheet has been derived from the audited
consolidated financial statements as of that date included in the Company's
annual report on Form 10-K. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K.
Although the Company has significant influence over the operating and financial
decisions of its affiliates, the Company does not have effective control over
their operations and therefore they are accounted for under the equity method.
10
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 3 - Significant accounting policies
(a) Principles of consolidation
The consolidated unaudited financial statements include the
financial statements of the Company and its subsidiaries and
affiliates, including 50% held subsidiaries where effective control
is exercised by the Company over the financial and operational
decisions of the subsidiary. All significant 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 food and beverage credits,
less the amount by which these food and beverage credits are
recouped by the Company as a result of cardholders utilizing their
cards at participating restaurants. The amount by which such food
and beverage credits are recouped amounts to approximately 50% of
the retail value of food and beverage 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 utilized by cardholders.
The amount of funds advanced to participating restaurants are
generally unsecured and are recoverable as cardholders use their
restaurant charge card at such restaurants. In certain cases the
Company may request a personal guarantee from the owner of a
restaurant as surety for advances made. Generally no other forms of
collateral or security are obtained from 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.
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the
Transmedia License paid to Network in cash plus the fair value of
shares of Common Stock granted in exchange for the Transmedia
License to operate in the licensed territories using the systems,
procedures and 'know how' of the Transmedia business. As of December
31, 1999 the license cost was being amortized on a straight-line
basis over its estimated useful life of 15 years from the
commencement of operations in December 1993.
11
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - 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 of between three and five 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 recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Accordingly, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation
allowance is established to reduce the deferred tax assets when
management determines it is more likely than not that the related
tax benefits will not be realized.
(h) Cash equivalents
For purposes of the statements of cash flows, the Company considers
all investments with an original maturity of three months or less to
be a cash equivalent.
(i) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, notes payable, restaurant credits and amounts due
from/to related parties and approximated fair value as of December
31 and September 30, 1999 due to either short maturity or terms
similar to those available to similar companies in the open market.
12
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(j) Revenue recognition
Revenues and fees comprise:
i) the retail value of food and beverages purchased from
participating restaurants by the Company's Transmedia
cardholders (less the cardholders' 20% or 25% discount) and
cardholders' membership fees.
ii) Countdown cardholders' membership fees and Countdown voucher
sales.
iii) Countdown license fees from licenses.
iv) Porkpine cardholders' membership fees and voucher sales.
v) Countdown USA membership fees.
vi) DBS Direct revenue from the sale of DirecTV equipment and
installation charges and subscriber activation commissions.
Transmedia card membership fees are recognized as revenue in equal
monthly installments over the membership period. All other
components of revenue, including other membership fees and Countdown
license fees are non-refundable and recognized as revenue when the
related services have been performed.
(k) Foreign currencies
The reporting currency of the Company is the United States dollar.
The functional currencies of the Company's operating subsidiaries
and affiliates are UK pound sterling, United States dollar, Irish
punt and the Australian dollar. The UK pound sterling (Countdown and
Transmedia UK), United States dollar (Countdown USA and DBS Direct)
and Irish punt (Porkpine) are the functional currencies of the
Company's member benefits/loyalty marketing businesses because it is
the primary currency of the environments in which the businesses
operate as autonomous units. All cash generated and expended by
these businesses is in those currencies. For the same reasons the
functional currency of the company's interests in Transmedia
Australia and Breakaway is the Australian dollar because those
businesses are located, and primarily operate in Australia.
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.
13
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(k) Foreign currencies (continued)
The average exchange rates during the three months ended December
31, 1999 and 1998 and the exchange rates in effect at December 31,
1999 and September 30, 1999 were as follows:
UK Pound
Sterling Australian Irish
(pound) Dollar Punt
Average exchange rates:
- -----------------------
3 months ended December 31, 1999 1.6297 0.6528 1.2378
3 months ended December 31, 1998 1.6757 0.6434 1.4969
Closing exchange rate:
- ----------------------
December 31, 1999 1.6153 0.6570 1.2641
September 30, 1999 1.6463 0.6528 1.2183
(l) Comprehensive income
The Company adopted Statement of Financial Accounting Standard
("SFAS") No.130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income (loss),
its components and accumulated balances. Comprehensive income (loss)
is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No.130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income (loss) be reported in a financial statement
that is displayed with the same prominence as other financial
statements. The only item of comprehensive income (loss) is foreign
currency translation adjustments.
(m) Recent accounting pronouncements not yet implemented
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No.133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes standards for accounting for
the various derivative instruments commonly used in hedging
activities. This standard is now effective for fiscal years
beginning after June 15, 2000. While management is still reviewing
the statement, it believes the adoption of this statement will not
have a material effect on the Company's consolidated financial
position, results of operations or cash flows, and any effect will
generally be limited to the form and content of its disclosures.
14
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Investment in Affiliated Companies
Investment in affiliated company comprises the Company's interest in Transmedia
Australia Holdings and Transmedia Ausralia Travel Holdings, which are made up as
follows:
December 31, September 30,
1999 1999
Transmedia Australia Holdings
- -----------------------------
Cost of investment $ 253,349 $ 253,349
Share of losses
- From acquisition date to September 30, 1999 (249,800) (249,800)
- Three months ended December 31, 1999 (119,371) --
- Amortization of goodwill on investment (19,490) (17,145)
--------- ---------
(135,312) (13,596)
Amount due to the Company 135,312 --
--------- ---------
$ -- $ (13,596)
========= =========
Transmedia Australia Travel Holdings
- ------------------------------------
Cost of investment $ 126,748 $ 126,748
Share of losses
- From acquisition date to September 30, 1999 (86,556) (86,556)
- Three months ended December 31, 1999 (41,739) --
- Amortization of goodwill on investment (6,307) (5,327)
--------- ---------
(7,854) 34,865
Amounts due to the Company 7,854 --
--------- ---------
$ -- $ 34,865
========= =========
Total investment in Affiliated Companies $ -- $ 21,269
========= =========
15
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5 - Goodwill and Other Intangible Assets
Goodwill is made up as follows:
December 31 September 30
1999 1999
Acquisition of Countdown $ 3,560,591 $ 3,560,591
Acquisition of Porkpine 894,603 894,603
Acquisition of DBS 6,748,686 6,748,686
------------ ------------
Total 11,203,880 11,203,880
Less: accumulated amortization (1,413,281) (1,170,311)
------------ ------------
$ 9,790,599 $ 10,033,569
============ ============
Intangible assets are made up as follows:
December 31 September 30
1999 1999
Cost of Transmedia License 1,621,284 1,621,284
Acquisition of NAMA 400,000 400,000
------------ ------------
2,021,284 2,021,284
Less: accumulated amortization (797,051) (763,362)
------------ ------------
$ 1,224,234 $ 1,257,922
Total ============ ============
16
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Related Parties
Amounts due from related parties comprise the following:
December 31 September 30
1999 1999
Related Party:
Transmedia Asia Pacific, Inc. -- 794,496
Transmedia Australia Holdings 1,706,158 --
E Guinan III 346,564 301,287
---------- ----------
Total $2,052,722 $1,905,783
---------- ----------
Amounts due to related parties comprise the following:
December 31 September 30
1999 1999
Related Party:
NHS -- 22,665
TMNI 1,136,288 1,116,207
Transmedia Asia Pacific 1,034,036 --
J. Vittoria -- --
---------- ----------
Total $2,170,324 $1,138,872
---------- ----------
Note 7 - Notes Payable
On April 29, 1998 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 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 warrant to
purchase 41,660 shares of Common Stock at an exercise price of $2.00 per share
(the market price of the Company's Common Stock on the date of grant) 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.
17
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7 - Notes Payable (continued)
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 warrants issued to the four promissory note holders to $1.00 per share.
The Company has now repaid all the promissory notes in full, together with
accrued interest.
On July 2, 1998 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 of 1933, as amended, and Regulation D
promulgated thereunder. The placement consisted of a $3,125,000 face amount, 8%
promissory note ("Note") payable on January 5, 1999 and resulted in net proceeds
to the Company of $2,926,588 after deduction of arrangement fees. The Note was
secured by a pledge of 2 million shares of the common stock of TMAP ("Security
Shares") held by Edward J. Guinan III, then Chairman of the Board and Chief
Executive Officer of the Company. Additionally, the note holder received a
warrant to purchase 600,000 shares of Common Stock at an exercise price of $2.00
per share. The warrant was exercisable at anytime from July 6, 1998 through July
6, 2001. The Company failed to pay the Note on the due date. The Company was in
discussions with the note holder through September 1999 to agree extensions of
time to repay the Note. In consideration for extending the time available to the
Company to repay the Note, on September 15, 1999 the Company agreed to replace
the warrant issued to the note holder with a new warrant to purchase 700,000
shares of Common Stock at an exercise price of $1.00 per share. The warrant was
exercisable at anytime from September 15, 1999 through September 30, 2002.
Through September 1999 the Company made repayments totaling $1,050,000. In
November 1999 the note holder commenced sales of the Security Shares realizing
net proceeds of $2,100,230. The Company has now repaid the balance of the Note
in full together with accrued interest.
On November 16, 1998, TMAP and FAI General Insurance, a shareholder of the
Company, executed a One Year Secured Promissory Note ("Promissory Note") in the
principal sum of $3.4 million. 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 the
Company. The Promissory Note holder received a three-year warrant to purchase 1
million shares of the common stock of TMAP at an exercise price of $1.00 per
share. In addition, TMAP 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
the Company. Such warrants were exchanged by the Company for a new warrant on
the same terms as those of TMAP. The Note was repayable on November 16, 1999.
Interest was paid to November 15, 1999 and $400,000 of principal was repaid in
November 1999. On November 30, 1999 the Note holder and TMAP executed a new note
representing the balance of principal of $3 million. The new note was payable on
February 15, 2000, together with accrued interest at the rate of 10% per annum.
The new note was secured by a charge over Transmedia Australia and was
guaranteed by the Company. The new note has now been repaid in full, together
with accrued interest.
18
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7 - Notes Payable (continued)
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 Countdown acquisition purchase
consideration. The loan, which was bearing interest at 12% per annum and was
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. On November 1, 1999, Mr. Vittoria agreed to convert the
principal of the loan, together with accrued interest in the sum of $308,804, to
shares of common stock at a price of $0.80 per share. Accordingly Mr. Vittoria
received 1,636,005 shares of common stock in full satisfaction of the principal
of the loan and accrued interest.
On October 25, 1999, Mr. M. Chambrello advanced a short term loan to the Company
in the sum of $100,000. The loan was used to meet the short term cash needs of
the Company. On November 1, 1999 Mr. Chambrello agreed to convert the loan into
shares of common stock at $0.80 per share. Accordingly, 125,000 shares of common
stock were issued to Mr. Chambrello.
Note 8 - Stockholders Equity
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. See Note 17 -
Subsequent Events. On January 25, 1999 the Company commenced a private placement
of shares of its Common Stock 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 of shares of its
Common Stock 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 $.75 per share resulting in net proceeds to the
Company of $2,250,000
On August 11, 1999 the Company commenced a private placement of shares of its
Common Stock 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 $.75 per share resulting in net proceeds to the
Company of $125,000.
On September 30, 1999 the Company commenced a private placement of shares of its
Common Stock 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 $.65 per share resulting in net proceeds to the
Company of $406,250.
On October 21, 1999 the Company commenced a private placement of shares of its
Common Stock 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 $.80 per share resulting in net proceeds to the
Company of $3,125,000. The net proceeds were applied to working capital.
19
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9 - Loss per common share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" in fiscal 1998. SFAS 128 requires restatement of prior
periods. Assumed exercise of warrants is not included in the calculation of
diluted loss per share since the effect would be anti-dilutive. Accordingly,
basic and diluted loss per share do not differ for any period presented. The
following table summarizes securities that were outstanding at December 31, 1998
and 1997 but not included in the calculation of diluted loss per share because
such shares are anti-dilutive.
December 31 December 31
1999 1998
Stock options and warrants 11,573,843 4,316,343
20
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in four lines of
business: member benefits/loyalty programs, travel services, direct marketing
and e-commerce, with the latter being insignificant in the quarters ended
December 31, 1998 and 1997. Operations of the Company's subsidiaries are
conducted in Europe and the United States. 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
December 31, December 31,
1999 1998
(a) Statement of operations
Revenues
Member benefits/loyalty programs $ 2,468,620 $ 2,720,439
Direct marketing 641,542 --
----------- -----------
Revenues for reportable segments
and consolidated revenues 3,110,162 2,720,439
----------- -----------
Operating (loss)/profit
Member benefits/loyalty programs 169,563 (69,580)
Direct marketing (855,672) --
Corporate overhead (770,886) (614,001)
----------- -----------
Total operating loss for reportable segments (1,456,995) (683,581)
----------- -----------
Share of affiliate (losses)/profits
Member benefits/loyalty programs (121,716) 46,082
Travel services (42,719) (78,041)
----------- -----------
(164,435) (31,959)
----------- -----------
Net interest expense (7,603) (136,515)
----------- -----------
Loss before taxation and minority interests $(1,629,033) $ (852,055)
=========== ===========
21
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10 - Industry and geographic area segments (continued)
December 31, December 31,
1999 1998
Geographic region
Europe 2,419,852 2,703,283
United States of America 690,310 17,156
------------ -----------
$ 3,110,162 $ 2,720,439
------------ -----------
Net loss before taxation, minority interests
And dividends
Europe (242,804) (263,485)
United States of America (1,221,794) (556,611)
Australia (164,435) (31,959)
------------ -----------
$ (1,629,033) $ (852,055)
------------ -----------
December 31, September 30,
1999 1999
Long-lived assets
Europe 3,611,943 3,940,570
United States of America 8,371,977 8,508,466
Australia -- 21,269
------------ -----------
$ 11,983,920 $12,470,305
------------ -----------
(b) Total assets
Member benefits/loyalty programs $ 8,393,455 $ 7,682,655
Direct marketing 7,040,212 8,175,648
Investment in affiliates -- 21,269
Unallocated 2,862,300 --
------------ -----------
$ 18,295,967 $15,879,572
============ ===========
22
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11 - Subsequent Events
Transmedia Network License Termination
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel 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 a non-interest
bearing promissory note in default in the sum of $750,000 and forgiveness of
past due royalty payments under the License Agreement in the sum of
approximately $170,000. See "Note 1 - The Company - Recent Developments".
23
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described below and those presented elsewhere by management
from time to time. When used in this Quarterly Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
General
Historically, the business of the Company was the design and supply of a range
of member-benefit programs to corporations, affinity groups and individuals. In
1996 the Company and TMAP 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 Europe,
the United States and elsewhere through Countdown, Countdown USA, DBS Direct and
Logan Leisure. Additionally, through its affiliates Transmedia Australia and
Transmedia Holdings, it has an interest in businesses in Australia.
The business of the Company 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. Direct marketing through DBS Direct, and
4. Travel services through its affiliates.
The future success of the Company is primarily dependent upon its ability to
implement its strategy to leverage its existing assets to develop and expand its
Internet activities and generate additional revenues from its member and
merchant bases. In its member benefits/loyalty marketing, the Company has
recently focused its sales effort as a loyalty and affinity marketing service to
corporate clients. Management will continue to build the Company's membership
base and broaden the range of member-benefit programs offered. As of the date
hereof, management is actively recruiting senior sales, marketing and other
executives to strengthen the management team to facilitate such development and
expansion. The Company will continue to look for new opportunities within the
member benefits/loyalty marketing industry and may expand its operations through
further acquisitions.
24
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
Countdown licensees. The Company will continue to develop and expand its
e-commerce and internet services activities primarily through strategic
alliances.
In the United States the Company intends to aggressively develop its Countdown
USA and DBS Direct businesses 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 services in the United States
marketplace.
In light of the close collaboration between the Company and TMAP in recent years
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 TMAP have executed a Merger Agreement, subject to shareholder
approval. The proposed merger is also subject to fairness opinions by
independent investment advisers.
Post completion of the merger, the Company aims to become a leading global
provider of customized loyalty programs and services to corporations worldwide,
providing superior "business-to-consumer" solutions for businesses. The
Company's objective is to package online commerce and Internet content with
traditional offline commerce into a web-based and real world affinity solution
for corporations and associations. For members, online offerings will include
Internet access (free in some jurisdictions), a customized multi-media portal,
targeted e-commerce and global directory services. The Company's (including its
affiliates) offline content is currently available in 28 countries and includes
a wide range of products and services such as discount shopping, discount
dining, travel and telephone helpline services.
Results of Operations
Three Months ended December 31, 1999 compared to Three Months ended December 31,
1998
The Company generated revenues of $3,110,162 (1998: $2,720,439) in the three
months ended December 31, 1999, an increase of $389,723 or 14.3% over the
corresponding period in 1998. Countdown recorded a year on year decrease in
revenues of $234,639 and the restaurant charge card business a decline of
$112,849. Such decreases were partially off-set by Logan Leisure ($96,391),
Countdown USA ($31,612) and DBS Direct, which was acquired in June 1999
($641,542). Additionally, Transmedia France, which ceased operations in December
1998, accounted for a decrease in revenues of $32,334.
Cost of revenues totaled $1,613,056 (1998: $1,713,712) for the three months
ended December 31, 1999, generating a gross profit percentage of 48.1% (1998:
37.0%).
Selling, general and administrative expenses totaled $2,954,101 (1998:
$1,690,308) for the three months ended December 31, 1999, an increase of
$1,263,793 or 74.8% over the corresponding period in 1998. Excluding the impact
of DBS Direct ($1,107,018) and Transmedia France $273,904, selling, general and
administrative expenses for the three months ended December 31, 1999 increased
by $430,679 as compared to the corresponding period in 1998. Of such increase
Countdown accounted for $108,284, the restaurant card business $14,932, Logan
Leisure $21,144, Countdown USA $52,161 and head office expenses $234,158. The
year on year increase at Countdown was due primarily to increased payroll costs.
The year-on-year increase head office expenses was primarily due to increased
professional fees and amortization of goodwill relating to the acquisition of
DBS Direct.
25
The Company's share of profits/(losses) of its affiliates Transmedia Australia
and Transmedia Holdings, including amortization of underlying goodwill, were
$(121,716) and $(42,719) respectively for the three months ended December 31,
1999 (1998: $61,921 and 25,675).
The minority interests in the Company comprised third party shareholdings in
Transmedia France and TMAP's interest in Countdown, Porkpine, Countdown USA and
DBS Direct.
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:
Three Months Ended
------------------
December 31, 1999 December 31, 1998
Cash used in
Operating Activities $ (428,906) $(1,129,446)
Cash used in
Investing activities $ (25,781) $ (214,071)
Cash provided by financing
Activities $ 2,425,549 $ 1,412,495
The Company recorded a net loss of $1,236,326 for the three months ended
December 31, 1999. Such loss, adjusted for non-cash items, namely depreciation
and amortization charges totaling $302,532, the Company's share of losses of
affiliates of $161,110, prepaid fees $101,500 and a release of provision for bad
debts of $8,779 resulted in funds used in operating activities totaling
$428,906, net of working capital movements.
Net cash used in investing activities of $25,781 comprised the Company's
investment in fixed assets in the quarter ended December 31, 1999. In the
corresponding period in 1998 net cash used in investing activities comprised the
Company's investments in Porkpine ($25,575) and NAMA ($100,000) as well as an
investment of $88,496 in fixed assets.
To meet its cash requirements during the quarter ended December 31, 1999, the
Company sold in aggregate 4,531,250 shares of its common stock in an equity
private placement, resulting in net proceeds to the Company of $3,531,250. Cash
provided by financing activities was partially off-set by repayment of loan
notes $636,985, a reduction in bank credit lines of $397,826 and payments to
related parties of $170,890.
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the single product offered, the Transmedia dining card.
However, in recent years the Company and TME have worked closely to implement a
strategy to create a broader based international business. As a result the
Company currently has established business operations in Europe and the United
States and through its affiliates, has an interest in business operations in
Australia. Management believes that after completion of the proposed merger with
TMAP, the Company and TMAP will be well positioned to achieve profitability in
the medium term.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the three months ended December 31, 1999, a situation which is
expected to continue for the foreseeable future. The business of individual
Participating Restaurants may be seasonal depending on their location and the
types of food and beverage sold. However, the Company has no basis at this time
on which to project the seasonal effects, if any, on its business as a whole.
26
Year 2000 disclosure issues
The Company has considered the guidance of the Statement of the Commission
regarding disclosure of Year 2000 issues for public companies (Release No.
33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues was
made in the Company's annual report on Form 10-K for the year ending September
30, 1999.
27
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On September 29, 1999 NAMA of Texas filed a civil action against the Company,
TMAP and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of
NAMA, a business acquired by the Company and TMAP 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, TMAP and Countdown USA believe that the claims of
NAMA of Texas are unfounded and that they have meritorious defenses against such
claims. The Company, TMAP and Countdown USA filed their original answer on
November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal
Court. The Federal Court ordered an initial pre-trial conference for May 18,
2000. At the pre-trial conference the Judge dismissed the case against the
Company and TME with the condition that should Countdown USA ultimately lose the
case and is not capable of paying any judgment against it, then the Company and
TME could be enjoined again.
The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief
Executive Officer, with respect to amounts which the Company claims Mr. Guinan
owes to the Company and with respect to amounts which Mr. Guinan claims are owed
to him by the Company. Mr. Guinan's employment agreement was terminated for
cause on September 30, 2000 and the Company considers the employment agreement
to no longer be effective. Mr. Guinan's attorneys recently have challenged this
position and have also asserted claims for various advances which Mr. Guinan
asserts were made on behalf of the Company and for which he claims to be
entitled to reimbursement. No legal action has been commenced by the Company or
Mr. Guinan. At this time it cannot be determined when and if this dispute can be
resolved or what the net amount, if any, which Mr. Guinan owes to the Company or
the Company owes to Mr. Guinan.
The Company is engaged in a dispute with Carl Freyer, a former director and
consultant to the Company. Mr. Freyer claims that an agreement was reached in
December 1999 pursuant to which he, or his affiliate was granted warrants plus
cash payments in lieu of prior compensation arrangements. The Company asserts
that there is no such valid agreement and that the only rights of Mr. Freyer, or
his affiliate, relate to the Company's obligation to submit for shareholder
approval, warrants previously granted covering 300,000 shares exercisable at
$1.00 per share. At this time no litigation has been commenced.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 2. Change in Securities and Use of Proceeds
On September 30, 1999 the Company commenced a private placement of shares of its
Common Stock 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 $.65 per share resulting in net proceeds to the
Company of $406,250. The net proceeds were applied to working capital.
On October 21, 1999 the Company commenced a private placement of shares of its
Common Stock 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 $.80 per share resulting in net proceeds to the
Company of $3,125,000. The net proceeds were applied to debt repayment and
working capital.
28
ITEM 3. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMEDIA EUROPE, INC.
By: /s/ Grant White
- -------------------
Chief Executive Officer.
29