FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|X| OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM______________TO_________________
COMMISSION FILE NUMBER 0-24404
TRANSMEDIA EUROPE, INC.
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(exact name of registrant as specified in its charter)
Delaware 13-3701141
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(State or other jurisdiction of (I.R.S.
incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of principal executive offices)
Registrant's telephone number, including area code: U.K. 011-44-171-930-0706
Securities registered pursuant to Section 12(b) of the Act
Common Stock, par value $.00001 per share
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(Title of class)
Indicate by (X) whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days
Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of July 21, 1999 was $14,523,389 based upon the closing price of
a share of Common Stock on OTC Electronic Bulletin Board on that date.
Number of shares outstanding of the Registrant's Common Stock
as of July 21, 1999 was 28,350,177
Documents incorporated by reference: None
Transmedia Europe, Inc.
Form 10-K for the year ended September 30, 1998
Index
Page
PART I
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 33
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
Signatures 35
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This Annual Report on Form 10-K and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described below and those presented elsewhere by management
from time to time. When used in this Annual Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
ITEM 1. BUSINESS.
History
Transmedia Europe, Inc. ("TME" or "the Company") was incorporated under the laws
of the state of Delaware in February 1993. On May 19, 1993 the Company acquired,
from Conestoga Partners, Inc. ("Conestoga"), the rights Conestoga had previously
acquired from Transmedia Network, Inc. ("Network") an independent company which,
through its affiliate TMNI International Inc., ("TMNI"), is a shareholder of the
Company. The rights acquired, pursuant to a Master License Agreement ("License
Agreement") dated December 14, 1992, as amended April 12, and August 11, 1993
were an exclusive license (the "License") to use certain trademarks and service
marks, proprietary computer software programs and know-how of Network to
establish and operate a discount restaurant charge card business in
substantially all countries of Europe, Turkey and other countries outside of
Europe that were formerly part of the Union of Soviet Socialist Republics (the
"Licensed Territories").
The Company commenced business operations in the United Kingdom in January 1994
and in France in March 1996. TMAP commenced operations in Sydney, Australia in
November 1994.
Network, from whose affiliate, TMNI, the License was granted and on whose
business the Company's restaurant charge card operations are modeled, is a
publicly traded company operating in the United States both directly and
indirectly through licensees and franchisees. Pursuant to the terms of the
License the Company is authorized to engage in the restaurant charge card
business within the Licensed Territories in the same manner that Network
operates in the United States. Under the License Agreement the Company must pay
royalties to Network and certain changes in key executives and principal
shareholdings in the Company require the prior written approval of Network. The
Company's restaurant cardholders and cardholders of Network and its franchisees
can use the restaurant card in all territories covered by the Company, Network
and its franchisees. The Company realizes all financial benefits from restaurant
card usage within the Licensed Territories but no financial benefit from usage
outside the Licensed Territories.
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 has
the right to designate one director to the Board of Directors of the Company. To
date Network has not exercised its right to designate a director.
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The Company has worked closely with Transmedia Asia Pacific, Inc. ("TMAP") since
inception. The Company and TMAP have the same directors and officers. For an
initial period post incorporation they also shared common shareholders but now
have certain shareholders in common. Edward J. Guinan III is Chairman and Chief
Executive Officer of the Company and TMAP, as well as a principal shareholder in
each. 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.
Through 1996 the Company operated a discount restaurant charge card business in
the United Kingdom through its wholly owned subsidiary Transmedia UK Limited. 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. At the
same time TMAP made a similar strategic decision and as a result the Company and
TMAP decided to work together in expanding their business operations. In April
1997 they jointly acquired Countdown Holdings Limited ("Countdown"), an
international provider of membership based discount shopping services. See
"Countdown". In December 1997 Transmedia Australia Holdings Pty Limited
("Transmedia Australia"), a company owned jointly by the Company and TMAP,
jointly purchased 51% of the shares of common stock of NHS Australia Pty Limited
("NHS"). NHS purchased the net assets and 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. See
"Nationwide Helpline Services".
The close collaboration between the Company and TMAP has continued and on May
14, 1998 they jointly acquired Logan Leisure, a business which produces and
sells discount shopping and services directories. See "Logan Leisure". On May
22, 1998 the Company and TMAP jointly acquired Breakaway Travel Club Pty Limited
("Breakaway"). Breakaway, which is based in Sydney Australia, is a licensed
travel agent specializing in discount packaged vacations for individuals
employed in the travel industry in Australia. See "Breakaway". On June 15, 1999
the Company and TMAP jointly acquired DSS Direct Connect, L.L.C. a marketer and
full-service installer of DirecTV. See "DBS Direct"
In light of the close collaboration between the Company and TMAP since
incorporation and, more particularly, in view of the joint ownership of
Countdown, NHS, Logan Leisure and Breakaway Travel, management of the Company
and TMAP have been assessing the rationale for maintaining two separate
corporate entities. Management believes that keeping the two companies distinct
and separate is no longer appropriate or advantageous to shareholders and
therefore announced its intention to pursue a merger of the two companies. In
concluding that a merger is in the best interests of both the Company and TMAP,
management considered several factors including the confusion of having two
separate stock quotes for essentially the same business (operating in different
geographical regions), the opportunity to reduce corporate overhead and to
increase operating efficiency. The proposed merger is subject to approval by the
respective Boards of Directors of the Company and TMAP, fairness opinions by
independent investment advisers and the approval of shareholders of both
companies.
Transmedia Restaurant Charge Card
The restaurant charge card business operates under the rights acquired pursuant
to the License Agreement with TMNI. As of September 30, 1998, the Company had
approximately 175 (1997:
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274) Company Participating Restaurants and approximately 29,048 (1997: 36,800)
Cardholders in the United Kingdom. In addition to operating in the UK, the
Company also operated a restaurant card business in France through December 31,
1998. See "Transmedia France".
The restaurant card is a charge card used by a cardholder in lieu of a major
credit card to pay for purchases at participating restaurants. Using the
restaurant card for such purchases entitles the cardholder to a 25% discount on
the food and beverage element of purchases made at participating restaurants
(i.e. the total purchase price excluding taxes and service). The restaurant card
charges are collected from a major credit card nominated by the cardholder when
the restaurant card is first issued.
The restaurant charge card business operates as follows:
o The Company identifies restaurants suitable to participate in the program
and negotiates an agreement pursuant to which they agree to become
participating restaurants ("Participating Restaurants").
o The Company advances cash ("Restaurant Credits") to such Participating
Restaurants.
o An individual becomes a cardholder ("Cardholder") by completing an
application at which time they nominate a major credit card through which
charges incurred against the restaurant charge card will be recovered.
o Restaurant Credits entitle the Company to food and beverage at twice the
value of the Restaurant Credit referred to as "Food and Beverage Credits".
In effect the Company purchases food and beverage in advance at a 50%
discount for its cardholders.
o The Company recovers Food and Beverage Credits when food and beverage is
purchased at full retail value at Participating Restaurants by Cardholders
using their restaurant card.
o As food and beverage is purchased by Cardholders the Food and Beverage
Credits outstanding are reduced by the retail value of such purchases and
the Restaurant Credits outstanding are reduced by one-half of such Food
and Beverage Credits used. The Company recovers the total value of the
purchase made from the Cardholder's major credit card.
o The Company pays over to the Participating Restaurant the tax and service
elements of the total purchase.
o The Cardholder receives a credit equal to 25% of the value of the food and
beverage purchased.
o The Company retains the balance.
o The Company pays a royalty of 2% of Food and Beverage Credits used to
Network and 1.3875% of Food and Beverage Credits used as sales
commissions.
o The total charge is listed on the cardholder's major credit card statement
along with a separate credit equal to 25% of the value of food and
beverage purchased at the Participating Restaurant.
o The Company maintains a current record of the amount of Food and Beverage
Credits outstanding at each Participating Restaurant.
The following is an illustration of a hypothetical transaction by a Cardholder
at a Participating Restaurant.
A commissioned sales representative, recruits Restaurant A (a full service
restaurant operating in London) as a Participating Restaurant. The Company
advances 3,000 pounds sterling to Restaurant A in Restaurant Credits. This
advance entitles the Company to collect the proceeds from the sale of 6,000
pounds sterling of food and beverage purchased by cardholders using their
restaurant cards at Restaurant A. John Smith, a Cardholder, purchases a meal at
Restaurant A and pays the 100 pounds sterling check (consisting of 80 pounds
sterling for food and beverage and 20 pounds sterling in taxes and tip) using
his Restaurant Card. Mr Smith presents his Restaurant
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Card which is accepted by Restaurant A. Restaurant A delivers the Restaurant
Card receipt for Mr Smith's meal to the Company for processing. The Company
recovers the 100 pounds sterling value of the purchase from Mr. Smith's
nominated major credit card.
The allocation of the hypothetical 100 pounds sterling check can be summarized
as follows:
Name Amount Explanation of Allocation
(pounds sterling)
Mr. Smith 20.00 25% of food and beverage element of check
Restaurant A 20.00 Tip and taxes element of check
TMNI 1.60 2% royalty fee
Company 58.40 100 pounds sterling net of above payments
The Company will use 40 pounds sterling of its net proceeds to reduce the value
of the Restaurant Credit at Restaurant A (i.e. 50% of 100 pounds sterling less
20 pounds sterling tip and taxes). The balance of 18.40 pounds sterling is
retained by the Company as gross profit. In addition, the Company will typically
pay a sales commission of 1.11 pounds sterling (i.e. 1.3875% of the food and
beverage element of the check less the cardholders discount) in the above
transaction to its sales representative.
Countdown
In April 1997, the Company acquired 50% of the equity capital of Countdown, an
international provider of membership based discount shopping services. The
remaining 50% was simultaneously purchased by TMAP. See "Acquisitions -
Countdown". Although TMAP has significant influence over the operating and
financial decisions of Countdown, the Company has effective control over the
operations of Countdown. Accordingly, Countdown's operations are consolidated in
the financial statements of the Company.
The Countdown business was established in 1970. Its primary business operations
are located in the United Kingdom. Additionally, Countdown has appointed
licensees who operate in nine countries around the world. The Countdown business
is primarily a membership based business which arranges discounts with major
suppliers of goods and services for its members. Countdown has approximately 6.5
million members and over 100,000 participating merchants in 39 countries.
Countdown markets membership on a retail and wholesale basis. Retail marketing
involves selling membership to individuals. Memberships sold on this basis
represent a small portion of total membership. Members pay an annual membership
fee, currently approximately $83, which entitles them to a Countdown card valid
for one year. Members present their Countdown card at the point of sale when
making purchases from participating merchants. Presentation of the Countdown
card entitles the cardholder to a discount, at the time of purchase, of between
5% and 50% off the merchant's normal selling price. When members receive their
Countdown card they also receive a directory of participating merchants.
Directories are prepared on a geographical basis thereby enabling Countdown to
supply a directory of participating merchants to cardholders specific to the
geographical area in which the cardholder lives.
Wholesale membership marketing involves the sale of membership packages to
corporations, professional organizations, trade unions, etc. In the case of
wholesale marketing, the group or organization purchases membership for its own
members or employees. Such members or
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employees receive a Countdown card and a directory for use as in the case of
individual membership described above. The annual fee charged on a wholesale
basis is typically 5% or less of the individual annual membership fee.
Countdown has, over a number of years, attracted over 100,000 participating
merchants worldwide from over 45 different retail categories including clothing,
household goods and leisure goods and services. Countdown does not pay or
receive any fee or royalty to or from participating merchants Countdown benefits
from merchant participation by being able to offer a wider range of discount
opportunities to its members. Participating merchants are carefully selected and
benefit by attracting incremental business.
Countdown also operates a voucher system with participating merchants and
others. This segment of the business involves Countdown's purchase of vouchers
from major retailers which can be used to pay for goods and services at such
major retailer's outlets. Countdown sells such vouchers to its members who can
use the vouchers at face value to make purchases from the issuing retailer.
These vouchers are typically sold by Countdown to its members at a discount from
face value of approximately 5% - 10%.
Countdown Arcade
In November 1998 Countdown launched an internet shopping program, Countdown
Arcade. Management believes that the internet is key to the future development
and growth of the Countdown business. Management further believes that the
Countdown Arcade will become a full online international shopping web site
offering a broad range of merchandise and services at discounted prices. The
Countdown Arcade will utilize existing relationships between Countdown and its
participating merchant base numbering over 100,000 worldwide. The Countdown
Arcade, can be found at http://www.countdownarcade.com. As of the date hereof,
the Countdown Arcade offers the ability to purchase over the internet a range of
consumer products from UK suppliers.
New products and services are expected to be added continuously. In addition,
members will have the ability to search for merchandise on a country by country
basis through a Countdown Arcade link to the Countdown database of participating
merchants outside the UK.
The Countdown Arcade is available to both members and non-members of the
Countdown program. However, while non-members may make purchases, they cannot
take advantage of the discounts offered unless they become a Countdown member,
which they can do over the internet at any time.
In February 1999 Countdown launched a Free Internet Access service in the United
Kingdom. The service was designed, and will be delivered, in collaboration with
Madhouse Net, a UK based internet service provider. Initially the service will
be marketed to the Countdown membership base in the United Kingdom totaling
approximately 3 million. In addition, Countdown plans to market the service to a
number of its corporate clients and will be distributing free software CDs
through its 25,000 merchants in the United Kingdom. Countdown will receive a
percentage of the telephone connect revenue from all new accounts generated and
is expected to further benefit from users of the service being hot-linked to the
Countdown Arcade.
Management believes that Countdown's move into e-commerce will generate new
revenues from transaction commissions on products and services sold, as well as
advertising revenues from corporate sponsors. There can be no assurance,
however, that this new business will be profitable.
Nationwide Helpline Services
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On December 2, 1997 Transmedia Australia Holdings Pty Limited ("Transmedia
Australia"), an Australian company owned equally by the Company and TMAP,
purchased 51% of the shares of common stock of NHS. NHS purchased the net assets
and business of Nationwide. Nationwide, established in 1989, is an Australian
based provider of "member benefit" programs primarily offered to organizations
with large consumer bases such as banks and insurance companies. Although the
Company has significant influence over the operating and financial decisions of
Transmedia Australia, TMAP has effective control over the operations of
Transmedia Australia. Accordingly, Transmedia Australia's operations are
accounted for under the equity method in the financial statements of the
Company. Transmedia Australia also acquired an option to purchase the balance of
49% of the shares of common stock of NHS, which shares were purchased on
November 17, 1998. See "Acquisitions - NHS".
The NHS member benefit programs consist primarily of telephone helpline
services, credit card registration, travel products and international medical
case management and repatriation services. The NHS telephone helpline services
include telephone advice lines covering legal, tax and accounting issues
together with medical and home emergency issues. Travel products, offered
through Teletravel, include the sale of packaged vacations, airline tickets,
hotel accommodation and travel related products such as insurance. Finally, NHS
through a wholly owned subsidiary, IMAN, provides international medical case
management and repatriation services for travelers to a number of major
insurance companies.
NHS sells its member benefit programs on a wholesale basis to a wide range of
corporations who typically brand the services under their own name. The programs
offered by NHS enable it's corporate clients to provide additional benefits to
their own customer base. NHS has approximately five million members.
Telephone Helpline Services
The Telephone Helpline Services business operates through NHS's retention of the
services of outside lawyers, accountants and others ("Service Providers") to
provide free advice to its members over the telephone. NHS pays a retainer to
such Service Providers in return for their being available to provide advice to
members. In addition to the retainer, Service Providers hope to benefit by
securing new clients when a member requires assistance beyond the initial
telephone advice. Members are recruited through NHS's sale of its Telephone
Helpline Services to corporations such as banks and insurance companies who make
it available to their customers as a benefit of being a customer. NHS contracts
to provide the Telephone Helpline Services to its corporate clients for a period
of 1 to 3 years. Such corporations benefit by retaining existing customers
and/or gaining new customers through offering a product not offered by their
competitors. NHS charges client corporations an annual fee per customer. In
order to provide the Telephone Helpline Services NHS operates a 24-hour call
center. The call center receives calls from members and then redirects the call
to the appropriate Service Provider. Members are given a unique telephone number
for each category of help/advice offered. Such unique telephone numbers are
different for each corporate client enabling the call center to answer member
calls as the corporate client's helpline service. Members may use the service as
often as necessary and can be connected to the same advisor each time they call
if a matter is on going. The range of help/advice offered is broad, covering all
types of legal, tax and accounting issues that members may encounter in their
daily lives. In addition, NHS offers a 24 hour medical triage service and help
and advice on a broad range of other issues from home emergency, home
maintenance and security to credit card registration, social security advice,
stress and bereavement helplines.
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Teletravel
Teletravel is a telephone based travel agency offering a full range of travel
services such as airline tickets, packaged tours, hotel accommodation, auto
rental and other travel related products such as insurance. The Teletravel
business was established to enable NHS to offer travel products to its corporate
clients, in particular those clients who purchase NHS products and services on a
co-branded basis. Teletravel employs its own travel agents who operate a call
center located in Sydney, Australia. Teletravel does not operate any travel
shops for consumers to utilize on a walk-in basis. Instead the business is
entirely telephone based whereby customers call the Teletravel call center where
an experienced travel consultant offers help and advice to the traveler and then
confirms the customers booking. Consumers may pay by check, credit card or money
order. When payment is received tickets and itineraries are forwarded to the
customer. Teletravel generates revenues from commissions received from airlines
and travel product providers. Teletravel believes it enjoys an economic
advantage over traditional travel agents who have to bear the costs associated
with their retail outlets.
IMAN
IMAN was established in 1980 as a telephone doctor service operating throughout
Asia and developed a particular expertise in assisting tropical travelers. In
1995 IMAN was acquired by Nationwide. Today, IMAN provides international medical
case management and repatriation services for travelers. IMAN has established an
international network of doctors, nurses and medical advisors who are available
to assist travelers who require medical assistance while abroad. The service
extends to repatriation in cases where the traveler must return home to receive
treatment. The IMAN product is sold to a number of major insurance companies who
incorporate the services of IMAN within their travel insurance coverage.
Logan Leisure
On May 14, 1998 the Company and TMAP purchased from Compass Trustees Limited all
of the outstanding shares of capital stock of Porkpine Limited ("Porkpine"). The
Company and TMAP each acquired 50% of the outstanding capital stock of Porkpine.
See "Acquisitions - Logan Leisure". Although TMAP has significant influence over
the operating and financial decisions of Porkpine, the Company has effective
control over the operations of Porkpine. Accordingly, Porkpine's operations are
consolidated in the financial statements of the Company.
Porkpine, through its wholly owned subsidiaries Letville Holdings Limited
("Letville") and Floracourt Marketing Limited ("Floracourt"), operates two
businesses trading as Logan Leisure and Logan Leisure & Entertainment. Porkpine
trades as Logan Leisure ("LL"). LL was established in 1989 and is based in
Belfast, Northern Ireland. Letville is an intermediary holding company which
owns Floracourt. Floracourt trades as Logan Leisure & Entertainment ("LLE"). LLE
is based in Dublin in the Republic of Ireland and commenced operations in 1992.
Both LL and LLE produce and sell books of vouchers ("Voucher Directories") which
entitle the holder to discounts and savings on a range of products and services
including hotel accommodation, restaurants, golf clubs and general merchandise.
LL and LLE negotiate discounts from a range of suppliers of goods and services
who agree to the inclusion of a voucher representing such discount in the LL and
LLE Voucher Directory. Voucher Directories are produced annually and are sold to
consumers for approximately $126. To take advantage of a particular discount,
the consumer extracts the relevant voucher from the Voucher Directory and
presents it to the merchant at the point of sale.
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Breakaway Travel
On May 22, 1998 Transmedia Australia Travel Holdings Pty Limited ("Transmedia
Holdings"), a company owned equally by the Company and TMAP, acquired from
Gisborne Travel Holdings Pty Limited ("Gisborne"), 100% of the issued share
capital of Breakaway Travel Club Pty Limited ("Breakaway"). See "Acquisitions -
Breakaway". Although the Company has significant influence over the operating
and financial decisions of Transmedia Holdings, TMAP has effective control over
the operations of Transmedia Holdings. Accordingly, the operations of Transmedia
Holdings are accounted for under the equity method in the financial statements
of the Company.
Breakaway, based in Sydney, Australia, commenced operations in 1995. Breakaway
is a licensed travel agent specializing in discount vacation packages for
individuals employed in the travel industry in Australia. Such individuals are
entitled to become members of Breakaway. Members of Breakaway pay an annual
membership fee of Aus$20 (approximately $12). Breakaway has negotiated
agreements with travel providers pursuant to which it may secure reduced rate
fares from such travel providers. Travel providers include airlines, hotels and
tour operators. These reduced rate fares are marketed to members by Breakaway.
Countdown America
In July 1998 the Company and TMAP jointly incorporated Countdown America, Inc.
("Countdown America"), a Delaware corporation, to establish a member benefits
business in the United States. To commence operations Countdown America
recruited two personnel and secured office accommodation located in Flanders,
New Jersey on a month to month basis. The Company and TMAP's strategic plan
called for Countdown America to initially develop a benefits program, based on
the Countdown model, suitable for the United States marketplace. As a result a
benefits program incorporating healthcare, travel, shopping and entertainment
has been developed. The healthcare products and services are the cornerstone of
the Countdown America benefits program. Such products and services include mail
order and retail pharmacy, eyewear and hearing products, medical supplies and
equipment. In addition, members have 24 hour a day access to a telephone based
medical library extending to over 2,200 topics. Benefits also include a Nurse
Triage program which provides members with a toll free number allowing them to
speak to a registered nurse concerning medical and healthcare concerns. In
September 1998 Countdown America agreed to acquire the membership base and
certain assets of the National Association of Mature Americans ("NAMA"). The
acquisition, which was completed on November 17, 1998, provided Countdown
America with an established membership base as well as a defined set of benefit
packages. Additionally, the acquisition included a series of contracts pursuant
to which NAMA provides customized benefit packages, on a wholesale basis, to
other membership based organizations and corporations throughout the United
States.
DBS Direct
On June 15, 1999 the Company and TMAP purchased from William D. Marks, Donna M.
Marks, Kevin R. Drewyer and Direct Investors, Inc. (collectively the "Sellers")
100% of the membership interests of DSS Direct Connect, L.L.C. ("DBS Direct").
The Company and TMAP each acquired 50% of the outstanding membership interests
of DBS Direct. See "Acquisitions - DBS Direct".
DBS Direct has its head quarters in Seattle where it commenced operations in
July 1998. DBS Direct has the right, on a preferred basis, to provide localized
turn-key sales and installation services for DirecTV and USSB, the leading
providers of digital, "direct-to-the-home" multi-channel video programming
services. The DBS Direct contracts with
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DirecTV and its programming partner will allow it to become the first nationwide
telemarketing, door-to-door sales, and full-service installer of DirecTV's
Digital Broadcast Satellite in the United States. DBS Direct has two contracts
with DirecTV and USSB, one covering Single Family Units ("SFU's") and the other
covering Multi-Dwelling Units ("MDU's"). The "SFU" contract grants DBS Direct
the right to an initial coverage area which includes 12 major metropolitan
markets in the United States, representing approximately 25 million television
households, or 25% of the total television households in the United States.
DirecTV will add additional SFU markets to the DBS Direct SFU coverage upon
successful launch of its services in currently contracted markets. The "MDU"
contract grants DBS Direct the entire continental United States as its
territory, an addition 25 million television households.
Acquisitions
Countdown
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50% of the
outstanding capital stock of Countdown Holdings Limited, a privately owned
United Kingdom company based in London, England. Countdown, through its
wholly-owned subsidiary, Countdown plc, is an international provider of
membership based discount shopping services. The remaining 50% interest in
Countdown was simultaneously purchased by TMAP. The transaction (the
"Acquisition") was consummated pursuant to an Acquisition Agreement dated April
3, 1997 (the "Acquisition Agreement") between the Company, TMAP and Mr. Radbone.
The consideration paid by the Company for its 50% interest in Countdown totalled
$2,682,487. The purchase consideration payable to Mr. Radbone was satisfied by
the issuance of 1,200,000 shares (the "Radbone Shares") of the Common Stock of
the Company and a cash payment of 500,000 UK pounds sterling (approximately
$800,000 as of April 3, 1997). In addition, Mr. Radbone was granted an option to
purchase 250,000 shares of Common Stock at $1.00 per share. The Company granted
Mr. Radbone piggyback and demand registration rights with respect to the Radbone
Shares. The balance of the outstanding capital stock of Countdown was
simultaneously purchased by TMAP on similar terms.
The cash portion of the purchase price was funded by a $1,000,000 loan from Mr.
J. Vittoria, a director and shareholder of the Company. The loan, which bears
interest rate of 12% per annum, was originally scheduled to mature on September
27, 1997. By agreement between the Company and Mr. Vittoria, the loan maturity
date has been extended indefinitely, subject to being repayable on 60 days
notice. Interest continues to accrue at 12% per annum. The loan is
collateralised by a pledge of the Company's entire interest in Countdown. In
consideration for the loan, the Company granted to the lender a five-year
warrant to purchase 125,000 shares of Common Stock at $1.25 per share, the
market price of the shares at the time, and granted piggyback registration
rights with respect to such shares.
Contemporaneously with the Acquisition, Countdown entered into an employment
agreement with Mr. Radbone pursuant to which Mr. Radbone was employed as
Managing Director of Countdown. Upon consummation of the Acquisition, Mr Radbone
was elected as a director of the Company and Edward J. Guinan and Paul Harrison
were elected to the board of directors of Countdown and Countdown Plc. On
January 16, 1998, Mr. Radbone resigned from the Board of Directors. At the same
time his employment agreement was terminated without penalty and replaced by a
one year consultancy agreement.
11
As described earlier, Mr. Radbone is beneficial owner of 1,200,000 shares of
Common Stock and an option to purchase a further 250,000 shares at an exercise
price of $1.00 per share. Mr. Radbone has granted Edward J. Guinan III, the
Chairman of the Board of Directors, an option to purchase his shares and share
option at a purchase price of $1 per share. Pursuant to the agreement between
Messrs. Radbone and Guinan, Mr. Guinan paid a portion of the purchase price by
delivering such number of shares of the Common Stock owned by him, as equated to
a market value of $250,000. In addition, he delivered a similar number of shares
of the common stock of TMAP owned by him. Such shares were subject to forfeiture
to Mr. Radbone if the option was not exercised and paid by January 15, 1999. In
January 1999, by agreement between Mr. Radbone and Mr. Guinan, the exercise date
was extended to April 9, 1999. The option was not exercised on April 9, 1999.
In connection with the Acquisition, the Company and TMAP each agreed to pay
$125,000 in cash to TMNI. In addition, the Company and TMAP jointly issued to
TMNI a promissory note in the principal amount of $500,000, payable on April 2,
1998 and bearing interest at the rate of 10% per annum. The promissory note is
convertible at the holder's option into $250,000 in value of Common Stock of
each issuer at the rate of $1.20 per share. The Company agreed to pay such
amounts in order to obtain the consent of TMNI to the Countdown Acquisition,
which consent was required pursuant to the terms of the License Agreement under
which the Company operates its restaurant card business.
NHS
On December 2, 1997, Transmedia Australia purchased 51% of the shares of common
stock of NHS. NHS purchased the net assets and business of Nationwide.
Nationwide was established in 1989 and is an Australian based provider of
"member benefit" programs. The operations of Transmedia Australia are controlled
by TMAP and accordingly Transmedia Australia's accounts are consolidated into
those of TMAP. The total consideration paid by Transmedia Australia for its 51%
interest in the equity capital of NHS was Aus$6,000,000 (approximately
$4,290,000 as of December 2, 1997). Transmedia Australia also agreed to purchase
the balance of the equity capital of NHS for Aus$2,500,000 (approximately
$1,787,500) on June 30, 1998 with the right to extend such obligation ("Balance
Obligation") until September 30, 1998. Transmedia Australia agreed to pay
interest at 5% per annum on the Balance Obligation for the three months ended
September 30, 1998. Transmedia Australia exercised the extension right. In
addition, the Company and TMAP agreed to pay Aus$4,000,000 in sign-on fees to
the two former executive directors of Nationwide.
The Aus$6,000,000 required to complete the acquisition of 51% of NHS was to be
advanced to Transmedia Australia by the Company and TMAP as follows:
Company TMAP Total
Deposit 200,000 200,000 400,000
1st Installment 1,400,000 1,400,000 2,800,000
2nd Installment 1,400,000 1,400,000 2,800,000
---------- ---------- ----------
Total 3,000,000 3,000,000 6,000,000
========== ========== ==========
The deposit was paid to the sellers in June, 1997. The first installment of
Aus$2,800,000 was paid in December 1997, 50% in cash and the balance by the
issuance of 500,000 of the common stock of each of the Company and TMAP (valued
at (pound)1.00 per share). The second installment was payable on January 31,
1998. However, pursuant to the terms of the Acquisition Agreement, such payment
date was extended to May 1, 1998. As a result of the extension of the payment
date,
12
Transmedia Australia became liable to pay interest at the rate of 5% per annum
during such extension period. The second installment was paid on May 1, 1998,
together with accrued interest in the sum of Aus$34,781.
In connection with the Acquisition, NHS entered into employment contracts with
Mr. Kevin Bostridge ("Bostridge") and Mr. Robert Swinbourn ("Swinbourn"),
shareholders and former executive directors of Nationwide. Each of the contracts
were for a fixed term of three years and provided for the payment of an annual
salary of Aus$200,000 to Bostridge and Aus$150,000 to Swinbourn. As an
inducement to Bostridge and Swinbourn to enter into such employment contracts,
the Company and TMAP agreed to jointly pay sign-on fees of Aus$4,000,000
(approximately $2,860,000) in aggregate to Bostridge and Swinbourn. Such sign-on
fees were apportioned as Aus$2,914,286 pertaining to Bostridge and Aus$1,085,714
pertaining to Swinbourn and were payable in installments as follows:
Company TMAP Total
1st Installment 1,000,000 1,000,000 2,000,000
2nd Installment 1,000,000 1,000,000 2,000,000
---------- ---------- ----------
Total 2,000,000 2,000,000 4,000,000
========== ========== ==========
The first installment was payable on January 31, 1998 of which an aggregate of
Aus$1,250,000 could be deferred until May 1, 1998. On January 31, 1998, in lieu
of the required minimum payment of Aus$750,000, Aus$203,571 was paid in cash and
the balance was settled by a promissory note in the sum of Aus$546,429 payable
on June 30, 1998. The promissory note was guaranteed by Mr. Edward Guinan,
Chairman of the Company. The promissory note has been paid in full. The
Aus$1,250,000 due on May 1, 1998 was paid on that date together with accrued
interest thereon at 5% per annum, approximately Aus$15,240. The second
installment was due for payment on June 30, 1998 but was deferred until
September 30, 1998.
Transmedia Australia was unable to make the payments due on September 30, 1998.
However, Transmedia Australia commenced negotiations with Nationwide and on
October 21, 1998 reached an agreement pursuant to which the settlement date for
the Balance Obligation and the final installment of the sign-on fees was
extended to November 16, 1998. In addition, the second installment of the
sign-on fees was reduced from Aus$1 million for each of the Company and TMAP (a
total of Aus$2 million) to Aus$500,000 for each of the Company and TMAP (a total
of Aus$1 million). Finally, it was agreed that the employment contracts of
Messrs. Bostridge and Swinbourn be terminated effective November 16, 1998 upon
payment of three months salary to each. On November 17, 1998 the Balance
Obligation, the reduced final installment of the sign-on fees and the three
months salary to Bostridge and Swinbourn were paid in full. In addition, accrued
interest in the amount of Aus$47,557 (approximately $29,960) was paid.
The final payments to Nationwide and Bostridge and Swinbourn were funded from
the proceeds of a One Year Secured Promissory Note ("Promissory Note") in the
principal sum of $3.4 million executed on November 16, 1998 between TMAP and FAI
General Insurance, a shareholder of the Company. Interest on the Promissory Note
accrues at the rate of 10% per annum and is payable quarterly in arrears. The
Promissory Note is secured by a charge over Transmedia Australia and is
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, the Company agreed to exchange warrants
to purchase 633,366 shares of Common
13
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 TMAP. Such
warrants were exchanged by TMAP for a new warrant on the same terms as those of
the Company.
Logan Leisure
On May 14, 1998 the Company and TMAP purchased from Compass Trustees Limited the
entire outstanding capital stock of Porkpine. The Company and TMAP each acquired
50% of the outstanding capital stock of Porkpine.
Porkpine and its wholly owned subsidiaries Letville Holdings Limited
("Letville") and Floracourt Marketing Limited ("Floracourt") operate two
businesses trading as Logan Leisure and Logan Leisure & Entertainment. Porkpine
trades as Logan Leisure ("LL"). LL was established in 1989 and is based in
Belfast, Northern Ireland. Letville is an intermediary holding company which
owns Floracourt. Floracourt trades as Logan Leisure & Entertainment ("LLE"). LLE
is based in Dublin in the Republic of Ireland and commenced operations in 1992.
Both LL and LLE produce and sell discount and savings directories.
The transaction was consummated pursuant to an acquisition agreement (the "Logan
Agreement") dated May 14, 1998 between Compass Trustees Limited, the Company,
TMAP and Gavin and Joanne Logan. The consideration paid totaled 1,060,000 pounds
sterling ($1,749,000 approximately) subject to increase or decrease by an amount
equal to the net current assets of Porkpine and its subsidiaries as of the date
of completion. The Logan Agreement provided for the net current assets as of the
date of acquisition to be determined by reference to consolidated financial
statements (the "Acquisition Accounts") to be prepared as soon as practicable
after the date of acquisition.
The consideration paid at completion was made up as follows:
Company TMAP Total
Pounds Sterling
Cash 330,000 330,000 660,000
Shares of common stock:
Company - 225,000 shares 200,000 200,000
TMAP - 225,000 shares 200,000 200,000
-------- -------- ----------
Total 530,000 530,000 1,060,000
======== ======== ==========
The net current assets as of May 14, 1998 per the Acquisition Accounts totaled
$33,627.
Breakaway
On May 22, 1998 Transmedia Holdings acquired from Gisborne the entire issued
share capital of Breakaway.
Breakaway, which is based in Sydney, Australia, commenced operations in 1995.
Breakaway is a licensed travel agent specializing in discount package holidays
for individuals employed in the travel industry in Australia. Such individuals
are entitled to become members of Breakaway.
14
Members of Breakaway pay an annual membership fee of Aus$20 (approximately $12).
Breakaway has negotiated agreements with travel providers pursuant to which it
can secure reduced rate fares from such travel providers. Travel providers
include airlines, hotels and tour operators. These reduced rate fares are
marketed to members by Breakaway.
The transaction was consummated pursuant to a Share Sale Agreement dated March
26, 1998 between Gisborne, Transmedia Holdings, Peter Guy Gisborne and Terence
John Gill. The total consideration payable was Aus$375,000 (approximately
$230,000). The consideration was paid in cash.
DBS Direct
On June 15, 1999 the Company and TMAP purchased from the Sellers 100% of the
membership interests of DBS Direct. The Company and TMAP each acquired 50% of
the outstanding capital stock of DBS Direct.
DBS Direct has its headquarters in Seattle where it commenced operations in July
1998. DBS Direct has the right, on a preferred basis, to provide localized
turn-key sales and installation services for DirecTV and USSB, the leading
providers of digital, "direct-to-the-home" multi-channel video programming
services.
The transaction (the "Acquisition") was consummated pursuant to an Equity
Purchase Agreement dated May 10, 1999, as amended June 11, 1999 (the
"Acquisition Agreement") among the Company, DBS Direct, the Sellers and TMAP.
The consideration paid by the Company for its 50% interest in DBS Direct
comprised 4,831,057 shares of the Company's common stock. TMAP paid 4,589,732
shares of its common stock for the remaining 50% of DBS Direct. In addition, the
Company and TMAP each contributed $500,000 (five hundred thousand dollars) to
the capital of DBS Direct at the closing of the Acquisition. Such capital
contribution was used to repay existing indebtedness of DBS Direct.
Additionally, the Company and TMAP have agreed to each contribute a further
$875,000 (eight hundred seventy five thousand dollars) to the capital of DBS
Direct to fund the expansion of its network of sales offices nationally.
Pursuant to the terms of the Acquisition Agreement, William D. Marks entered
into an employment agreement with DBS Direct and joins the board of directors of
both the Company and TMAP. The employment agreement is for a period of three
years and provides for an annual salary of $175,000. Mr. Marks will serve as
President of DBS Direct. The employment agreement also provides for
participation in any incentive stock option plans which may be established in
the future by the Company and TMAP.
Transmedia France
In April 1996 the Company commenced a restaurant card business in France through
Transmedia La Carte Restaurant SA ("Transmedia France"). Transmedia France was
organized and capitalized in 1995 by the Company and three other parties.
Transmedia France operated pursuant to the TMNI License and a banking license
granted by the Bank of France.
In November 1997, when the Company was a 50.1% shareholder in Transmedia France,
Transmedia France was notified by the Bank of France that, under the terms and
provisions of its banking license, it did not meet the prescribed statutory
minimum fully paid capital. Transmedia France notified the Company of its
obligation as the majority shareholder to participate in a capital call to
restore the capital of Transmedia France to the statutory minimum. On February
3, 1998 the Company made representations to the Bank of France that it would
provide additional capital to Transmedia France. On March 31, 1998 the Company
transferred its 100% interest in
15
Transmedia UK plc to Transmedia France at a valuation of FF5,062,500
(approximately $1,000,000) to meet its additional capital payment and maintain
its 50.1% interest in the share capital of Transmedia France.
Transmedia France continued to incur operating losses and in July 1998 required
additional capital to maintain the statutory minimum fully paid capital. The
minority shareholders were unwilling to invest further in Transmedia France. To
protect its interest in Transmedia France the Company injected FF1 million
(approximately $167,000) in cash as additional capital in the form of a
subordinated note.
On October 5, 1998 the Company acquired 27,500 shares of common stock of
Transmedia France from a minority shareholder. The consideration paid by the
Company was $200,000 which was satisfied by the issuance of 200,000 shares of
its Common Stock. On December 9, 1998 the Company acquired a further 107,500
shares of common stock of Transmedia France from another minority shareholder.
The consideration paid by the Company was $400,000 which was satisfied by the
issuance of 400,000 shares of its Common Stock. The Company acquired these
minority shareholdings because such minority shareholders had "put options"
pursuant to the terms of a shareholders' agreement entered into by the Company
and others when Transmedia France was originally organized. Under the "put
options" the Company was obligated to purchase such minority shareholdings for a
cash consideration equal to their original investment plus 20% (approximately $3
million). Management believed that the issuance of 600,000 shares of Common
Stock to purchase such minority interests in Transmedia France and be discharged
from the "put options" was in the best interests of the Company. As a result of
the purchase of the minority interests in Transmedia France described above the
Company became beneficial owner of 90% of Transmedia France
Transmedia France continued to fall below the minimum fully paid capital
requirement and was in discussion with the Bank of France through the summer of
1998 to resolve the situation. Following a disciplinary committee hearing of the
Bank of France in November 1998 Transmedia France was verbally advised that its
banking license would be withdrawn and that as a result Transmedia France would
be required to cease trading. At a subsequent meeting of the board of directors
of Transmedia France it was resolved that the company would cease trading
effective December 31, 1998 and that the company would be liquidated on a
voluntary basis. This decision of the board of directors was ratified by the
shareholders of Transmedia France at an extraordinary general meeting held in
December 1998. Transmedia France subsequently paid all its liabilities in full
and liquidated its assets. The financial statements of Transmedia France for the
year ended September 30, 1998 have been presented on a liquidated basis and
include a charge of $178,603 in respect of the write down of fixed assets to
realizable value and a reserve of $108,225 in respect of restaurant advances not
recoverable on liquidation.
In March 1999 an annual general meeting of shareholders of Transmedia France was
held and the shareholders decided to distribute the shares of Transmedia UK plc
held by Transmedia France to the Company and Societe Generale SA its two
shareholders. Societe Generale SA agreed to sell the 10% interest in Transmedia
UK plc it had acquired as a result of the distribution to the Company for
FF35,000 (approximately $6,000). In addition the Company agreed to forgive the
FF1million (approximately $167,000) subordinated loan, together with accrued
interest, net of FF162,911 (approximately $27,000) due to Transmedia France from
the Company.
Competition
The "membership based" benefits business is highly competitive. The Company
competes with a number of other operators, both internationally and in the
United Kingdom. The Company's competitors range from small private companies to
major corporations who collectively offer a
16
full range of "membership based" benefit programs. Such benefit programs include
discount shopping, hotel accommodation, travel, dining, and leisure activities.
Additionally, the Company competes with other telephone helpline service
operators and loyalty reward programs such as "air miles".
Countdown, competes directly with a full range of discount shopping programs
offered by a number of other operators. The Company believes that the Countdown
program, with over 100,000 participating merchants in 39 countries, is broader
based than the programs offered by its competitors. Management believes that the
size of its merchant base, as well as the international spread of such
merchants, gives Countdown an advantage over its competitors. Such merchant base
and program pricing are the principal methods used by Countdown to retain
existing business and secure new business opportunities over its competitors.
In its Restaurant Card business the Company competes against other discount
programs. Competitors include programs offered by major credit card companies
such as American Express, Visa, Mastercard and Diners Club. Additionally, other
companies offer different kinds of discount dining programs. For example,
certain hotel groups offer two-for-one dining in their restaurants. The Company
is not aware of any restaurant discount charge card business, similar to that of
the Company, in the Licensed Territories at this time. The unique nature of the
restaurant discount charge card is the principal method used to secure business.
However, there can be no assurance given that no new competitors will enter the
market in the future.
The Company's affiliate NHS competes with other helpline service providers and
membership based benefit providers. NHS also competes with its product and
service providers who promote their businesses independently of their
arrangements with NHS. The principal methods used by NHS to compete effectively
are beneficial prices, quality of service and the range of products and services
offered.
The Company's travel business interests compete with travel agents and other
operators in the hotel and travel industries, including retail travel agents,
airlines and hotel groups. The NHS Teletravel business is competitive regarding
price and convenience when compared with retail travel agents where the consumer
is usually required to visit the travel agents premises. Breakaway competes
primarily on price as well as being the only business which provides its
services exclusively to employees of the travel industry.
The Company is not aware of any dominant operators in its business sector and
geographical markets. However, many of the Company's competitors have
substantially greater financial, personnel, technological, marketing,
administrative and other resources than the Company.
Intellectual Property
The Company operates its restaurant card business pursuant to the rights
acquired through the License Agreement with TMNI. While the License Agreement
grants the Company the right to use certain proprietary software and systems,
the Company found it necessary to develop its own systems and practices for
sales tax and other considerations. Accordingly, the Company is not reliant on
the License Agreement in order to conduct its day to day operations. However,
TRANSMEDIA is a registered trademark and therefore the Company relies on the
rights it acquired under the License Agreement to use such trademark and such
other trademarks and service marks as Network may apply for in the Licensed
Territories.
Countdown is a registered trademark of the Company's subsidiary, Countdown
Holdings Limited. Countdown has been established for over 28 years and
management believes that the
17
business of Countdown is, to some extent, dependent on the consumer goodwill and
recognition attaching to the Countdown name.
Employees
As of September 30, 1998, the Company employed 71 full-time employees. None of
the Company's employees are represented by a labor union, and the Company
considers its employee relations to be good.
Need for Additional Financing
The Company requires additional funding to provide working capital and to
implement its business plans. In addition, management estimates that an amount
of approximately $2.6 million will be required to meet loan repayment
obligations.
The loan made by Mr. Vittoria, a director and shareholder of the Company, of
$1,000,000 in connection with the Countdown acquisition has been renewed for an
indefinite period. However the lender has the right to demand repayment upon
giving of 60 days notice. The Company may need additional funds to finance such
repayment if demanded.
No assurance can be given that the Company will be successful in obtaining
additional financing. Failure to obtain necessary financing in a timely manner
may have a significant adverse effect on the Company and its operating
performance.
ITEM 2. PROPERTIES.
The Company leases office accommodation of approximately 4,000 square feet at 11
St James's Square, London, England. The office is shared with TMAP. The lease
expires in February, 2004. The rent payable totals approximately $120,000 per
annum. During the year ended September 30, 1998 the Company charged TMAP
approximately $56,742 for its share of the rental cost.
Countdown leases mixed use office and warehouse accommodation of approximately
10,000 square feet at No.1 Hurlingham Business Park, Sulivan Road, London,
England. The lease is for a period of 20 years expiring in 2015. The rent
payable is currently approximately $165,000 per annum with rent reviews
scheduled at five year intervals. It is not possible at this time to quantify
the financial impact of such rent reviews.
Logan Leisure leases office accommodation of approximately 280 square feet in
Dublin and approximately 450 square feet in Belfast. The Dublin lease is for a
period of 5 years commencing May 14, 1998 at an annual rent of approximately
$16,000. The Belfast lease commenced June 1, 1996 and expires on May 31, 2000.
The annual rent payable is approximately $11,600.
Through April 1999 Countdown America operated from office accommodation in
Flanders, New Jersey pursuant to an informal arrangement on a month to month
basis. Commencing May 1, 1999 Countdown America leased office accommodation of
approximately 1,500 square feet at 880 Fairview Road, Simpsonville, South
Carolina. The lease is for a period of 3 years expiring April 30, 2002. The
annual rent payable is $21,750.
Through August 31, 1998 the Company's subsidiary Transmedia France leased office
accommodation totaling approximately 2,500 square feet at 9, Rue de la Paix,
Paris 75002, France at an annual rental of approximately $110,000. The lease was
extended on a month to month basis through January 31, 1999 when the property
was vacated.
18
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On January 12, 1998 the Company entered into a settlement agreement
("Settlement") with J.L. Ernst, N.H. Ernst and Ernst Enterprises, Inc.
(collectively "Ernst") for the purpose of settling all claims alleged by Ernst
in a suit filed in Texas in 1996. The suit related to a transaction pursuant to
which the Company would have granted Ernst a license to operate a restaurant
card business similar to the Company's in Belgium/Luxemburg. The Settlement
called for the issuance by the Company to Ernst shares of the Company's common
stock with a market value of $75,000. The Agreement further provided that such
shares be registered and freely tradable on or before June 30, 1998. The
Agreement further provided that in the event that the shares were not registered
and freely tradable by that time the Agreement called for the Company to buy
back the shares for $100,000. At June 30, 1998 the shares were not registered
and freely tradable and on December 8, 1998 Ernst filed a motion to enforce the
Settlement. As a result Ernst presently holds a judgement against the Company in
the amount of $105,000. The Company made such payment on April 16, 1999 together
with $1,450 interest, a total of $106,450.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders of the Company during the
fourth quarter of the year ended September 30, 1998.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information. The Company's Common Stock was traded on the Nasdaq
SmallCap Market under the symbol "MBTE" through March 10, 1998. On March 10,
1998 the Company's Common Stock was de-listed from the Nasdaq SmallCap Market
for failure to file its Annual Report on Form 10-K for the year ended September
30, 1997 in a timely manner. The Company's Common Stock is now traded on the OTC
Electronic Bulletin Board under the symbol "MBTE". The following table sets
forth the high and low bid prices as reported for the periods indicated below.
Quarter ended High Low
December 31, 1996 1 5/8 3/4
March 31, 1997 1 3/8 1/2
June 30, 1997 1 5/16 1/2
September 30, 1997 1 7/16 1/2
December 31, 1997 1 3/8 7/8
March 31, 1998 1 3/4 3/4
June 30, 1998 2 7/8 1 1/4
September 30, 1998 2 1/2 3/4
(b) Holders. As of July 21, 1999 there were approximately 227 holders of record
of shares of Common Stock of the Company. The Company believes that a
significant number of holders of its shares of Common Stock hold such shares in
"street name".
(c) Dividends. Holders of Common Stock are entitled to dividends when, as, and
if declared by the Board of Directors out of funds legally available therefor.
The Company has not paid any cash dividends on its Common Stock and, for the
foreseeable future, intends to retain future earnings, if any, to finance the
operations, development and expansion of its business. Future dividend policy is
subject to the discretion of the Board of Directors.
Recent Sales of Unregistered Securities
On February 1, 1998 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on April 30, 1998 upon the sale of 1,950,000 shares of common stock at $1.25 per
share resulting in net proceeds to the Company of $2,437,500. For every three
shares purchased each subscriber received a three year warrant to purchase one
share of the Common Stock of the Company at an exercise price of $1.25 per
share. The warrants are exercisable at any time after the date of grant for a
period of three years.
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
20
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.
As of the date hereof the Company has repaid the three 250,000 pounds sterling
promissory notes in full, together with accrued interest. The holder of the
200,000 pounds sterling promissory note has been paid approximately $62,500 in
part repayment and has agreed to give the Company additional time to repay the
balance of the note, together with accrued interest. The Company granted such
note holder a conversion privilege to convert the balance of the note, together
with accrued interest, into shares of the Company's Common Stock at a conversion
price of $.75 per share.
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
which will be recorded as additional interest expense over the life of the loan.
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 payable on January 5, 1999 and resulted in net proceeds to the
Company of $2,926,588 after deduction of arrangement fees. The promissory note
is secured by a pledge of 2 million shares of the common stock of Transmedia
Asia Pacific, Inc. held by Edward Guinan III, Chairman of the Board and Chief
Executive Officer of the Company. The Company failed to pay the promissory note
on the due date. As of the date hereof the Company has made repayments totaling
$950,000 and by agreement with the note holder, the balance of the note,
together with accrued interest, is being paid by monthly installments of
$300,000 per month.
On October 16, 1998 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 30, 1998 upon the sale of 842,666
shares of Common Stock at $0.75 per share resulting in net proceeds to the
Company of $632,000.
On January 25, 1999 the Company commenced a private placement 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. As of the date hereof the Company has sold 3 million shares of
common stock at $.75 per share resulting in net proceeds to the Company of
$2,250,000
21
ITEM 6. SELECTED FINANCIAL DATA
The selected statements of operations and balance sheet data set forth below are
derived from the audited financial statements of the Company. The information
set forth below should be read in conjunction with the audited consolidated
financial statements of the Company and notes thereto. See Item 8 "Financial
Statements and Supplemental Data" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations". On May 14, 1998 the
Company and TMAP each acquired a 50% interest in Logan Leisure. The results of
Logan Leisure have been consolidated with those of the Company from the date of
acquisition using the purchase method of accounting.
Income Statement Data
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September 30,
1998 1997 1996 1995 1994
Revenues $ 10,568,531 $ 7,870,256 $ 3,696,400 $ 3,967,997 $ 2,178,772
Gross profit 4,888,215 3,160,345 1,610,495 1,701,411 817,778
Selling, General &
Administrative (12,660,826) (7,385,975) (3,670,307) (3,816,386) (2,855,906)
Operating loss (7,772,611) (4,225,630) (2,059,812) (2,114,975) (2,038,128)
Share of losses of
affiliated
companies (59,170) (116,899) (509,404) (92,455) 0
Net loss $ (8,093,704) $ (4,331,242) $ (2,561,104) $ (2,178,452) $ (1,945,236)
Net loss per
share, basic
and diluted $ (0.47) $ (0.27) $ (0.24) $ (0.19) $ (0.19)
Balance Sheet Data
--------------------------------As of Sept. 30------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Current Assets $ 4,073,540 $ 2,991,538 $ 1,854,831 $ 3,144,262 $ 2,633,140
Total Assets 11,410,327 9,073,025 3,926,355 5,821,680 4,647,125
Working Capital
(Deficiency) (9,067,653) (4,687,385) 580,665 1,635,642 1,717,627
Stockholders Equity (1,142,744) 559,149 2,152,189 3,813,060 3,731,612
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in Item 8 of this
report, and is qualified in its entirety by reference thereto.
General
The business of the Company is the design and supply of a range of member
benefit programs to corporations, affinity groups and individuals on an
international scale. In 1996 the Company and TMAP decided to work closely to
implement a strategy to create a broader based international member benefits
business. As a result the Company currently has established business operations
in operations in Europe and elsewhere through Countdown and Logan Leisure and
through its affiliates Transmedia Australia and Transmedia Holdings has an
interest in businesses in Australia and New Zealand. In addition, the Company
and TMAP have recently established business operations in the United States and
in November 1998 Countdown launched its transactional web site business,
Countdown Arcade. In June 1999 the Company and TMAP jointly acquired DSS Direct
Connect, L.L.C. a Seattle based direct marketer of DirecTV.
The future success of the Company is primarily dependent upon its ability to
develop and expand its current business operations by increasing their
membership base and broadening the range of member benefit programs offered. As
of the date hereof, management is actively recruiting senior 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 industry and may expand its operations through further acquisitions.
Management believes that while the industry has shown good growth, which is
expected to continue, this has been primarily in the United States. Outside the
United States, the international market is significantly less developed
providing an opportunity for the Company to expand its operations from its
established base in Europe and Australasia and the Countdown network of
sub-licensees and franchisees in a number of other countries.
In light of the close collaboration between the Company and TMAP since inception
and, more particularly, in view of the joint ownership of Countdown, Countdown
America, DBS Direct, NHS, Logan Leisure and Breakaway Travel, management of the
Company and TMAP have been assessing the rationale of maintaining two separate
corporate entities. Management has concluded that keeping the two companies
distinct and separate is no longer appropriate or advantageous to shareholders
and therefore announced its intention to merge the two companies. In concluding
that a merger is in the best interests of both the Company and TMAP, management
considered several factors including the confusion of having two separate stock
quotes for essentially the same business (operating in different geographical
regions), the opportunity to reduce corporate overhead and to increase operating
efficiency. The proposed merger is subject to the approval of the respective
Boards of Directors, fairness opinions by independent investment advisers and
the approval of shareholders of both companies.
The Company recorded significant losses in its fiscal year ended September 30,
1998 as well as in prior years. Such losses and the Company's acquisition and
expansion program to date have been funded by the sale of equity securities and
debt financing. The Company's ability to continue as a going concern depends on
its ability to obtain outside financing sufficient to support its operations and
business development plans. Based upon the Company's history of obtaining
necessary financing, management remains confident that sufficient funds will be
available to the
23
Company to enable it to operate for the foreseeable future. However, there can
be no assurance given that the Company will obtain such short-term or long-term
outside financing.
Results of Operations
Fiscal 1998 compared to Fiscal 1997
The Company generated revenues of $10,568,531 (1997: $7,870,256) in the year
ended September 30, 1998, an increase of $2,698,275 or 34.3% over the
corresponding period in 1997, reflecting the impact of the Countdown acquisition
in April 1997 and the acquisition of Logan Leisure in May 1998. Countdown and
Logan Leisure generated revenues of $7,142,705 and $108,694 respectively. The
fiscal 1998 revenues generated by Countdown compare to revenues of $3,239,052
generated in the six months from the date of acquisition to September 30, 1997.
Pre-existing business recorded a decline in revenues of $372,752 to $3,317,132
due to lower card usage by cardholders as a result of rationalization of the
participating restaurant base in the UK.
Cost of sales totaled $5,680,316 (1997: $4,709,911) for the year ended September
30, 1998, generating a gross profit percentage of 46.3% (1997: 40.2%). The
increase in gross profit percentage reflects the impact of the higher margin
Countdown and Logan Leisure businesses and improved gross profit achievement in
pre-existing operations. The gross profit percentages achieved by Countdown and
Logan Leisure respectively were 46.5% and 64.3% in fiscal 1998. Pre-existing
operations achieved a gross profit percentage of 46.2% in fiscal 1998.
Selling, general and administrative expenses totaled $12,660,826 (1997:
$7,385,975) for the year ended September 30, 1998, an increase of $5,274,851 or
71.4% over fiscal 1997. Countdown, Logan Leisure and Countdown America accounted
for $2,817,263, $209,777 and $43,691 of such increase respectively. Selling,
general and administrative expenses of pre-existing operations and head office
were $7,795,248 in fiscal 1998, an increase of $2,204,120 or 39.4% as compared
to fiscal 1997. Selling, general and administrative expenses in fiscal 1998
included a number of non-recurring expenses including sign-on fees in relation
to the NHS acquisition ($925,000 approximately), $1,036,828 to write down the
carrying value of the Transmedia France license and other assets to fair value,
a writedown of approximately $462,000 in the carrying value of the TMNI License,
a write-off of approximately $264,000 relating to an aborted acquisition and
$100,000 to settle the Ernst lawsuit (see Item 3 Legal Proceedings). These
expenses were partially offset by cost reductions realized in pre-existing
operations of approximately $962,000. Such cost reductions were primarily in
selling expenses ($291,663), accounting and other professional fees ($115,229),
bad debt expense ($273,681), royalties ($70,390) and interest expense ($93,669).
The Company's share of losses of its affiliates Transmedia Australia and
Transmedia Holdings were $59,170 for the year ended September 30, 1998 (1997:
$116,899).
The minority interests in the Company comprise third party shareholdings in
Transmedia France and TMAP's interests in Countdown, Logan Leisure and Countdown
America.
The Company has net operating losses carried forward for income tax purposes. No
deferred tax benefit has been recognized for the year ended September 30, 1998
due to the 100% valuation allowance against deferred tax assets.
Fiscal 1997 compared to Fiscal 1996
24
The Company generated revenues of $7,870,256 for the year ended September 30,
1997 as compared to $3,696,400 in fiscal 1996, an increase of $4,173,856 or
112.9%. This increase was primarily due to the impact of the Countdown
acquisition in April 1997 and the consolidation of Transmedia France effective
January 1997. Countdown generated revenues of $3,239,052 for the six months
ended September 30, 1997 and Transmedia France generated revenues of $337,072
for the nine months ended September 30, 1997. Revenues generated by pre-existing
operations totaled $3,352,812 in fiscal 1997, an increase of 7.3% over fiscal
1996.
Membership fees for the year ended September 30, 1997 totaled $941,320 as
compared to $570,425 in fiscal 1996. Membership fees generated by Countdown post
acquisition totaled $435,923 and Transmedia France generated $19,398.
Pre-existing operations generated membership fees of $486,000 in fiscal 1997, a
decrease of 14% as compared to fiscal 1996. This decrease was due to UK
membership fees attracting sales tax at 17.5% effective May 1996 (which was not
passed on to members) and an increase in the number of `Free Card' restaurant
cardholders, net of the impact of an increase in the Cardholder base.
The Company increased the number of restaurant cardholders from 43,500 as of
September 30, 1996 to 52,000 as of September 30, 1997. The number of
Participating Restaurants increased from 440 as of September 30, 1996 to 570 as
of September 30, 1997. This increase was due to a combination of consolidating
Transmedia France which had 210 Participating Restaurants as of September 30,
1997, net of a reduction in pre-existing Participating Restaurants as part of an
on-going exercise to eliminate poor performing restaurants from the program.
Through the acquisition of Countdown the Company acquired 6,500,000 Countdown
members and over 100,000 Countdown accepting merchants.
Cost of sales totaled $4,709,911 in the year ended September 30, 1997 as
compared to $2,085,905 in fiscal 1996, an increase of $2,624,006 or 125.8%. Such
increase was mainly the result of consolidating Countdown ($2,299,559) and
Transmedia France ($264,056) in fiscal 1997.
Selling, general, and administrative expenses consisting primarily of salaries,
rents, commissions and other general overhead costs amounted to $7,385,975 for
the year ended September 30, 1997 as compared to $3,670,307 in fiscal 1996, an
increase of $3,715,668 or 101.2%. Of such increase Countdown and Transmedia
France accounted for $1,794,847 and $1,298,067 respectively. The increase in the
selling, general and administrative expenses incurred by pre-existing operations
totaled $545,742 and was primarily due to professional fees of $285,193 for work
on the proposed merger with TMAP, $112,875 of costs relating to the termination
agreement with a former director (Mr CEC Radbone), $62,265 of tax consultancy
costs, consultancy fees relating to the Countdown acquisition of $81,250 and
additional goodwill amortization of $237,486. The additional goodwill
amortization comprised $145,970 in respect of Countdown and Transmedia France
and $91,516 in respect of impairment of the carrying value of the License based
upon projected future cash flows. Excluding the impact of the above, selling,
general and administration expenses decreased by 6.4% in fiscal 1997 as compared
to 1996.
The Company's share of losses in Transmedia France for the three months ended
December 31, 1996 was $116,899. Commencing January 1, 1997 the financial
statements of Transmedia France were consolidated with those of the Company.
The minority interest's share of 1997 losses in Countdown and Transmedia France
were $202,905 and $602,954 respectively. The dividend payable on the preferred
shares amounted to $220,865 for the year ended September 30, 1997, an increase
of $86,445 due to an oversight in under recording a charge in 1996.
25
Liquidity and Capital Resources
The following table represents the net cash provided by or used in operating,
financing and investment activities for each period as indicated:
Year Ended
----------
September 30, 1998 September 30, 1997
Cash used in
Operating Activities $(5,104,204) $(2,429,465)
Cash used in
Investing Activities $(3,142,779) $(2,706,446)
Cash provided by financing
Activities $8,227,617 $4,373,854
The Company incurred a net loss of $7,829,742 for the year ended September 30,
1998. Such loss, adjusted for non-cash items, resulted in funds used in
operating activities totaling $5,104,204, net of working capital movements.
Non-cash items included depreciation and amortization charges totaling $817,713,
accrued sign-on fees of $296,500, accrued interest charges of $259,902, a
provision for irrecoverable restaurant credits of $291,423, the Company's share
of losses incurred by its affiliates of $59,170, and a provision against a
non-trade receivable of $86,938
The fiscal 1998 net cash used in investing activities of $3,142,779, net of the
proceeds of sale of fixed assets of $167,833, comprised the cash elements of the
Company's investment in Logan Leisure ($570,623) and Countdown America
($25,033). In addition, the Company invested $1,779,600 in its affiliates
Transmedia Australia and Transmedia Holdings. In fiscal 1997 cash used in
investing activities comprised the cash elements of the Company's investments in
Countdown and Transmedia France ($1,661,196), a option to purchase Nationwide of
$142,956, an option to expand the restaurant card business in Europe of $750,000
and an investment of $152,294 in fixed assets.
To meet its cash requirements during fiscal 1998, the Company sold in aggregate
3,422,095 shares of its Common Stock in equity private placements, resulting in
net proceeds to the Company of $3,909,595. In April 1998 the Company raised
approximately $1,615,000 through the issuance of four 8% promissory notes. Such
promissory notes fell due for payment on November 1, 1998. As of the date
hereof, three of such promissory notes have been repaid in full, together with
accrued interest. The fourth promissory note holder has given the Company
additional time to repay the balance of his note. Finally, on July 2, 1998 the
Company executed a $3,125,000 face amount 8% promissory note payable January 5,
1999 which resulted in net proceeds to the Company of $2,926,588. As of the date
hereof $950,000 has been repaid and by agreement with the note holder, the
balance of such promissory note is being repaid by monthly installments in the
sum of $300,000 per month.
The Company's independent auditor's report on the Company's consolidated
financial statements included in Item 8 states that "......the Company has
experienced losses from operations in during the year ended September 30, 1998
and has a working capital deficit that raises substantial doubt about its
ability to continue as a going concern. The Company has funded operations
through sales of equity securities and issuance of debt, and its ability to
continue as a going
26
concern is dependent on the Company's ability to continue to effect such sales
of equity and issue of debt".
During fiscal 1998 the Company relied on net revenues and the net proceeds of
equity placements and short-term debt financing to fund its operating needs and
investments. Management has taken steps to reduce the amount of cash used by
operations, including reducing staffing levels, however the Company's operations
may not provide sufficient internally generated cash flows to meet its projected
requirements in the short-term. Accordingly, the Company will require further
capital infusions in order to meet its loan repayment commitments and the
ongoing funding requirements of its operations. Based upon the Company's history
of obtaining necessary financing, management remains confident that sufficient
funds will be available for the Company to operate in the foreseeable future and
meet its loan repayment obligations. However there can be no assurance given
that the Company will be able to obtain such funding.
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 TMAP have worked closely to implement a
strategy to create a broader based international member benefits business. As a
result the Company currently has established business operations in Europe and
elsewhere and through its affiliates, Transmedia Australia and Transmedia
Holdings, has an interest in business operations in Australia and New Zealand.
In addition, the Company and TMAP have recently established business operations
in the United States and in November 1998 Countdown launched its transactional
web site business, Countdown Arcade. 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. However, there can be no assurance
given that the proposed merger will be completed or when, if at all,
profitability will be achieved.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the fiscal year ended September 30, 1998, a situation which is
expected to continue for foreseeable future. Some of the Company's affiliated
businesses such as Teletravel and Breakaway are seasonal, as is the Company's
restaurant card business albeit to a lesser extent. However, the Company has no
basis at this time on which to project the seasonal effects, if any, on its
business as a whole.
Effect of Year 2000
The Company has developed a plan to address the possible exposure related to the
impact of the Year 2000 on its computer systems. Key operating, financial and
management information systems have been assessed and plans have been developed
to address required systems modifications by December 31, 1999. The financial
impact of making the required system changes is not expected to be material to
the Company's consolidated financial position, results of operations or cash
flow. Management currently estimates the likely cost of system modifications to
be approximately $100,000.
In fiscal 1998 the Company established a Year 2000 group to evaluate the
potential exposure of the Company's computer systems and computer reliant
systems to Year 2000 issues. The working group completed its evaluation and has
developed a plan to ensure that all of the Company's systems will be fully
compliant by December 31, 1999.
27
The core business system used in the Company's restaurant card business is not
Year 2000 compliant and could fail to operate into the next millennium without
corrective action. The system was scheduled to be replaced in any event, with
completion planned for the fourth quarter of 1999. Interim systems were
developed and implemented during the first quarter of 1999 as a precautionary
measure. Countdown's systems were also evaluated and required some modification
and upgrading which was completed in the first quarter of 1999. Non core
business applications such as word processing and management information
reporting systems require some minor modification. Computer hardware has been
substantially upgraded to appropriate processors. The systems of the Company's
affiliates Transmedia Australia and Transmedia Holdings are fully compliant.
The Company is in communication with others with whom it does business,
including but not limited to, financial institutions and key customers, to
determine their Year 2000 compliance readiness and the extent to which the
Company is vulnerable to any third party Year 2000 issues. There can be no
assurance that the systems of third parties, on which the Company's systems
rely, will be converted (if required) on a timely basis, or that a failure to
convert or a conversion that is incompatible with the Company's systems would
not have a material adverse effect on the Company.
New U.S. Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
as including all changes in equity except those resulting from investments by
owners and distributions to owners. The Company will be required to adopt SFAS
No. 130 in the first quarter of fiscal 1999.
In June 1997, FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. The Company will be
required to adopt SFAS No. 131 in fiscal 1999.
Both of the above standards require comparative information to be restated.
Results of operations and financial position will be unaffected by
implementation of these new standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" (SFAS No. 132), which revises
employers' disclosures about pension and other post-retirement benefit plans.
SFAS 132 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. This standard does not currently apply to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes standards for accounting
for various derivative instruments commonly used in hedging activities. This
standard is effective for fiscal years beginning after June 15, 2000.
28
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk is foreign exchange rate variability. The
Company's reporting currency is the United States dollar. However, the
functional currencies of the Company's operating subsidiaries and affiliates
additionally include sterling, the Irish punt and the Australian dollar.
Management believes that fluctuations in currency exchange rates in the near
term will not materially affect the Company's consolidated operating results,
financial position or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is submitted in a separate section of this report. See pages
F-1, et. seq.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 26, 1997 KPMG resigned as the Company's independent
auditors. On the same date the Company appointed BDO Stoy Hayward as the
Company's independent auditors. This action was recommended by the Audit
Committee and approved by the Board of Directors.
In connection with their audit of the Company's consolidated financial
statements for the fiscal year ended September 30, 1996, and in the subsequent
interim period, there were no disagreements between KPMG and the Company on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope and procedures which, if not resolved to the satisfaction of
KPMG, would have caused KPMG to make reference to such matters in their report.
Notwithstanding the foregoing, by letter dated February 13, 1998, KPMG informed
the Company that it would not agree to file a consent to the inclusion of its
prior audit reports in the Company's Annual Report on Form 10-K for the year
ended September 30, 1997. The Company believes that there was no basis for this
action by KPMG.
The position of KPMG was set out in a letter dated February 13, 1998, which
stated that:
"Based on an evaluation of circumstances and recent events we have decided that
we are not willing to accept an assignment to consider whether we would re-sign
our audit report as of September 30, 1996 and for the year then ended for
inclusion in the Form 10-K filing of Transmedia Europe, Inc. for the year ended
September 30, 1997".
The financial statements for the fiscal year ended September 30, 1996 have been
re-audited by BDO Stoy Hayward and their report is included in this Annual
Report.
See the Company's Current Report on Form 8-K, as amended, filed with the
Commission on or about October 27, 1997 for a description of the resignation of
KPMG.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- ---- --- --------
Edward J. Guinan III 51 Chairman and Chief Executive Officer
Paul L. Harrison 37 President, Secretary and Principal
Financial Officer and Director
Carl Freyer (1) 59 Director
Joseph V. Vittoria (1) 64 Director
- ----------
(1) Member of the Audit Committee.
Directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. All officers hold office until
the meeting of the Board of Directors following the next annual meeting of
stockholders or until their earlier resignation or removal. There are no family
relationships between any of the directors or executive officers of the Company.
Edward J. Guinan III
Chairman and Chief Executive Officer
Edward J. Guinan III has been the Chairman of the Board of Directors, Chief
Executive Officer and a director of the Company since its inception in February
1993. Since March 1994 Mr. Guinan has also served as Chairman and Chief
Executive Officer of the Company's affiliate, TMAP. In addition, commencing May
1995, Mr. Guinan has served as President, Chief Executive Officer, Chief
Financial Officer and as the sole director of International Advance, Inc. Mr.
Guinan devotes substantially all of his time to the affairs of the Company and
TMAP. Prior to February 1993, Mr. Guinan headed his own broker-dealer firm
Guinan and Company which he established in 1984.
Paul L. Harrison
President, Secretary and
Principal Financial and Accounting Officer
Paul Harrison has been a director of the Company since June 1996. He was a
director and President of Transmedia Australia from May 1994 until June 1997.
Mr. Harrison is also President, Principal Financial and Accounting Officer and
Secretary of TMAP. In 1993, Mr. Harrison acted as a consultant to the Company in
connection with the initial funding of the Company and commencement of its
business operations. Prior to 1993, Mr. Harrison was Vice-President responsible
for European Equities at Salomon Brothers, London, where his responsibilities
included coordinating and marketing the sale of various derivatives and other
equity securities to European based institutional clients.
Joseph V. Vittoria
Director
Mr. Vittoria has been a director of the Company since inception. Mr. Vittoria is
Chairman and Chief Executive Officer Travel Services International, Inc. a
position he has held since that
30
company's inception in 1997. From September 1987 to January 1997, Mr. Vittoria
was Chairman and Chief Executive Officer of Avis Inc., having been a senior
executive at Avis from 1982. Mr. Vittoria is a director of TMAP.
Carl H. Freyer
Director
Carl Freyer has been a director of the Company since 1996. Mr. Freyer is also
President of Freyer Corporation, a financial consulting firm. He was a director
of G-Tech Corporation from 1983 to 1997. Mr. Freyer is a director of TMAP.
William D. Marks
Director
William Marks joined the board of directors of the Company on June 15, 1999
concurrent with the Company's acquisition of DSS Direct Connect, L.L.C. Mr.
Marks joined the board of directors of TMAP at the same time. Mr. Marks is a
graduate of the University of Virginia, with degrees in Economics and
Communications. For the past 15 years, Mr. Marks has worked in the cable
television and telecommunications industries and his experience has ranged from
installations and operations management to finance. From 1992 to 1998, Mr. Marks
served as Executive Vice President and Chief Operating Officer for The Marks
Group, a multiple system cable television operator serving subscribers in
southern California. In 1995, Mr. Marks formed Star Cable Services, Inc.
("Star") to perform, all types of telecommunications construction and
installations. Currently, Star is a mid-sized national telecommunications
contractor performing design, construction and installations for cable
television and telephony companies.
Reports under Section 16 (a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and 10% shareholders to file with the Securities
and Exchange Commission ("SEC") certain reports regarding such persons'
ownership of the Company's securities. Edward J. Guinan was late in filing Form
4 in respect of Common Stock owned by Mr. Guinan pledged to secure a
contemplated acquisition and Common Stock pledged to secure a Promissory Note
executed by the Company. Mr. Guinan is working on bringing his filings
up-to-date.
The Company is not aware of any other late filings of reports under Section 16.
31
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid during the three
years ended September 30, 1998 to the Company's Chief Executive Officer. No
other executive officer of the Company earned in excess of $100,000 for services
rendered during fiscal 1998.
Summary Compensation Table
Annual Long-Term Other
Compensation Compensation Compensation
Name and All Other
Principal Position Year Notes Salary Options/SAR's Compensation
Edward J. Guinan III
Chief Executive
Officer 1998 (1)(2) $165,330 3,250,000 80,359
1997 (3)(2) 162,100 0 38,472
1996 (4)(2) 153,625 0 22,925
(1) Based upon an exchange rate of 1 pound sterling = $1.6533
(2) Represents reimbursement of travel and entertainment expenses
(3) Based upon an exchange rate of 1 pound sterling = $1.6210
(4) Based upon an exchange rate of 1 pound sterling = $1.5362
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding stock option grants made
during the fiscal year ended September 30, 1998 to each of the named executive
officers and their potential realizable values.
Option/SAR Grants in Last Fiscal Year
Individual Grants
Number of % of
Shares of Total
Common Options/ Potential
Stock SARs Realizable Value
Underlying Granted at Assumed Annual
Options/ to Exercise Rates of Stock
SARs Employees or Base Price Appreciation
granted in Fiscal Price Expiration for Option Term
Name (#) Year ($/Share) Date ($)
5% 10%
Edward J.
Guinan CEO 3,250,000 67.0% $1.00 3/1/03 897,975 1,984,125
Paul Harrison
President 750,000 15.5% $1.00 3/1/03 207,225 457,875
32
In March 1998 the Board of Directors granted, subject to stockholder approval,
options to senior management to purchase 2,250,000 shares, in aggregate, of the
Common Stock of the Company at an exercise price of $1.00 per share.
Aggregate Options/SAR Exercises in Last Fiscal Year and FY-End Options/Values
The following table sets forth information as of September 30, 1998, concerning
exercisable and non exercisable options held by the Company's Chief Executive
Officer and any other executive officer of the Company earning in excess of
$100,000 for services rendered during fiscal 1998. The table also includes the
value of "in-the-money" options which represents the spread between the exercise
price of the existing stock options and the year end price of the Common Stock
which was $0.75.
Value of
Unexercised
Number of Securities In-the-Money
Shares Underlying Options at
Acquired Unexercised Options fiscal
on Value at Fiscal Year-End(#) Year-End($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Edward Guinan 0 0 0/3,250,000 0/0
Paul Harrison 0 0 200,000/750,000 0/0
Employment Agreements
On August 11, 1993 Mr. Guinan and the Company entered into an Employment
Agreement for a term ending on August 10, 1996 with annual extensions thereafter
unless terminated by either party. On March 2, 1998 Mr. Guinan and the Company
entered into a new Employment Agreement (the "New Employment Agreement"). The
New Employment Agreement is for a term ending on March 1, 2001 and provides for
an annual salary of 100,000 pounds sterling and participation in executive
benefit programs if and when put into effect by the Company. In addition, in
recognition of certain guarantees and pledges made by Mr. Guinan for the benefit
of the Company and to provide inducement for Mr. Guinan to make further
guarantees and pledges as required and to further the best interests of the
Company, the New Employment Agreement also provides that Mr. Guinan receive,
effective March 1, 1998, subject to shareholder approval, fully vested stock
options having a term of 5 years covering 2,500,000 shares of the Company's
Common Stock at an exercise price of $1.00 per share. The New Employment
Agreement includes confidentiality and non-compete restrictions during the term
of the New Employment Agreement and for a period of two years thereafter. Mr.
Guinan may be discharged for cause including failure or refusal to perform his
duties, dishonesty, conviction of a felony or fraud, engagement in acts
detrimental to the Company, material breach of any provision of the New
Employment Agreement, disability or death. Mr. Guinan is required to devote
substantial business efforts to the Company. Mr. Guinan is also employed by TMAP
and International Advance, Inc. The New Employment Agreement provides that Mr.
Guinan's other business activities shall not conflict with the terms of the New
Employment Agreement.
33
Stock Option Plans
In April, 1993, the Company adopted the 1993 Stock Option Plan ("the 1993
Plan"). The 1993 Plan was established to attract and retain personnel of the
highest caliber and to offer an incentive for officers and employees to promote
the business of the Company. The 1993 Plan authorizes the granting of incentive
stock options or non-qualified stock options to purchase the shares of common
stock of the Company, subject to adjustment in the event of stock splits, stock
dividends, recapitalizations, mergers, reorganizations, exchanges of shares and
other similar changes affecting the Company's common stock. Unless terminated
earlier, the 1993 Plan expires on December 31, 2003. Officers, employees and
other independent contractors who perform services for the Company or any of its
subsidiaries are eligible to receive incentive stock options. The 1993 Plan is
administered by the Board of Directors (or a committee appointed by it), which
determines the persons to whom awards will be granted, number of share options
to be granted and the specific terms of each grant. Under the 1993 Plan, no
stock option may be granted having an exercise price which is less than the fair
market value of the Company's common stock on the date of grant.
As of January 31, 1999 options to acquire 206,000 shares of Common Stock have
been granted under the 1993 Plan at an exercise price of $1.00 per share, 6,000
of which were exercised in fiscal 1995.
In January 1996, the Company's Board of Directors approved, and on April 25,
1996 the Company's stockholders approved, the 1996 Outside Directors Stock
Option Plan (the "Outside Directors Plan"). The purpose of the Outside Directors
Plan is to attract and retain the services of experienced and knowledgeable
independent directors. The Outside Directors Plan provides, commencing January
1, 1996, for the automatic granting to each non-employee director of the Company
a stock option to purchase 10,000 shares of Common Stock of the Company on
January 1 each year. In addition, the Outside Directors Plan provided that Mr.
Vittoria and another non-employee director (who has since resigned) each receive
an option to purchase an additional 20,000 shares in recognition of their
services as directors prior to adoption of the Outside Directors Plan. The
maximum number of shares of Common Stock which may be issued under the Outside
Directors Plan is 300,000 subject to adjustment in the event of stock splits,
stock dividends, recapitalizations, mergers, reorganizations, exchanges of
shares and other similar changes affecting the Company's issued Common Stock.
Each option issued under the Outside Directors Plan is exercisable by the
optionee for a period of five years from the date of the grant. Unless
terminated sooner, the Outside Directors Plan expires on January 11, 2006. The
Outside Directors Plan is administered by the Company's employee directors.
Options granted under the Outside Directors Plan have an exercise price equal to
the fair market value of the Common Stock on the last date preceding the date of
grant.
As of July 21, 1999, 60,000 options have been granted under the Outside
Directors Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the number of shares of Common
Stock beneficially owned, as of July 21, 1999, by (i) each beneficial owner of
more than five percent of the outstanding Common Stock, (ii) each current named
executive officer and director and (iii) all current executive officers and
directors of the Company as a group. All shares are owned both beneficially and
of record unless otherwise indicated. Additionally, unless otherwise indicated,
the address of each beneficial owner is c/o Transmedia Europe, Inc. 11 St.
James's Square,
34
London SW1Y 4LB, England.
Number and Percentage of Shares of Common Stock Owned
Name and Address Notes # of Shares Owned Percentage Owned
FAI Overseas Investment Pty
77 Pacific Highway
Sydney, Australia 2059 (2) 3,513,823 8.5%
(4) to
Edward J. Guinan III (11) 8,774,441 21.2%
Paul L. Harrison (12) 988,000 2.4%
(13)
Joseph V. Vittoria to (15) 1,171,206 4.4%
Carl Freyer (16)(17) 220,000 0.5%
William D. Marks (3) 4,299,641 10.4%
All directors and officers (2) to
as a group (five persons) (17) 16,119,955 38.9%
(1) Based on 28,350,177 shares of Common Stock outstanding on July 21, 1999.
(2) Includes 633,342 shares of Common Stock issuable upon exercise of warrants
granted November 1998 and 225,000 shares of Common Stock issuable upon
conversion of shares of the Company's 6.5% non-voting Convertible
Preferred Stock.
(3) Includes 1,956,578 shares of Common Stock owned by Mrs Donna Marks, Mr
Marks's stepmother.
(4) Includes 226,858 shares of Common Stock owned by Conestoga Partners II,
Inc. ("Conestoga") which Mr Guinan may be deemed to beneficially own. Mr
Guinan is a director and the President and Chief Executive Officer of
Conestoga and owns 75% of the outstanding capital stock thereof.
(5) Includes 800,000 shares of Common Stock placed in trusts set up for Mr
Guinan's children and certain other shares for which Mr Guinan disclaims
beneficial ownership. Does not include 93,750 shares of Common Stock owned
by Edward J Guinan Jr., Mr Guinan's father, of which Mr Guinan disclaims
beneficial ownership.
(6) Includes 133,332 shares of Common Stock issuable upon exercise of warrants
granted as part of the November 1998 Private Placement.
(7) Includes 581 shares of Common Stock owned by International Advance, Inc.
which Mr Guinan may be deemed to beneficially own. Mr Guinan is a
director, President, Chief Executive Officer and the controlling
stockholder of IA.
(8) Includes 200,000 shares of Common Stock issuable upon exercise of warrants
granted in May 1996.
(9) Includes 2,500,000 shares of Common Stock issuable upon exercise of
options granted, subject to shareholder approval, in March 1998.
(10) Includes 750,000 shares of Common Stock issuable upon exercise of options
granted, subject to shareholder approval, in March 1998.
(11) Includes 750,000 shares of Common Stock issuable upon exercise of options
granted, subject to shareholder approval, to Mrs Susan E Guinan, Mr
Guinan's wife, in March 1998.
(12) Includes 200,000 shares of Common Stock issuable on exercise of options
granted in 1993 and 750,000 shares of Common Stock issuable on exercise of
options granted, subject to shareholder approval, in March 1998. Does not
include 226,858 shares of Common Stock owned by Conestoga, of Mr Harrison
is a director and minority shareholder of which he disclaims beneficial
ownership.
(13) Includes 19,125 shares of Common Stock issuable upon conversion of shares
of the Company's 6.5% non-voting Convertible Preferred Stock.
(14) Includes 60,000 shares of Common Stock issuable upon exercise of warrants
granted as part of the 1995 Directors Stock Option Plan.
(15) Includes 125,000 shares of Common Stock issuable upon exercise of warrants
granted in April 1997 in relation to the acquisition of Countdown, 167,873
shares of Common Stock issuable upon exercise of warrants granted as part
of the August 1997 Private Placement and 250,000 shares of Common Stock
issuable upon exercise of warrants granted in March 1998.
(16) Includes 20,000 shares of Common Stock issuable upon exercise of warrants
granted as part of the 1995 Directors Stock Option Plan.
(17) Includes 200,000 shares of Common Stock issuable upon exercise of warrants
granted to Caribbean Basin Capital Consultants, Inc ("CBCC"), which Mr
Freyer may be deemed to beneficially own. Mr Freyer is a director,
President, Chief Executive Officer and the controlling shareholder of
CBCC.
35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1998 the Company charged a management fee of $1,060,526 (1997:
$679,786) to TMAP in respect of TMAP's share of corporate office expenses
comprising salaries, professional fees, rent, travel and other corporate costs.
As of September 30, 1998 TMAP owed the Company $2,454,716. Such receivable is
non-interest bearing and is repayable on demand.
Messrs. Guinan, Harrison, Freyer and Vittoria are also directors of Transmedia
Asia Pacific, Inc. See "Directors and Executive Officers of Registrant".
During fiscal 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria
advanced a loan of $1,000,000 to the Company. The purpose of the loan was to
enable the Company to pay the cash element of Countdown acquisition purchase
consideration. The loan, which bears interest at 12% per annum and is
collateralized by a pledge of all the shares of Countdown purchased by the
Company, was originally scheduled to mature on September 27, 1997. The loan was
renewed upon maturity for an indefinite period by agreement between the Company
and Mr. Vittoria. The loan is repayable on 60 days notice from Mr. Vittoria.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report.
(a)(1) Financial Statements:
Transmedia Europe, Inc.
See "Index to Financial Statements" contained in Part II, Item 8
(a)(2) Financial Statement Schedules:
I Consolidated Financial Statements for significant associate
Transmedia Australia Holdings Pty Limited
II Schedule of Valuation and Qualifying Accounts
(a)(3) Exhibits:
10.1 Employment Agreement dated March 2, 1998 between Transmedia
Europe, Inc. and Edward Guinan.
(b) Reports on Form 8-K
None.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized
TRANSMEDIA EUROPE, INC.
(Registrant)
Date: July 30, 1999 /s/ Edward J. Guinan III
----------------------------------------------
Edward J. Guinan III
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Date: July 30, 1999 /s/ Edward J. Guinan III
----------------------------------------------
Edward J. Guinan III
Chairman, Chief Executive Officer and Director
Principal Executive Officer
Date: July 30, 1999 /s/ Paul L. Harrison
----------------------------------------------
Paul L. Harrison
President, Secretary and Director
Principal Accounting Officer
Date: July 30, 1999 /s/ Carl Freyer
----------------------------------------------
Carl Freyer
Director
Date: July 30, 1999 /s/ Joseph Vittoria
----------------------------------------------
Joseph Vittoria
Director
Date: July 30, 1999 /s/ William D. Marks
----------------------------------------------
William D. Marks
Director
38
Item 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of BDO Stoy Hayward, Independent Auditors F1
Consolidated Balance Sheets F2 - F3
September 30, 1998 and 1997
Consolidated Statements of Operations F4
for the years ended September 30, 1998, 1997 and 1996
Consolidated Statements of Stockholders Equity (Deficit) F5
for the years ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows F6 - F7
for the years ended September 30, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements. F8 - F23
Schedule II - Valuation and Qualifying Accounts
And Reserves
Report of BDO Stoy Hayward, Independent Auditors
The Board of Directors and Stockholders
Transmedia Europe, Inc.
We have audited the accompanying consolidated balance sheets of Transmedia
Europe, Inc. and subsidiaries as of September 30, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended September 30, 1998. We
have also audited the financial statement schedule listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Transmedia Europe, Inc. and subsidiaries as of September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
ended September 30, 1998 in conformity with generally accepted accounting
principles in the United States. Also, in our opinion, the schedule presents
fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and schedule have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company has experienced
losses from operations during the years ended September 30, 1998, 1997 and 1996
and has a working capital deficit that raises substantial doubt about its
ability to continue as a going concern. The Company has funded operations
through sales of equity securities and issuance of debt, and its ability to
continue as a going concern is dependent on the Company's ability to continue to
effect such sales of equity and issue of debt. Management's plans in regard to
these matters are also described in Note 3. The consolidated financial
statements and schedule do not include any adjustments which might result from
this uncertainty.
August 4, 1999
BDO Stoy Hayward
London, England
F1
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
September 30, September 30,
1998 1997
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 747,913 $ 554,624
Trade accounts receivable 656,859 484,968
Restaurant credits, (net of allowance for irrecoverable
credits of $340,804 at September 30,1998 and
of $666,134 at September 30, 1997) 1,075,406 1,265,918
Amounts due from related parties (Note 4) 1,255,091 86,401
Prepaid expenses and other current assets 380,440 599,626
----------- -----------
Total current assets 4,115,709 2,991,537
Non-current assets
Investments in affiliated companies (Note 5) 2,220,430 --
Office furniture and equipment (net of accumulated
depreciation of $1,037,004 at September 30,1998
and $678,338 at September 30, 1997) 284,602 741,116
Other intangible assets (net of accumulated
amortization of $631,944 at September 30,1998
and $523,858 at September 30, 1997) (Note 6) 989,340 1,847,426
Goodwill (net of accumulated
amortization of $678,166 at September 30,1998
and $145,970 at September 30, 1997) (Note 7) 3,686,832 3,350,000
Restricted cash and cash equivalents (Note 2(l)) 138,830 --
Other assets 16,753 142,946
----------- -----------
Total non current assets 7,336,787 6,081,488
----------- -----------
TOTAL ASSETS $11,452,496 $ 9,073,025
----------- -----------
See accompanying summary of accounting policies and notes to
consolidated financial statements
F2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
September 30, September 30,
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Bank lines of credit $ 516,471 $ 952,668
Trade accounts payable 2,146,034 2,384,516
Deferred membership fee income 721,542 536,509
Accrued liabilities 2,062,879 1,459,388
Amount due to related parties (Note 4) 2,699,936 2,345,841
Sign-on fees payable (Note 5) 296,500 --
Notes payable (Note 8) 4,740,000 --
------------ ------------
Total current liabilities 13,183,362 7,678,922
Non-current liabilities 27,676 --
------------ ------------
13,211,038 7,678,922
Minority Interest 585,421 834,954
------------ ------------
13,796,459 8,513,876
Stockholders' (deficit) equity
6 1/2 % Convertible preferred stock, $0.01 par value per
share, 5,000,000 shares authorized, 590,857
issued and outstanding shares at September 30,1998 5,909 5,909
and 590,857 at September 30, 1997
Common stock, $.00001 par value, 95,000,000 shares
authorized, 18,376,454 issued and outstanding at
September 30,1998 and 14,075,787 at September 30, 1997 184 140
Additional paid in capital 17,018,781 12,108,055
Treasury Stock (at cost, 196,995 shares) (517,112) (517,112)
Cumulative foreign currency translation adjustment (366,808) (382,668)
Accumulated deficit (18,484,917) (10,655,175)
------------ ------------
Total stockholders' (deficit) equity (2,343,963) 559,149
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 11,452,496 $ 9,073,025
------------ ------------
See accompanying summary of accounting policies and notes to
consolidated financial statements
F3
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1997 1996
Revenues $ 9,395,377 $ 6,928,936 $ 3,125,975
Membership fees 1,173,154 941,320 570,425
------------ ------------ ------------
Total revenues and fees 10,568,531 7,870,256 3,696,400
Cost of revenues (5,680,316) (4,709,911) (2,085,905)
------------ ------------ ------------
Gross profit 4,888,215 3,160,345 1,610,495
Selling, general and administrative
expenses (Note 2 & 7) (12,660,826) (7,385,975) (3,670,307)
------------ ------------ ------------
Loss from operations (7,772,611) (4,225,630) (2,059,812)
Share of losses of affiliated companies (Note 5) (59,170) (116,899) (509,404)
Interest expense (295,257) -- --
Interest income 33,334 11,287 8,112
------------ ------------ ------------
Loss before income tax and preferred
share dividends (8,093,704) (4,331,242) (2,561,104)
Income taxes (Note 10) 35,802 13,621 --
Minority interest 362,580 805,859 --
Preferred share dividends (134,420) (220,865) (134,420)
------------ ------------ ------------
Net loss $ (7,829,742) $ (3,732,627) $ (2,695,524)
------------ ------------ ------------
Net loss per common share:
Basic and diluted (Note 11) $ (0.47) $ (0.27) $ (0.24)
Weighted average number of common shares
outstanding, basic and diluted (Note 11) 16,548,416 13,736,502 11,448,212
See accompanying summary of accounting policies and notes to the
consolidated financial statements.
F4
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
Number of Common Number of Preferred Additional Treasury
Common Stock Preferred Stock paid- in Stock
shares shares capital
Balance, September 30, 1995 11,426,680 $ 114 590,857 $ 5,909 $ 8,412,081 $ --
Issuance of common stock for cash 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 -- -- -- -- -- (517,112)
------------------------------------------------------------------------------------------
Balance, September 30, 1996 12,319,537 $ 123 590,857 $ 5,909 $ 9,647,072 $ (517,112)
Issuance of common stock for cash 556,250 6 -- -- 1,112,494 --
Issuance of common stock relating
to acquisition 1,200,000 11 -- -- 1,198,489 --
Issue costs -- -- -- -- (15,000) --
Net loss after preferred share
dividends -- -- -- -- -- --
Effect of foreign currency
translation -- -- -- -- -- --
Compensation expense - restricted
stock -- -- -- -- -- --
Option re Countdown -- -- -- -- 165,000 --
------------------------------------------------------------------------------------------
Balance, September 30, 1997 14,075,787 $ 140 590,857 $ ,909 $ 12,108,055 $ (517,112)
Issuance of common stock for cash 3,422,095 35 -- -- 3,909,560 --
Issuance of common stock
relating to acquisition of NHS 500,000 5 -- -- 499,995 --
Issuance of common stock relating
to acquisition of Logan Leisure 225,000 2 -- -- 326,172 --
Issuance of common stock to settle
an outstanding liability 53,572 1 -- -- 75,000 --
Issuance of common stock relating
to failed acquisition 100,000 1 -- -- 99,999 --
Net loss after preferred share
dividends -- -- -- -- -- --
Effect of foreign currency
translation -- -- -- -- -- --
------------------------------------------------------------------------------------------
Balance, September 30, 1998 18,376,454 $ 184 590,857 $ 5,909 $ 17,018,781 $ (517,112)
Cumulative Unearned Accumulated Total
Foreign currency compensation Deficit
translatio restricted stock
adjustment
Balance, September 30, 1995 $ 10,360 $ (402,000) $ (4,213,404) $ 3,813,060
Issuance of common stock for cash -- -- -- 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)
------------------------------------------------------------
Balance, September 30, 1996 $ 3,125 $ (78,000) $ (6,908,928) $ 2,152,189
Issuance of common stock for cash -- -- -- 1,112,500
Issuance of common stock relating
to acquisition -- -- -- 1,198,500
Issue costs -- -- -- (15,000)
Net loss after preferred share
dividends -- -- (3,746,247) (3,746,247)
Effect of foreign currency
translation (385,793) -- -- (385,793)
Compensation expense - restricted
stock -- 78,000 -- 78,000
Option re Countdown -- -- -- 165,000
------------------------------------------------------------
Balance, September 30, 1997 $ (382,668) $ -- $(10,655,175) $ 559,149
Issuance of common stock for cash -- -- -- 3,909,595
Issuance of common stock
relating to acquisition of NHS -- -- -- 500,000
Issuance of common stock relating
to acquisition of Logan Leisure -- -- -- 326,174
Issuance of common stock to settle
an outstanding liability -- -- -- 75,001
Issuance of common stock relating
to failed acquisition -- -- -- 100,000
Net loss after preferred share
dividends -- -- (7,829,742) (7,829,742)
Effect of foreign currency
translation 15,860 -- -- 15,860
------------------------------------------------------------
Balance, September 30, 1998 $ (366,808) $ -- $(18,484,917) $ (2,343,963)
F5
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended Year ended Year ended
September 30, September 30, September30,
1998 1997 1996
Cash flows from operating activities:
Net loss $(7,829,742) $(3,732,627) $(2,695,524)
Adjustment to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 985,133 555,227 151,265
Write-off of additional license fees 750,000 -- --
Minority interest (277,300) 834,954 --
Amortisation of unearned compensation -- 78,000 324,000
Provision for irrecoverable restaurant credits 291,423 266,806 41,771
Provision for bad debts 245,286 -- --
Reserve against non-trade receivable 86,938 -- --
Share of loss of affiliates 68,341 116,899 509,404
Accrued interest expense 259,902 -- --
Accrued sign-on fees 296,500 -- --
Gain on sale of property and equipment -- (3,609) --
Changes in assets and liabilities:
Trade accounts payable (413,707) 1,332,752 173,244
Accrued liabilities 489,383 (210,304) 219,010
Restaurant credits (100,910) (223,445) 206,619
Trade accounts receivable (302,811) 613,999 21,125
Prepaid expense and other current assets 367,932 (101,271) (150,838)
Deferred membership fees 185,033 183,967 10,001
Restricted cash and cash equivalents (138,830) -- --
Deferred license fee income -- (500,000) --
Other non-current assets 27,676 -- --
----------- ----------- -----------
Net cash used in operating activities (5,009,753) (788,652) (1,189,923)
Cash flows from investing activities:
Due from/(to) related parties (960,389) -- (338,053)
Proceeds on disposal/(acquisition) of fixed assets 167,833 (152,294) (18,141)
Net cash paid to acquire Porkpine Limited (570,623) -- --
Net cash paid to acquire TM France and Countdown -- (1,661,196) --
Loan repaid by affiliate -- -- 30,868
Interest acquired in affiliates (1,788,771) -- (300,000)
Purchase of NHS option -- (142,956) --
Royalties paid on additional French territories -- (750,000) --
----------- ----------- -----------
Net cash used in investing activities (3,151,950) (2,706,446) (625,326)
Cash flows from financing activities:
Net proceeds received from issuance of common stock 3,909,595 1,097,500 1,235,000
Shares issued to settle legal claim 75,001 -- --
Proceeds from notes payable 4,740,000 -- --
Payment of preferred dividend -- -- (71,685)
Bank lines of credit (repaid) advanced (496,979) 902,668 (109,422)
Loans from related parties re Countdown acquisition -- 2,373,686 --
----------- ----------- -----------
Net cash provided by financing activities 8,227,617 4,373,854 1,053,893
F6
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
Year ended Year ended Year ended
September 30, September 30, September 30,
1998 1997 1996
Effect of foreign currency on cash 15,860 (385,793) 26,106
--------- --------- ---------
Net increase/(decrease) in cash and cash equivalents 81,774 492,963 (735,250)
Cash and cash equivalents at beginning of period 554,624 61,661 796,911
Cash acquired as part of acquisitions 111,515 -- --
--------- --------- ---------
Cash and cash equivalents at end of period $ 747,913 $ 554,624 $ 61,661
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for: 1998 1997 1996
Interest $ -- $ 74,173 $ 13,750
No amounts of cash were paid for income taxes in fiscal 1998, 1997 or 1996
Supplemental disclosures of non-cash investing and financing activities
(1) In April, 1997, the Company issued 1,200,000 shares of its common stock as
part payment for its investment in Countdown Holdings Limited ("Countdown"). The
Company paid a total of $2,659,655 for its investment in Countdown, made up as
follows:
Cash payment $ 1,209,655
Issuance of 1,200,000 shares of Common Stock 1,200,000
Loan Note in favor of TMNI International, Inc. 250,000
-----------
$ 2,659,655
(2) In December, 1997 the Company issued 500,000 shares of its common stock as
part payment for the acquisition by NHS Australia Pty Limited of the business of
Nationwide Helpline Service Pty Limited. As at September 30, 1998 total
acquisition costs were $ 2,162,023 made up as follows:
Cash payment $ 1,662,023
Issuance of 500,000 shares of Common Stock 500,000
-----------
$ 2,162,023
(3) In May, 1998 the Company issued 225,000 shares of its common stock as part
payment for its investment in Porkpine Limited ("Porkpine"). The Company paid a
total consideration of $896,797 for its investment in Porkpine made up as
follows:
Cash payment $ 570,623
Issuance of 225,000 shares of Common Stock 326,174
-----------
$ 896,797
F7
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. The Company
Transmedia Europe, Inc. ("TME" or "the Company") is a Delaware corporation which
was organized in February 1993 and commenced operations in the UK in December
1993. The Company commenced operations in France in March 1996.
On December 2, 1997, Transmedia Australia Holdings Pty Limited ("Transmedia
Australia"), a company owned equally by the Company and Transmedia Asia Pacific,
Inc. ("TMAP"), purchased 51% of the Common Stock of NHS Australia Pty Limited
("NHS"). On November 17, 1998 Transmedia Australia acquired the remaining 49% of
NHS (Refer Note 7 "Acquisitions" for further details).
On May 14, 1998 the Company and TMAP purchased jointly 100% of the outstanding
Common Stock of Porkpine Limited ("Porkpine").
On May 22, 1998 Transmedia Australia Travel Holdings Pty Limited (" Transmedia
Holdings"), a company owned equally by the Company and TMAP acquired 100% of the
issued share capital of Breakaway Travel Club Pty Limited ("Breakaway").
As of September 30,1998, the Company had the following equity interests in its
direct subsidiaries and affiliates:
Name Country of Incorporation % owned
Subsidiaries
Transmedia Europe plc United Kingdom 100.0
Transmedia UK Inc. United States of America 100.0
Countdown Holdings Limited United Kingdom 50.0
Transmedia La Carte Restaurant S.A(`Transmedia France') France 50.1
Countdown America, Inc. United States of America 50.1
Porkpine Ltd Channel Islands 50.0
Affiliates
Transmedia Australia Travel Holdings Pty Limited Australia 50.0
Transmedia Australia Holdings Pty Limited Australia 50.0
As a result of a reorganization on March 31, 1998 the entire common stock of
Transmedia UK Plc was transferred to Transmedia France for a consideration of
$806,000. Until that date Transmedia UK Plc was accounted for as a wholly-owned
subsidiary. The financial statements do not include any gain or loss arising
from this transaction.
All references herein to "Company" and "TME" include Transmedia Europe Inc. and
its subsidiaries unless otherwise indicated.
F8
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Significant accounting policies
(a) Principles of consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries and affiliates, including 50% held subsidiaries
where effective control is exercised by the Company over the financial and
operational decisions of the subsidiary. All significant intercompany
transactions have been eliminated on consolidation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's ability to continue as a
going concern may depend on its ability to obtain outside financing sufficient
to support its operations and business development plans (Refer Note 3).
(b) 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 cardholders utilizing 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 utilized by cardholders.
The amount of funds advanced to participating restaurants are generally
unsecured and are recoverable as cardholders utilize their restaurant charge
card at the respective restaurant. In certain cases, the Company may request a
personal guarantee from the owner of a restaurant with respect to the
recoverability of the advance if the restaurant ceases operations or ceases to
be a participating restaurant. Generally, no other forms of collateral or
security are obtained from the restaurant owners.
(c) Long-Lived assets
Long-lived assets, such as office furniture and equipment, goodwill and other
intangibles, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value. In fiscal 1998 the Company provided $167,420 as a
write-down against assets in Transmedia France (fiscal 1997 - $91,514; fiscal
1996 - $nil.) and a write-down of $750,000 (fiscal 1997 and 1996 - $Nil) against
intangibles.
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the Transmedia License
paid to TMNI International, Inc. (TMNI) in cash plus the fair value of Company
shares granted in exchange for the Transmedia License to operate in the licensed
territories using the systems, procedures and `know how' of the Transmedia
business.
The license cost is being amortized on a straight-line basis over its estimated
useful life of 15 years from the commencement of operations in November 1994.
(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
useful lives which are between 3 - 5 years.
F9
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Significant accounting policies (continued)
(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 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 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 be realized.
(h) Revenue recognition
Revenues and fees comprise:
(i) the retail value of food and beverage purchased from participating
restaurants by the Company's Transmedia cardholders (less the
cardholders' 20% or 25% discount) and cardholders' membership fees.
(ii) Countdown cardholders' membership fees and Countdown voucher sales.
(iii) Countdown license fees from licensees
Transmedia card membership fees are recognized as revenue in equal monthly
installments over the membership period. All other components of revenue,
including membership fees and Countdown license fees are non-refundable and
recognized as revenue when the related services have been performed.
(i) Unearned compensation
The Company recorded unearned compensation in fiscal 1996 for shares of
restricted common stock issued in exchange for certain consultancy and financial
advisory services. The restricted shares and the unearned compensation were
recorded at the fair value of the shares at the date at which they were issued.
Compensation expense was recorded on a periodic basis as the restriction on such
shares expired.
(j) Cardholder bonuses
In fiscal 1995 and 1996 the Company operated a cardholder "Bonus" program
whereby at the discretion of the Company the cardholder received a bonus of food
and beverage, credited to their account. The bonus was utilized as the
cardholder used The Restaurant Card and was processed as an additional saving to
the standard 20% or 25% saving offered by the Company. The bonus was accrued by
the Company when the bonus was granted to the Cardholder.
F10
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Significant accounting policies (continued)
(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 pounds sterling, French franc, Irish punt and the Australian dollar. The UK
pound sterling is the functional currency of the Company's restaurant card and
Countdown businesses because it is the primary currency of the environment in
which the businesses operate as autonomous units. A significant proportion of
the cash generated and expended by these businesses is in UK pounds sterling.
Similarly the functional currency of the Company's interest in Porkpine and NHS
are the Irish punt and Australian dollar respectively, because the businesses
are located and operate in the Republic of Ireland and Australia.
For consolidation purposes, the assets and liabilities of overseas subsidiary
undertakings are translated at the closing exchange rates. Consolidated
statements of income of such undertakings 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 currency
translation adjustment account as a component of stockholders' equity (deficit).
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the consolidated statement of operations. In the year ended
September 30, 1998 the Company recorded an exchange loss of $58,339 (1997 loss
of $16,218, 1996 loss of $55,775).
The average exchange rates during the years ended September 30, 1998, 1997 and
1996 and the exchange rates in effect at September 30, 1998 and 1997 were as
follows:
UK Pound French Australian Ireland
Sterling ((pound)) Franc Dollar Punt
Average exchange rates
Year ended September 30,1998 1.6533 0.1674 0.6470 1.4215
Year ended September 30,1997 1.6200 0.1685 0.7302 N/A
Year ended September 30,1996 1.5600 0.1938 0.7900 N/A
Closing exchange rate
September 30, 1998 1.7000 0.1786 0.5930 1.4995
September 30,1997 1.6125 0.1639 0.7251 1.4545
(l) 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.
As at September 30, 1998 the Company had deposited in a restricted bank account
$138,830 (1997: $nil) held as a guarantee against Countdown's overdraft
facility.
(m) Advertising costs
The Company expenses advertising costs as incurred. Advertising costs for the
years ended September 30, 1998, 1997 and 1996 were $nil, $26,311 and $55,610
respectively. The Company has used direct response advertising in the past and
may use such advertising in the future. However, the Company did not have costs
related to direct response advertising campaigns during the years ended
September 30, 1998, 1997 and 1996.
F11
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Significant accounting policies (continued)
(n) Use of estimates
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the consolidated financial
statements and revenues and expenses during the reported period. Actual results
could differ from these estimates.
(o) Financial instruments
Financial instruments held by the Company include cash and cash equivalents,
restricted cash, notes payable, restaurant credits and amounts due from/to
related parties and approximated fair value as of September 30, 1998 and 1997
due to either short maturity or terms similar to those available to similar
companies in the open market.
(p) Recent U.S. accounting pronouncements not yet implemented
In June 1997, the Financial Accounting Standards Board ("FASB") issued two new
disclosure standards, Statement on Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information".
SFAS No. 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. This standard is effective for the Company's
financial statements for the fiscal year ending September 30, 1999.
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes standards for the way that public
enterprises report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. This standard will
be effective for the Company's financial statements issued for the fiscal year
ending September 30, 1999.
Both of these standards require comparative information to be restated. Results
of operations and financial position will be unaffected by implementation of
these new standards. Management has not yet completed its evaluation of the
impact of these new standards on future financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS No. 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS 132 is effective for financial statements for the periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. This standard currently does not apply to the Company.
In June 1998, the 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.
F12
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Going Concern
The financial statements record a loss for the year ended September 30,1998 of
$7,829,742, which, when taken with the previous years' results, result in an
accumulated deficit of $ 18,484,917. The Company has Net Current Liabilities of
$9,067,653 at September 30, 1998 (1997: $4,687,385).
The Company has been able to fund this deficit and complete its acquisitions
through the sale of equity securities and issuance of debt (Refer Note 8 "Notes
Payable" and Note 9 "Stockholders Equity" for further details). Management has
taken steps to reduce the amount of cash used by operations, including reducing
staffing levels, however the Company's operations may not provide sufficient
internally generated cash flows to meet its projected requirements in the
short-term. Accordingly, the Company is likely to require further capital
infusions in order to meet its loan repayment commitments and the ongoing
funding requirements of its operations. Based upon the Company's history of
obtaining necessary financing, management remains confident that sufficient
funds will be available to the Company to operate in the foreseeable future and
meet its loan repayment obligations. However there can be no assurance given
that the Company will be able to obtain such funding.
Note 4. Related party transactions
The net amounts due from/(to) related parties consist of the following:
September 30, 30 September,
Amounts due from: 1998 1997
---- ----
International Advance Inc $ 779,986 $ 86,401
Conestoga Partners, Inc. 208,035 --
Transmedia Asia Pacific, Inc. 42,169 --
Transmedia Australia Pty Ltd. 224,901 --
---------- ----------
$1,255,091 $ 86,401
Amounts due to:
---------- ----------
E Guinan III 96,735 17,831
Transmedia Asia Pacific, Inc. 383,531 254,134
J V Vittoria 1,182,137 1,061,479
TMNI 1,037,533 1,012,397
---------- ----------
$2,699,936 $2,345,841
---------- ----------
Loans to related parties are unsecured non-interest bearing and repayable upon
demand except as noted below.
During fiscal 1997 the Company entered into an agreement with Mr J Vittoria, a
director and shareholder of the Company, whereby Mr Vittoria advanced a loan of
$1,000,000 to the Company. The purpose of the loan was to enable the Company to
pay the cash element of the purchase of the Company's interest in Countdown. The
loan, which bears interest at 12% per annum and is collateralized by a pledge of
all the shares of Countdown purchased by the Company, was originally scheduled
to mature on September 27, 1997. The loan was renewed upon maturity for an
indefinite period by agreement between the Company and Mr Vittoria. The loan is
repayable on 60 days notice from Mr Vittoria.
The Company and TMAP issued a joint promissory note together in the principal
amount of $500,000 to TMNI for which the liability has been split between the
two companies equally. The promissory note was payable on April 2, 1998, bears
interest at the rate of 10% per annum, and is convertible at the holder's option
into common stock of each issuer at the rate of $1.20 per share. To date this
promissory note has not been repaid or converted.
F13
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Related party transactions (continued)
During the year ended September 30, 1998, the Company charged a corporate
management fee of $1,060,526 (1997: $679,786, 1996: $362,793) to TMAP in respect
of TMAP's share of the head office expenses, comprising salaries, rent, travel
and other associated office and professional costs.
Note 5. Investment in Affiliated Companies
(1) On December 2, 1997, Transmedia Australia, a company owned equally by the
Company and TMAP but controlled and consolidated by TMAP, purchased 51% of the
common stock of NHS a newly incorporated company. NHS purchased the net assets
and business of Nationwide Helpline Services Pty Limited ("Nationwide").
Nationwide was an Australian provider of telephone helpline services and other
member benefit programs. The total consideration paid by Transmedia Australia
for its 51% interest in the equity of NHS was Aus$6,000,000 (approximately
$4,290,000 as of December 2, 1997). Transmedia Australia also exercised their
right to purchase the balance of the equity of NHS for Aus$2,500,000 payable on
June 30, 1998 with the right to extend such obligation ("Balance Obligation")
until September 30, 1998 by paying interest at 5% per annum. Transmedia
Australia exercised the extension right. In addition the Company and TMAP agreed
to pay Aus$4,000,000 in sign-on fees to the two former executive directors of
Nationwide. On October 21, 1998 the Company and TMAP reached agreement to reduce
these sign-on fees by Aus$1,000,000.
On November 17, 1998 the Company and TMAP acquired the remaining 49% and settled
the Balance Obligation. The Company and TMAP also paid the reduced sign-on fees
on that date.
The total revised sign-on fees of Aus$3,000,000 (approximately $1,940,000) have
been charged as compensation expense equally in the statement of operations of
the Company and TMAP for the year ended September 30, 1998.
(2) On May 22, 1998, Transmedia Holdings, a company owned equally by the Company
and TMAP but controlled and consolidated by TMAP, acquired 100% of the issued
share capital of Breakaway Travel Club Pty Limited ("Breakaway"). The total
consideration paid was Aus$375,000 (approximately $230,000) plus acquisition
costs of $16,000. Such consideration was paid equally by the Company and TMAP in
cash.
Investment in affiliated companies of $ 2,220,430 are made up as follows:
September 30, September 30,
1998 1997
---- ----
Transmedia Australia
Cost of investment $ 253,349 $ --
Amount due from Transmedia Australia 1,908,674
Share of losses
- From date of acquisition to September 30, 1998 (68,666) --
Amortization of goodwill on investment (7,763) --
----------- -------------
$ 2,085,594 $ --
=========== =============
Transmedia Holdings
Cost of investment $ 126,748 $ --
Share of profits
- From date of acquisition to September 30, 1998 9,496 --
Amortization of goodwill on investment (1,408) --
----------- -------------
$ 134,836 $ --
=========== =============
F14
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Investment in Affiliated Companies (continued)
Transmedia Australia Summary Financial
Information
September 30, September 30,
1998 1997
Audited Unaudited
(See note
below)
$ $
Balance Sheet
Current Assets 1,748,237 1,193,183
Non Current Assets
Property and equipment 191,116 356,169
Intangibles 1,348,382
Other 52,085 21,617
---------------------------------
1,591,583 377,786
Current Liabilities 1,378,957 1,165,220
Non Current Liabilities 2,212,017 22,864
---------- ----------
Net (liabilities) / assets (251,154) 382,885
=================================
Minority interest (916,178)
Stockholders Equity
Common Stock 1,873,764 725
Accumulated profits (1,208,740) 382,160
---------------------------------
(251,154) 382,885
=================================
Operating profit 480,427 307,899
Net (loss)/profit (1,208,740) 198,965
The summary information disclosed for fiscal 1997 relates to NHS only as
Transmedia Australia did not exist in that year.
F15
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Intangible assets
Intangible assets consist of the cost of the Transmedia license as follows:
September 30, 1998 September 30, 1997
Cost $ 2,371,284 $ 1,621,284
Additions -- 750,000
Write-off (750,000) --
----------- -----------
1,621,284 2,371,284
Less: accumulated amortization (631,944) (523,858)
----------- -----------
$ 989,340 $ 1,847,426
=========== ===========
Note 7. Acquisitions
(a) Countdown
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50% of the
outstanding capital stock of Countdown Holdings Limited. Countdown Holdings
Limited, through its wholly owned operating subsidiary, Countdown plc is an
international provider of membership discount services. The balance of the
outstanding capital stock was simultaneously purchased by TMAP on terms similar
to the Company's purchase. Countdown is controlled and consolidated by the
Company.
In payment of the purchase price for Countdown Holdings Limited, the Company
issued 1,200,000 shares of its Common Stock, $0.00001 par value per share
("Common Stock") and paid pounds (UK) 500,000 (approximate US$ equivalent as of
April 3, 1997 was $800,000) in cash. In addition, the Company granted Mr.
Radbone a five year option to purchase up to 250,000 shares of Common Stock at a
purchase price of $1 per share.
The cash portion of the purchase price for Countdown Holdings Limited was funded
by a $1,000,000 loan from a director and stockholder of the Company. The Loan
matured on September, 27 1997, bears interest at a rate of 12% per annum, and
has been renewed by agreement between Edward J. Guinan III, Chairman of the
Board, and the director. The expiration date has been extended for an indefinite
period of time and is repayable on 60 days notice. The loan continues to bear
interest at 12% per annum. The loan is collateralised by a pledge of all the
shares purchased by the Company from Mr. Radbone. In connection with the loan,
the Company issued to the director and stockholder five-year warrants to
purchase up to 125,000 shares of Common Stock at $1.25 per share. In connection
with the acquisition, the Company and TMAP each agreed to pay $125,000 in cash
to Transmedia Network International Inc. ("TMNI") and both agreed to issue TMNI
a joint promissory note in the principal amount of $500,000, the liability for
which has been split between the two companies equally, payable on April 2, 1998
and bearing interest at the rate of 10% per annum. The promissory notes are to
be convertible at the holder's option into an equal number of shares of Common
Stock of the issuer at the rate of $1.20 per share. The Company agreed to pay
such amounts in order to obtain the consent to the Countdown acquisition, which
consent was required by the terms of the master license agreement from TMNI
under which the Company operates its discount restaurant card business. For a
more detailed discussion of the terms of the transaction, reference is made to
the Company's current report on form 8-K dated December 2, 1997, which is
incorporated by this reference herein.
Goodwill arising on acquisition of Countdown Holdings Limited amounted to
$3,495,970 and is being amortised over a period of fifteen years.
F16
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Acquisitions (continued)
(b) Porkpine
On May 14, 1998 the Company and TMAP purchased 100% of the outstanding common
stock of Porkpine Limited ("Porkpine"). The consideration paid totaled 1,060,000
pounds sterling ($1,749,000 approximately) and was subject to increase or
decrease by an amount equal to the net current assets of Porkpine and its
subsidiaries as at the date of completion. The net current assets of Porkpine
and its subsidiaries as of May 14, 1998 totaled $33,627.
(c) Others
The Company incurred costs of $362,000 and issued 100,000 shares of common stock
with a market price of $1.00 at the date of issue in connection with a failed
acquisition. These costs have been included in selling, general and
administrative expenses in the statement of operations.
Note 8. 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 8% promissory notes
each in the amount of (pound)250,000 (approximately $425,000) face amount,
payable on November 1, 1998 and one 8% promissory note in the amount of
(pound)200,000 (approximately $340,000) face amount, payable on the same date.
The holders of the (pound)250,000 promissory notes each received a three and a
half year warrant to purchase 41,660 shares of the common stock of the Company
at an exercise price of $2.00 per share and the holder of the (pound)200,000
promissory note received a warrant to purchase 33,328 shares on the same terms.
The warrants are exercisable at any time after issuance through November 1, 2001
and are not considered to have any value.
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 payable on January 5,1999 and resulted in net proceeds of
$2,926,588 to the Company after deduction of arrangement fees. These funds were
raised to meet the working capital requirements of the Company.
Refer also Note 16 "Subsequent Events"
Note 9. Stockholders Equity
On August 7, 1997 the Company commenced a private placement (the "Placement") of
up to 1,250,000 shares of common stock at a price of $1.00 per share. The
Placement was made pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. On November 17, 1997 the number of shares in the
Placement was increased from 1,250,000 to 1,750,000. The Placement closed on
December 31, 1997 upon the sale of 1,472,095 shares resulting in gross proceeds
to the company of $1,472,095. For every three shares sold subscribers received a
three year warrant to purchase one share of the common stock of the Company at
an exercise price of $1.00 per share for no additional consideration. The
warrants are exercisable at any time after the date of grant for a period of
three years. In addition, in consideration of their agreement to purchase, on a
standby basis, a number of shares in the Placement, certain holders of preferred
stock of the Company were granted three-year warrants to purchase an aggregate
of 327, 656 shares of Common Stock of the Company at an exercise price of $1.00
per share.
F17
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Stockholders Equity (continued)
On February 1, 1998 the Company commenced a private placement of common shares
pursuant to the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The
Placement closed on April 30, 1998 upon the sale of 1,950,000 shares of common
stock of the Company resulting in net proceeds to the company of $2,437,500. For
every three shares sold each subscriber received a three year warrant to
purchase one share of the common stock of the Company at an exercise price of
$1.25 per share for no additional consideration. The warrants are exercisable at
any time after the date of grant for a period of three years.
Refer also Note 16 "Subsequent Events"
Note 10. Income taxes
Income taxes reflected in the accompanying statements of operations differ from
the amounts computed by applying the US federal tax rate of 36% to loss before
taxes as a result of the following:
Year ended Year ended Year ended
September 30, September 30, September 30,
1998 1997 1996
-------------------------------------------------
Computed `expected' tax benefit $(2,914,000) $(1,477,000) $ (871,000)
Non deductible expenses 208,000 85,000 57,000
Change in valuation allowance for deferred tax assets 2,734,802 1,398,621 807,000
Other (net) 7,000 7,000 7,000
-------------------------------------------------
Income tax expense$ 35,802 $ 13,621 $ --
=================================================
The tax effects of temporary differences that give rise to deferred tax assets
are as follows:
Year ended Year ended Year ended
September 30, September 30, September 30,
1998 1997 1996
-------------------------------------------------
Deferred tax assets:
Net operating loss carry forwards $ 5,871,000 $ 2,957,000 $ 1,463,000
Deferred license fee -- 170,000 170,000
Investment in affiliated company -- -- 375,000
Royalties 92,000 254,000 188,000
Pre operating costs capitalised for tax purposes 7,000 7,000 7,000
Other 174,000 22,000 13,000
-------------------------------------------------
Total 6,144,000 3,410,000 2,216,000
Less valuation allowance (6,144,000) (3,410,000) (2,216,000)
-------------------------------------------------
Net deferred tax assets $ -- $ -- $ --
=================================================
The foreign net operating loss carry forward of approximately $3.0 million may
be carried forward
F18
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Loss per common share
The Company adopted SFAS No. 128, "Earnings per Share" issued in February 1997.
The new pronouncement was effective for periods ending after December 15, 1997,
and required restatement of prior periods. Assumed exercise of warrants are not
included in the calculation of diluted loss per share of all periods presented
since the effect would be anti-dilutive. Accordingly, basic and diluted loss per
share does not differ for any period presented.
The following table summarizes securities that were outstanding at September 30,
1998, 1997 and 1996, but not included in the calculation of diluted loss per
share because the exercise of such options and warrants would be anti-dilutive.
Sept 30, 1998 Sept 30, 1997 Sept 30, 1996
Stock options and warrants 9,183,023 1,198,036 637,619
Note 12. Leases
The Company leases certain office space under lease agreements.
Future minimum lease payments under non-cancelable operating leases as of
September 30, 1998, are as follows:
Year ending September 30, 1999 $270,751
Year ending September 30, 2000 270,751
Year ending September 30, 2001 270,751
Year ending September 30, 2002 270,751
Year ending September 30, 2003 264,402
Thereafter 2,461,973
The amount charged to the consolidated statement of operations for rent expense
in the year ended September 30,1998 was $286,043 (1997: $150,137, 1996:
$149,449).
Note 13. Stock options and warrants
Under the Company's 1993 stock option and rights plan (the `Plan'), the Company
may grant stock options and stock appreciation rights to persons who are now or
who during the term of the Plan become key employees (including those who are
also directors) and to independent sales agents. Stock options granted under the
Plan may either be incentive stock options or non-qualified stock options for US
federal income tax purposes. The Plan provides that the stock option committee
of the board of directors may grant stock options or stock appreciation rights
with respect of a maximum of 250,000 shares of common stock at an exercise price
not less than the fair market value at the date of grant for qualified and
non-qualified stock options.
The Company has allocated options to purchase 206,000 shares of common stock
under the Plan at a price of $1.00 exercisable at any time through August 31,
1998. No stock appreciation rights have been granted.
In addition, the Company issued options for 40,000 shares of Common Stock in
1996 (of which 10,000 were cancelled in 1997), and 10,000 in 1997, under the
Company's 1996 stock option plan for outside directors. The plan provides that
the Stock Option Committee of the Board of Directors may grant stock options
with respect to a maximum of 300,000 shares of Common Stock. These options have
a five year term.
F19
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Stock options and warrants (continued)
The Company has also issued warrants to purchase 597,619 shares of common stock
at an exercise price ranging from $1.40 to $2.50 per share. The warrants have a
three to five year term expiring through July 2000.
In April 1997, the Company granted an option to purchase up to 250,000 shares of
Common Stock at a purchase price of $1 per share to the owner of Countdown as
part of the consideration given for the 50 % purchase of Countdown (as described
in Note 7). In addition, the Company issued warrants to purchase 125,000 shares
of common stock at an exercise price of $1.25 per share with an expiration date
of April 2002.
The Company estimated the fair value of these options and warrants using the
Black Scholes Valuation method with the following weighted average assumptions:
no dividends for all years; expected volatility of 40%; a risk free interest
rate of 6.7% and an expected life being the remaining term of the option.
Stock option and warrant activity during the periods indicated is as follows:
Weighted Weighted
Options Average Warrants Average
Number of Exercise Number of Exercise
Shares Price Shares Price
Balance at September 30, 1995 200,000 $1.00 -- $ --
Granted 40,000 2.08 -- --
Granted -- -- 100,000 2.50
Granted -- -- 200,000 1.50
Granted -- -- 297,619 1.40
Cancelled (200,000) 1.00
Exercised -- -- -- --
---------- ----- ---------- -----
Balance at September 30, 1996 40,000 $2.08 597,619 $1.62
Granted -- -- 185,417 2.00
Granted 10,000 1.25 -- --
Granted 250,000 1.00 125,000 1.25
Cancelled (10,000) (2.08) -- --
---------- ----- ---------- -----
Balance at September 30, 1997 290,000 $1.12 908,036 $1.65
Granted 200,000 1.00 1,268,351 1.00
Granted -- -- 799,996 1.25
Granted 4,870,000 1.50 -- --
Granted -- -- 846,640 2.00
---------- ----- ---------- -----
Balance at September 30, 1998 5,360,000 $1.46 3,823,023 $1.43
---------- ----- ---------- -----
F20
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Stock options and warrants (continued)
The range of exercise prices for the options are $1.00 to $2.08. The range of
exercise prices for the warrants are $1.00 to $2.50. All the options and
warrants shown as at September 30, 1998 and 1997 were exercisable at that date.
The Company applies APB Opinion No.25 in accounting for its stock options issued
to employees and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements since options were granted at the
market price on the date of grant. Had the Company determined compensation cost
based upon the fair value at the grant date for its stock options and warrants
under SFAS No.123, the Company's net losses would have been increased to the pro
forma amounts indicated below:
September 30, September 30, September 30,
1998 1997 1996
Net loss - As reported $ (7,829,742) $ (3,732,627) $ (2,695,524)
- Pro forma $ (7,982,663) $ (3,770,548) $ (2,711,364)
Loss per share - As reported
- Basic $ (0.47) $ (0.27) $ (0.24)
- Diluted $ (0.47) $ (0.27) $ (0.24)
Loss per share - Proforma
- Basic $ (0.48) $ (0.27) $ (0.24)
- Diluted $ (0.48) $ (0.27) $ (0.24)
In arriving at such pro-forma amounts, the Company estimates the fair value of
each stock option on the grant date by using the Black Scholes Valuation Method
with the following weighted average assumptions used for grants in fiscal 1998,
1997 and 1996 respectively: no dividends paid for all years; expected volatility
of 40%; a risk free interest rate of 6.7% and an expected life being the
remaining term of the option. The per share weighted fair value of the stock
options granted in 1998, 1997 and 1996 were $0.48, $0.68 and $0.64 respectively.
Note 14. Business and credit concentrations
The Company's customers are primarily located in the United Kingdom. One
corporate customer accounted for 9% of sales revenue for the year ended
September 30, 1998.
No single restaurant credit receivable was greater than 10% of the Company's
total restaurant credit receivable balance at September 30, 1998.
One corporate client of the Company's affiliate, NHS, accounted for
approximately 8.7% of sales revenues of the Company for the year ended September
30, 1998
F21
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Commitments and Contingencies
Transmedia France
Following a disciplinary committee hearing of the Bank of France in November
1998, Transmedia France was verbally advised that its banking license would be
withdrawn and that as a result Transmedia France would be required to cease
trading. At a subsequent meeting of the board of directors of Transmedia France
it was resolved that the company would cease trading effective December 31, 1998
and that the company would be liquidated on a voluntary basis. This decision was
ratified by the shareholders of Transmedia France at an extraordinary general
meeting held in December 1998. The Company provided a subordinated loan of FFr1
million (approximately $185,000) to Transmedia France to enable all of its
liabilities to be paid in full. The financial statements of Transmedia France
for the year ended September 30, 1998 have been presented on a liquidation basis
and include a charge of $178,603 in respect of the write down of fixed assets to
realizable value and a write-off of $108,225 in respect of restaurant advances
not recovered under the subsequent liquidation.
In March 1999 an annual general meeting of shareholders of Transmedia France was
held and the shareholders decided to distribute the shares of Transmedia UK plc
held by Transmedia France to the Company and Societe Generale, its two
shareholders. Societe Generale agreed to sell the 10% interest in Transmedia UK
plc it had acquired as a result of the distribution to the Company for FFr35,000
(approximately $6,000). In addition the Company agreed to forgive the FFr1
million subordinated loan, together with accrued interest, net of FFr162,911 due
to Transmedia France from the Company. Since September, 30 1998 Transmedia
France has recorded a loss of $123,000.
Legal proceedings
From time to time the Company is subject to legal proceedings and claims in the
ordinary course of business.
The Company is not aware of any legal proceedings or claims against the Company
that will have, individually or in aggregate a material adverse effect on the
Company's business, prospects, financial condition and results of operation In
the opinion of management there are no lawsuits or claims pending against the
Company.
Note 16. Subsequent Events
(a) Acquisition of the remaining 49% interest in NHS
On November 17, 1998 the Company and TMAP acquired the remaining 49% of
NHS (Refer Note 5 "Investment in Affiliated Companies" for further
details).
(b) April Loan Notes
As of the date hereof the Company has repaid the three 250,000 pounds
sterling promissory notes in full, together with accrued interest. The
holder of the 200,000 pounds sterling promissory note has been paid
approximately $62,500 in part repayment and has agreed to give the Company
additional time to repay the balance of the note, together with accrued
interest. The Company granted such holder a conversion privilege to
convert the balance of the note, together with accrued interest, into
shares of the Company's Common Stock at a conversion price of $0.75 per
share.
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 74,998 shares of Common Stock
at an exercise price of $1.00 per share. Such warrants are exercisable at
any time 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 a value of $1.00 per share which will be recorded as
additional interest expense over the life of the loan.
F22
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Subsequent Events (continued)
(c) Equity Private Placement
(i) 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.
(ii) On January 25, 1999 the Company commenced a private placement
pursuant to the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The placement closed on February 24, 1999
upon the sale of 700,000 shares of common stock at $1.25 per share
resulting in net proceeds to the company of $875,000.
(iii) On May 11, 1999 the Company commenced a private placement pursuant
to the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated
thereunder. As of the date of these financial statements the Company
had sod 3,000,000 shares of common stock at $0.75 per share
resulting in net proceeds to the Company of $2,250,000.
(d) Acquisition of DSS Direct Connect L.L.C.
On June 15, 1999 the Company together with TMAP each acquired 50% of the
outstanding common stock of DSS Direct Connect L.L.C. The consideration
paid by the Company for it 50% interest comprised 4,831,057 shares of the
Company's common stock plus $500,000 cash. TMAP paid 4,589,732 shares of
its common stock plus $500,000 cash.
F23
SCHEDULE I
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
FINANCIAL STATEMENTS
YEAR ENDED 30 SEPTEMBER 1998
1
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Index
Page No.
Directors' Report 1-2
Declaration by Directors 3
Profit and Loss Statements 4
Balance Sheets 5
Statement of Cash Flows 6
Notes to and Forming Part of the Financial Statements 7-25
Independent Audit Report to the Members 26-27
2
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Directors' Report
Your directors submit the financial statements of Transmedia Australia Holdings
Pty Limited (parent entity) and its controlled entities for the financial period
ended 30 September 1998, together with the related profit and loss account and
statement of cashflows for the period then ended and report as follows:
Directors
The name of the directors in office at the date of this report are:
Edward Joseph Guinan
Paul Louis Harrison
Principal Activities
The principal activities of the economic entity during the year were the
provision of help line services, operation of a travel agency and travel club.
No significant changes in the nature of these activities occurred during the
period.
Results
The net loss for the period after providing for income tax amounted to
$3,584,333.
Dividends
No dividends have been paid, declared or recommended during the period.
Share Options
No options for shares in the parent entity have been granted during the period
and there were no options outstanding at the end of the period.
Directors Benefits
No director has received or become entitled to receive during or since the
financial period, a benefit because of a contract made by the company or a
related body corporate with the director, a firm of which a director is a member
or an entity in which a director has a substantial financial interest. This
statement excludes a benefit included in the aggregate amount of emoluments
received, or due and receivable, by directors shown in the company's financial
statements for the financial period or the fixed salary of a full-time employee
of the company, controlled entity or a related body corporate.
1
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Year 2000
The Year 2000 issue arises because many computerised systems use two digits
rather four to identify a year. Date sensitive systems may recognise the Year
2000 as 1900 (or some other date) resulting in errors when information using the
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
1 January, 2000 and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
effect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
entity, including those related to the efforts of customers, suppliers or other
third parties will, be fully resolved.
Indemnifying Officer or Auditor
The company has not, during or since the financial period, in respect of any
person who is or has been an officer or auditor of the company or of a related
body corporate:
o indemnified or made any relevant agreement for indemnifying against a
liability incurred as an officer or auditor; including costs and expenses
in successfully defending legal proceedings; or
o paid or agreed to pay a premium in respect of a contract insuring against
a liability incurred as an officer or auditor for the costs or expenses to
defend legal proceedings.
Signed in accordance with a resolution of the Board of Directors.
- --------------------------------------
Edward J. Guinan - Director
- --------------------------------------
Paul L. Harrison - Director
Dated this 28th day of July 1999.
2
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Declaration by Directors
In the opinion of the directors of Transmedia Australia Holdings Pty Limited and
its controlled entities:
a) the financial statements and notes set out on pages 4 to 25:
(i) give a true and fair view of the financial position of the company
and the economic entity as at 30 September 1998 and the performance
as represented by results of their operations and their cash flows
for the financial period ended on that date; and
(ii) are in accordance with the Corporations Law and comply with
Accounting Standards and the Corporations Regulations, and other
mandatory professional reporting requirements; and
b) at the date of this declaration there are reasonable grounds to believe
that the company will be able to pay its debts as and when they become due
and payable, based upon the ongoing financial support of its controlling
entities, Transmedia Asia Pacific Inc and Transmedia Europe Inc (Refer
Note 1(i)).
This declaration is made in accordance with a resolution by the Board of
Directors and is signed for and on behalf of the directors by:
- --------------------------------------
Edward J. Guinan - Director
- --------------------------------------
Paul L. Harrison - Director
Dated this 28th day of July 1999.
3
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Profit and Loss Statements
for the Period Ended 30 September 1998
Economic Entity Parent Entity
Note 1998 1998
$ $
Operating profit/(loss) before income tax 2,3 742,546 -
Abnormal items before income tax 4 (4,046,157) -
------------ ----------
(3,303,611)
Income tax expense attributable to
operating profit/(loss) 6 280,722 -
------------ ----------
Operating loss after income tax (3,584,333) -
Outside equity interest in operating loss
after income tax 17 (1,716,110) -
Accumulated losses at the beginning
of the financial year - -
Dividends paid or proposed - -
------------ ----------
Accumulated losses at the end of the financial year (1,868,223) -
============ ==========
4
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Balance Sheet as at 30 September 1998
Economic Entity Parent Entity
Note 1998 1998
$ $
CURRENT ASSETS
Cash 7 2,184,772 -
Receivables 8 763,352 -
------------ ----------
TOTAL CURRENT ASSETS 2,948,124 -
------------ ----------
NON CURRENT ASSETS
Investments 9 2,810 6,437,349
Property, plant and equipment 10 322,287 -
Intangibles 11 2,273,832 -
Other 12 85,024 -
------------ ----------
TOTAL NON-CURRENT ASSETS 2,683,953 6,437,349
------------ ----------
TOTAL ASSETS 5,632,077 6,437,349
------------ ----------
CURRENT LIABILITIES
Creditors 13 1,662,789 -
Borrowings - -
Provisions 14 662,603 -
------------ ----------
TOTAL CURRENT LIABILITIES 2,325,392 -
------------ ----------
NON CURRENT LIABILITIES
Provisions 14 29,866 -
Borrowings 15 3,700,348 3,277,545
------------ ----------
TOTAL NON CURRENT LIABILITIES 3,730,214 3,277,545
------------ ----------
TOTAL LIABILITIES 6,055,606 3,277,545
------------ ----------
NET ASSETS/(LIABILITIES) (423,529) 3,159,804
============ ==========
SHAREHOLDERS' EQUITY
Share capital 16 3,159,804 3,159,804
Accumulated losses (1,868,223) -
------------ ----------
Shareholders equity attributable to members
of the parent entity 1,291,581 3,159,804
Outside equity interests in controlled entities 17 (1,715,110) -
------------ ----------
(EXCESS OF ACCUMULATED LOSSES
OVER SHARE CAPITAL)/TOTAL EQUITY (423,529) 3,159,804
============ ==========
5
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Statement of Cashflows
for the period ended 30 September 1998
Economic Entity Parent Entity
Note 1998 1998
$ $
CASHFLOW FROM OPERATING ACTIVITIES
Receipts from customers 18,063,559 -
Payments to suppliers and employees (17,448,611) -
Interest received 53,794 -
Interest paid (42,389) -
------------ ----------
Net cash from operating activities 21(b) 626,353 -
------------ ----------
CASHFLOW FROM INVESTING ACTIVITIES
Payment for plant and equipment (54,714) -
Purchase of subsidiaries and businesses, net of
cash received 21(c) (6,838,387) (6,437,349)
------------ ----------
Net cash used in investing activities (6,893,101) (6,437,349)
------------ ----------
CASHFLOW FROM FINANCING ACTIVITIES
Repayment of borrowings (307,742) -
Proceeds from borrowings 3,678,583 3,277,545
Proceeds from issue of shares 3,160,805 3,159,804
------------ ----------
Net cash provided from financing activities 6,531,646 6,437,349
------------ ----------
Net increase in cash held 264,898 -
Cash at beginning of financial period 21(c) 1,919,874 -
------------ ----------
Cash at end of financial period 21(a),7 2,184,772 -
------------ ----------
6
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant Accounting Policies
The financial statements are a general purpose financial report that have been
prepared in accordance with applicable Accounting Standards and other mandatory
professional reporting requirements and the Corporations Law. The financial
statements have also been prepared on the basis of historical costs and do not
take into account changing money values or, except where stated, current
valuations of non-current assets.
Cost is based on the fair values of the consideration given in exchange for
assets. The accounting policies have been consistently applied, unless otherwise
stated.
The following is a summary of the material accounting policies adopted by the
economic entity in the preparation of the financial statements.
(a) Principles of Consolidations
The consolidated accounts comprise the accounts of Transmedia Australia
Holdings Pty Limited and of its controlled entity.
A controlled entity is any entity controlled by Transmedia Australia
Holdings Pty Limited. Control exists where Transmedia Australia Holdings
Pty Limited has the capacity to dominate the decision making in relation
to the financial and operating policies of another entity so that the
other entity operates with Transmedia Australia Holdings Pty Limited to
achieve the objectives of Transmedia Australia Holdings Pty Limited.
Details of the controlled entities are contained in Note 9(a).
All inter-company balances and transactions between entities in the
economic entity, including any unrealised profits or losses, have been
eliminated on consolidation.
Where a controlled entity has entered or left the economic entity during
the year its operating results have been included from the date control
was obtained or until the date control ceased.
(b) Income Tax
The economic entity adopts the liability method of tax-effect accounting
whereby the income tax expense shown in the profit and loss account is
based on the operating profit before income tax adjusted for any permanent
differences.
Timing differences which arise due to the different accounting periods in which
items of revenue and expense are included in the determination of operating
profit before income tax and taxable income are brought to account either as
provision for deferred income tax or an asset described as future income tax
benefit will be received or the liability will become payable.
7
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant accounting Policies (continued)
Future income tax benefits are not brought to account unless realisation of the
asset is assured beyond any reasonable doubt. Future income tax benefits in
relation to tax losses are not brought to account unless there is virtual
certainty of realisation of the benefit.
The amount of benefits brought to account or which may be realised in the future
is based on the assumption that no adverse change will occur in income taxation
legislation, and the anticipation that the economic entity will derive
sufficient future assessable income to enable the benefit to be realised and
comply with the conditions of deductibility imposed by the law.
(c) Property, Plant and Equipment
Property, plant and equipment are brought to account at cost or at
independent or directors' valuation, less where applicable, any
accumulated depreciation or amortisation. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure it is not
in excess of the recoverable amount from those assets. The recoverable
amount is assessed on the basis of the expected net cash flows which will
be received from the assets employment and subsequent disposal. The
expected net cash flows have not been discounted to present values in
determining recoverable amounts.
The depreciable amount of all fixed assets including buildings and
capitalised leased assets, but excluding freehold land, are depreciated on
a straight line basis over their estimated useful lives to the entity
commencing from the time the asset is held ready for use. Leasehold
improvements are amortised over the shorter of either the unexpired period
of the lease or the estimated useful lives of the improvements.
The depreciation rates used for each class of asset are:
Plant and equipment 10-15%
(d) Leases
Leases of fixed assets, where substantially all the risks and benefits
incidental to the ownership of the asset, but not the legal ownership, are
transferred to the entities within the economic entity are classified as
finance leases. Finance leases are capitalised, recording an asset and a
liability equal to the present value of the minimum lease payments,
including any guaranteed residual values. Leased assets are amortised on a
straight line basis over their estimated useful lives where it is likely
that the economic entity will obtain ownership of the asset or over the
term of the lease. Lease payments are allocated between the reduction of
the lease liability and the lease interest expense for the period.
8
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant accounting Policies (continued)
Lease payments for operating leases, where substantially all the risks and
benefits remain with the lessor, are charged as expenses in the periods in
which they are incurred.
Lease incentives received under operating leases are recognised as a
liability. Lease payments received reduced the liability.
(e) Investments
Non-current investments are brought to account at cost or at directors'
valuation. The carrying amount of investments is reviewed annually by
directors to ensure it is not in excess of the recoverable amount of these
investments. The recoverable amount is assessed from the shares' market
value or the underlying net assets in the particular companies. The
expected net cash flows from investments have not been discounted to their
present value in determining the recoverable amounts.
Dividends are brought to account in the profit and loss account when
received except for dividends from controlled entities which are brought
to account when they are proposed by the controlled entity or from
associates that are accounted for in accordance with the equity method of
accounting.
The equity method of accounting has been applied and recognised in the
financial statements in relation to all associated companies. An
associated company is a company over which the economic entity is able to
exercise significant influence.
9
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant accounting Policies (continued)
(f) Intangibles
Goodwill
Goodwill and goodwill on consolidation are initially recorded at the
amount by which the purchase price for a business or for an ownership
interest in a controlled entity exceeds the fair value attributed to its
net tangible assets at date of acquisition. Both purchased goodwill and
goodwill on consolidation are amortised on a straight line basis over the
period of 15 years. The balances are reviewed annually and any balance
representing future benefits, the realisation of which is considered to be
no longer probable are written off.
During the financial period, a total of $3,238,324 was written off due to
the uncertainty of the future benefits expected to arise from Loyalty
Benefit Contracts and associated Restraint of Trade payments. Refer to
Note 4.
(g) Foreign Currency Transactions and Balances
Foreign currency transactions during the year are converted to Australian
currency at the rates of exchange applicable at the dates of the
transactions. Amounts receivable and payable in foreign currencies at
balance date are converted at the rates of exchange ruling at that date.
The gains and losses from conversion of short-term assets and liabilities,
whether realised or unrealised, are included in operating profit before
income tax as they arise.
Exchange differences arising on hedged transactions undertaken to hedge
foreign currency exposures, other than those for the purchase and sale of
goods and services, are brought to account in the profit and loss account
when the exchange rates change. Any material gain or loss arising at the
time of entering into hedge transaction is deferred and brought to account
in the profit and loss account over the lives of the hedges.
Costs or gains arising at the time of entering hedged transactions for the
purchase and sale of goods and services, and exchange differences that
occur up to the date of purchase or sale are deferred and included in the
measurement of the purchase or sale.
Gains and losses from speculative foreign currency transactions are
brought to account in the profit and loss account when the exchange rates
change.
10
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant accounting Policies (continued)
(h) Employee Entitlements
Provision is made for the economic entity's liability for employee
entitlements arising from services rendered by employees to balance date.
Employee entitlements expected to be settled within one year together with
entitlements arising from wages and salaries, annual leave and sick leave
which will be settled after one year, have been measured at their nominal
amount. Other employee entitlements payable later than one year have been
measured at the present value of the estimated future cash outflows to be
made for those entitlements.
Contributions are made by the economic entity to an employee
superannuation fund and are charged as expenses when incurred.
(i) Going Concern
At the balance sheet date the economic entity has net liabilities of
$423,529. The directors have received assurance from their controlling
entities Transmedia Asia Pacific Inc and Transmedia Europe Inc that they
will provide financial support for the next 12 months such that the
economic entity can pay their debts as and when they fall due. It is
anticipated that additional funds will be required in order to support the
expansion of operations and to fund the ongoing operations.
(j) Revenue Recognition
Operating Revenue
Operating revenue comprises revenue earned from the provision of services
to customers. This revenue is primarily recognised when received or
receivable with allowance made for revenue received in advance of the
provision of services at year end.
Unearned Income
Unearned Income represents income identified as received in advance for
services to be provided beyond the year end and income deferred with
respect to two specific contracts. In keeping with the deferral policy
adopted by the vendors of the business, revenue from contacts with
Australian Alliance Insurance and Royal and Sun Alliance Insurance in July
1996 were deferred on a straight line basis over 3 years. The final year's
deferral of $124,208 represented as unearned income at 30 September 1998,
will be brought to account as income during the 30 September 1999 year.
(k) Comparative Figures
The parent entity was incorporated on 11 September 1997 and commenced
operation during the period in December 1997. Therefore no comparative
figures are shown in these financial statements.
11
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To and Forming Part of the Financial Statements
For The Year Ended 30 September 1998
Note 1: Statement of Significant accounting Policies (continued)
(l) Receivables
Trade debtors are recognised when the risks and rewards of ownership of
the underlying sales transactions have passed to customers. This event
usually occurs on delivery of service to customers. Trade debtors are
recorded at nominal amounts. Credit terms are 30 days generally and travel
agency operations are on a COD basis. Collectability of overdue accounts
is assessed on an ongoing basis. Specific provision is made for all
doubtful accounts.
(m) Trade and Other Creditors
These amounts represent unpaid liabilities for goods received and services
provided to the company and economic entity prior to the end of the
financial year. The amounts are unsecured and are normally settled within
30 to 120 days.
12
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Note 2: Operating Revenue
Economic Entity Parent Entity
1998 1998
$ $
The operating loss is after crediting the
following income:
Sales revenue 18,133,854 -
Interest received - other services 54,774 -
Commission received 801,375 -
Other revenue 2,190 -
Proceeds from sale of non-current assets 18,500 -
----------- ----------
Total operating revenues 19,010,693 -
=========== ==========
Note 3: Operating Income and Expenses
The operating loss is after:
a) Charging the following expenses:
Bad debts written off (recovered) 12,201 -
Movement in provision - Doubtful debts 1,000 -
- Loans 627,834 -
- Employee Entitlements 232,896 -
Depreciation 119,431 -
Interest paid
- - Related parties 39,075 -
- - Other persons 2,576 -
Amortisation - Preliminary costs 1,049 -
- Intangible assets 125,180 -
=========== ==========
b) Crediting as Income:
Net gain on sale of non-current assets 7,948 -
=========== ==========
13
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 4: Abnormal Items
Provision for redundancy 116,487 -
Provision for employee entitlements
referable to period before business acquired 63,511 -
Loan receivable provision 627,834 -
Intangible assets written off 3,238,325 -
----------- ----------
4,046,157 -
Income tax benefit attributable (64,799) -
----------- ----------
3,981,358 -
=========== ==========
Note 5: Auditors Remuneration
Remuneration of the auditor of the parent entity for:
- - auditing or reviewing the accounts - -
- - other services - -
Remuneration of other auditors of subsidiaries for:
- - auditing or reviewing the accounts 32,000 -
- - other services 15,921 -
=========== ==========
14
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 6: Income Tax Expense
a) Income tax expense
The difference between income tax expenses provided in the financial
statements and the prima facie income tax expense is reconciled as
follows:
Prima facie tax benefit on operating loss at 36% (1,189,300) -
Tax effect of permanent differences:
Loan receivable provision 226,020 -
Other 21,787 -
Legal Fees 11,353 -
Amortisation & Write off of intangibles 1,210,862 -
----------- ----------
Tax income tax attributable to operating loss 280,722 -
=========== ==========
b) Franking Credits
Balance of franking credits arising from payment
of income tax payable 594,905 -
----------- ----------
Note 7: Cash
Client Accounts (1) 927,372 -
Petty cash imprest account 201 -
Cash at bank 710,105 -
Deposits (short term) 547,094 -
----------- ----------
2,184,772 -
=========== ==========
(1) Represents cash held for payment of client travel liabilities for travel
agency operations.
15
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 8: Current Receivables
Trade debtors 749,246 -
Provision for bad debts (1,000) -
Sundry debtors and prepayments 15,106 -
Amounts receivable from related corporations:
- - Money in Practice Pty Limited 80,500 -
- - Nationwide Response Helpline Pty Ltd 4,000 -
- - ICON Group Services 543,334 -
Less provision (627,834) -
----------- ----------
763,352 -
=========== ==========
Note 9: Investments
Investments comprise:
Shares in listed corporations at cost 1,900 -
Shares in controlled entities at cost:
- - NHS Australia Pty Limited - 6,437,348
- - Transmedia Travel Holdings Pty Ltd - 1
Shares in other related corporations at cost:
- - Nationwide Response Helpline Pty Ltd 910 -
----------- ----------
2,810 6,437,349
=========== ==========
16
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Note 9: Investments (continued)
a) Subsidiaries and contribution to consolidated Profit/loss
Percentage
Ownership
Parent entity:
Transmedia Australia Holdings Pty Limited -
Subsidiaries:
NHS Australia Pty Limited 51
Teletravel Centre Pty Limited 100
Transmedia Australia Travel Holding Pty Limited 100
Breakaway Travel Pty Limited 100
All companies are incorporated in Australia.
b) Controlled Entities acquired:
On 3 December 1997 the parent entity acquired 51% of voting shares including
anoption to acquire the remaining 49% of NHS Australia Pty Limited, for a
purchase consideration of $6,003,386.
On 11 September 1997 the parent entity acquired 100% of voting shares of
Transmedia Australia Travel Holdings for $1.
On 22 May 1998 Transmedia Australia Travel Holdings Pty Limited acquired 100% of
voting shares Breakaway Travel Pty Limited for $401,038.
Note 10: Property and Equipment
Office equipment at cost 921,564 -
Less accumulated depreciation 641,286 -
----------- ----------
280,278 -
----------- ----------
17
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 10: Property and Equipment (continued)
Office furniture and fittings at cost 48,593 -
Less accumulated depreciation 12,792 -
----------- ----------
35,801 -
----------- ----------
Motor Vehicles at cost 15,998 -
Less accumulated depreciation 9,790 -
----------- ----------
6,208 -
----------- ----------
Total plant and equipment 322,287 -
=========== ==========
Note 11: Intangibles
Goodwill on acquisition was represented by:
Loyalty Benefit Contracts 3,138,324 -
Restraint of Trade Payment 100,000 -
Goodwill 2,401,528 -
----------- ----------
5,639,852 -
=========== ==========
The above acquisition costs have been accounted for as follows:
Restraint of Trade Payment and Loyalty Benefit Contracts 3,238,324 -
Written off in this period (3,238,324) -
----------- ----------
- -
=========== ==========
Goodwill on acquisition 2,401,528 -
Accumulated amortisation (127,696) -
----------- ----------
2,273,832 -
=========== ==========
18
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 12: Other
Future income tax benefit 85,024 -
=========== ==========
Note 13: Current Creditors
Unearned income 164,197 -
Trade creditors 684,475 -
Sundry creditors and accruals 309,939 -
Client deposits 504,178 -
----------- ----------
1,662,789 -
=========== ==========
Note 14: Provisions
a) Current
Employee entitlements 127,037 -
Redundancy 116,487 -
Income Tax 419,079 -
----------- ----------
662,603 -
=========== ==========
b) Non Current
Employee Entitlements 25,274 -
Provision for deferred income tax 4,592 -
----------- ----------
29,866 -
=========== ==========
19
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 15: Non-Current Borrowings
Hire Purchase liability 21,765 -
Loan - Transmedia Asia Pacific Inc. 1,839,291 1,638,772
Loan - Transmedia Europe Inc. 1,839,292 1,638,773
----------- ----------
3,700,348 3,277,545
=========== ==========
Loans are unsecured, denominated in Australian dollars, interest free and with
no fixed repayment terms.
Note 16: Share Capital
Issued and paid up capital
2 ordinary shares of $1 each 3,159,804 3,159,804
=========== ==========
Note 17: Outside Equity Interests in Controlled Entities
Outside equity interest comprising:
Share capital 1,000 -
Accumulated losses (1,716,110) -
----------- ----------
(1,715,110) -
=========== ==========
20
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 18: Commitments and Contingencies
a) Operating lease expenditure contracted for is payable as follows:
Not later than one year 33,969 -
Later than one year but not later than two years - -
Later than two years but not later than five years - -
Due after five years - -
----------- ----------
33,969 -
=========== ==========
b) Contingent Liabilities:
Funds with the Colonial State bank totalling
$508,440 as at 30 September 1998 secure guarantees
given for obligations of:
- - Teletravel Centre Pty Ltd (a subsidiary company) 130,005 -
- - ICON Services Pty Ltd
(a company associated with a former director) 313,627 -
----------- ----------
443,632 -
=========== ==========
Note 19: Segment Reporting
Helpline Travel Eliminations Economic
Services Entity
$ $ $ $
Revenue 3,899,404 15,111,289 - 19,010,693
Results - Profit/(loss)(3,502,265) (38,799) (43,269) (3,584,333)
Assets 3,963,838 1,781,544 (113,305) 5,632,077
b) Geographic Segments
The economic entity operates in Australia.
21
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Note 20: Events Subsequent to Balance Date
Since the end of the financial period the Transmedia Group acquired the 49% of
issued capital of controlled entity NHS Australia Pty Limited held by outside
equity holders for $2,500,000. This acquisition was financed by Transmedia Asia
Pacific Inc. via a Promissory Note of $US3,400,000 payable on 15 November 1999
to FAI General Insurance Company Limited. This borrowing is secured by a
guarantee by and charge over the assets of the parent entity.
Note 21: Cashflow Information
(a) Reconciliation of cash
For the purpose of this statement of cashflows, cash includes:
(i) cash on hand and in at call deposits with banks of financial
institutions, net of bank overdrafts; and
(ii) investments in money market instruments maturing within less than
one month.
22
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 21: Cashflow Information (continued)
(b) Reconciliation of Cash Flow from Operations with Operating
loss after Income Tax
Operating loss after income tax (3,584,333) -
Non-cash flow in operating loss:
- - Depreciation 119,431 -
- - Transfers to/(from) provisions 861,730 -
- - (Profits)/losses on disposal of non current assets (7,948) -
Amortisation 3,364,554 -
Increase/(decrease) in tax payable 354,209 -
Increase/(decrease) in FITB (85,024) -
Increase/(decrease in DITL 4,592 -
Write off bad debts 12,201 -
Changes in assets and liabilities
- - Decrease/(Increase) in prepayments 46,053 -
- - Decrease/(Increase) in trade and sundry debtors (137,634) -
- - (Decrease)/Increase in trade creditors,
sundry creditors and provisions (321,478) -
----------- ----------
Cashflow from operations 626,353 -
=========== ==========
c) Acquisition of Controlled Entities and Businesses
During the financial period the controlling entity
acquired the following:
- - National Helpline Services business
- - Teletravel Centre Pty Limited
- - Breakaway Travel
Aggregate details of these transactions are:
Consideration 8,758,261 7,687,221
Cash acquired (1,919,874) (1,249,874)
----------- ----------
Outflow of cash 6,838,387 6,437,349
=========== ==========
23
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 21: Cashflow Information (continued)
Fair value of net assets of entity acquired
- - Property, plant and equipment 380,446 335,446
- - Investments 2,810 2,810
- - Cash 1,919,874 1,249,874
- - Loans to related parties 314,231 314,231
- - Trade debtors 640,366 442,407
- - Other debtors 8,264 8,264
- - Prepayment 58,809 25,809
- - Trade Creditors (1,094,381) (505,381)
- - Other payables (973,031) (829,165)
- - Hire purchase (52,505) (52,505)
- - Loans from related entities (1,981) (1,981)
----------- ----------
1,202,902 989,809
Goodwill on acquisition 5,634,444 5,447,540
----------- ----------
Consideration (outflow of cash) 6,837,346 6,437,349
=========== ==========
Note 22: Related Party Transactions
a) The ultimate parent entities are Transmedia Asia Pacific Inc and
Transmedia Europe Inc. both incorporated in the United States of America.
b) Loans payable to controlling entities interest free with fixed repayment
terms:
Transmedia Asia Pacific Inc. 1,839,291 1,638,772
Transmedia Europe Inc. 1,839,292 1,638,773
----------- ----------
3,700,348 3,700,348
=========== ==========
24
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Economic Entity Parent Entity
1998 1998
$ $
Note 22: Related Party Transactions (continued)
c) Loans to associated and director related company's fully provided for
during the period.
Money in Practice Pty Limited 80,500 -
Nationwide Response Helpline Pty Ltd 4,000 -
ICON Group Services 543,334 -
Less provision (627,834) -
----------- ----------
- -
=========== ==========
d) Directors Remuneration
Income paid or payable to all directors of each
entity in the economic entity of which they are
directors and any related parties. 66,395 -
Income paid to all directors of the parent entity
by the parent entity and any related parties. - -
No. No.
Number of parent entity directors whose income from the parent entity
and any related parties was within the following bands:
$0 - $9999 8 2
$20,000 - $29,999 1 -
$40,000 - $49,999 1 -
e) Directors in Office
The names of the parent entity directors who have held office during
the financial year are:
Paul L Harrison
Edward Guinan
Richard Wong (Resigned 29/1/99)
25
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
AND CONTROLLED ENTITIES
ACN 080 040 446
Notes To And Forming Part of the Financial Statements
for the Year Ended 30 September 1998
Note 23: Financial Instruments
a) Interest rate risk exposures
The economic entity's exposure to interest rate risk and the effective
weighted average interest rate for each class of financial assets and
financial liabilities is set out below:
Financial Assets Floating Interest
Rate
Cash at bank 1,637,678
Deposits 547,094
----------
2,184,772
----------
Weighted Average interest rate 3.75%
b) Credit Risk Exposure
Credit risk is the risk that counter parties to a financial asset will
fail to discharge their obligations, causing the economic entity to
incur a financial loss.
On balance sheet financial instruments
The credit risk exposure of the economic entity to financial assets,
excluding investments in shares, which have been recognised on the
balance sheet, is generally the carrying amount, net of any provisions
for doubtful debts.
The economic entity attempts to minimise credit risk exposure on trade
debtors by undertaking transactions with a large number of customers
and counter parties in business sectors. The economic entity had no
concentrations of credit risk on trade and term debtors due from
customers at balance date except for amounts receivable from Westpac
Banking Corporation comprising approximately 20% of trade debtors.
c) Net Fair Values of Financial Assets and Liabilities
On balance sheet financial instruments The carrying amounts of cash,
cash equivalents and non interest bearing monetary financial assets and
liabilities (eg accounts receivable and payable) approximate net fair
value.
26
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF
TRANSMEDIA AUSTRALIA HOLDINGS PTY. LIMITED
Scope
We have audited the financial statements of Transmedia Australia Holdings Pty
Limited for the financial period ended 30 September 1998 as set out on pages 3
to 24. The financial statements include the consolidated accounts of the
consolidated entity comprising the company and the entities it controlled at the
periods end or from time to time during the financial period. The company's
directors are responsible for the financial statements. We have conducted an
independent audit of these financial statements in order to express an opinion
on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance whether the financial statements are free of
material misstatement. Our procedures included examination, on a test basis, of
evidence supporting the amounts and other disclosures in the financial
statements, and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion whether, in
all material respects, the financial statements are presented fairly in
accordance with Accounting Standards and other mandatory professional reporting
requirements and statutory requirements so as to present a view which is
consistent with our understanding of the company's and the economic entity's
financial position, and performance as represented by the results of their
operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial statements of Transmedia Australia Holdings Pty
Limited are in accordance with:
a) The Corporations Law, including:
i) giving a true and fair view of the company's and the consolidated
entity's financial position as at 30 September 1998 and of their
performance for the period on that date; and
ii) complying with Accounting Standards and the Corporations
Regulations; and
b) Other mandatory professional reporting requirements.
27
Inherent Uncertainty Regarding Continuation as a Going Concern
Without qualification to the opinion expressed above, attention is drawn to the
following matter. As described in Point b of the Declaration by Directors and in
Note 1(i) to the financial statements, the company is dependent upon receiving
continued financial support from its controlling entity, Transmedia Asia Pacific
Inc to continue to operate as a going concern and therefore whether it will
realise its assets and extinguish its liabilities in the normal course of
business and at the amounts stated in the financial statements. The directors of
Transmedia Asia Pacific Inc have provided assurances that they will meet the
payment of debts of the company as and when they fall due should the company be
unable to do so. In order for Transmedia Asia Pacific Inc and Transmedia Europe
Inc to provide the continuing support it will be necessary for that company to
raise additional funds from one or more sources, including bank loans or other
debt financings, equity financings, or sale of sub-licences or franchises.
BDO International
Chartered Accountants
Sydney
Stephen La Greca
Partner
Dated this 28 day of July 1999.
Transmedia Europe, Inc.
Schedule II
Valuation and Qualifying Accounts
For the Years ended September 30, 1998, 1997 and 1996
Column A Column B Column C Column D Column E
Additions Deductions Balance at
Description Balance at Charged to Acquisition (describe) End of Period Notes
Beginning Costs and of Subsidiaries
of Period Expenses
Allowance for Irrecoverable
Restaurant Credits
1996 357,557 41,771 399,328
1997 399,328 245,955 20,851 666,134
1998 666,134 391,546 (716,876) 340,804 1
Note 1. The deduction of $716,876 relates to the write-off of certain
irrecoverable restaurant credits in Transmedia UK