FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934]
For the fiscal year ended SEPTEMBER 30, 1997
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. Employer
Incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of principal executive offices) (zip code)
UK 011-44-171-930-0706
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.00001 PER SHARE
-----------------------------------------
(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 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 March 27, 1998 was: $17,858,311 based upon the closing sale
price of this Common Stock on that date.
The number of shares outstanding of the Registrant's Common Stock, as of
March 27, 1998, was 15,183,597
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
PART I
ITEM 1--BUSINESS
BACKGROUND
Transmedia Europe, Inc. ("TME" or "the Company") is a Delaware
corporation which was formed in February 1993 and began business operations
in the UK, October 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, pursuant to a Master License Agreement ("License Agreement")
dated December 14, 1992 as amended April 12, 1993 and August 11, 1993. The
rights acquired were an exclusive license (the "License") to use certain
trademarks and service marks, proprietary computer software programs and
know-how of Network in establishing and operating a discount restaurant
charge card business in all the countries of Europe, Turkey and the other
countries outside of Europe that were formerly part of the Union of Soviet
Socialist Republics (the "Licensed Territories"). All references herein to
"Company" and "TME" include Transmedia Europe Inc. and its subsidiaries
unless otherwise indicated.
In April 1997 and December 1997, the Company acquired interests in
Countdown Holdings Limited ('Countdown') and Nationwide Helpline Services Pty
Limited ('NHS'), respectively. See "--Countdown Acquisition" and "--NHS
Acquisition".
CORPORATE DEVELOPMENT
For some time, the management of both the Company and Transmedia Asia
Pacific, Inc. ('TMAP'), a company which shares common directors, officers and
stockholders with the Company, have been questioning the need to maintain two
separate corporate identities. This dual structure was a direct result of the
timing difference in obtaining the original licenses for the respective
territories. By the beginning of 1997, management felt that keeping the
corporate structures distinct and separate was no longer advantageous to
shareholders and therefore announced its intention to merge the two companies.
Management's motivation for initiating this step was driven by several
factors including, among other things, the need to reduce the confusion of
having two separate stock quotes for essentially the same businesses
operating in different geographical regions; to lower central overhead and to
increase operating efficiency; and to formalise the existing commonality of
management. The proposed merger is subject to approval of the respective
Boards, issuance of fairness opinions by independent investment advisers and
approval by shareholders of both companies. Management has already announced
that at such time as the companies are merged, the merged entity will be
operated under the name MemberTek International Inc.
CORPORATE EXPANSION
Following a review of the Company's operations, management identified the
opportunity to broaden the base of the businesses in order to exploit the
rapidly growing member benefit services industry. While the Transmedia
program provided the core business operating as an international discount
dining charge card, management has already identified other businesses which,
upon acquisition, would significantly increase the Company's product range,
and in doing so, provide a wider base upon which to build future growth. This
change of emphasis was initiated with the identification and subsequent
acquisition of Countdown and NHS. The Company's aggressive acquisition
strategy will require significant additional capital, which the Company does
not have, as well as the significant devotion of limited managerial and other
resources.
COUNTDOWN
In April 1997, the Company acquired a 50% interest in Countdown, an
international provider of membership discount services. The remaining 50%
interest in Countdown was simultaneously purchased by TMAP. See "--Countdown
Acquisition". The Company effectively controls the operations of Countdown,
and the results of Countdown are accounted for in the financial statements of
the Company on the purchase
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method of accounting.
The Countdown business, consists of arranging discount privileges with
major suppliers of goods and services offering lifestyle benefits to
consumers, and of distributing access to those discount privileges to
consumers through selling memberships in the Countdown card. Countdown sells
these memberships to consumers individually, as well as through affiliations
with various groups (unions, professional organisations, etc.). These
discount privileges include household goods and supplies, clothing, and
leisure goods and services. Countdown also sells vouchers to consumers.
Countdown has approximately 6,500,000 members with over 100,000 accepting
merchants in 47 countries. These vouchers are sold at a discount to the face
value of the voucher, typically of 5-10%, and are redeemable by consumers, at
their face value, in connection with purchases similar to those described
above, at accepting merchants.
NATIONWIDE HELPLINE SERVICES
On December 2, 1997 Transmedia Australia Holdings Pty Limited
('Transmedia Australia'), a newly formed company owned equally by the Company
and TMAP indirectly purchased 51% of the shares of common stock of Nationwide
Helpline Services Pty Limited ("NHS"), an Australian company which, among
other things, provides benefit packages to organizations with large customer
bases such as banks and insurance companies. Transmedia Australia also
acquired an option to purchase the 49% balance of shares of common stock of
NHS. Failure to exercise the option during its term could result in
forfeiture of the entire investment. For a more detailed description of the
terms of the transaction see "--NHS Acquisition". The operations of NHS are
effectively controlled by TMAP due to the geographical location of management.
NHS is Australia's leading provider of telephone helpline and lifestyle
benefits, with a product range that includes advice lines on legal, tax,
accounting, medical and home emergency issues, as well as the sale of travel
products such as insurance, airline tickets and holiday packages. In
addition, through a subsidiary called IMAN, the Company provides
international medical case management and repatriation services to a number
of major insurance corporations. NHS has approximately five million members.
NHS's services are sold primarily on a wholesale basis to a wide range of
major corporations who typically brand the services under their own name,
thereby providing additional benefits to their own customer base. Management
believes that the acquisition of its interest in NHS is another important
development in its stated strategy to broaden its range of member benefit
services.
TRANSMEDIA BUSINESS ACTIVITIES
The restaurant card business of the Company is the exploitation of the
rights acquired under the License Agreement. The Company advances money to
restaurants selected by it which agree to become participating restaurants
("Company Participating Restaurants"). The Company recovers its advances
("Restaurant Credits") from food and beverages purchased net of taxes and
service ("Food and Beverage Credits") from Company Participating Restaurants,
by accepted cardholders ("Company Cardholders") who complete applications to
become holders of the restaurant card ("The Restaurant Card") offered by the
Company. The Company keeps a current record of the amount of Food and
Beverage Credits outstanding at each Company Participating Restaurant.
As food and beverages are consumed by Company Cardholders at Company
Participating Restaurants by such Company Cardholders charging the retail
price of such food and beverages with The Restaurant Card, the Food and
Beverage Credits outstanding are reduced and the Restaurant Credits
outstanding are also reduced by one-half of such Food and Beverage Credits
used.
The Company Cardholder receives on each purchase a credit equal to 25% of
the Food and Beverage credits used. The Company Participating Restaurant is paid
its taxes and service by the Company from a portion of the proceeds received by
the Company from the payment by a Company Cardholder of the amount charged
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on The Restaurant Card. The Company retains the balance which reduces the
Restaurant Credits by 50% of the Food and Beverage Credit used. The Company
pays a royalty of 2% of Food and Beverage Credits used to Network and 2.5% of
Food and Beverage Credits used as sales commissions.
The Restaurant Card is a discount restaurant charge card used by a
Company Cardholder in lieu of a major credit card to charge food and
beverages purchased at a Company Participating Restaurant. The Restaurant
Card charges are transferred to the major credit card used by the Company
Cardholder as listed in the Restaurant Card application. The full amount of
the charge is listed on the major credit card bill along with a separate
credit equal to 25% of the cost of food and beverages at a Company
Participating Restaurant (excluding taxes and service). As at December 31,
1997, the Company had approximately 570 Company Participating Restaurants and
approximately 52,000 Company Cardholders. The Company is currently operating
in the United Kingdom and France, and plans in the future to develop the
License within the Licensed Territories, directly, through subsidiaries, and
through the sale of sub-licenses and franchises to others. In connection with
this business, the Company will receive revenue from (a) the difference
between the amount of its Restaurant Credits to Company Participating
Restaurants and Food and Beverage Credits used at Company Participating
Restaurants by Company Cardholders, net of the 25% discount to Company
Cardholders, the Network royalty and sales commissions, (b) annual membership
fees and renewal fees of Company Cardholders, and (c) sub-license and
franchise fees when and if received by the Company from future franchises and
sub-licenses, net of minimum up-front payments to Network with regard to such
franchises and licenses.
Network, from whose affiliate, TMNI, the License was granted and on whose
business the Company's operations are modelled, is a publicly traded company
operating in the United States both directly and through licensees and
franchisees. Under the License the Company is authorised to engage in
business within the Licensed Territories in the same manner as Network
operates in the United States, except that under the License Agreement the
Company must pay certain royalties to Network based both on operations and
the sale of license rights and must get the approval of Network for certain
changes in key executives and principal shareholdings. Company Cardholders
and Cardholders of Network and its franchisees are able to use The Restaurant
Card to purchase meals in all territories covered by the Company, Network and
its franchisees. The Company will realise all financial benefits from meals
consumed within the Licensed Territories and no financial benefit from meals
consumed outside of the Licensed Territories.
Network was issued 496,284 shares of the Company, as partial
consideration for the sale of the License to the Company, and has the right
to designate one director of the Company. There is not currently a director
that has been designated by Network.
TMAP had acquired an equivalent license from TMNI covering essentially
all of Asia and other Pacific Rim countries. TMAP commenced operations in
Sydney, Australia in November 1994 and had obtained approximately 36,800
cardholders and 274 Company Participating Restaurants as at December 31,
1997. TMAP licenses certain operating software from the Company at an annual
fee.
The Countdown business of the Company ("Countdown") consists of arranging
discount privileges with major suppliers of goods and services offering
lifestyle benefits to consumers, and of distributing access to those discount
privileges to consumers through selling memberships in the Countdown card.
Countdown sells these memberships to consumers individually, as well as
through affiliation with various groups (unions, professional organisations,
etc.). These discount privileges include household goods and supplies,
clothing, and leisure goods and services. Countdown has approximately
6,500,000 members, with over 100,000 accepting merchants in 47 countries.
Countdown also sells vouchers to consumers. These vouchers are sold at a
discount to the face value of the voucher, typically of 5 --10%, and are
redeemable by consumers, at their face value, in connection with purchases
similar to those described above, at accepting merchants.
RESTAURANT CARD TRANSACTION ILLUSTRATION
The following is a descriptive illustration of a hypothetical transaction
by a Company Cardholder at a Company Participating Restaurant.
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The Company, through a commissioned sales representative, recruits
Restaurant A, a full service restaurant operating in London, as a Company
Participating Restaurant. The Company grants Restaurant Credits in the amount
of 3,000 pounds (UK) which entitles the Company to collect the proceeds from
6,000 pounds (UK) of Food and Beverage Credits charged by Company Cardholders
on The Restaurant Card at Restaurant A.. John Smith, a Company Cardholder,
enjoys a meal at Restaurant A and pays the 100 pound (UK) check (consisting
of 80 pounds (UK) for food and beverages and 20 pounds (UK) for taxes and
service) with The Restaurant Card. Mr Smith presents The Restaurant Card.
Restaurant A delivers The Restaurant Card receipt for Mr Smith's meal to the
Company for processing through the Major Credit Card Account designated by Mr
Smith in The Restaurant Card application and for payment. The Company
utilizes 80 pounds (UK) of Restaurant A's Food and Beverage Credits (for
which it has made Restaurant Credits of 40 pounds (UK)) and reduces the
Restaurant Credits due to it from Restaurant A by 40 pounds (UK). The Company
then submits a credit to Mr Smith's Major Credit Card Account in the amount
of 20 pounds (UK) (representing 25% of the 80 pounds (UK) of food and
beverages consumed). Upon receipt of The Restaurant Card receipt of Mr Smith
of 100 pounds (UK), the Company forwards 20 pounds (UK) of this amount
(representing the tax and service portion of Mr Smith's meal check) to
Restaurant A. The Company forwards 1.60 pounds (UK) as a royalty to Network
(2% of the 80 pounds (UK) of Food and Beverage Credits used) and keeps 58.40
pounds (UK). This compares with Restaurant Credits made by the Company of 40
pounds (UK) to Restaurant A and the 80 pounds (UK) of Food and Beverage
Credits utilized in providing Mr Smith his meal. The Company is responsible
for paying the commissions of its sales representatives which are currently
5% of Food and Beverage Credits used.
The allocation of the hypothetical 100 pound (UK) check can be summarized
as follows:
NAME AMOUNT RECEIVED NATURE OF ALLOCATION
- ------- --------------- ---------------------------------------------
Mr Smith 20 pounds (UK) 25% of food and beverage charges (exclusive
of tip and taxes) credited to his Major
Credit Card account.
Restaurant A 20 pounds (UK) Payment of service and taxes.
Restaurant A -0- The Restaurant Credits due to the Company by
Restaurant A are reduced by 40 pounds (UK).
Network 1.60 pounds (UK) A royalty fee of 2% of the 80 pounds (UK) of
Food and Beverage Credits used is payable to
Network.
The Company 58.4 pounds (UK) This represents a reduction of Restaurant
Credits by 40 pounds (UK) plus 18.40 pounds
(UK) of gross profit. From this amount a
sales representative of the Company will
typically receive a commission of 3.75% of
Food and Beverage Credits used or in this
example 3 pounds (UK).
COUNTDOWN ACQUISITION
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50% of
the outstanding capital stock of Countdown, a privately owned United Kingdom
company based in London, England. Countdown, through its wholly-owned
subsidiary, Countdown plc, is an international provider of membership
discount services offering lifestyle benefits and discounted purchases of
merchandise and services, to approximately 6,500,000 cardholders distributed
world-wide, with over 100,000 accepting merchants in 47 countries. The
transaction ("the Acquisition") was consummated pursuant to an Acquisition
Agreement dated as of April 3 1997 ("the Acquisition Agreement") among the
Company, C.E.C. Radbone and TMAP.
In payment of the purchase price, the Company issued 1,200,000 shares
(the "Radbone Shares") of its
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common stock, $.00001 par value per share ("Common Stock"), 250,000
options to purchase shares at $1 each, and paid pounds UK 500,000
(approximate U.S. Dollar equivalent as of April 3, 1997 was $800,000) in
cash. In addition, the Company granted Mr. Radbone piggyback and demand
registration rights with respect to the Radbone Shares. In accordance with
the Acquisition Agreement, the balance of the outstanding capital stock of
Countdown was simultaneously purchased by TMAP on terms similar to the terms
of the Company's purchase.
The cash portion of the purchase price was funded by a $1,000,000 loan
from a director and stockholder of the Company. The loan became due on demand
on September 27, 1997, and bears interest at a rate of 12% per annum. By
letter agreement dated January 13, 1998, the director agreed not to demand
payment for an indefinite period, but in any event to give sixty days notice
of such demand. It 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, 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 a director of the Company, and Messrs.
Edward J. Guinan III and Paul Harrison were elected directors of Countdown
and Countdown Plc. On January 16, 1998, Mr. C.E.C. Radbone, resigned from the
Board of Directors. Contemporaneously, his employment agreement, according to
the terms of which he had been serving as Managing Director of Countdown plc,
a subsidiary of the Company, was cancelled. Mr. Radbone holds 1,200,000
shares of Common Stock of the Company and agreed to grant Edward J. Guinan
III, the Chairman of the Board of Directors, an option to purchase these
shares at a purchase price of $1 per share. Under the option, Mr Guinan
pledged $250,000 in value of shares of the Company's Common Stock owned by
him, (together with $250,000 in value of TME Common Stock owned by him in
connection with a similar option on Mr. Radbone's TMAP shares), which will be
transferred to Mr Radbone if the option is not exercised and paid by January
15, 1999.
In connection with the Acquisition, the Company and TMAP each agreed to
pay $125,000 in cash to TMNI International Incorporated ("TMNI"), and the
Company and TMAP jointly issued TMNI a promissory note in the principal
amount of $500,000 with a combined liability, payable on April 2, 1998 and
bearing interest at the rate of 10% per annum. The promissory note is to be
convertible at the holder's option into 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 charge card business. The
transaction was described in more detail in the Company's Form 8-K dated
April 3, 1997 which is incorporated by reference herein.
NHS ACQUISITION
On December 2, 1997, Transmedia Australia, a newly-formed company owned
equally by the Company and TMAP, indirectly through NHS Australia Pty
Limited, purchased in simultaneous transactions 51% of the shares of common
stock of NHS. The total purchase price for the transaction (including a
deposit of Aus. $345,000 ($226,974)) is approximately Aus. $12,500,000
($6,578,950), Aus. $4,000,000 ($2,631,578) of which represents sign-on fees
for certain principals of NHS, and the balance of which represents amounts
payable to NHS in two tranches. The first tranche was paid on December 2,
1997 in the form of cash and 500,000 shares of Common Stock of the Company
and its affiliate TMAP. The second tranche (Aus. $2,842,540 ($1,870,092)) was
payable on January 31,1998, but in accordance with the provisions of the
agreement between the parties, this date has been extended for 90 days, with
interest accruing at 5% per annum on the unpaid amounts. Failure to exercise
this option during its term will give the NHS principals the rights to
repurchase Transmedia Australia's 51% interest for nil consideration. The
payment of the first half of the sign-on fees has been delayed until further
notice at the request of the principals. The balance continues to be payable
on June 30, 1998, (subject to extension of each instalment (with the
exception of a portion of the first instalment) by up to 90 days provided
that interest will accrue on the extended amounts at 5% per annum).
Transmedia Australia also acquired an option to purchase the 49% balance of
NHS's business and assets for an additional Aus. $2,497,655 ($1,643,194)
(less potential reductions). The option is exercisable at any time through
June 30,1998 (subject to extension for up to 90 days) provided that interest
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will accrue on the exercise price during any such extension at 5% per annum.
Failure to exercise this option during its term will give the NHS principals
the rights to repurchase Transmedia Australia's 51% interest for nil
consideration. NHS is a provider of benefit packages for organizations with
large customer bases such as banks and insurance companies. For a more
detailed discussion of the terms of this transaction, reference is made to
the Company's current report on the Company's Form 8-K dated December 2,
1997, which is incorporated by this reference herein.
EMPLOYEES
As of March 27, 1998, the Company employed 58 persons, none of whom
are affiliated with a union. The Company believes that its relationship with
its employees is good.
COMPETITION
The charge card business, including the discount restaurant card
business, is highly competitive, both internationally and in the United
Kingdom. The Company competes to enrol Company Participating Restaurants and
Company Cardholders against other discount programs. Competitors include
discount programs offered by major credit card companies such as American
Express, Barclaycard, and the NatWest Card, as well as Visa, Mastercard and
Diners Club. Moreover, other companies offer different kinds of discount
marketing programs. For example, Hilton International, an international hotel
management company and hotel owner, provides two-for-one dining offers in its
restaurants. Many of the Company's competitors have substantially greater
financial, personnel, technological, marketing, administrative and other
resources than the Company.
The Company believes that the unique feature of The Restaurant Card is
that it can be used by Company Cardholders at Company Participating
Restaurants with virtually no restrictions, that The Restaurant Card provides
substantial savings without the need for a Company Cardholder to present
discount coupons when paying for a meal, and that Company Participating
Restaurants are provided with cash in advance of customer charges. The
Company believes that all these features contribute to the Company's
competitiveness. Although the Company is not aware of any discount programs,
restaurant financing business or discount restaurant charge card business in
any of the areas in the Licensed Territories, there is no guarantee that
others will not offer, in the future, similar services in any of the Licensed
Territories. The Company also believes that advertising and promotion, which
will require significant cash outlays, will be necessary to maintain
competitiveness. However, competitive pressure may require significant
additional cash expenditures for advertising and promotion, the amount and
timing of which may be dictated in part by the marketing policies of
competitors. If the revenues from the Company's operations are insufficient
to permit management to match promotional campaigns of competitors, the
number of Company Cardholders and Company Participating Restaurants in the
Licensed Territory may decline, with a resulting adverse effect on the
Company's financial condition.
The Countdown membership benefit program, with over 6,500,000 members
world-wide and over 100,000 accepting merchants in 47 countries, provides a
core of business activity upon which the Company intends to build a more
diversified benefits program. Countdown competes directly with the discount
programs offered by many of the Company's competitors notwithstanding which
it has achieved and maintained dominant market positions in several countries
through alliances with influential local licensees and by reputation
associated with 27 years of trading. Countdown offers a very comprehensive
range of discounts which are available from suppliers of a diverse array of
products and services.
NHS is the largest membership benefits provider in Australia offering
5,000,000 members a diverse range of benefits including advice helplines,
lifestyle and retail products and services. NHS intends to maintain its
dominant market position in Australia through the acquisition of members and
by adding to the range of products and services being offered to members. The
Company intends to introduce, wherever possible, the benefits offered by NHS
into its operations through the global extension or duplication of existing
programs.
GOVERNMENT REGULATION
The Company believes that it possesses all governmental permits or licenses
necessary to operate in the
7
United Kingdom and France, but has not inquired yet as to whether or not any
permits may be required in the rest of the Licensed Territories.
In November 1997, the Company's French subsidiary, Transmedia La Carte
Restaurant SA, ("TMF" or "the French company"), of which as of that date the
Company owned 50.1% of the common stock, was notified by the Bank of France
that, under the terms and provisions of its banking license, its fully paid
capital did not meet the statutory minima prescribed by the license. TME had
been notified by the board of directors of TMF of the requirement to fulfil
its obligation as the majority shareholder in the French company to
participate in the capital call which was intended to restore the capital of
TMF to the statutory minimum. As of December 4, 1997 the Company arrived at
an agreement in principle with two of the three minority shareholders to
acquire their holdings in the French company. This transaction is dependent
on the regulatory approval of the Bank of France, will involve the Company in
an outlay of approximately $1,000,000, and will result in the Company holding
90% of the issued shares in TMF. In addition, the Company, on February 3,
1998 made representations to the Bank of France that the capital of TMF will
be maintained at a minimum level of FF15,000,000 ($2,479,000). These steps
include introducing cash of FF1,000,000 ($165,000) and also Edward J. Guinan
III, Chairman of the Company, pledging unconditionally 2,000,000 shares of
common stock of TMAP. The aggregate value of these shares as of March 13,
1998 was $2,500,000. The Company plans to deposit both the cash and the
shares of Common Stock of TMAP in an escrow account, pending finalisation of
the proposed transaction.
(See --Risk Relating to Transmedia La Carte SA)
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS AND OTHER RISKS
Certain statements in this Report under the captions "Item 1. Business,"
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere, constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
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 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
"anticipates", "plans," "intends," 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. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
LIMITED OPERATING HISTORY, ACCUMULATED DEFICIT, NO ASSURANCE OF
PROFITABILITY
The Company's operations are subject to all the risks inherent in rapidly
growing business enterprises, including limited capital, delays, uncertain
markets and competition. The Company began conducting business operations in
the Fall of 1993 in London, England. The operations of the Company have
produced losses, which have continued through the date hereof. As of
September 30, 1997, the Company's accumulated deficit since inception was
$10,655,176 and the Company's net loss for the fiscal year then ended was
$3,746,248. There can be no assurance that the Company will ever achieve
profitable operations. The likelihood that the Company will succeed in the
discount restaurant charge card business and other discount services business
must be considered in light of general economic conditions and the
difficulties, expenses and delays experienced. The economic conditions which
exist in the United Kingdom and, in particular the difficulties being
experienced in France should also be considered. While the Company believes
that current economic conditions in the Licensed Territories will make its
business more attractive to Company Participating Restaurants and will make
The Restaurant Card more popular with value-conscious individuals, there can
be no assurance that the Company will succeed in its business in such an
environment or that an improving economic environment will not adversely
affect such business.
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RISK RELATING TO TRANSMEDIA LA CARTE RESTAURANT SA
As discussed elsewhere in this Report, in December 1997, the Company
reached an agreement in principle with two of the three minority shareholders
to acquire their holdings in the French company. This transaction is
dependent on the regulatory approval of the Bank of France, will involve the
Company in an outlay of approximately $1,000,000, and will result in the
Company holding 90% of the issued shares in TMF. As well, these two
shareholders have given up their rights to redeem their initial investment in
the French company, which right included the payment by the Company of a
premium of 20% on the initial investment. In addition, the Company has made
representations to the Bank of France that the capital of TMF will be
maintained at a minimum level of FF 15,000,000 ($2,479,000). These steps
include introducing cash of FF 1,000,000 ($165,200) and also Edward J. Guinan
III, the Chairman of the Company, pledging unconditionally 2,000,000 shares
of Common Stock of TMAP. The aggregate value of these shares as of February
4, 1998 was $2,500,000.
EXPLANATORY PARAGRAPH IN AUDITOR'S REPORT
The Company's independent auditors have included an explanatory paragraph
in their Report as of, and for the year ended September 30, 1997, stating that
the Company's ability to continue to fund its losses, as well as provide
capital for the acquisition program, will depend on its ability to continue
selling equity securities and effecting the exercise of warrants. -- See
"Consolidated Financial Statements".
LICENSE OBLIGATIONS
The Company is required to operate its discount restaurant charge card
business in accordance with the requirements and specifications established
by the License Agreement. The License Agreement also establishes minimum
development requirements for procuring new Company Participating Restaurants
and renewals and new Company Cardholders and renewals. The failure of the
Company to satisfy these requirements could result in the termination of the
License. In addition, the failure to establish operations in countries other
than the United Kingdom and France, prior to specified items may result in
loss of rights granted under the License for the Licensed Territories other
than the United Kingdom. Moreover, the failure to operate the Company's
discount restaurant charge card business or a sub-licensee's business
successfully in any location in the Licensed Territories will result in the
loss of the License with respect to such location.
NEED FOR ADDITIONAL FINANCING
The Company requires substantial additional funds to move forward with
its business plans, including completion of the acquisition of NHS, and other
possible acquisitions, and to satisfy existing creditors and to provide
working capital. Management estimates that an amount of $8,250,000 will be
required to complete the proposed acquisitions of which $3,500,000 is
required to complete the funding of NHS, and $4,750,000 to fund other planned
acquisitions. A further amount of $1,000,000 is estimated to be required as
working capital to fund the Company's deficit in the period to April 30, 1998.
In relation to a loan made by a shareholder of $1,000,000 in connection
with the Countdown acqusition, although the loan has been renewed for an
indefinite period, repayment may be demanded upon provision of 60 days
notice. There is a risk that the Company will need to find additional funds
to finance this repayment.
The Company has no available lines of credit at the present time. In the
event that management is not successful, or only partially successful in
raising the necessary funds, it may have to curtail its acquisition program,
with the possible loss of deposits or payments on account of approximately
$1,375,000.
No assurance can be given that the Company will be successful in
obtaining additional financing. Moreover, any additional financing, including
any financing obtained through the issuance of equity, could result in
substantial dilution to shareholders. Failure to obtain the necessary
financing within the necessary time frame will have a significant adverse
effect on the Company and its results of operations.
9
The Company has been able to fund its deficit, and the cost of its
acquisition and restructuring of Countdown, principally by the sale of equity
securities and exercise of warrants during the year. Whilst the Company is
taking steps to reduce the level of operating losses, the Company has
required and will continue to require, additional funds from the sale of
equities, in order to fund these deficits. The Company is also dependent on
being able to raise additional funds by the sale of equities in order to
complete the funding of the acquisition of NHS and other acquisitions being
contemplated
MANAGEMENT OF GROWTH
Execution and implementation of the Company's plan of operation will
require significant growth. The Company's current plans for growth will place
a significant strain on the Company's financial, managerial and other
resources. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and to attract, motivate and train key employees. If the
Company's executives are unable to manage growth effectively, the Company's
business, operating and financial condition would be materially and adversely
affected.
NASDAQ DELISTING; RISKS ASSOCIATED WITH BULLETIN BOARD
The National Association of Securities Dealers, Inc. ("NASD") has rules
which establish criteria for the initial and continued listing of securities
on Nasdaq Small Cap Market ("Nasdaq"). Under the rules, a company must
maintain at least $2,000,000 in net tangible assets, a minimum bid price of
$1 per share, and adhere to certain corporate governance provisions. During
the 1997 fiscal year the Company was notified by Nasdaq that the bid price of
the Company's Common Stock had fallen below the $1 minimum level.
Since the Company's initial public offering the Company's Common Stock
has been included on the NASDAQ Small Cap Market ("Nasdaq"). On February 26,
1998 a Nasdaq Listing Qualifications Panel held a written hearing to
determine whether to continue listing the Company's Common Stock in light of,
among other things, the Company's failure to timely file this report. On
March 10, 1998 Nasdaq notified the Company that effective that date the
Company's securities were delisted from Nasdaq. The determination was made
based on the Panel's opinion that so long as it is without accurate, complete
and publicly-filed audited financial statements, it will be unable to
evaluate the extent of the Company's compliance with Nasdaq's continued
listing standards. The Company is currently seeking to have its Common Stock
included on the OTC Bulletin Board. The OTC Bulletin Board is an unorganized,
inter-dealer, over-the-counter market. With respect to Common Stock traded on
the Nasdaq Bulletin Board or in the over-the-counter market in what is
commonly referred to as the "pink sheets", investors will find it more
difficult to dispose of the Common Stock or to obtain accurate quotations as
to the price of the Common Stock and it could have an adverse effect on the
coverage of news concerning the Company. In addition, the Common Stock would
be subject to a rule that imposes additional sales practice requirements on
broker-dealers who sell the Common Stock to persons other than established
customers and accredited investors (accredited investors are generally
persons having net worth in excess of $1,000,000 or an annual income
exceeding $200,000 or $300,000 together with a spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's
written consent to the transaction prior to sale, as well as disclosing
certain information concerning the risks of purchasing low-priced securities
on the market for such securities. Consequently the delisting would adversely
affect the ability of broker-dealers to sell the Common Stock and the ability
of purchasers to sell the Common Stock in the secondary market and would make
subsequent financing more difficult.
RESTAURANT CARD RISK
The restaurant business is marked by a large number of business failures,
many of which occur in the first year of operation. The Company believes that
current industry financial conditions, especially in the United Kingdom and
France, may be worse than historical experience. The Company plans to
determine the viability of prospective Company Participating restaurants in
the Licensed Territories through credit checks, business viability analysis
and on-site visits. The Restaurant Credits made to Company Participating
Restaurants in the Licensed Territories will be repaid by the Company
Cardholders charging their meals on The Restaurant Card on the basis of
reducing the Restaurant Credits at a rate of 50% of the Food and Beverage
Credits used. The Company will bear the credit risk that such Company
Participating Restaurants may fail before the Restaurant Credits are so
repaid. While the closing of any one such Company Participating restaurant
would not be likely to have a material effect on the Company's business, the
closing of Company Participating restaurants in the Licensed Territories with
substantial outstanding Restaurant Credits would have a material adverse
effect on the Company's business.
10
MARKET ACCEPTANCE
Although the market for charge cards in general is very mature, the
market for restaurant-specific charge cards is relatively undeveloped. The
Company's success also will depend in large part upon the Company's ability
to recruit and retain Company Participating Restaurants and Company
Cardholders. The Company began to recruit Participating Restaurants and
Company Cardholders in the United Kingdom and France in the Fall of 1993.
While the Company expects that it will benefit from the use of The Restaurant
Card in the Licensed Territories by Network Cardholders, the Company's
success will depend primarily upon the number of Company Cardholders that are
recruited in the Licensed Territories, and the level of usage of The
Restaurant Card in the Licensed Territories. The Company is offering a
product that is new in the marketplace in each of the Licensed Territories
and faces all the risks and uncertainties attendant to offering such a
product. There can be no assurance that the Company will be able to procure
the number of Company Cardholders, Company Participating Restaurants and
renewals thereof in the Licensed Territories that will be required for it to
fund the development and expansion of its business or to meet its minimum
development requirements under the License. Failure to do so could result in
the termination of the License.
COMPETITION
The membership discount services business, including the discount restaurant
charge card business, is highly competitive and the Company will be competing
for both restaurants and cardholders. Competitors of the Company will include
discount programs offered by major credit card companies and other companies
that offer a wide variety of discount marketing programs. Some competitors
make their discount charge cards available for a variety of purchases, for
example, travel, hotels and restaurants. If the revenues from the Company's
operations are insufficient to permit the Company to match promotional
campaigns of competitors, the number of Company Cardholders and Company
Participating Restaurants in the Licensed Territories may decline, with a
resulting material adverse effect on the Company's financial condition. Many
of the Company's competitors have substantially greater financial, personnel,
technological, marketing, administrative and other resources than the
Company. There can be no assurance that the Company will be able to compete
successfully with these companies or that these companies will not
successfully adopt marketing and operating strategies similar to those used
to promote the business of the Company and Network.
DEPENDENCE UPON NETWORK
The Company's Restaurant Card business is dependent upon Network for
consumer goodwill and name recognition. Any material adverse condition
suffered by Network may have a material adverse effect on the Company. The
Company's operations could be adversely affected by negative developments or
adverse publicity involving Network or its franchisees, or sub-licensees. In
addition, there can be no assurance that the working relationships that have
been established between the Company and Network would not be negatively
impacted by any future changes in control of Network. The Company is also
dependent on Network for protection of TRANSMEDIA-Registered trademark-
trademark and such other trademarks and service marks as Network may apply
for in the Licensed Territories. Network has the right, but not the
obligation, to institute action against persons who infringe upon or
misappropriate any of the licensed marks. If Network chooses not to take any
such action, the Company may not take action.
DEPENDENCE UPON USE OF CHARGE CARD ACCOUNTS
The success of the Company is dependent, in part, upon its ability to use
recognized charge cards for collecting billing charges on The Restaurant Card
in the Licensed Territories. The Company has recently entered into a clearing
agreement with Midland Bank plc, with respect to the processing of charges by
Company Cardholders on The Restaurant Card, allowing charges by Company
Cardholders on The Restaurant Card to be charged to a Visa-Registered
trademark-, Mastercard-Registered trademark-, American Express-Registered
trademark-, or Delta-Registered trademark- account of the Company Cardholder.
There can be no assurance that the Company will be able to establish the
necessary relationships with processing banks or charge card companies in
other portions of the Licensed Territories, or continue or renew the existing
arrangements with Midland Bank plc, or any other that it may establish.
Depending on a variety of factors, the termination of the Company's
relationship with any charge card company or processing agent could have a
material effect on the Company's operations and business.
OPERATIONS ABROAD
The Company's Transmedia restaurant card business, as well as the
business of Countdown and NHS are conducted abroad. As such the company's
revenue and earnings, which are expressed in United States Dollars, will be
subject to the risks of currency exchange to the extent of currency
fluctuations between the United States Dollar and other currencies in which
the company transacts its business.
Although the Company operates its business in the Licensed Territories in
a manner that is similar to Network's business in the United States, some
practices have been modified for local tax and other considerations. In
certain situations, the Company may be obligated to pay amounts to Network in
predetermined United States dollars even though revenues will be paid to the
Company in foreign currency. Therefore, fluctuations in currency could have
an adverse effect on the Company's profit margins. The Company presently does
not intend to engage in currency swaps or other similar hedging contracts to
offset possible losses, but may consider such activities in the future. In
addition, limitations on the transfer of
11
funds from locations in the Licensed Territories, and unfavourable economic
or political developments in the Licensed Territories, could have an adverse
effect on the Company's operations or its ability to exploit the License.
DEPENDENCE ON MANAGEMENT
The success of the Company will be dependent on the abilities and efforts
of Mr. Guinan, Chairman of the Board of Directors of the Company and Mr.
Harrison, the President and Chief Executive Officer. Any incapacity or
inability of Mr. Guinan to perform such functions would have a material
adverse effect on the Company. In the event of death or incapacity of Mr.
Guinan, Network has the right to approve his proposed replacement. There is
no guarantee that Network will approve any such replacement. The Company has
no key man life insurance on the life of Mr. Guinan or on the life of Mr.
Harrison. The success of the Company will also be dependent upon its ability
to hire additional managerial, administrative, systems, sales and marketing
personnel. Mr. Guinan is a United States citizen who has the Right to Remain
in the United Kingdom.
VOTING CONTROL
Mr. Guinan is the largest owner of the Company's Common Stock. Mr. Guinan
and the Company's management have the ability to control the outcome of
substantially all issues submitted to the Company's Board of Directors or
stockholders and an investor will be dependent upon the capabilities and
judgement of the Company's management. Moreover, concentration of effective
voting control could serve to perpetuate current management and could make
the Company less attractive to potential acquirers.
GUARANTEE OF SUBLICENSES AND FRANCHISE OBLIGATIONS
Under the License Agreement the Company has guaranteed the payment of all
amounts owed by its sub-licensees and/or franchisees to Network. In the event
that such sub-licensees and/or franchisees fail to make any payment to
Network, the Company could suffer substantial losses from the payment of such
amounts to Network.
RESTAURANT CARD RENEWALS
Most of The Restaurant Cards issued by the Company provide for the waiver
of the annual fee for six months. There is no assurance as to the number of
holders who will elect not to renew based upon the requirements to pay an
annual fee.
GOVERNMENT REGULATION
With the exception of the United Kingdom and France, the Company does not
possess any governmental permits or licenses for other portions of the
Licensed Territories, and has not inquired yet whether any permits or
licenses will be required. In the event permits or licenses are necessary for
the conduct of the Company's business in other portions of the Licensed
Territories, or that additional licenses or permits are required in respect
of operations in the United Kingdom or France, there is no guarantee that the
Company will be able to procure them, the failure of which could have a
material adverse effect on the Company's ability to operate or expand its
operations in the Licensed Territories.
NO DIVIDENDS ON COMMON STOCK
Since it's inception, the Company has not paid any dividends on its
Common Stock. The Company intends to retain future earnings, if any, to
provide funds for the operation of its business and, accordingly, does not
anticipate paying any cash dividends on its Common Stock in the reasonably
foreseeable future. See "Dividend Policy".
12
DELAWARE ANTI-TAKEOVER LAW
The Company is governed by the provisions of Section 203 of the General
Corporation law of the State of Delaware. In general, this law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is defined as a person who, together with affiliates
and associates, owns (or within the prior three years, did own) 15 per cent
or more of the corporation's voting stock.
13
ITEM 2--PROPERTIES
The Company, through its wholly owned subsidiary Transmedia UK plc, leases
office space of approximately 3,400 square feet in London at 11 St. James's
Square, London SW1Y 4LB. The lease is for a period of five years expiring on
September 8, 1998, at a net rental of approximately $150,846 per annum. In the
event that the lease is not renewed, alternative comparable space is expected to
be available at rental rates some 20% above current rates.
Additionally, the Company, through its subsidiary Countdown, leases mixed
use office and warehouse space of approximately 10,000 square feet in London at
1 Hurlingham Business Park, Sulivan Road, London SW6 3DU. The lease is for a
period of 20 years expiring on 2015 at a net rental of approximately $160,000
per annum, with rent reviews fixed at intervals of 5 years. It is not presently
possible to quantify the impact of these reviews.
The Company also leases, through its subsidiary Transmedia La Carte
Restaurant SA, office space of approximately 2,500 square feet at 9, rue de la
Paix, Paris 75002, France. The lease is for a period of three years, expiring on
August 31, 1998 at a net rental of approximately $110,000 per annum. Management
intends to relocate, at the expiry of this lease, to alternative space which is
expected to cost substantially less.
ITEM 3--LEGAL PROCEEDINGS
Subsequent to the year end, the Company settled a lawsuit in which it was
named as a defendant, relating to the granting of a sub-license to operate in
Belgium. Otherwise at the date of this Report, there are no material legal
proceedings pending involving the Company.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1997, no matters were submitted to a
vote of the security holders.
14
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information: Since the Company's initial public offering the
Company's Common Stock $.00001 par value (the "Common Stock") had been traded
on Nasdaq Small Cap Market ("Nasdaq") under the symbol "MBTE". Nasdaq Listing
Qualifications Panel held a written hearing to determine whether to continue
listing the Company's Common Stock in light of, among other things, the
Company's failure to timely file this report. On March 10, 1998 Nasdaq
notified the Company that effective that date the Company's securities were
delisted from Nasdaq. The determination was made based on the Panel's opinion
that so long as it is without accurate, complete and publicly-filed audited
financial statements, it will be unable to evaluate the extent of the
Company's compliance with Nasdaq's continued listing standards. The Company
is currently seeking to have its Common Stock included on the OTC Bulletin
Board. The OTC Bulletin Board is an unorganized, inter-dealer,
over-the-counter market. The following table sets forth, for the periods
indicated and as reported by Nasdaq, the high and low bid prices for shares
of the Company's Common Stock.
HIGH LOW
QUARTER ENDED $ $
- ---------------------- --------- ---------
December 31, 1995 2 1/4 1 5/8
March 31, 1996 2 1 1/8
June 30, 1996 2 3/4 1
September 30, 1996 2 1/2 1
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 27, 1998 1 3/8 25/32
The closing bid and ask prices as at March 11, 1998 were $1 and $1
respectively.
(b) Holders of Common Stock: The number of stockholders on record of the
Common Stock on March 27, 1998 was 215. The Company believes that there are a
significant number of beneficial owners of its Common Stock whose shares are
held in "Street Name.".
(c) Dividends: The Company has never paid cash dividends with respect to the
Common Stock, except for stock dividends paid to founders on inception (February
9, 1993). The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the foreseeable
future, to pay dividends to holders of the Common Stock. Any decision as to the
future payment of dividends will depend on the results of operations and
financial position of the Company and such other factors as the Company's Board
of Directors, in its discretion, deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
At various times from August 24, 1997 to December 31, 1997, the Company
sold in a private placement (the "Private Placement") an aggregate of
1,592,165 shares of Common Stock at a purchase price of $1 per share. For
every three shares purchased, each purchaser will receive, for no additional
consideration, a warrant to purchase one share of Common Stock at $1 per
share. The warrants are presently exercisable and expire in three years from
the date of issuance. In consideration for their agreement to purchase, on a
standby basis, a certain number of shares in the Private Placement, 3.3 the
Company agreed to issue to certain holders of preferred stock of the Company
three-year warrants to purchase up to an aggregate of 369,313 shares of
Common Stock at an exercise price of $1 per share. The Private Placement was
made pursuant to the exemption from the registration requirement of the
Securities Act of 1933, as amended, afforded by Section 4(2) thereof and
Regulation D promulgated thereunder.
15
ITEM 6--SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for each
of the last five fiscal years. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements of the Company
included in this Report.
INCOME STATEMENT DATA
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
Total revenues and fees........................ $ 7,870,256 $ 3,696,400 $ 3,967,997 $ 2,178,772 --
Gross profit................................... 3,160,345 1,610,495 1,701,411 817,778
Loss from operations........................... (4,239,251) (2,059,812) (2,114,975) (2,038,128) (56,828)
Net loss after minority interest and preferred
share dividends.............................. (3,746,248) (2,695,524) (2,215,452) (1,945,236) (52,716)
Net loss per common share...................... $ (0.27) $ (0.24) $ (0.19) $ (0.19) $ (0.01)
AS AT SEPTEMBER 30,
------------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993
- ------------------------------------------- ------------ ------------ ------------ ------------ ------------
Restaurant credits......................... $ 1,265,918 $ 1,309,279 $ 1,622,571 $ 1,392,571 $ 1,206,898
Intangible assets.......................... 1,847,426 1,297,026 1,405,112 1,513,198 1,619,204
Goodwill................................... 3,350,000 -- -- -- --
Total assets............................... 9,073,025 3,926,355 9,073,025 4,647,125 3,891,220
Total liabilities.......................... 7,678,922 1,774,166 2,008,620 915,513 709,364
Minority interest.......................... 834,954 -- -- -- --
Total equity............................... 559,149 2,152,189 3,813,060 3,731,612 2,824,137
Other Data
Number of Participating Restaurants........ 570 440 460 291 179
Number of Countdown accepting merchants.... 100,000 -- -- -- --
Number of Company
Cardholders................................ 52,000 43,500 19,000 12,000 3,400
Number of Countdown Members................ 6,500,000 -- -- -- --
16
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The discussion and analysis of financial condition and results of operations
should be read in conjunction with the consolidated financial statements, the
related disclosures and the selected financial data.
The nature of the Company's Restaurant Card business is such that there is a
lead time before profitable operations can be achieved. This is demonstrated in
the financial results for the years ended September 30, 1997, 1996 and 1995. The
success of the Company is dependent upon the number of Company Cardholders and
Company Participating Restaurants, as well as obtaining increased usage of The
Restaurant Card by Company Cardholders. The Company's joint venture marketing
partners are predominantly large size organisations, with lengthy internal
procedures. Consequently preparing campaigns for launch and the resulting
anticipated increase in Company Cardholders is taking considerably longer than
was initially anticipated. As of September 30, 1997 the Company had
approximately 52,000 Company Cardholders and 570 Company Participating
Restaurants.
The Company's ability to grow has been restricted by the single product
offered by the Transmedia dining program. During fiscal 1997, the Company and
TMAP jointly obtained the permission of TMNI to expand its business base by
jointly paying $250,000 in cash and issuing a joint promissory note for
$500,000 to TMNI. In April 1997, the Company and TMAP each purchased 50% of
Countdown, an international provider of membership discount services and in
December 1997 jointly acquired with TMAP an interest in NHS, the largest
provider of telephone helpline and lifestyle benefits in Australia. These
acquisitions provide the Company with core business activities which are
complementary to the Company's existing business and upon which the Company
can build a more diversified benefits program, subject to, among other
things, obtaining significant additional capital. Further acquisitions are
planned in fiscal 1998, which should add to the Company's
cardholder/membership base and expand the product range.
On April 3, 1997 the Company acquired a 50% interest in Countdown, whose
results are consolidated in these statements using the purchase method of
accounting. The acquisition provides the Company with core business activities,
which are complimentary to the Company's existing business and upon which the
Company can build a more diversified benefits program.
On December 2, 1997, Transmedia Australia, a company owned equally by the
Company and TMAP, indirectly purchased in simultaneous transactions 51% of the
common stock of NHS. Transmedia Australia also acquired an option to purchase
the 49% balance of NHS's common stock. The option is exercisable at any time
through June 30, 1998, and is subject to an extension for up to 90 days. The
results of NHS will be reflected in future periods using the equity method of
accounting.
In February 1997, the Company entered into an Agreement and Plan of
Reorganization to merge the Company and its affiliate Transmedia Asia Pacific ,
Inc. under the name MemberTek International, Inc. The acquisition of Countdown
and NHS caused the Company to postpone the merger, however management is
committed to merging the companies in fiscal 1998.
RESULTS OF OPERATIONS
Year Ended September 30, 1997
The Company generated revenues and fees of $7,870,256 and $3,696,400 for the
year ended September 30, 1997 and September 30, 1996 respectively. The increase
in 1997 is primarily due to the effect of the acquisitions of Countdown and TM
France in April and December, 1997 respectively whose results are consolidated
in these statements for the first time using the purchase method of accounting.
Countdown generated revenues of $3,239,052 for the six months ended September
30, 1997 and TM France generated revenues of $337,072 for the nine months ended
September 30, 1997. The revenues generated by the Company's operations
(exclusive of Countdown and TM France), for the year ended September 30, 1997
amounted to $3,352,812, an increase of 7.3% over 1996. This increase is due to
the increased number of Company Cardholders.
17
Membership fees for the year ended September 30, 1997 were $941,320 compared
to $570,425 for the previous year. The membership fees attributable to Countdown
and TM France for 1997 were $435,923 and $19,398 respectively. Existing
operations produced membership fees of $486,000 for the year ended September 30,
1997, a decrease of 14% over 1996. This decrease is as a result of a combination
of membership fees in the UK being subject to UK sales tax (VAT) since May 1996,
which the Company has borne as a cost, together with an increased number of
'Free Card' Company Cardholders (membership with no annual fee payable but a
reduce 20% discount), netted against an overall increase in the Cardholder base.
The Company increased the number of Company Cardholders from 43,500 at
September 30, 1996 to 52,000 at September 30, 1997. The increase is mainly as a
result of consolidating TM France which has 3,900 Company Cardholders at
September 30, 1997 and the continuing MBNA campaign. The Company also increased
its number of Company Participating Restaurants from 440 at September 30, 1996
to 570 at September 30, 1997. This increase is due to a combination of
consolidating TM France which has 210 Restaurants at September 30, 1997 and a
reduction of 36 in existing operations as part of an on-going exercise to
eliminate slow moving restaurants from the program.
The Company has also acquired 6,500,000 Countdown members and over 100,000
Countdown accepting merchants. The Company plans to increase its Company
Cardholder and Company Participating Restaurant base through various marketing
programs, as well as increasing its Countdown membership through a direct
marketing program. In particular, this direct marketing program, will involve an
expansion of Countdown's marketing efforts in order to achieve an increase in
the current numbers of members.
Cost of sales amounted to $4,709,911 for the year ended September 30, 1997
compared to $2,085,905 for 1996. The increase is mainly as a result of
consolidating Countdown with $2,299,559 and TM France.with $264,056 of costs of
sale. Excluding Countdown and TM France demonstrates that the cost of sales for
existing operations was static against the increased revenues and demonstrates
the impact of the 'Free Card'.
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 compared to $3,670,307 for
1996. The selling, general and administrative expenses included for Countdown
and TM France in the year ended September 30, 1997 were $1,794,847 and
$1,298,067 respectively. The increase in the selling, general and administrative
expenses incurred by existing operations amounts to $545,742 and includes
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, of which $145,970 relates to the goodwill on consolidating Countdown
and TM France and $91,516 to reflect a diminution in the carrying value of the
license based upon future cash flows. But for these additional expenses the
Company would have reported a 6.4% reduction in selling, general and
administration expenses.
The Company's share of losses in TM France for the three months ended
December 31, 1996 and prior to the Company taking a majority shareholding in TM
France, was $116,899.
The Company remains in a net operating loss carry forward position for
income tax purposes and no tax benefit has been recognised for the year ended
September 30, 1997.
The minority interest's share of 1997 losses in Countdown and TM 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 because of an oversight in under recording a charge in 1996.
Year Ended September 30, 1996
The Company generated revenues and fees of $3,696,400 for the year ended
September 30, 1996, a decrease of 6.8%. The decrease in revenues is principally
due to the fact that The Times of London and Sunday Times promotions in 1995
gave rise to a high level of non repeat business which has not been fully
replaced by the revenues generated by the 1996 campaigns. The Company increased
its number of Cardholders from 19,000 to 43,500 at September 30, 1995 and
September 30, 1996 respectively, largely as a result of the 17,500 Company
Cardholders produced by the MBNA campaign since August 1996. The Company
marginally decreased its number of Participating Restaurants from 460 at
September 30, 1995 to 440 at September 30, 1996. This decrease is attributable
to the Company's policy of rationalising Participating Restaurants with low
levels of business. Membership fees for the year ended September 30, 1996 of
$570,425 are 10% higher than 1995 as a result of the increasing numbers of
company Cardholders.
Cost of sales amounted to $2,085,905 for the year ended September 30, 1996,
an decrease of 8% which corresponds to the decrease in revenues.
Selling, general and administrative expenses, consisting primarily of the
costs of operations, for the year ended September 30, 1996 amounted to
$3,670,307 representing a decrease of 4% over 1995. The decrease can be
attributed to a cost evaluation exercise that was undertaken in June 1996 which
resulted in savings in printing and staff costs.
TM France incurred losses of approximately $1,250,000 after revenues of
$156,370 for the year ended September 30, 1996, being its first year of
operations which commenced on a trial basis in April 1996. The Company's share
of those losses amounted to $509,404. For the year ended September 30, 1995 TM
France incurred pre-trading losses of approximately $182,624. The Company's
share of those losses amounted to $92,455.
18
The Company earned $8,112 for the 1996 fiscal year from the temporary
investment of excess cash funds. The Company remains in a net operating loss
carry forward position for income tax purposes and no tax benefit has been
recognised for the year ended September 30, 1996.
Year Ended September 30, 1995
The Company generated revenues and fees of $3,967,997 for the year ended
September 30, 1995, an increase of 66% over 1994. The increase in revenues
and fees reflected the activity generated by an established cardholder base
for a full twelve months and new cardholders obtained primarily from The
Times of London and Sunday Times promotions. The Company increased its number
of Cardholders from 14,000 to 19,000 and increased its number of
Participating Restaurants from 430 to 460 at September 30, 1994 and September
30, 1995 respectively. Membership fees for the year ended September 30, 1995
of $518,166 were significantly greater than the $85,847 reported for 1994 and
are as a result of the Company billing Company Cardholders for the first time
following the typically waived membership period. Other income represents the
non-refundable deposits received for two 90 day options to acquire the
franchise for Belgium, which have now lapsed.
Cost of sales amounted to $2,266,586 for the year ended September 30, 1995,
an increase of 66% over 1994 which is in line with the increase in revenues.
Cost of sales are approximately 50% of the gross food and beverages value
consumed by the Company Cardholders and represents the recovery of the
restaurant credits made by the Company to the respective Company Participating
Restaurants.
Selling, general and administrative expenses, consisting primarily of the
costs of operations for the year ended September 30, 1995 amounted to $3,816,386
representing an increase of 33% over 1994. In the quarter ended September 30,
1995 the Company incurred a number of additional costs relating to: the
development of card marketing opportunities and cardholder activity of $90,000,
system development costs of $200,000, an increased general provision for
irrecoverable restaurant credits of $100,000 and the $250,000 royalty payment to
Network on the granting of the French sub-license. All system development costs
for the Company and TMAP were consolidated into the Company where the Company is
making enhancements to the system and converting the system to operate in France
and other countries. An agreement exists between the Company and TMAP to supply
the system for an initial fee of $50,000, paid in fiscal 1994 and an annual fee
of $12,000. The Company may receive income in the future for the supply of the
system to other countries.
The Company earned $28,978 for the 1995 fiscal year from the temporary
investment of excess cash funds. The Company remains in a net operating loss
carry forward position for income tax purposes and no tax benefit has been
recognised for the year ended September 30, 1995.
19
LIQUIDITY AND CAPITAL RESOURCES
The Company requires substantial additional funds to move forward with its
business plans, including completion of the acquisition of NHS, and other
possible acquisitions, to satisfy existing creditors and to provide working
capital. Management estimated that an amount of $8,250,000 will be required
in the period to April 30, 1998, of which $3,500,000 is required to complete
the funding of NHS, $4,750,000 to fund other planned acquisitions. A further
amount of $1,000,000 is estimated to be required working capital to fund the
Company's deficit in the period to April 30, 1998.
The Company has been able to fund this deficit, and the cost of its
acquisition and restructuring of Countdown, principally by the sale of equity
securities and exercise of warrants during the year. Whilst the Company is
taking steps to reduce the level of operating losses, the Company has
required and will continue to require, additional funds from the sale of
equities, in order to fund these deficits. The Company is also dependent on
being able to raise additional funds by the sale of equities in order to
complete the funding of the acquisition of NHS and other acquisitions being
contemplated.
The Company has no available lines of credit at the present time. In the
event that management is not successful or is only partially successful in
raising the necessary funds, it will have to curtail its acquisition program,
with the possible loss of deposits or payments on account of approximately
$1,375,000.
No assurance can be given that the Company will be successful in obtaining
additional financing. Failure to obtain the necessary financing within the
necessary time frame will have a significant adverse effect on the Company's
financial condition and results of operations. Moreover, any additional
financing, including any financing obtained through the issuance of equity,
could result in substantial dilution to shareholders. To date, the Company has
been successful in raising such capital, but there can be no assurance that it
will continue to be possible to raise the funds required. There is a risk that
failure to raise the capital required, with the result that the Company would be
unable to continue trading.
The Company's independent auditors have included an explanatory paragraph in
their report as of, and for the year ended September 30, 1997, stating that the
Company's ability to continue to fund its losses, as well as provide working
capital for the acquisition program, will depend on its ability to continue
selling equity securities and effecting the exercising of warrants (see
"Consolidated Financial Statements").
The Company was initially capitalised with 6,206,896 shares, after giving
retroactive effect to stock dividends. On August 11, 1993, TME issued and sold
3,718,784 shares of Common Stock of which (i) 225,000 were issued to Conestoga,
a corporation which is related to TME by virtue of the majority shareholding in
Conestoga, being held by Edward J. Guinan III, the Chairman and Director of the
Company, in consideration for the costs incurred on behalf of the Company by
Conestoga, with respect to raising capital for the Company; (ii) 496,284 were
issued to Network, as partial consideration for the purchase of the License;
(iii) 275,000 were issued to Conestoga as reimbursement for a down payment of
$275,000 made by Conestoga to Network for the purchase of the License; and (iv)
the remaining 2,722,500 were sold to private investors in a private placement at
an offering price of $1 per share. In addition, the Company issued 85,000 shares
of Common Stock as consideration for services rendered in connection with the
raising of capital in the Company's private placement of shares in August 1993.
Of the cash proceeds of the private
20
placement of $2,722,500, $850,000 was paid by Network for further
consideration for the purchase of the Transmedia License from the private
placement of shares, leaving a balance, after issue costs, of $1,744,623
available to TME for use as working capital in respect of the utilisation by
the Company of its rights under the Transmedia License Agreement.
In February 1994, the Company completed a second private placement of
700,000 shares of Common Stock at a price of $3 per share. The net proceeds of
such private placement were used as working capital in respect of the
utilisation by the Company of its rights under the License Agreement. In
addition, the Company separately issued 10,000 shares of Common Stock as
consideration for services rendered in connection with the raising of capital in
the second private placement in February 1994.
In July 1995, the Company issued 590,857 shares of 6 1/2% Convertible
Redeemable Preferred Stock at a price of $3.50 per share. The net proceeds of
$1,964,600 were used to finance the Company's investment in Transmedia La Carte
Restaurant SA in Paris, France, and to provide working capital to existing
operations.
In July 1996, the Company issued 892,857 shares of Common Stock at a price
of $1.40. The net proceeds of $1,235,000 were used to provide working capital to
existing operations
In December 1996, the Company sold an aggregate of 556,250 shares of Common
Stock at $2 per share in a private placement The purchasers were also issued
warrants to purchase an aggregate of 185,417 shares of Common Stock at $2 per
share. The net proceeds of $1,097,500 were used to provide working capital to
existing operations.
Commencing August 1997 and terminating in December 1997, the Company sold a
private placement in which it sold an aggregate of 1,592,165 shares of Common
Stock at a purchase price of $1 per share. For every three shares purchased,
each purchaser will receive, for no additional consideration, a warrant to
purchase one share of Common Stock at $1 per share. "See Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters".
The Company made investments in Transmedia La Carte Restaurant SA $300,000
in 1995, $1,500,000 in 1996 and $315,000 in 1997.
In June 1996, the Company received 148,853 and 48,142 shares of Common Stock
from Edward Guinan III, the Chairman of the Board of Directors, and Conestoga
Partners Inc. valued at their market price of $2.625 per share as repayment of
their outstanding loans.
The cash resources of the Company are used to provide Restaurant Credits to
Company Participating Restaurants in the Licensed Territories, and to pay for
general and administrative expenses, including officers' compensation and
compensation to independent sales consultants for the recruitment of Company
Participating Restaurants, and Company Cardholders.
The Restaurant Credits are generally unsecured and are recoverable only as
Company Cardholders utilise The Restaurant Card at the respective Company
Participating Restaurant. In a small number of cases, the Company may request a
personal guarantee from the owner. Generally, no other forms of collateral or
security are obtained from restaurant owners. Recovery of Restaurant Credits as
well as generation of gross profit from operations is strongly dependent upon
the frequency of use by existing Company Cardholders of The Restaurant Card.
ACQUISITIONS
Effective April 4, 1997, the Company acquired 50% ownership in Countdown
Holdings Ltd. and subsidiaries, a United Kingdom corporation offering discounted
merchandise purchases and other benefits to approximately 6,500,000 cardholders.
These cardholders are distributed world-wide, with nearly 100,000 accepting
merchants in 47 countries. The consideration paid for this acquisition was
$4,750,000 split equally between the Company and its affiliate TMAP. Of this
$4,750,000, $400,000 was paid as a deposit, $1,600,000 was paid in cash, with
the balance of $2,750,000 paid in shares of common stock and options to purchase
common stock from the Company and TMAP, in approximately equal values. Of the
total
21
consideration of $4,750,000, some $6,000,000 is goodwill. An individual who
is a member of the board of directors of the Company advanced the Company
sufficient funds to complete the cash portion of this transaction. This loan
consisted of an amount of $1,000,000 which was loaned to the Company bearing
interest at a rate of 12% per annum, and with no set repayment date, but on
demand provided the individual gives sixty days notice of such demand.
On December 2, 1997, Transmedia Australia, a company owned equally by the
Company TMAP indirectly purchased in simultaneous transactions 51% of the
common stock of NHS. The total purchase price for the transaction (including
a deposit of Aus $345,000 ($226,974)) was Aus $12,500,000 ($8,223,684), of
which Aus $4,000,000 represents sign-on fees payable to certain individuals
of NHS, and the balance of which represents amounts payable to NHS in two
tranches. The first tranche was paid on December 2, 1997 in the form of cash
and 500,000 shares of Common Stock of the Company and its affiliate, TMAP.
The second tranche (Aus $2,842,540 [$1,870,092]) as payable in cash on
January 31, 1998 but in accordance with the provisions of the agreement
between the parties, has been extended for 90 days, with interest accruing
thereon at 5% per annum. The initial portion of the sign-on fees, which were
payable on January 31, 1998 has been delayed at the request of the
principals. The balance is due and payable on June 30, 1998 (subject to
extension of each instalment, with the exception of a portion of the first
instalment, by up to 90 days provided that interest will accrue on the
extended amounts at 5% per annum. Transmedia Australia also required an
option to purchase the 49% balance of NHS's common stock for an additional
Aus $2,497,655 ($1,643,194) (less potential reductions). The option is
exercisable at any time through June 30, 1998 (subject to extension for up to
90 days) provided that interest will accrue on the exercise price during any
such extension at 5% per annum. Failure to exercise the option during its
term will give the NHS principals the rights to repurchase the 51% interest
for nil consideration.
On December 4, 1997, the Company agreed to purchase, in principle, not later
than January 31, 1998, the following minority interest holdings in TM France:
(i) from Partech International Inc. (U.S. Growth Fund Ventures), 34.6% of the
shares for a sum of $750,000; (ii) from Eric Knight 5.3% of the shares for a
sum of $114,020. Both purchases are subject to contract and to the regulatory
approval of the Commission Bancaire of the Bank of France, which approval is
pending as of the date of this filing and will involve the Company in an
outlay of approximately $1,000,000 and will result in the Company holding 90%
of the issued shares in TMF. In addition, the Company, on February 3, 1998
made representations to the Bank of France that the capital of TMF will be
maintained at a minimum level of FF15,000,000 ($2,479,000). These steps
include introducing cash of FF1,000,000 ($165,000) and also Edward J. Guinan
III, Chairman of the Company, pledging unconditionally 2,000,000 shares of
common stock of TMAP. The aggregate value of these shares as of March 13,
1998 was $2,500,000.
In October 1997, the Company signed a Letter of Intent to purchase 50% of
the shares of Common Stock of a privately held corporation engaged in a
complementary field of business. $50,000 in cash and 200,000 shares of Common
Stock in the Company, held by Edward J. Guinan III, the Chairman of the Board of
Directors were placed as a deposit. This deposit becomes the property of the
Principals in the corporation as of January 15 1998. The Letter of Intent
provides for a purchase price of $3,750,000 in cash plus $500,000 in
unrestricted shares of Common Stock of TME, the value of the shares of Common
Stock being that as of the day of closing of the purchase. If the closing does
not occur on or prior to March 31, 1998, the deposit is subject to forfeiture to
the seller.
In December 1997 the Company signed a letter of intent to purchase 50% of the
shares of common stock of a privately held corporation engaged in a
complimentary field of business. 200,000 shares of Common Stock in the
Company held by Edward J. Guinan III, the Chairman of the Company, were
placed as a deposit. The Letter of Intent provides for a purchase price of
pounds U.K. 500,000 ($800,000) in cash with an option to take up to pounds UK
200,000 ($320,000) of the purchase price in shares of Common Stock of the
Company, the value of the shares of Common Stock being that as of the day of
closing on the purchase. If the closing does not occur on or prior to March
31, 1998, the deposit is subject to forfeiture to the seller.
On January 9, 1998, the Company entered into an agreement in principle,
subject to contract, to purchase 85% of the share capital of Network America
Inc., of Dallas, Texas. The consideration consists of a cash deposit of $50,000
to the Principals, an undertaking by the Company to redeem on January 19, 1998,
and outstanding Promissory Note in an amount of $103,000 held by an unrelated
third party, an undertaking by the Company to pay a sum of $250,000 in cash to
the Principals on March 31, 1998, and an undertaking by the Company to pay a sum
of $1,000,000 in eighteen subsequent equal monthly instalments of $55,555
each commencing April 1998.
The Company has, effective January 16, 1998 accepted the resignation of
Christopher Radbone as a director of the Company and its subsidiary Countdown
plc. Contemporaneously with such resignation, Countdown plc has agreed to
release Mr. Radbone from his service contract, and Mr. Radbone has agreed to
grant an option to Edward J. Guinan III at a value of $1 per share to purchase
the shares of Common Stock of the Company held by him.
22
The Company will be required to seek additional financing to settle historic
liabilities, and although the Company anticipates that the cash associated
with the NHS acquisition and the revenues expected to be derived from
operations, should, based upon its internal calculations, be sufficient to
fund on-going operations, nevertheless additional finance will also be
required in the event that the Company intends to make acquisitions or that
there are delays, cost overruns, sales declines or unanticipated expenses.
While there can be no assurance of any such source of funds or the terms upon
which they can be obtained, the Company is confident that sufficient funds
will be available to meet its anticipated business expansion needs in fiscal
1998, based upon management's knowledge of the capital markets and their
contracts within those markets.
Operating losses in Countdown for the year ended September 30 1997 total
$419,431.
INFLATION AND SEASONALITY
The Company does not believe that its operations will be influenced by
inflation in the foreseeable future. The business of individual Company
Participating Restaurants may be seasonal depending on their location and the
type of food and beverages served. However, the Company at this time has no
basis on which to project seasonal effects, if any, to its business as a whole.
EFFECT OF THE YEAR 2000
The Company is aware that it must evaluate the effect of the year 2000 on
its internal operating and accounting software and other systems and make an
assessment as to the significance of to the Company of becoming year 2000
compliant.
The Company has commenced an initial evaluation of the potential impact, and
management expects to complete this in the near future.
NEW U.S. ACCOUNTING PRONOUNCEMENTS NOT YET IMPLEMENTED
In December 1996, the FASB issued SFAS No. 128 "Earnings Per Share", which
is effective for both interim and annual periods ending after December 15, 1997.
SFAS No. 128 requires that all prior period earnings per share data be restated
to conform to this statement. The Company will adopt SFAS No. 128 for the year
ended September 30, 1998. The adoption of this standard is not expected to have
a material effect on the Company's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which established 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, or
distributions to, owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
SFAS No. 130, effective for all fiscal years beginning after December 15,
1997, requires comparative information for earlier years to be restated and
early adoption is permitted. The Company intends to adopt SFAS No. 130 effective
October 1, 1998. Results of operations and financial position will be unaffected
by implementation of this standard.
23
ITEM 8- FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
---------
Report of Independent Auditors.......................................................................... F1
Consolidated Balance Sheets as at September 30, 1997 and 1996........................................... F2-F3
Consolidated Statements of Operations for the years ended September 30, 1997, 1996 and 1995............. F4
Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 1997 and
1996 and 1995......................................................................................... F5
Consolidated Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995............. F6-F7
Notes to the Consolidated Financial Statements.......................................................... F8-F25
24
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Transmedia Europe, Inc.
We have audited the accompanying consolidated balance sheet of Transmedia
Europe, Inc. and subsidiaries as of September 30, 1997 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year ended September 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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, 1997, and the
results of their operations and cash flows for the year ended September 30,
1997, in conformity with generally accepted accounting principles in the United
States.
The accompanying consolidated financial statements 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 during
the year ended September 30, 1997, both from operations and from
restructuring 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 exercises of warrants, 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 exercises of warrants.
Management's plans in regard to these matters are also described in Note 3.
The consolidated financial statements do not include any adjustment which
might result from this uncertainty.
March 30, 1998
BDO Stoy Hayward
London, England
F1
TRANSMEDIA EUROPE, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
ASSETS
Current assets
Cash (including temporary cash investments of $168,350 at September 30, 1997, and
$730,767 at September 30,1996).................................................. $ 554,624 $ 61,661
Trade accounts receivable......................................................... 484,968 105,167
Restaurant credits (net of allowance for irrecoverable credits of $666,134 at
September 30, 1997 and of $399,328 at September 30, 1996)....................... 1,265,918 1,309,279
Amounts due from related parties (note 5)......................................... 86,401 114,246
Prepaid expenses and other current assets......................................... 599,627 264,478
------------- -------------
Total current assets................................................................ 2,991,538 1,854,831
Non-current assets
Investment in affiliated company (note 4)......................................... -- 698,141
Property and equipment, net of accumulated depreciation of $678,338 at September
30, 1997 and $104,262 at September 30, 1996 (note 8)............................ 741,115 76,357
Intangible assets, net of accumulated amortisation of $523,858 at September 30,
1997 and $324,258 at September 30, 1996 (note 6)................................ 1,847,426 1,297,026
Goodwill, net of accumulated amortization of $145,970 at September 30, 1997 and
$nil at September 30, 1996 (note 7)............................................. 3,350,000 --
Other assets (note 10)............................................................. 142,946 --
------------- -------------
Total assets........................................................................ $ 9,073,025 $ 3,926,355
------------- -------------
------------- -------------
See accompanying summary of accounting policies and notes to the consolidated
financial statements.
F2
TRANSMEDIA EUROPE, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft................................................................... $ 952,668 $ --
Trade accounts payable........................................................... 2,384,516 483,229
Deferred membership fee income................................................... 536,509 352,542
Accrued liabilities (note 11).................................................... 1,459,388 438,395
Amount due to related parties (note 5)........................................... 2,345,841 --
-------------- -------------
Total current liabilities........................................................ 7,678,922 1,274,166
Non-current liabilities
Deferred license fee income (note 4)............................................. -- 500,000
-------------- -------------
Total liabilities................................................................ 7,678,922 1,774,166
-------------- -------------
Minority interest (note 13)...................................................... 834,954 --
-------------- -------------
Stockholders' equity
Convertible Redeemable Preferred Shares (note 12)................................ 5,909 5,909
Common stock, $.00001 par value, 95,000,000 shares authorised, 12,875,787 issued
and outstanding shares at September 30, 1997 and 12,319,537 at September 30,
1996........................................................................... 129 123
Additional paid in capital..................................................... 12,108,066 9,647,072
Accumulated deficit............................................................ (10,655,176) (6,908,928)
Treasury stock, 196,995 shares of common stock at cost......................... (517,112) (517,112)
Unearned compensation--restricted stock........................................ -- (78,000)
Cumulative foreign currency translation adjustment............................. (382,667) 3,125
-------------- -------------
Total stockholders' equity....................................................... 559,149 2,152,189
-------------- -------------
Total liabilities and stockholders' equity......................................... $ 9,073,025 $ 3,926,355
-------------- -------------
-------------- -------------
See accompanying summary of accounting policies and notes to the consolidated
financial statements.
F3
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
Revenues............................................................ $ 6,928,936 $ 3,125,975 $ 3,399,831
Membership fee...................................................... 941,320 570,425 518,166
Other income........................................................ -- -- 50,000
------------- ------------- -------------
Total revenue and fees.............................................. 7,870,256 3,696,400 3,967,997
Cost of sales....................................................... 4,709,911 2,085,905 2,266,586
------------- ------------- -------------
Gross profit........................................................ 3,160,345 1,610,495 1,701,411
Selling, general and administrative expenses........................ (7,385,975) (3,670,307) (3,816,386)
------------- ------------- -------------
Loss from operations................................................ (4,225,630) (2,059,812) (2,114,975)
Share of losses of associated company............................... (116,899) (509,404) (92,455)
Interest income..................................................... 11,287 8,112 28,978
------------- ------------- -------------
Loss before income tax.............................................. (4,331,242) (2,561,104) (2,178,452)
Income taxes (note 17).............................................. -- -- --
------------- ------------- -------------
Net loss before minority interest................................... (4,331,242) (2,561,104) (2,178,452)
Minority interest (note 13 )........................................ 805,859 -- --
------------- ------------- -------------
Net Loss............................................................ (3,525,383) (2,561,104) (2,178,452)
Preferred share dividends........................................... (220,865) (134,420) (37,000)
------------- ------------- -------------
Net loss after preferred share dividends $ (3,746,248) $ (2,695,524) $ (2,215,452)
------------- ------------- -------------
------------- ------------- -------------
Loss per common share............................................... (0.27) (0.24) (0.19)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 13,736,502 11,448,212 11,423,680
------------- ------------- -------------
------------- ------------- -------------
See accompanying summary of accounting policies and notes to the consolidated
financial statements.
F4
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NUMBER OF NUMBER OF ADDITIONAL
COMMON COMMON PREFERRED PREFERRED PAID- IN
SHARES STOCK SHARES STOCK CAPITAL
---------- ------ --------- --------- -----------
Balance, September 30, 1994... 11,420,680 114 -- -- 6,447,390
Issuance of common stock due
to exercise of options...... 6,000 -- -- -- 6,000
Issuance of convertible
preferred stock............. -- -- 590,857 5,909 2,062,091
Issue costs................... -- -- -- -- (103,400)
Net loss after preferred share
dividends................... -- -- -- -- --
Effect of foreign currency
translation................. -- -- -- -- --
Compensation expense -
restricted stock............ -- -- -- -- --
---------- ------ --------- --------- -----------
Balance, September 30, 1995... 11,426,680 $114 590,857 $5,909 $ 8,412,081
Issuance of common stock...... 892,857 9 -- -- 1,249,991
Issue costs................... -- -- -- -- (15,000)
Net loss after preferred share
dividends................... -- -- -- -- --
Effect of foreign currency
translation................. -- -- -- -- --
Compensation expense -
restricted stock............ -- -- -- -- --
Treasury stock................ -- -- -- -- --
---------- ------ --------- --------- -----------
Balance, September 30, 1996... 12,319,537 $123 590,857 $5,909 $ 9,647,072
Issuance of common stock...... 556,250 6 -- -- 2,310,994
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... 12,875,787 $129 590,857 $5,909 $12,108,066
---------- ------ --------- --------- -----------
---------- ------ --------- --------- -----------
CUMULATIVE
FOREIGN CURRENCY UNEARNED
TREASURY TRANSLATION COMPENSATION ACCUMULATED
STOCK ADJUSTMENT RESTRICTED STOCK DEFICIT TOTAL
--------- ---------------- ---------------- ----------- -----------
Balance, September 30, 1994... -- 8,060 (726,000) (1,997,952 ) 3,731,612
Issuance of common stock due
to exercise of options...... -- -- -- -- 6,000
Issuance of convertible
preferred stock............. -- -- -- -- 2,068,000
Issue costs................... -- -- -- -- (103,400)
Net loss after preferred share
dividends................... -- -- -- (2,215,452 ) (2,215,452)
Effect of foreign currency
translation................. -- 2,300 -- -- 2,300
Compensation expense -
restricted stock............ -- -- 324,000 -- 324,000
--------- ---------------- ---------------- ----------- -----------
Balance, September 30, 1995... -- $ 10,360 $(402,000) $(4,213,404) $ 3,813,060
Issuance of common stock...... -- -- -- -- 1,250,000
Issue costs................... -- -- -- -- (15,000)
Net loss after preferred share
dividends................... -- -- -- (2,695,524 ) (2,695,524)
Effect of foreign currency
translation................. -- (7,235) -- -- (7,235)
Compensation expense -
restricted stock............ -- -- 324,000 -- 324,000
Treasury stock................ (517,112) -- -- -- (517,112)
--------- ---------------- ---------------- ----------- -----------
Balance, September 30, 1996... $(517,112) $ 3,125 $ (78,000) $(6,908,928) $ 2,152,189
Issuance of common stock...... -- -- -- -- 2,311,000
Issue costs................... -- -- -- -- (15,000)
Net loss after preferred share
dividends................... -- -- -- (3,746,248 ) (3,746,248)
Effect of foreign currency
translation................. -- (385,792) -- -- (385,792)
Compensation expense -
restricted stock............ -- -- 78,000 -- 78,000
Option re Countdown........... -- -- -- -- 165,000
--------- ---------------- ---------------- ----------- -----------
Balance, September 30, 1997... $(517,112) $(382,667) $ -- $(10,655,176) $ 559,149
--------- ---------------- ---------------- ----------- -----------
--------- ---------------- ---------------- ----------- -----------
See accompanying notes to the consolidated financial statements.
F5
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
Cash flows from operating activities:
- -Net loss before preferred share dividends and minority interest......... $(4,331,242) $(2,561,104) $(2,178,452)
Adjustment to reconcile net loss to net cash used in operating
activities:
- -Depreciation and amortisation........................................... 555,227 151,265 149,497
- -Amortisation of unearned compensation................................... 78,000 324,000 324,000
- -Provision for irrecoverable restaurant credits.......................... 266,806 41,771 281,357
- -Share of losses of associated company................................... 116,899 509,404 92,455
- -Gain on sale of property and equipment.................................. (3,609) -- --
Changes in assets and liabilities:
- -Trade accounts payable.................................................. 1,332,752 173,244 125,409
- -Accrued liabilities..................................................... (417,548) 84,590 (53,114)
- -Restaurant credits...................................................... (223,445) 206,619 (323,052)
- -Trade accounts receivable............................................... 613,999 21,125 (17,426)
- -Prepaid expense and other current assets................................ (101,271) (150,838) (41,465)
- -Deferred membership fees................................................ 183,967 10,001 69,295
- -Deferred license fee income............................................. (500,000) -- 500,000
------------- ------------- -------------
Net cash used in operating activities.................................... (2,429,465) (1,189,923) (1,071,496)
------------- ------------- -------------
Cash flows from investing activities:
- -Due to related parties.................................................. -- (338,053) (55,965)
- -Purchase of property and equipment...................................... (156,794) (18,141) (17,594)
- -Loan repaid by (to) affiliated company.................................. -- 30,868 (30,868)
- -Net investment in affiliated company.................................... -- (300,000) (1,000,000)
- -Purchase of NHS option.................................................. (142,956) -- --
- -Royalties paid on additional French territories......................... (750,000) -- --
- -Acquisition of Countdown and Transmedia La Carte Restaurant SA.......... (1,661,196) -- --
------------- ------------- -------------
Net cash used in investing activities.................................... (2,710,946) (625,326) (1,104,427)
------------- ------------- -------------
F6
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
Cash flows from financing activities:
- -Net proceeds received from issuance of:
common stock......................................................... 1,097,500 1,235,000 --
convertible preferred shares......................................... -- -- 1,964,600
- -Payment of preferred dividend........................................... -- (71,685) --
- -Bank overdraft.......................................................... 902,668 (109,422) 109,422
- - Exercise of options.................................................... -- -- 6,000
- -Proceeds from sale of Property and Equipment............................ 4,500 -- --
- -Related party transactions - loans advanced............................. 2,373,686 -- --
------------- ------------- -------------
Net cash provided by financing activities................................ 4,378,354 1,053,893 2,080,022
------------- ------------- -------------
Minority Interests....................................................... 1,640,813 -- --
Effect of foreign currency on cash....................................... (385,793) 26,106 377
------------- ------------- -------------
Net increase/(decrease) in cash and temporary cash investments........... 492,963 (735,250) (95,524)
------------- ------------- -------------
Cash and temporary cash investments at beginning of period............... 61,661 796,911 892,435
------------- ------------- -------------
Cash and temporary cash investments at end of period..................... $ 554,624 $ 61,661 $ 796,911
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
No amounts of cash were paid for income taxes for each of the periods presented.
Interest paid during the fiscal year ended September 30, 1997 was $74,173 (1996
:$13,750, 1995 :$12,022).
See accompanying notes to the consolidated financial statements.
F7
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of business
Transmedia Europe, Inc. ("the Company" and "TME") was incorporated in
Delaware on February 9, 1993 and commenced operations on October 1, 1993.
The Company operates complementary business activities in the fields of
discount restaurant dining cards, and in discounted membership benefits.
The Company's wholly owned subsidiary company, Transmedia UK plc, and
through its subsidiary Transmedia La Carte Restaurant SA, make 'cash
advances' to restaurants for food and beverage credits from certain
participating restaurants, which are then recovered as the Company's
cardholders utilise their restaurant charge cards (see note 1 (c)).
Presently, the Company's areas of operations include the United Kingdom
and France.
The Company has been granted a license, (the "Transmedia License"), to
operate a specialised restaurant charge card business in Europe, Turkey and
the countries of the former USSR by TMNI, an affiliate of Transmedia Network
Inc. ('Network'), a corporation which is incorporated in the United States
of America. The license is to operate a specialised restaurant charge card
business in the United Kingdom and France, with limited rights to sublicense
the European nation. The agreement to purchase the Transmedia License was
initially entered into by Conestoga Partners Inc. ('Conestoga'), a
corporation which is related to the Company by virtue of the majority
shareholding in Conestoga held by Edward J Guinan III, the Chairman and a
Director of the Company (see note 5).
In August 1994 the Company registered an initial public offering of its
common stock with the Securities Exchange Commission and the Company's
Common Stock traded on the NASDAQ Small Cap Market.
The Company was initially capitalised with 6,206,896 shares, after
giving retroactive effect to stock dividends. On August 11, 1993, TME issued
and sold 3,718,784 shares of Common Stock of which (i) 225,000 were issued
to Conestoga, a corporation which is related to TME by virtue of the
majority shareholding in Conestoga, being held by Edward J. Guinan III, the
Chairman and Director of the Company, in consideration for the costs
incurred on behalf of the Company by Conestoga, with respect to raising
capital for the Company; (ii) 496,284 were issued to Network, as partial
consideration for the purchase of the License; (iii) 275,000 were issued to
Conestoga as reimbursement for a down payment of $275,000 made by Conestoga
to Network for the purchase of the License; and (iv) the remaining 2,722,500
were issued to investors in a private placement at an offering price of $1
per share. In addition, the Company issued 85,000 shares of Common Stock as
consideration for services rendered in connection with the raising of
capital in the Company's private placement of shares in August 1993. Of the
cash proceeds of the private placement of $2,722,500, $850,000 was paid by
Network for further consideration for the purchase of the Transmedia License
from the private placement of shares, leaving a balance, after issue costs,
of $1,744,623 available to TME for use as working capital in respect of the
utilisation by the Company of its rights under the License Agreement.
In the future, the Company may expand operations in other portions of
the Licensed Territories through wholly-owned subsidiaries or through
unaffiliated sub-licensees and franchisees.
In February 1994, the Company completed a second private placement of
700,000 shares of Common Stock at a price of $3 per share. The net
proceeds of such private placement were used as working capital in
respect of the utilisation by the Company of its rights under the License
Agreement. In addition, TME separately issued 10,000 shares of Common
Stock as consideration for services rendered in connection with the
raising of capital in the second private placement in February 1994.
F8
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
(a) Description of business (continued)
In July 1995, the Company issued 590,857 shares of 6 % Convertible
Redeemable Preferred Stock at a price of $3.50 per share. The net
proceeds of $1,964,600 were used to finance the Company's investment in
Transmedia La Carte Restaurant SA in Paris, France, and to provide
working capital to existing operations.
In July 1996, the Company issued 892,857 shares of Common Stock at a
price of $1.40. The net proceeds of $1,250,000 were used to provide
working capital to existing operations
In December 1996, the Company sold an aggregate of 556,250 shares of
Common Stock at $2 per share in a private placement The purchasers were
also issued warrants to purchase an aggregate of 185,417 shares of Common
Stock at $2 per share. The net proceeds of $1,097,500 were used to
provide working capital to existing operations.
In August 1997, the Company initiated a private placement in which it is
expected to sell an aggregate of 1,467,165 shares of Common Stock at a
purchase price of $1 per share. For every three shares purchased,, each
purchaser will receive, for no additional consideration, a warrant to
purchase one share of Common Stock at $1 per share. As of the date of
this filing, no shares have been issued. "See Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters".
The Company, through its subsidiary company Countdown Holdings Limited
("Countdown"), operates as a discount buying organization. Countdown
negotiates discount privileges with large retailers and sells membership
cards to customers, who may then take advantage of these facilities.
Countdown also offers a voucher discount service, where discounts
negotiated with suppliers are available to Countdown members who purchase
these discount vouchers.
As of September 30, 1997, Transmedia Europe, Inc. has the following
subsidiaries all of which were 100% owned unless stated otherwise:
%
Name Ownership Country of Incorporation
- ------------------------------------------ ----------- ---------------------------
Transmedia Europe plc..................... 100.0 United Kingdom
Transmedia UK plc......................... 100.0 United Kingdom
Transmedia UK Inc. ....................... 100.0 United States of America
Countdown Holdings Ltd. .................. 50.0 United Kingdom
Transmedia La Carte Restaurant SA ........ 50.1 France
The accompanying consolidated financial statements present the results
of operations of the Company for the period from October 1, 1996, to
September 30, 1997.
(b) Principles of consolidation
The consolidated financial statements include the financial statements
of the Company and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The Countdown Holdings
Limited ("Countdown") and Transmedia La Carte Restaurant SA ("TMF")
acquisitions have been accounted for under the purchase method of
accounting.
As a result of the acquisition of 50% of Countdown on April 3, 1997, the
consolidated financial statements include the Company's interest in
Countdown's assets and liabilities on the basis that the Company controls
the operation. The consolidated statement of operations includes the
Company's interest in the results of Countdown from April 3, 1997 to
September 30, 1997.As a result of the acquisition of 14.1% of TMF on January
1, 1997, bringing the Company's total equity interest to
F9
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
(b) Principles of consolidation (continued)
50.1%, the consolidated statements of financial condition include the
Company's interest in the accounts of TMF. The consolidated statements of
operations include the Company's interest in results of TMF from
January 1, 1997 to September 30, 1997. All significant inter-company
balances and transactions have been eliminated in consolidation. The
Countdown and TMF acquisitions have been accounted for under the purchase
method of accounting.
(c) Restaurant credits
Restaurant credits represent the total advances made to participating
restaurants in exchange for credits less the amount by which these credits
are recouped by the Company as a result of Company cardholders utilising
their cards at participating restaurants. The amount by which such credits
are recouped amounts to approximately 50% of the retail value of food and
beverages consumed by cardholders. The Company reviews recoverability of
credits and establishes an allowance for credits to restaurants that have
ceased operations or whose credits may not be utilised by cardholders.
The funds advanced to participating restaurants are generally unsecured
and are recoverable as cardholders utilise their restaurant charge card at
the respective restaurant. In certain cases, the Company may request a
personal guarantee from the owner of a restaurant with respect of the
recoverability of the advance if the restaurant ceases operations or ceases
to be a participating restaurant. Generally, no other forms of collateral or
security are obtained from the restaurant owners.
(d) Intangible assets
Intangible assets consist entirely of the cost of the Transmedia License
and represents the consideration paid to Network in both cash and the fair
value of Company shares 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 amortised on a straight line basis over its
estimated useful life of 15 years from the commencement of operations on
October 1, 1993.
The Company evaluates the carrying value of its investment in license
costs for impairment based on an estimate of future undiscounted cash flows
that are expected to be generated and are directly attributable to the
Transmedia License. If the sum of those estimated undiscounted cash flows is
less than the carrying value of the License costs, it is the policy of the
Company to measure impairment on the basis of the fair value of the License
costs, using a discounted cash flow technique. In the opinion of management,
the carrying value of the License costs at September 30, 1997 represents the
future undiscounted cash flows that are expected to be generated and are
directly attributable to the Transmedia License.
(e) Goodwill
The Company recognises goodwill for the purchase price in excess of the
fair market value of net liabilities acquired in connection with the
acquisition of Countdown and the excess of the fair market value of net
assets acquired in connection with the acquisition of TM France (see Note 7)
Goodwill is being amortised on a straight line basis over its estimated
useful life of 15 years.
The basis for evaluating any impairment on goodwill is on an undiscounted
cash flow. The Company periodically evaluates the carrying value of goodwill
based upon several factors, including management's intention with respect to
the acquired net assets, and upon the expected revenue and profitability
levels of the acquired enterprise, to determine whether the value and future
benefit may indicate a decline in value. If the Company determines that
there has been a decline in the
F10
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
value of the acquired enterprise, the Company writes down the value of
the goodwill to the revised fair value.
(f) Property and equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated using the straight line method over the estimated
useful lives of the assets as follows:
Freehold property............................................................. 25 years
Furniture and fixtures........................................................ 5 years
Office equipment.............................................................. 3-5 years
(g) Income taxes
The Company recognises deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Accordingly, deferred tax
liabilities and assets are determined based on the difference between
financial statement and tax basis of assets and liabilities using enacted
rates in effect for the year in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in
tax rates is recognised in income in the period that includes the
enactment date.
A valuation allowance is established to reduce the deferred tax assets
when management determines it is more likely than not that the related tax
benefits will not be realised.
(h) Revenue recognition
Revenues represent the retail value of food and beverages acquired from
participating restaurants by the Company's cardholders, less the 20% or 25%
discount offered to cardholders. Membership fees collected are deferred and
recognised as revenue in equal monthly instalments over the periods
benefited.
(i) Unearned compensation
The Company has recorded unearned compensation for shares of restricted
common stock issues in exchange for certain consultancy and financial
advisory services. The restricted shares and the unearned compensation have
been recorded at the fair value of the shares at the date at which they were
issued. Compensation expense is recorded on a periodic basis as the
restriction of such shares expires.
(j) Cardholder bonuses
The Company operates a number of cardholder "Bonuses" programs whereby
the cardholder receives a bonus of food and beverage, credited to their
account. The bonus is utilised as the cardholder uses The Restaurant Card
and is processed as an additional saving to the standard 20% or 25% saving
offered by the Company. The bonus is accrued by the Company when the bonus
is granted to the Cardholder.
(k) Loss per common share
Loss per common share is computed by dividing net loss by the weighted
average number of common stock outstanding. Common stock equivalents have
not been included because they are considered anti-dilutive.
(l) Foreign currencies
The reporting currency of the Company is the United States dollar.
F11
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
(l) Foreign currencies (continued)
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 these translations are taken directly to stockholders' equity.
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the balance sheet date and the gains or losses
on translation are included in the consolidated statement of operations.
In the year to September 30 1997, the Company recorded an exchange loss
of $16,218 (1996 a loss of $55,775).
(m) Temporary cash investments
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.
(n) Advertising costs
The Company expenses advertising costs as incurred. Advertising costs
for the years ended September 30 1997 and 1996 were $26,311 and $56,610
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, 1997 and 1996 that should be capitalised.
(o) 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.
(p) Financial instruments
Financial instruments held by the Company include cash and cash equivalents,
restaurant credits and amounts due from/to related parties (see Note 5). The
carrying value of these financial instruments approximates the fair value
because of the relatively short-term maturity of the instruments.
In addition, the Company holds a financial instrument in the form of an
option to acquire Nationwide Helpline Services Pty Limited ("NHS").
Management does not believe it is practicable to estimate the fair value of
this financial instrument, because although the 6 month option had expired
prior to year end, the Company continued negotiations, and eventually
acquired a 51% interest in NHS on December 2, 1997, together with Transmedia
Asia Pacific Inc. (see Note 21).
(q) Recent U.S. accounting pronouncements not yet implemented
In December 1996, the FASB issued SFAS No. 128 "Earnings Per Share",
which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 requires that all prior period earnings
per share data be restated to conform to this statement. The Company will
adopt SFAS No. 128 for the year ended September 30, 1998. The adoption of
this standard is not expected to have a material effect on the Company's
earnings per share. In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which established 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
F12
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
(q) Recent U.S. accounting pronouncements not yet implemented (continued)
resulting from investments by, or distributions to, owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 130, effective for all years beginning after December 15, 1997,
requires comparative information for earlier years to be restated and early
adoption is permitted. The Company intends to adopt SFAS No. 130 effective
October 1, 1998. Results of operations and financial position will be
unaffected by implementation of this standard.
2. AUDITORS
Effective September 26, 1997, the Company's former auditors, KPMG,
resigned as the Company's auditors and the Board of Directors, with the
approval of the Audit Committee, retained BDO Stoy Hayward as its
independent public accountants. The Company confirmed in its Form 8-K
filing, as amended by Amendment No. 2 filed October 27, 1997, and KPMG
confirmed in its letter to the office of the Chief Accountant dated
October 16, 1997, which letter was included in said filing, that during
the period KPMG was retained, there were no disagreements with the
former auditors on any matter of accounting principles or practices,
financial statements for the fiscal years ended September 30, 1996 and
September 30, 1995 or up through the time of replacement which, if not
resolved to the former auditors satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection
with their report. During such fiscal years, no accountant's report
prepared by KPMG contained an adverse opinion or disclaimer of opinion
or was qualified or modified as to uncertainty, audit scope or accounting
principles.
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 Form 10-K filing of the
Company for the year ended September 30, 1997. Consequently, since a
manually signed consent has not been received by the Company, the audit
report of KPMG has not been included in this filing but the financial
statements covered by the prior audit report have been included. The
Company believes that there is no basis for the action of KPMG in light
of the foregoing and is considering what appropriate action must be taken
to resolve this situation.
The position of KPMG as stated in the letter of February 13, 1998, is as
follows:
"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".
3. GOING CONCERN
The financial statements record a loss for the year ended September 30,
1997 of $3,746,248, which, when taken with the previous year's results,
record an accumulated deficit of $10,655,176 as at September 30, 1997.
The Company has been able to fund this deficit, and the cost of its
acquisitions and restructuring of Countdown, principally by the sale of
equity securities and a loan from a director and stockholder of the
Company during the year. Whilst the Company is taking steps to reduce the
level of operating losses, the Company has required, and will continue to
require, additional funds from the sale of equities in order to fund
these deficits. The Company is also dependent on being able to raise
additional funds in order to complete the funding of the acquisition of
Nationwide Helpline Services Pty Limited (see Note 18) and other
acquisitions being contemplated. Management estimates that an amount of
$1,000,000 will be required in the short-term, being prior to April 30,
1998, in order to continue to provide working capital to operations.
Management also estimates that an amount of approximately $8,250,000 will
be required to complete the funding of the acquisition of Nationwide
Helpline Services Pty Limited (see Note 18), as well as other
acquisitions currently under consideration. In the event that management
is not successful, or only partially successful in raising this sum of
$8,250,000, it may have to curtail the acquisition program, with the
possible loss of either deposits or payments made on account of
approximately $950,000.
F13
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
3. GOING CONCERN (continued)
Whilst management accepts and acknowledges that there is no guarantee
that the plans referred to directly above will be entirely successful,
management remains reasonably confident that sufficient funds will become
available to enable the Company to operate for the foreseeable future.
Accordingly, the financial statements are prepared on a going concern basis
and do not include any adjustments, which may be necessary if such a basis
was not appropriate.
4. INVESTMENT IN AFFILIATED COMPANY
The Investment in Transmedia La Carte Restaurant S.A. ("Transmedia France")
consists of the following:
September 30, September 30,
1997 1996
------------- -------------
Cost of investment......................... $ -- $ 1,800,000
Less: Share of license fee................. -- (466,667)
------------- -------------
-- 1,333,333
Share of losses............................ -- (635,192)
Amounts due from affiliate................. -- --
------------- -------------
$ -- $ 698,141
------------- -------------
------------- -------------
Due to the provision of "put" and "call" options in the shareholders
agreement which establish a basis under which Transmedia France may become a
wholly owned subsidiary, $500,000 of the $1,000,000 sub-license fee paid to
the Company by Transmedia France in 1995 has not been recognised but instead
has been deferred until such time as these options are exercised or expire.
The remaining balance of $500,000 has also been deferred against the
investment in the Transmedia France and is being amortised over a 15 year
period commencing October 1995. The Transmedia License requires the payment
of a royalty to Network in the event that the Company opens in another
country being the greater of $250,000 or 25% of the initial fee. On April
19, 1996 Transmedia France completed a rights issue of shares. Whilst the
Company declined to subscribe it did acquire 15,000 shares, in an unrelated
transaction, from International Advance, Inc., a company of which Edward J
Guinan III, President of the Company, is the principal shareholder and an
officer and director, in exchange for $300,000 and certain rights to jointly
develop systems unrelated to the business of Transmedia France. Accordingly
the Company's interest was reduced to 36%.
In December 1996 the Company reached an agreement, effective January
1997, with TM France under which it granted sub-licenses for
Belgium/Luxembourg, Spain, Italy and French speaking Switzerland for
9,250,000FFr (approximately $1,780,000). As a result the Company's
shareholding increased to 50.1% and TM France consolidated under the
purchase method of accounting. (See also note 6)
5. RELATED PARTY TRANSACTIONS
Pending resolution of Mr Guinan's residence status in London, the Company
advanced payment on the
F14
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
rental costs of his residence and other sundry amounts in lieu of the
payment of a portion of his salary. The amount so advanced during 1995
was $224,991 of which $133,120 relates to the rental of his residence,
$22,376 is for travel expenses and the balance of $69,495 for other
sundry amounts. Mr Guinan had repaid $192,000 of these amounts through
September 30, 1995. The amount advanced to Mr Guinan increased by
$230,991 during the year ended September 30, 1996. The cumulative total
amount due to the Company has been satisfied by repayment to the Company
of $176,149 and the sale of 148,853 shares of Common Stock at $2.625 per
share to the Company.
During 1995 the Company advanced $259,837 to International Advance, Inc.,
a company of which Edward J Guinan III, President of the Company, is the
principal shareholder and an officer and
F15
Transmedia Europe Inc.
Notes to the Consolidated Financial Statements
5. RELATED PARTY TRANSACTIONS (continued)
director. The balance at September 30, 1996 was $20,946. During 1997 the
Company charged International Advance, Inc. $65,455 of mainly property
expenses relating to the offices at 11 St. James's Sq., London SW1Y 4LB,
England. The balance at September 30, 1997 was $86,401. The amount due to
related parties of $416,280 at September 30, 1995 represents temporary
funding and advances provided by Transmedia Asia Pacific, Inc. offset by
management charges from the Company. Transmedia Asia Pacific, Inc. is an
affiliate due to the significant shareholding held by Edward J. Guinan
III, the Chairman and a director of the Company. The main movements
during the year ended September 30, 1996 are for working capital
requirements but additions include $1,250,000 for proceeds for the
private placement of common stock on August 1, 1996 which has resulted in
Transmedia Asia Pacific, Inc. owing the Company $93,300 at the year end.
The net amounts due from related parties consist of the following:
September 30, September 30,
1997 1996
------------- -------------
International Advance, Inc. ............................ $ 86,401 $ 20,946
Transmedia Asia Pacific, Inc. .......................... -- 93,300
------------- -------------
$ 86,401 $ 114,246
------------- -------------
------------- -------------
The loans are unsecured and non interest bearing. Information regarding
the activity with respect to the amounts due (to)/from related parties is as
follows:
E. Guinan III Conestoga International Transmedia
Partners Advance Asia Pacific
Inc. Inc. Inc.
------------- ---------- ------------ -------------
Balance at September 30, 1995.......................... $ 335,897 $ 113,851 $ 259,837 $ (416,280)
Additions.............................................. 230,991 12,522 281,750 1,340,307
Amounts charged........................................ -- -- 183,914 362,793
Amounts collected...................................... (176,149) -- (704,555) (1,193,520)
Treasury stock......................................... (390,739) (126,373) -- --
------------- ---------- ------------ -----------
Balance at September 30, 1996.......................... $ -- $ -- $ 20,946 $ 93,300
Additions.............................................. (202,383) -- -- (1,240,000)
Amounts charged........................................ -- -- 65,455 827,352
Amounts collected...................................... 184,552 -- -- 65,214
Treasury stock......................................... -- -- -- --
------------- ---------- ------------ -----------
Balance at September 30, 1997 ......................... $ (17,831) -- $ 86,401 $ (254,134)
------------- ---------- ------------ -----------
------------- ---------- ------------ -----------
J V Vittoria TMNI
------------ -----------
Balance at September 30, 1996.......................... $ -- $ --
Loan received.......................................... (1,000,000) --
Promissory note........................................ -- (250,000)
Royalty (note 4 and 6)................................. -- (750,000)
Interest............................................... (61,479) (12,397)
----------- -----------
Balance at September 30, 1997.......................... $(1,061,479) $(1,012,397)
------------ -----------
------------ -----------
F16
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
6. INTANGIBLE ASSETS
Intangible assets consist of the costs of the Transmedia License as follows:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Acquisition cost
Balance at beginning of year........................................................ $ 1,621,284 $ 1,621,284
Additions........................................................................... 750,000 --
------------- -------------
Balance at end of year.............................................................. 2,371,284 1,621,284
Accumulated amortisation:
Balance at beginning of year........................................................ 324,258 216,172
Charge for the year................................................................. 199,600 108,086
------------- -------------
Balance at end of year.............................................................. 523,858 324,258
------------- -------------
Net book value at September 30,..................................................... $ 1,847,426 $ 1,297,026
------------- -------------
------------- -------------
In December 1996 the Company reached an agreement, effective January 1997,
with TM France under which it granted sub-licenses for Belgium/Luxembourg,
Spain, Italy and French speaking Switzerland for 9,250,000FFr (approximately
$1,780,000). Network agreed to defer the 25% royalties due upon the
completion of the agreement ($800,000 in aggregate) with payment to be made
as each country area is opened of $250,000 except for $50,000 for French
speaking Switzerland or, if earlier, a payment of $750,000 in aggregate
upon completion of the Countdown acquisition. No payment has been made in
respect of this agreement.
The amortization charge for the year includes an additional charge of
$91,514 reflecting a diminution in the carrying value of the license based
on future cash flows.
7. GOODWILL
Goodwill arises through the acquisitions of Countdown Holdings Limited and
Transmedia La Carte Restaurant SA.
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -----------------
Acquisition cost
Balance at beginning of year........................................................ $ -- $ --
Additions........................................................................... 3,495,970 --
------------- -----
Balance at end of year.............................................................. 3,495,970 --
------------- -----
Accumulated amortisation:
Balance at beginning of year........................................................ -- --
Charge for the year................................................................. 145,970 --
------------- -----
Balance at end of year.............................................................. 145,970 --
------------- -----
Net book value at September 30, 1997................................................ $ 3,350,000 $ --
------------- -----
------------- -----
F17
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
7. GOODWILL (continued)
In January 1997 the Company increased its shareholder in TM France
from 45% to 50.1%. TM France is consolidated in these statements
under the purchase method of accounting. The results of TM France
were consolidated up to January 1997 under the equity method of
accounting. The cost of investment in TM France includes an amount
of $853,391 being the Company's share of a increase in capital
which the Company has agreed to subscribe to but which has not been
paid. At the date of acquisition there was an excess of net assets
over the cost of investment of $64,621.
On April 7, 1997 the Company paid $2,968,371 for a 50% interest
in Countdown, which is consolidated into these statements under the
purchase method of accounting. In payment of the purchase price the
Company issued 1,200,000 shares of common stock, granted options to
purchase 250,000 shares of common stock at $1 each and paid pounds
UK 500,000 (approximately $800,000) in cash. At the date of
acquisition Countdown had net liabilities of pounds UK 340,149
($558,525) resulting an excess of purchase price of $3,560,591,
including $458,173 of purchased goodwill in the books of Countdown.
8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
FURNITURE OFFICE
FREEHOLD AND EQUIPMENT
PROPERTY FIXTURES & COMPUTERS TOTAL
---------- ----------- ------------ ----------
Cost
At September 30, 1995.......................................... -- $ 17,936 $ 150,323 $ 168,259
Additions...................................................... -- -- 18,141 18,141
Foreign exchange............................................... -- (1,887) (3,894) (5,781)
---------- ----------- ------------ ----------
At September 30, 1996.......................................... -- 16,049 164,570 180,619
Additions...................................................... -- 6,656 150,137 156,793
Acquisition.................................................... 415,399 111,802 591,756 1,118,957
Disposals...................................................... -- (3,757) (39,103) (42,860)
Foreign exchange............................................... -- 540 5,404 5,944
---------- ----------- ------------ ----------
At September 30, 1997.......................................... 415,399 131,290 872,764 1,419,453
---------- ----------- ------------ ----------
Accumulated depreciation
At September 30, 1995.......................................... -- 4,474 59,892 64,366
Charge for the year ended September 30, 1996................... -- 3,209 39,970 43,179
Foreign exchange............................................... -- (111) (3,172) (3,283)
---------- ----------- ------------ ----------
At September 30,1996........................................... -- 7,572 96,690 104,262
Acquisitions................................................... 164,524 298 235,623 400,445
Disposals...................................................... -- (2,866) (39,103) (41,969)
Charge for the year ended September 30, 1997................... 9,042 42,971 158,801 210,814
Foreign exchange............................................... (42) 56 4,772 4,786
---------- ----------- ------------ ----------
At September 30, 1997.......................................... 173,524 48,031 456,783 678,338
---------- ----------- ------------ ----------
F18
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
8. PROPERTY AND EQUIPMENT (continued)
Net Book Value at September 30, 1997........................... $ 241,875 $ 83,259 $ 415,981 $ 741,115
---------- ----------- ------------ ----------
---------- ----------- ------------ ----------
Net Book Value at September 30, 1996........................... -- $ 8,477 $ 67,880 $ 76,357
---------- ----------- ------------ ----------
---------- ----------- ------------ ----------
9. ALLOWANCE FOR IRRECOVERABLE RESTAURANT CREDITS
Changes in the Company's allowance for irrecoverable restaurant credits were
as follows:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
Balance at the beginning of period.................................... $ 399,328 $ 357,557 $ 76,200
Utilisation (deletions)............................................... (5,000) -- --
Additions--charged during period...................................... 271,806 41,771 281,357
------------- ------------- -------------
Balance at end of period.............................................. $ 666,134 $ 399,328 $ 357,557
------------- ------------- -------------
10. OTHER ASSET
The other asset consists of the following:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
----------------- ----------------
Interest in option to acquire:
-- National Helpline Services Pty Limited.............. $ 142,946 $ --
----------------- ----------------
----------------- ----------------
In October 1996 the Company made an investment of $134,741,
subsequently increasing to $142,946 for ongoing legal costs, to acquire
a renewable 6 month option to acquire 50% of the share capital of
National Helpline Services PTY Limited ("NHS"). Transmedia Asia Pacific
Inc., acquired an option on identical terms to the Company, over the
remaining 50% share capital of NHS. Although the 6 month option had
expired prior September 30, 1997, the Company continued negotiations,
and eventually indirectly acquired an interest in NHS on December 2,
1997, together with Transmedia Asia Pacific Inc. (See Note 18).
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Accrued payroll and holiday pay..................................................... $ 300,571 $ 69,061
Income taxes payable................................................................ 42,554 --
Cardholder bonuses.................................................................. -- 8,762
Tip and tax......................................................................... 124,469 113,102
Food and beverage provision......................................................... -- 71,098
Professional fees................................................................... 184,375 54,600
Royalties payable................................................................... 59,913 22,037
Preferred share dividend............................................................ 242,074 99,735
Hire purchase and lease payments.................................................... 183,212 --
Other............................................................................... 322,220 --
------------- -------------
Total accrued liabilities........................................................... $ 1,459,388 $ 438,395
------------- -------------
F19
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
12. REDEEMABLE PREFERRED STOCK
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------- -------------
Convertible, redeemable preferred shares $0.01 par value.
675,000 shares authorised, 590,857 issued and outstanding,
bearing a dividend of 6 1/2%, redeemable at the option of the Company .............. $ 5,909 $ 5,909
------------ ------------
13. MINORITY INTEREST
TM FRANCE COUNTDOWN TOTAL
----------- ----------- -----------
Balance at beginning of year.............................................. $ -- $ -- $ --
Additions................................................................. (2,008,912) 273,306 (1,735,606)
Share of current year losses.............................................. 602,954 202,905 805,859
----------- ----------- -----------
(1,405,958) 476,211 (929,747)
Less: Amounts due from Minority shareholder............................... 94,793 -- 94,793
----------- ----------- -----------
Balance at end of year.................................................... $(1,311,165) $ 476,211 $ (834,954)
----------- ----------- -----------
14. 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 to a maximum of 250,000 shares of common stock at an
exercise price not less than the fair market value at the date of grant
for qualified and non-qualified stock options.
The Company 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.
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 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 1997 and 1996 were $0.68 and
$0.64 respectively.
F20
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
14. STOCK OPTIONS AND WARRANTS (continued)
The following are the per share fair value of the stock options
granted in each respective year.
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 assumption. 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 options.
Stock option and warrant activity during the periods indicated is as
follows:
OPTIONS WARRANTS
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ----------------- ----------- -----------------
Balance at September 30, 1994........................ 6,000 $ 1.00 -- --
Granted.............................................. -- -- 200,000 $ 1.50
Exercised............................................ (6,000) $ 1.00 -- --
----------- ----- ----------- -----
Balance at September 30, 1995........................ -- -- 200,000 $ 1.50
Granted.............................................. 40,000 $ 2.08 297,619 $ 1.40
Granted.............................................. -- -- 100,000 $ 2.50
Exercised............................................ -- -- -- --
----------- ----- ----------- -----
Balance at September 30, 1996........................ 40,000 $ 2.08 597,619 $ 1.62
Granted.............................................. 10,000 $ 1.25 125,000 $ 1.25
Granted.............................................. 250,000 $ 1.00 185,417 $ 2.00
Exercised............................................ -- -- -- --
Cancelled............................................ (10,000) $ 2.08 -- --
----------- ----- ----------- -----
Balance at September 30 1997......................... 290,000 $ 1.12 908,036 $ 1.65
----------- ----- ----------- -----
The Company applies APB Opinion No.25 in accounting for its stock
options and, accordingly, no compensation cost has been recognised for
its stock options in the financial statements. Had the Company
determined compensation cost based upon the fair value at the grant date
for its stock options under SFAS No.123, the Company's net losses would
have been increased to the pro forma amounts indicated below:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- --------------
Net loss As reported $ (3,746,248) $ (2,695,524)
Pro forma $ (3,770,548) $ (2,711,364)
Loss per share As reported $ (0.27) $ (0.24)
Pro forma $ (0.27) $ (0.24)
Pro forma net loss reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No.123 is reflected in the pro forma net loss
amounts presented above.
F21
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
15. ACQUISITION OF 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.
In payment of the purchase price, 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 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 the 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 and 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
International Incorporated ("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.
16. LEASES
The Company leases certain office space under lease agreements.
Future minimum lease payments under non-cancellable operating leases as of
September 30, 1997, are as follows:
YEAR ENDING
SEPTEMBER 30
1997
------------
Total minimum lease payments.................................................................... $ 150,846
--------
--------
The amount charged to the consolidated statement of operations for rent
expense in the year ended September 30, 1997 was $150,137 (1996: $149,449).
F22
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
17. INCOME TAXES
Income taxes reflected in the accompanying statements of operations differ
from the amounts computed by applying the US federal tax rate of 34% to loss
before taxes as a result of the following:
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
Computed 'expected' tax benefit..................................... $(1,477,000) (871,000) $(740,000)
Non deductible expenses............................................. 85,000 57,000 60,000
Change in valuation allowance for deferred tax assets............... 1,385,000 807,000 747,000
Other (net)......................................................... 7,000 7,000 (67,000)
------------- ------------- -------------
Income tax expense.................................................. $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
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
1997 1996 1995
------------- ------------- ------------
Deferred tax assets:
Net operating loss carry forwards.................................... $ 2,957,000 $ 1,463,000 $ 890,000
Deferred license fee................................................. 170,000 170,000 170,000
Investment in affiliated company..................................... -- 375,000 201,000
Royalties............................................................ 254,000 188,000 119,000
Pre operating costs capitalised for
tax purposes......................................................... 7,000 7,000 11,000
Other................................................................ 22,000 13,000 18,000
------------- ------------- ------------
Total................................................................ 3,410,000 2,216,000 1,409,000
Less valuation allowance............................................. (3,410,000) (2,216,000) (1,409,000)
------------- ------------- ------------
Net deferred tax assets.............................................. $ -- $ -- $ --
------------- ------------- ------------
------------- ------------- ------------
The foreign net operating loss carry forward of approximately $2.0
million may be carried forward indefinitely.
18. COMMITMENTS
Each quarter the Company must pay to TMNI in cash for any part of the
licensed territories developed by the Company or any affiliate of the Company a
royalty equal to 2% of gross sales. 'Gross sales' are defined as the gross
reduction during the quarter in Food and Beverage Credits. The Company will also
pay Network 2% of the gross sales resulting from any other services that Network
in the future may provide to cardholders or participating restaurants. Royalties
charged to income pursuant to this agreement for the years ended September 30,
1997, 1996 and 1995 amounted to $0, $83,498 and $108,834 respectively. In order
to maintain full rights under the Transmedia License (1) no person or group of
persons, without the prior permission of TMNI, may acquire beneficial ownership
of 30% or
F23
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
18. COMMITMENTS (CONTINUED)
more of the Company; (2) Edward J Guinan III is required to maintain
beneficial ownership of no less than the lower of 20% of common stock, or 15%
of the common stock (as long as three other largest stockholders beneficially
own no more than 15% in the aggregate); (3) the Company must commence
operations (a) in another country other than the United Kingdom within 3
years after the Closing Date, and (b) in a second other country within the
earlier of 2 years after the first country or 5 years from the Closing Date;
(4) the Company must procure in the United participating restaurant renewals
at the rate of 70% per year. As at September 30, 1997 the Company has
complied, in all material respects, with all the covenants contained in the
License Agreement.
The Company also has other obligations under the Transmedia License
respecting business practices, use of TMNI software programs, marketing,
training, confidentiality and standard of performance, among others, the
material breach of any of which may result in the termination of the full rights
under the Transmedia License.
The Company is committed to making further payments in relation to the
acquisition of NHS. These consist of payments due on January 31, 1998 to certain
principals as sign-on fees amounting to Aus.$750,000 ($47,000) and the second
tranche for 51% of the shares of common stock of NHS for Aus.$2,842,540
($2,075,000). At the request of the principals, payment of these sign-on fees
has been delayed for an indefinite period. Payment of the second tranche may be
extended by up to 90 days provided that interest will accrue during any such
extension at 5% per annum. The balance of the payments due to certain principals
as sign-on fees amounting to Aus.$ 750,000 ($547,000) is due on June 30, 1998
subject to an extension of 90 days provided that interest will accrue during any
such extension at 5% per annum. The option to acquire the 49% balance of the
shares of common stock of NHS for Aus.$2,497,655 ($2,150,000) is exercisable at
any time through June 30, 1998 subject to an extension of 90 days provided that
interest will accrue during any such extension at 5% per annum. Failure to
exercise this option during its term will give the NHS principals the rights to
repurchase the 51% interest for nil consideration.
19. BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are located in the United Kingdom, or in
France. No single customer accounted for more than 10% of the Company's service
revenues in the period under review. No single restaurant's credit was greater
than 10% of the company's total restaurant credit balance at September 30, 1997,
and no single merchant, under the Countdown discount purchase program accounted
for greater than 10% of the Countdown volume of business.
20. CONTINGENT LIABILITY
The Company did not withold any amounts from Edward J. Guinan III's
remuneration with respect to either US or UK taxes through March 31, 1997. Such
treatment was used pending resolution by Edward J. Guinan III of his tax
residence. Mr. Guinan had provided 400,000 shares of the Company's Common Stock
and 400,000 shares of Transmedia Asia Pacific's Common Stock, which were sold
privately realising pounds (UK) 293,753. The proceeds were used to purchase a
tax certificate against any potential tax liabilities of the Company and
Transmedia Asia Pacific Inc. In November 1997, a payment on account was made to
the UK Inland Revenue of pounds (UK) 115,000. A sum of pounds (UK) 100,000 was
released to Mr. Guinan and the balance of pounds (UK) 78,753 remains in escrow
against any ongoing tax liabilities of Mr. Guinan to either the UK Inland
Revenue or the United States Internal Revenue Service.
F24
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
21. SUBSEQUENT EVENTS
The Company has made a significant capital commitment for the completion of
the purchase of 51%, on an indirect basis, of Nationwide Helpline Services Pty
Limited ("NHS") in Australia. This commitment consists of a total commitment of
Aus. $10,000,000 ($6,578,950), of which Aus. $4,000,000 ($2,631,578) represents
sign-on fees payable to certain individuals of NHS, and the balance of which
represents amounts payable to NHS in two tranches. The first tranche was paid on
December 2, 1997 in cash and shares of Common Stock of the Company and its
affiliate, Transmedia Asia Pacific, Inc., while the second tranche is payable in
cash only. The Company also, jointly with its affiliate Transmedia Asia Pacific
Inc., acquired an option to purchase the 49% balance of NHS's business and
assets for an additional Aus. $2,497,655. ($1,643,194)
In October 1997, the Company signed a Letter of Intent to purchase 50% of
the shares of Common Stock of a privately held corporation in a complementary
field of business. $50,000 in cash and 200,000 shares of Common Stock in the
Company, held by Edward J. Guinan III, the Chairman of the Board of Directors
were lodged as a deposit. The deposit is non-refundable and may be forfeited in
the event the transaction does not take place prior to March 31, 1998. The
Letter of Intent subject to satisfactory due diligence, contemplates a March 31,
1998 closing and a purchase price of $3,750,000 in cash, plus $500,000 in
unrestricted shares of Common Stock of the Company, the value of the shares of
Common Stock being that as of the day of closing of the purchase. The letter of
intent contemplates that Transmedia Asia Pacific will purchase the balance of
the Company's Common Stock on similar terms.
On January 9, 1998, the Company entered into an agreement in principle,
subject to contract, to purchase 85% of the share capital of Network America
Inc., of Dallas, Texas. The consideration consists of a cash deposit of $50,000
to the Principals, an undertaking by the Company to redeem on January 19, 1998,
an outstanding Promissory Note in an amount of $103,000 held by an unrelated
third party, an undertaking by the Company to pay a sum of $250,000 in cash to
the Principals on March 31, 1998, and an undertaking by the Company to pay a sum
of $1,000,000 in eighteen subsequent equal monthly instalments of $55,555.
On January 16, 1998, Mr. C.E.C. Radbone, a director of the Company, resigned
from the Board of Directors. Contemporaneously, his employment agreement,
according to the terms of which he had been serving as Managing Director of
Countdown plc, a subsidiary of the Company, was cancelled. Mr. Radbone held
1,200,000 shares of Common Stock of the Company and agreed to grant Edward J.
Guinan III, the Chairman of the Board of Directors, an option to purchase these
shares at a value of $1 per share. The consideration for this option is
$500,000.
F25
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
ITEM 9--CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
See Footnote 2 in "Note to the consolidated Financial Statements.
25
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Table of Directors and Executive Officers
The table below sets forth the names and ages for all the directors and
executive officers of the Company. The term of each director expires at the
next annual meeting of stockholders and upon his successor being duly elected
and qualified.
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------
Edward J. Guinan III 51 Chairman
Paul L. Harrison 37 President and Chief Executive Officer
Carl Freyer 60 Director
Joseph V. Vittoria 63 Director
David S. Vaillancourt 51 Chief Financial Officer
(b) Family Relationships
There are no family relationships among any of the directors or executive
officers of the Company.
(c) Experience of Directors and Executive Officers for the past Five Years
Edward J. Guinan III has been the Chairman of the Company, Chief Executive
Officer and a director of the Company since its inception. Mr. Guinan began
his career on Wall Street when he purchased a seat on the New York Mercantile
Exchange. He traded on he floor for his own account until 1979, when he
became a broker for the firm of Moseley Hallgarten Estabrook and Weeden, wher
he eventually became manager of their New York office. From 1982 through
1984, he was employed by Cowan and Company in New York. In 1984, Mr. Guinan
established his own broker-dealer firm, Guinan and Company. From 1990 through
1991, Mr. Guinan was a broker at the head of the corporate finance department
at Ernst and Company, a member of the New York Stcok Exchange. During 1992,
Mr. Guinan was head of the corporate finance department at First Hanover
Securities, Inc., a New York broker-dealer. Since February 1993, Mr. Guinan
has served as President, Chief Executive Officer and director of the Company,
as well as its affiliate company, Transmedia Asia Pacific Inc., ("Transmedia
Asia Pacific"). Since May 1995, Mr. Guinan has served as President, Chief
Executive Officer, Chief Financial Officer and the sole director of
International Advance, Inc. ("Advance"). Since November, 1995 Mr. Guinan has
been a director of Transmedia La Carte Restaurant SA ("Transmedia France"),
which is a 50.1% owned subsidiary of the Company. Mr. Guinan devotes
substantially all of such time as is necessary to the affairs of the Company.
Paul L. Harrison is presently President and Chief Executive Officer of the
Company. Mr. Harrison is also Secretary and a director of Transmedia Asia
Pacific Inc. In 1993, Mr. Harrison acted as a consultant to the Company in
connection with the commencement of business operations and initial financing
thereof. From 1989 until 1994, Mr. Harrison was Vice-President -- European
Equities of Salomon Brothers, London, with responsibility for coordinating
and marketing the sales of various derivatives and other equity securities to
European based institutional clients. Mr. Harrison held that position from
1989 onwards. From 1988 through 1989, Mr. Harrison was Main Board director of
County/NatWest, Wood Mackenzie, the investment banking arm of NatWest Bank NA
in the United Kingdom, with responsibility for developing business strategy
and managing a team of securities brokers. For two years prior thereto, Mr.
Harrison was an Assistant Director of Hill Samuel Merchant Bank and Executive
Vice-President of Wood Mackenzie Inc., with responsibilities to manage and
develop the United States brokerage operations of this United Kingdom firm.
Carl H. Freyer has been a director of the Company since 1997. Mr. Freyer is
President of Freyer Corporation, a financial consulting firm. He has been a
director of G-Tech Corporation, a New York Stock Exchange corporation, as
well as a director of Computer Investors Group, Inc. and also two banks. Mr.
Freyer holds a BS
26
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
in electrical engineering from Tufts University and an MBA from Harvard
University.
Joseph V. Vittoria has been a director of the Company since inception. From
September 1987 to January 1997, Mr. Vittoria was the Chairman and Chief
Executive Officer of Avis Inc., and was a senior executive at Avis since
1982. Mr. Vittoria is a director of UAL Corporation. He holds a BS in civil
engineering from Yale University and an MBA from Columbia University. Mr.
Vittoria also holds an honorary Doctor of Laws degree from Molloy College.
Mr. Vittoria is also a director of Transmedia Asia Pacific Inc.
David S. Vaillancourt has been Chief Financial Officer of the Company since
1997. Mr. Vaillancourt is also Chief Financial Officer of Transmedia Asia
Pacific. Prior to joining the Company, Mr. Vaillancourt spent three years as
Senior Vice President and Chief Administrative Officer of an international
human resource company, based in Toronto -- with overall responsibility for
domestic and international finance and administration. Prior to this, Mr.
Vaillancourt spent seven years in corporate finance and venture capital
consulting, when he operated his own company working in North and Central
America, Western Europe, the Middle East and Australasia/Pacific. He has also
served as Vice President Finance for Barbecon Inc., a subsidiary of Olympia
and York Inc., as well as Chief Financial Officer -- International, for
Carlson Companies, Inc. in Minneapolis and Chicago. He is a member of the
Chartered Institute of Management Accountants, London.
(d) Involvement in Certain Legal Proceedings
None.
(e) Compliance with Section 16 (a) of the Securities Exchange Act of 1934.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company by each person who, at any time, during the fiscal year ended
September 30, 1997 was a director, executive officer or beneficial owner of
more than 10% of the Company's common stock $.00001 par value per share (the
"Common Stock") with respect to the fiscal year ended September 30, 1997 and
Forms 5 and amendments thereto furnished to the Company by such persons with
respect to such fiscal year, and any written representations from such
persons, the Company believes that during and with respect to the fiscal year
ended September 30, 1997, all filing requirements under Section 16(a) of the
1934 Act, applicable to its directors, executive officers and the beneficial
owners of more than 10% of the Company's Common Stock were complied with.
ITEM 11--EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the total compensation
(including salary, bonus and all other forms of annual and long-term
compensation) paid to or accrued by the Company during the fiscal years 1997,
1996 and 1995 for the Chief Executive Officer and the current executive
officers of the Company who earned over $100,000 during the Company's last
fiscal year (the "Named Executives").
Mr. Guinan is the Chairman and Chief Executive Officer of the Company. During
fiscal 1997, no officer of the Company earned more than $100,000.
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------- ------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SAR'S COMPENSATION
- ----------------------------------------- --------------- ------------ ------------------- -------------------
Edward J. Guinan--Chairman 1997 $ 100,000(1) 0 0
1996 $ 153,625(2) 0 0
1995 $ 160,000(3) 0 0
(1) Based upon an exchange rate of L1 to L1.621
(2) Based upon an exchange rate of L1 to $1.536
(3) Based upon an exchange rate of L1 to $1.60.
27
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
EMPLOYMENT AGREEMENT
Mr. Guinan entered into an employment agreement with the Company, effective
August 11, 1993 (the "Effective Date") The Employment Agreement provides for
an initial term of three years, with one year renewals thereafter unless
terminated by either party. Mr. Guinan's contract provides for a salary of
100,000 pounds (UK) ($162,000) per annum and participation in executive
benefit programs. Mr. Guinan may be discharged for cause including failure or
refusal to perform duties, dishonesty, conviction of a felony or fraud,
failure adequately to perform his services, engagement in acts detrimental to
the Company, material breach of his Employment Agreement, disability or
death. Mr. Guinan is also employed by Transmedia Asia Pacific and Advance.
Mr. Guinan is required to devote sufficient time to the business of the
Company in his discretion.
STOCK OPTION PLANS
In April 1993, the Company adopted the 1993 Stock Option Plan ("the 1993
Plan"). The purpose of the 1993 Plan is to attract and retain personnel of
the highest calibre and provide increased incentives for officers, and
employees to promote the well-being of the Company.
The 1993 Plan authorizes the granting of incentive stock options or
non-qualified stock options for up to 250,000 shares of the Company's Common
Stock, subject to adjustment in the event of stock splits, stock dividends,
recapitalizations, mergers, reorganizations, exchanges of shares and other
similar changes affecting the issued Common Stock. Unless sooner terminated,
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, the number of
awards to be granted and the specific terms of each grant, subject to the
provisions of the 1993 Plan. Under the 1993 Plan, no stock option may be
granted having an exercise price which is less than the fair market value of
the Common Stock on the date of grant.
As of January 31, 1998 options to acquire 206,000 shares have been awarded
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 for
the automatic granting to each non-employee director of the Company on each
January 1, commencing January 1, 1996, a stock option for 10,000 shares of
Common Stock. Mr. Vittoria received thereunder options covering 20,000 shares
with respect to prior services on the Board of Directors. The maximum number
of shares of Common Stock which may be issued under the Outside Directors
Plan is 300,000, which amount is subject to adjustment in the event of stock
splits, stock dividends, recapitalizations, mergers, reorganizations,
exchanges of shares and other similar changes affecting the Company's issued
Common Stock. Each option issued under the Outside Directors Plan will be
exerciseable by the optionee for a period of five years from the date of
grant. Unless sooner terminated, the Outside Directors Plan expires on
January 11, 2006. The Outside Directors Plan is administered by the Company's
employee directors. Options granted under the Outside Directors Plan will
have an exerciseable price equal to the fair market value of the Common Stock
on the last date preceding the date of grant. As of January 31, 1998, options
have been granted under the Outside Directors Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors acts as the Compensation Committee and the Stock
Option Committee. The Board formulates and decides all matters relating to
the salaries, bonuses, fringe benefits or other compensation of the executive
officers of the Company. The Board also decides matters relating to the
granting of stock options under the 1993 Plan. See "Certain Relationships and
Related Transactions" for transactions between the Company and members of the
Compensation Committee.
28
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
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 January 31, 1998, by (i) each
beneficial owner of more than five percent of the outstanding Common Stock,
(ii) each Named Executive and director of the Company and (iii) all executive
officers and directors of the Company as a group. All shares are owned both
of record and beneficially unless otherwise indicated. Unless otherwise
indicated, the address of each beneficial owner is c/o Transmedia Europe
Inc., 11 St. James's Square, London SW1Y 4LB.
NUMBER AND PERCENTAGE OF SHARES OF COMMON STOCK OWNED
Shares Owned % Owned
------------------ -------------
Name and Address
Thomas DiBenedetto 1,236,454(1) 8.0
15140 Fiddlesticks Blvd.
Ft. Myers Florida 33912
FAI Overseas 2,210,227(2) 13.7
Investments Pty Ltd
Level 12
185, Macquarie St.
Sydney, NSW 2000
Australia
NUMBER AND PERCENTAGE OF SHARES OF COMMON STOCK OWNED
Shares Owned % Owned
------------------ -------------
Name and Address
Edward J. Guinan III 4,612,189(3) 29.7
Paul L. Harrison 0 --
Carl Freyer 10,000(5) --
Joseph V. Vittoria 749,922(4) 4.8
All Directors and Officers as a group 5,372,111 34.5
(1) Includes 700,000 shares of Common Stock issued to Bostoner International
Group Establishment ("Bostoner International") which Mr. DiBenedetto may
be deemed to beneficially own. Mr. DiBenedetto is the Chief
Executive Officer of Bostoner International and owns 50% of that company.
Also includes 118,227 shares of Common Stock owned by Bostoner
Internation Partners, LP a partnership of which Mr. DiBenedetto is a
general partner, which Mr. DiBenedetto may be deemed to beneficially own.
(2) Includes 633,342 shares of Common Stock issuable upon exercise of
warrants and 321,428 shares of Common Stock issuable upon conversion of
shares of the Company's 6.5% non-voting Convertible Preferred Stock (the
"Preferred Stock").
(3) Includes 226,858 shares of Common Stock owned by Conestoga Partners, 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 73% of the outstanding capital stock thereof. Also
includes 156,851 shares of Common Stock owned by Advance which Mr. Guinan
may be deemed to beneficially own. Mr. Guinan is a director, President,
Chief Executive Officer and the controlling shareholder of Advance. Does
not include 118,227 shares of Common Stock owned by Edward J. Guinan,
Jr., Mr. Guinan's father, and 25,000 shares of Common Stock owned by Joan
Guinan Pine, Mr. Guinan's aunt, of which Mr. Guinan disclaims beneficial
ownership. Of the shares owned by Mr. Guinan, approximately 400,000
shares have been pledged to secure certain planned acquisitions and are
subject to forfeiture in the event these acquisitions are not consummated
by certain dates.
(4) Includes 328,587 shares of Common Stock issuable upon conversion of
shares of the Preferred Stock and 40,000 shares of Common Stock issuable
upon exercise of options.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 1997, the company made a net payment of $1,240,000 to
Transmedia Asia Pacific in repayment of temporary funding. In fiscal 1997,
the company charged management expenses of $892,566 to Transmedia Asia
Pacific. The $254,134 balance as of September 30, 1997 due to the Company
from Transmedia Asia Pacific is non-interest bearing and repayable on demand.
Currently, the Company has no plans to demand repayment of this amount.
Messrs. Guinan, Harrison, Vittoria and Freyer are also directors of
Transmedia Asia Pacific. See "Directors and Executive Officers of Registrant."
In April 1997 and December 1997, the Company and Transmedia Asia Pacific
engaged in two significant acquisitions. See "Item 1. Business--Countdown
Business and--NHS Acquisition.
In September 1997, a loan, advanced by a director of the Company in
connection with the acquisition of Countdown, matured. The principal amount
of the loan is $1,000,000. The director agreed to extend the period of the
loan, subject to interest continuing to be accrued at the same rate of 12%
per annum, for an indefinite period, and subject to sixty days notice of
repayment demand.
In September 1997, a Preferred Stockholder and director of the Company
participated in a private placement financing which the Company offered to
existing Preferred stockholders.
In September 1997, a Preferred Stockholder in the Company participated in a
private placement financing which the Company offered to existing Preferred
stockholders.
In October 1997, a letter of intent was signed on behalf of the Company and
Transmedia Asia Pacific to acquire another company. In connection therewith,
Mr. Edward Guinan tendered shares of Common Stock of the Company and
Transmedia Asia Pacific held personally by him towards the deposit. See
"Item 7. Management's Discussion and Analysis of Operations."
In November 1997, Mr. Walter Epstein, a Partner at the legal firm of Rubin
Baum Levin Constant & Friedman, resigned as a director of the Company. Rubin
Baum Levin Constant & Friedman has acted, and continues to act, as outside
counsel to the Company.
In December 1997, the Company arrived at an agreement in principle with two
of the three minority shareholders in Transmedia La Carte Restaurant SA to
acquire their shares, subject to the approval of the Bank of France. This
approval was rendered on March 12, 1998. The Company also made certain
representations to the Bank of France pertaining to the ongoing operations of
Transmedia La Carte Restaurant SA, in connection with which, Mr. Edward
Guinan undertook to pledge 2,000,000 shares held by him in the Company's
affiliate, Transmedia Asia Pacific Inc. See "Item 7. Management's Discussion
and Analysis of Operations."
In January 1998, a letter of intent was signed on behalf of the Company and
Transmedia Asia Pacific to acquire another company. In connection therewith,
a cash deposit was paid and a promissory note signed to redeem the balance in
monthly instalments. See "Item 7. Management's Discussion and Analysis of
Operations."
In January 1998, Mr. Edward Guinan loaned the Company UK pounds 100,000
(approximately $162,500), the consideration for which has not as yet been
concluded.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
29
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
The following documents are being filed as part of this Report.
(a)(1) Financial Statements:
Transmedia Europe, Inc.
See "Index to Financial Statement" contained in Part II, Item 8
(a)(2) Financial Statement Schedule:
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or the Notes thereto.
(a)(3) Exhibits:
(i) Countdown Acquisition agreement -- attached hereto
(ii) Radbone Options -- attached hereto
(iii) Vittoria Loan -- attached hereto
(iv) $500,000 Promissory Note made in favor of TMNI -- attached hereto
(v) Lease for the property at 1 Hurlingham Business Park, Sulivan
Road -- attached hereto
(vi) NHS Business Purchase Agreement -- attached hereto
(vii) Call Option on balance of purchase of 49% of NHS -- attached
hereto
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: March 30, 1998 /s/ Edward J. Guinan III
--------------------------------------------
Name: Edward J. Guinan III
Title: Chairman 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: March 30, 1998 /s/ Edward J. Guinan III
--------------------------------------------
Name: Edward J. Guinan III
Title: Chairman and Director
30
Transmedia Europe, Inc.
Notes to the Consolidated Financial Statements
Date: March 30, 1998 /s/ Paul L. Harrison
--------------------------------------------
Name: Paul L. Harrison
Title: Chief Executive Officer and Director
Date: March 30, 1998 /s/ Carl Freyer
--------------------------------------------
Name: Carl Freyer
Title: Director
Date: March 30, 1998 /s/ Joseph Vittoria
--------------------------------------------
Name: Joseph Vittoria
Title: Director
Date: March 30, 1998 /s/ David Vaillancourt
--------------------------------------------
Name: David S. Vaillancourt
Title: Chief Financial Officer
31