UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
---------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________to_________________________
Commission file number 0-24404
TRANSMEDIA EUROPE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3701141
- --------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
---------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
--- ---
Yes No X
--- ---
16,846,454 Shares, $.00001 par value, as of April 15, 1998.
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
PART I : CONSOLIDATED FINANCIAL INFORMATION
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ITEM 1 .......................................................................................Pages 1-15
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of March 31, 1998 and September 30, 1997
Consolidated Statement of Operations for the three months ended March 31, 1998
and 1997 and the six months ended March 31, 1998 and 1997
Consolidated Statement of Cash Flows for the six months ended March 31, 1998 and 1997
Notes to the Consolidated Financial Statements
ITEM 2 .......................................................................................Pages 16-19
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION ..................................................................Page 20
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SIGNATURES ...................................................................................Page 20
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The consolidated financial statements are unaudited. However, management
believes that all necessary adjustments (which include only normal recurring
accruals) have been reflected to present fairly the financial position of the
company at September 30, 1997 and March 31, 1998, the results of its operations
for the three and six months ended March 31, 1998 and 1997 and the changes in
its cash flows for the six months ended March 31, 1998 and 1997
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
March 31, September 30,
1998 1997
(Unaudited) (Audited)
--------------- ---------------
Assets
Current assets
Cash (including temporary cash investments
of $ Nil at March 31, 1998 and
$168,350 at September 30, 1997) $503,962 $554,624
Trade accounts receivable 746,548 484,968
Restaurant credits, (net of allowance for irrecoverable 1,214,616 1,265,918
credits of $469,712 at March 31, 1998 and of $666,134
at September 30, 1997)
Amounts due from related parties (note 14) 124,653 86,401
Prepaid expenses and other current assets 862,510 599,626
Notes receivable 255,000 0
----------- -----------
Total current assets 3,707,289 2,991,537
Non-current assets
Investment in affiliated company (Note 9) 4,547,068 0
Property and equipment (net of accumulated
depreciation of $721,606 at March 31, 1998
and $678,338 at September 30, 1997) 646,792 741,116
Intangible assets (net of accumulated
amortization of $697,397 at March 31, 1998
and $523,858 at September 30, 1997) (Note 10) 1,774,987 1,847,426
Goodwill (net of accumulated
amortization of $285,970 at March 31, 1998
and $145,970 at September 30, 1997) (Note 11) 3,210,000 3,350,000
Other assets 0 142,946
----------- -----------
Total assets $13,886,136 $9,073,025
----------- -----------
----------- -----------
See accompanying notes
1
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
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March 31, September 30,
1998 1997
(Unaudited) (Audited)
------------- --------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Bank Credit Line $1,072,442 $952,668
Trade accounts payable 1,902,632 2,384,516
Deferred membership fees 487,446 536,509
Accrued liabilities 1,902,661 1,459,388
Amount due to related party (note 14) 2,295,872 2,345,841
Deferred cost of investment 3,248,735 0
----------- -----------
Total current liabilities 10,909,788 7,678,922
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Stockholders' equity
6 1/2 % Convertible Preferred Shares, $0.01 par value, 5,000,000 shares 5,909 5,909
authorized, 590,857 issued and outstanding shares at March 31, 1998
and 590,857 at September 30, 1997
Common stock, $.00001 par value, 95,000,000 shares authorized,
16,846,454 issued as of March 31, 1998
and 14,075,787 as of September 30, 1997 168 140
Additional paid in capital 14,528,827 12,108,055
Accumulated deficit (11,309,133) (10,655,175)
Treasury Stock (at cost, 196,995 shares) (517,112) (517,112)
Cumulative foreign currency translation
adjustment (490,324) (382,668)
----------- -----------
Total stockholders' equity 2,218,333 559,149
----------- -----------
Minority Interest 758,015 834,954
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Total liabilities and stockholders' equity $13,886,136 $9,073,025
----------- -----------
----------- -----------
See accompanying notes
2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
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Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
Total Revenues $3,136,534 $963,452 $6,119,394 $1,997,297
Cost of sales (2,142,686) (567,750) (3,963,408) (1,169,657)
----------- ----------- ----------- -----------
Gross profit 993,848 395,702 2,155,986 827,640
Selling, general and
administrative expenses (1,296,406) (1,083,363) (3,006,422) (2,082,108)
----------- ----------- ----------- -----------
Loss from operations (302,558) (687,661) (850,436) (1,254,468)
Share of profits/losses of associated company 77,476 (184,885) 83,108 (311,637)
Interest income 8,201 1,331 8,201 5,001
----------- ----------- ----------- -----------
Loss before income taxes (216,881) (871,215) (759,127) (1,561,104)
Income taxes 0 0 0 0
----------- ----------- ----------- -----------
Net loss before preferred share dividends (216,881) (871,215) (759,127) (1,561,104)
Minority Interest 80,296 0 172,379 0
Preferred share dividends (33,605) (33,605) (67,210) (67,210)
----------- ----------- ----------- -----------
Net loss after preferred share dividends $(170,190) $ (904,820) $(653,958) $ (1,628,314)
Loss per common share $(0.01) $ (0.07) $(0.04) $ (0.13)
Weighted average number of common
shares outstanding 15,120,668 12,678,792 14,940,527 12,455,681
----------- ----------- ----------- -----------
See accompanying notes
3
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
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Six months Six months
ended ended
March 31, March 31,
1998 1997
--------------- ---------------
Cash flows from Operating Activities:
- Net loss before preferred dividends and minority interest $ (759,127) $ (1,561,104)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation and amortization 326,141 76,760
- Amortization of deferred compensation 0 78,000
- Provision for irrecoverable restaurant credits 100,000 69,678
- Share of losses/(gains) of affiliated company (83,108) 311,637
Changes in assets and liabilities:
- Trade accounts payable (481,886) 254,717
- Accrued liabilities 376,063 170,900
- Restaurant credits (48,698) 8,816
- Trade accounts receivable (261,580) 77,921
- Prepaid expenses and other current assets (262,884) 47,179
- Deferred membership fees (49,063) (90,356)
- Notes receivable (255,000) 0
----------- -----------
Net cash used in operating activities (1,399,142) (555,852)
----------- -----------
Cash flows from investing activities:
- Due from/(to) related parties (38,252) 318,297
- Purchase of property and equipment (19,378) 0
- Net investment in associated company (1,215,225) (315,000)
- Purchase of Countdown option 0 (264,006)
- Purchase of NHS option 142,946 (142,946)
----------- -----------
Net cash used in investing activities (1,129,909) (403,655)
----------- -----------
Cash flows from financing activities:
- Net proceeds received from issuance of:
common stock 2,420,800 1,097,500
- Payment of preferred share dividends 0 (78,526)
- Bank credit line 119,774 0
- Repayment of loan from related party (49,969) 0
----------- -----------
Net cash (used in)/provided by financing activities 2,490,605 1,018,974
----------- -----------
Effect of foreign currency on cash (107,656) 0
Minority interest 95,440 20,341
----------- -----------
Net (decrease)/increase in cash and
cash equivalents (50,662) 79,808
Cash and temporary cash investments at
beginning of period 554,624 61,661
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Cash and temporary cash investments at
at end of period. 503,962 $ 141,469
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
No amounts of cash were paid for interest or income taxes for each of the
periods presented
See accompanying notes
4
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. The Company
Transmedia Europe, Inc. ("TME" or "the Company") is a Delaware
corporation which was organized in February 1993 and commenced
operations in the UK in December 1993. On May 19, 1993 the Company
acquired from Conestoga Partners, Inc. ("Conestoga") the rights
Conestoga had previously acquired from Transmedia Network, Inc.
("Network"), 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 restaurant discount charge card business. The licensed
territories comprise all European countries, Turkey and other
countries that were formerly part of the Union of Soviet Socialist
Republics (the "Licensed Territories"). Network is an independent
company which, through its affiliate TMNI International Inc.,
("TMNI"), is a shareholder of the Company. The Company commenced
operations in France in March 1996.
On April 3, 1997 the Company acquired a 50% interest in the equity
capital of Countdown Holdings plc ("Countdown"). In a simultaneous
transaction Transmedia Asia Pacific, Inc. ("TMAP"), a Delaware
corporation which shares common directors and officers with the
Company, acquired the remaining 50% of Countdown's equity capital.
Founded 27 years ago, Countdown is a leading international
provider of shopping and leisure discount benefits to approximately
6,500,000 members with over 100,000 participating merchants in 47
countries . Countdown's head office is located in London with further
infrastructure support provided by licensees operating in 14
countries. Within the UK market, there are approximately 25,000
participating merchants and 2,500,000 members.
On December 2, 1997, Transmedia Australia Holdings Pty Limited
("Transmedia Australia), a company owned equally by the Company and
TMAP, purchased 51% of the common stock of Nationwide Helpline
Services Pty. Limited ("NHS"), an Australian company through a newly
incorporated intermediary holding company. Transmedia Australia also
agreed to purchase the remaining 49% of the common stock of NHS on or
before June 30, 1998. The exercise period can be extended by the
Company and TMAP through September 30, 1998 (Refer Note 9. "Investment
in Affiliated Company").
5
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. The Company (continued)
As of March 31, 1998, the Company had the following equity interests in
its subsidiaries and affiliates:
Name Country of Incorporation % owned
Transmedia Europe plc United Kingdom 100.0
Transmedia UK plc United Kingdom 100.0
Transmedia UK Inc. United States of America 100.0
Transmedia Australia Holdings Pty Limited Australia 50.0
Transmedia La Carte Restaurant S.A
(`Transmedia France') France 50.1
Countdown Holdings plc United Kingdom 50.0
Transmedia Australia Travel Holdings Pty Limited Australia 50.0
All references herein to "Company" and "TME" include Transmedia Europe
Inc. and its subsidiaries unless otherwise indicated.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements.
In the opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of March 31, 1998, the results of
operations for the three and six months ended March 31, 1998 and 1997
and the changes in cash flows for the six months ended March 31, 1998
and 1997. The results of operations for the six months ended March 31,
1998 are not necessarily indicative of the results to be expected for
the full year.
The consolidated financial statements include the financial statements
of the Company and its subsidiaries and Countdown. The consolidated
balance sheet includes the assets and liabilities of Countdown and the
consolidated statement of operations includes the results of operations
of Countdown notwithstanding that the Company's interest in the equity
capital of Countdown is 50%. This basis of presentation has been
adopted because the Company has effective control of Countdown. All
significant intercompany transactions have been eliminated in
consolidation.
The September 30, 1997 balance sheet has been derived from the audited
consolidated financial statements at that date included in the
Company's annual report on Form 10-K. These unaudited consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report
on Form 10-K.
6
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Note 2. Basis of Presentation (continued)
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
The Company's ability to continue as a going concern may
depend on its ability to obtain outside financing sufficient
to support its operations and complete identified acquisitions.
Management remains confident that, based upon the Company's
history of obtaining necessary financing, sufficient funds will
be available to the Company to enable it to operate for the
foreseeable future and complete identified acquisitions. However
there can be no assurance given that the Company will obtain such
short-term or long-term outside financing or complete the
acquisitions.
Note 3. Foreign Currencies
The reporting currency of the Company is the United States
dollar. The functional currencies of the Company's operating
subsidiaries and affiliates are the UK pound sterling, the
French franc and the Australian dollar.
For consolidation purposes, the assets and liabilities of the
Company's subsidiaries are translated at the exchange rate
in effect at the balance sheet date. Consolidated statements of
income for the Company's subsidiaries are translated at the
average rates of exchange during the period. Exchange
differences arising on these translations are taken directly
to stockholders' equity .
The average exchange rates during the three and six months ended March 31,
1998 and March 31, 1997 and the exchange rates in effect as of March 31, 1998
and September 30, 1997 were as follows:
UK Pound French Australian
Sterling(pound) Franc Dollar
Average exchange rates
----------------------
3 months ended March 31, 1998 1.6500 6.020 0.6579
6 months ended March 31, 1998 1.6400 6.000 0.6667
3 months ended March 31, 1997 1.5700 5.200 0.7407
6 months ended March 31, 1997 1.5600 5.150 0.7353
Closing exchange rates
----------------------
September 30, 1997 1.6125 5.934 0.7251
March 31, 1998 1.6700 6.020 0.6452
7
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Income taxes
The Company adopts Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" which recognises (a) the amount of taxes
payable or refundable in the current year and (b) deferred tax
liabilities and assets for the future tax consequences of events that
have been recognized in an enterprise's financial statements or tax
returns.
A valuation allowance is established to reduce any deferred tax assets
when management determines it is more likely than not that the related
tax benefits will not be realised.
Note 5. New Accounting Standards
Effective for the quarter ended March 31, 1998 the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per
Share". SFAS No. 128 requires that all prior period earnings per share
data be restated to conform to this statement. The adoption of this
standard has not had a material effect on the Company's restated
historic earnings per share.
Note 6. Revenues
Revenues comprise:
(i) the retail value of food and beverage purchased from participating
restaurants by the Company's Transmedia cardholders, less the
cardholders' 20% or 25% discount and cardholders'' membership fees.
(ii) Countdown cardholders' membership fees and Countdown voucher
sales.
(iii) Countdown license fees from licensees
Membership fees and Countdown license fees are recognised as revenue in
equal monthly instalments over the membership/license period.
Note 7. License Cost
The Company evaluates the carrying value of its investment in License
Costs for impairment based on estimated future net cash flows generated
by, and directly attributable to, the Transmedia License. If the
estimated future net cash flows are less than the carrying value of the
License Costs, it is the policy of the Company to recognize the
impairment and adjust the carrying value of the License Costs to their
estimated fair value. In the opinion of management, there has been no
permanent impairment of the License Costs as of March 31, 1998.
8
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Restaurant Credits
Restaurant credits represent the total advances made to participating
restaurants less the amount recouped by the Company as a result of
Company cardholders using their cards at participating restaurants.
Restaurant credits are recouped by the Company within one year of
advance and accordingly are classified as a current asset. The
amount by which such credits are recouped equates to approximately 50%
of the retail value of the food and beverage purchased by cardholders
at participating restaurants. The Company periodically reviews the
recoverability of restaurant credits and establishes an appropriate
provision against irrecoverability.
The funds advanced to participating restaurants are generally
unsecured.
Note 9. Investment in Affiliated Company
Investment in affiliated company comprises the Company's interest in
Transmedia Australia which is made up as follows:
March 31, September 30,
1998 1997
---- ----
Cost of investment $ 4,463,960 $ 0
Share of profits 83,108 0
------------ ------------
$ 4,547,068 $ 0
------------ ------------
------------ ------------
On December 2, 1997, Transmedia Australia, a company owned equally by
the Company and TMAP, purchased 51% of the common stock of NHS, through
a newly incorporated intermediary holding company. Effective control
over Transmedia Australia is exercised by TMAP and accordingly the
Company's interest in Transmedia Australia is treated as an investment
in an affiliate. The total consideration paid by Transmedia Australia
for its 51% interest in the equity capital of NHS was Aus$ 10,000,000
(approximately $7,150,000 as at December, 1997). Transmedia Australia
also agreed to purchase the balance of the equity capital of NHS
for Aus$2,500,000 on June 30, 1998 with the right to extend such
obligation until September 30, 1998 by paying interest at 5% per annum
("Balance Obligation"). If Transmedia Australia fails to make such
payments all amounts paid are not subject to recovery and the entire
51% interest in NHS previously purchased will revert to its former
owners for nil consideration.
The total consideration for the 51% interest in NHS was allocated by
the sellers as follows. Aus$6,000,000 for the equity capital of NHS and
Aus$4,000,000 in sign-on fees payable to the former principals of NHS.
As originally structured the Aus$10,000,000 was to be advanced to
Transmedia Australia by the Company and TMAP as follows:
9
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Investment in Affiliated Company (continued)
Equity Capital Element (Aus$):
Company TMAP Total
Deposit 200,000 200,000 400,000
1st Instalment 1,400,000 1,400,000 2,800,000
2nd Instalment 1,400,000 1,400,000 2,800,000
Total 3,000,000 3,000,000 6,000,000
The deposit was advanced to Transmedia Australia and paid to the
sellers in June, 1997. The first instalment was paid in December, 1997.
Of the aggregate balance of Aus$2,800,000 paid in December 1997, 50%
was paid in cash and 50% by the issuance of 500,000 shares of the
common stock of each of the company and TMAP (valued at the then market
price). The second instalment payment date was extended as provided by
the terms of the agreement until May 1, 1998 and was paid on that date
along with interest of Aus$34,781.
Sign-on Fees (Aus$):
Company TMAP Total
1st Instalment 1,000,000 1,000,000 2,000,000
2nd Instalment 1,000,000 1,000,000 2,000,000
Total 2,000,000 2,000,000 4,000,000
The first instalment was payable on January 31, 1998 of which an
aggregate of Aus$1,250,000 could be deferred until June 30, 1998. On
January 31, 1998, in lieu of the required minimum payment of
Aus$750,000, Aus$203,571 was paid in cash and the balance was
represented by a promissory note in the sum of Aus$546,428 payable on
June30, 1998. The Aus$1,250,000 due on May 1, 1998 was paid together
with accrued interest thereon at 5% per annum, approximately
Aus$15,240. The promissory note payable on June 30, 1998 also bears
interest at 5% per annum (approximately Aus$11,228). The second
instalment is due for payment on June 30, 1998. This second instalment
can be deferred until September 30, 1998 with interest accruing at 5%
per annum. The Balance Obligation of Aus$2,500,000 is due for payment
on June 30, 1998 but can be deferred until September 30, 1998 with the
payment of interest at 5% per annum. If the Balance Obligation is not
paid on or before September 30, 1998 the ownership of NHS will revert
to its former owners for nil consideration.
10
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Intangible assets
Intangible assets consist of the cost of the Transmedia License, net of
amortization. The Transmedia License cost is being amortized on a
straight line basis over its estimated useful life of fifteen years
from the commencement of operations on October 1, 1993. The carrying
value of the Transmedia License is made up as follows:
Cost
Balance as of September 30, 1997 $ 2,371,284
Additions 0
--------------
Balance as of March 31, 1998 2,371,284
--------------
Amortization
Balance as of September 30, 1997 523,858
Charge for period 72,539
--------------
Balance as of March 31, 1998 596,397
--------------
Net Intangible assets $ 1,774,987
--------------
Note 11. Goodwill
The Company recognizes the excess of the purchase price paid over the
fair value of net assets acquired in connection with its acquisitions
as goodwill. Goodwill arising on acquisitions is being amortized on a
straight line basis usually over a period of fifteen years and is made
up as follows:
Cost
Balance as of September 30, 1997 $ 3,495,970
Additions 0
--------------
Balance as of March 31, 1998 3,495,970
--------------
Amortization
Balance as of September 30, 1997 145,970
Charge for period 140,000
--------------
Balance as of March 31, 1998 285,970
--------------
Net book value $ 3,210,000
--------------
11
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Stockholders Equity
On August 7, 1997 the Company commenced a private placement (the
"Placement") of up to 1,250,000 shares of common stock at a price of
$1.00 per share. The Placement was made pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder. On November 17, 1997
the number of shares in the Placement was increased from 1,250,000 to
1,750,000. The Placement closed on December 31, 1997 upon the sale of
1,117,095 shares resulting in gross proceeds to the company of
$1,117,095. For every three shares sold subscribers received a three
year warrant to purchase one share of the common stock of the Company
at an exercise price of $1.00 per share for no additional
consideration. The warrants are exercisable at any time after the date
of grant for a period of three years. In addition, in consideration of
their agreement to purchase, on a standby basis, a number of shares in
the Placement, certain holders of preferred stock of the Company were
granted three-year warrants to purchase an aggregate of 327, 656 shares
of Common Stock of the Company at an exercise price of $1.00 per share.
On February 1, 1998 the Company commenced a private placement (the
"February Placement") of up to 1,400,000 shares of common stock at a
price of $1.25 per share. The Placement was made pursuant to the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder. The
Placement closed on April 30, 1998 upon the sale of 1,375,000 shares of
common stock of the Company resulting in net proceeds to the company of
$1,718,750. For every three shares sold each subscriber received a
three year warrant to purchase one share of the common stock of the
Company at an exercise price of $1.25 per share for no additional
consideration. The warrants are exercisable at any time after the date
of grant for a period of three years.
Note 13. Acquisitions
The Company has previously described the terms of a letter of intent to
acquire a privately owned corporation engaged in a business
complimentary to that of the Company for approximately $8,500,000 of
which the Company would be responsible for one half ($4,250,000). The
terms of the letter of intent were revised on April 30, 1998. Under the
revised terms the Company and TMAP have agreed to a purchase price of
$8,900,000, represented by 300,000 shares of the Company's common stock
plus 300,000 shares of TMAP plus a number of shares at closing equal to
$600,000 in value plus cash of $7,700,000. In addition the sellers will
receive earn out payments over a five year period if predetermined
threshold profit levels are achieved. To date the Company and TMAP have
each issued 100,000 share and made cash payments of $300,000 all of
which will not be recovered if the transaction does not close. In
addition, Edward J Guinan III, Chairman of the Company and TMAP has
pledged 200,000 shares of each owned by him which shares will be
recouped by him from the Company and TMAP only if the transaction
closes.
12
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Acquisitions (continued)
The Company has previously described the terms of a letter of intent to
acquire a privately owned corporation, trading as Logan Leisure, engaged
in a business complimentary to that of the Company for one million pounds
sterling (approximately $1,650,000) of which the Company would be
responsible for one half (approximately $825,000). The terms of the
letter of intent were revised in March 1998. Under the revised terms the
Company and TMAP agreed to a total purchase price of $1,749,000
represented by 200,000 shares of the Company's common stock, 200,000
shares of the common stock of TMAP and $1,089,000 payable in cash. The
acquisition was completed on May 15, 1998 and will be more fully
described in a Form 8K to be filed no later than May 30, 1998.
On January 9, 1998, the Company and TMAP entered into an agreement in
principle to purchase 85% of the issued and outstanding common stock of
Network America Inc. ("Network"), a Texas corporation for a total
consideration $400,000 payable in cash ($200,000 each) and an undertaking
from the Company and TMAP to fund Network's working capital requirements
over an eighteen month period by way a monthly loan advance of $55,555 in
total ($27,777 each) an aggregate of $1,000,000 over the eighteen month
period, commencing April, 1998. The Company and TMAP advanced the
purchase consideration and the April working capital instalment against a
series of secured promissory notes. The acquisition was due to complete
on April 24, 1998. Based upon recent developments at Network the Company
is seeking to perfect its interest in the monies advanced. In this regard
the Company may seek, among other things, to take control of Network in
exchange for these advances. It is undetermined at this point what, if
any, working capital commitment the Company will make to the operations
of Network. (Refer Note 15 "Commitments and Contingencies" ).
Note 14. Related party transactions
The net amounts due from/(to) related parties consist of the following:
March 31, 30 September,
1998 1997
---- ----
Amounts due from:
International Advance Inc $ 124,653 $ 86,401
------------ ------------
Amounts due to:
E Guinan III 148,899 17,831
Transmedia Asia Pacific, Inc. 0 254,134
J V Vittoria 1,121,973 1,061,479
TMNI 1,024,999 1,012,397
------------ ------------
$ 2,295,871 $ 2,345,841
------------ ------------
13
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Related party transactions (continued)
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,
Chairman of the Company at a value of $1 per share to purchase the
shares of Common Stock of the Company, held by him.
As previously reported Mr. Guinan used the proceeds (L293,753) from the
sale of part of his shareholdings in the Company and TMAP to make a
payment of L115,000 on account to the UK Inland Revenue against tax
liabilities and deposit L78,753 in escrow against any on-going tax
liabilities. Of the balance of L100,000 the Company and Mr. Guinan
agreed that Mr. Guinan would loan UK L90,000 ($148,899) to the Company
to replace a bank guarantee previously provided by Mr. Radbone.
Note 15. Commitments and Contingencies
Transmedia Australia
The Company is committed, jointly with its affiliate TMAP through
Transmedia Australia, to purchase the balance of the equity capital of
NHS for Aus$2,500,000 on June 30, 1998 with the right to extend such
obligation until September 30, 1998 by paying interest at 5% per annum
("Balance Obligation"). If Transmedia Australia fail to make such
payments all amounts paid are not subject to recovery and the entire
51% interest in NHS previously purchased will revert to the former
owners.
Management fully intends to acquire the balance of 49% of the equity
capital of NHS. However no assurance can be given that management will
have the necessary funds available to acquire the balance.
The Company is also committed to repay a promissory note in the sum of
Aus$546,429 together with accrued interest of approximately Aus$11,228
on June 30, 1998.(Refer Note 9 "Investments in Affiliated Company" for
further details).
14
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Commitments and Contingencies (continued)
Transmedia France
The Company has undertaken to contribute sufficient assets and
marketable securities to the capital of Transmedia France to make good
on its capital deficiency and resultant non-compliance with minimum
equity requirements pursuant to the regulations of the Bank of France.
On December 4, 1997 the Company agreed in principle to purchase
the following minority interest holdings in Transmedia France:
(i) Partech International Inc. (US Growth Fund Ventures), 34.6%
of the issued and outstanding capital stock of Transmedia
France for a total consideration of $750,000; and
(ii) Eric Knight's 5.3% share of the issued and outstanding
capital stock of Transmedia France for a total
consideration of $114,020.
The transaction was not completed as contemplated on January 31, 1998.
However as of the date hereof negotiations to purchase such minority
interests are at an advanced stage. When, and if completed, the
Company's equity interest in Transmedia France will increase from 51.1%
to 90% of the issued share capital of that company.
Network America, Inc. ("Network")
The Company has advanced approximately $200,000 to Network against a
series of secured promissory notes in respect of its acquisition of
Network. The acquisition was due to complete on April 24, 1998. Based
upon recent developments at Network the Company is seeking to
perfect its interest in the monies advanced. In this regard the
Company may seek, among other things, to take control of Network in
exchange for their advances. It is undetermined at this point what,
if any, working capital committment the Company will make to the
operations of Network.
Legal proceedings
In the opinion of management there are no lawsuits or claims pending
against the Company.
15
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Subsequent Events
Notes Payable
On April 29, 1998 the Company engaged in a private placement
of securities. The Placement was made pursuant to the
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The placement consisted of three
(pound)250,000 (approximately $413,000) face amount, 8%
promissory notes payable on November 1, 1998 and one
(pound)200,000 (approximately $330,000) face amount, 8%
promissory note payable on the same date. The holders of the
(pound)250,000 promissory notes each received a three and a
half year warrant to purchase 41,660 shares of the common
stock of the Company at an exercise price of $2.00 per share
and the holder of the (pound)200,000 promissory note received
a warrant to purchase 33,328 shares on the same terms. The
warrants are exercisable at any time after issuance through
November 1, 2001.
Transmedia Australia
On May 1, 1998 the Company, through Transmedia Australia, paid
the following as consideration for its 51% interest in the
equity capital of NHS.
(i) Aus$1,400,000 ($900,000) as second instalment for the
purchase of 51% of the equity capital of NHS together
with interest of Aus$17,390 ($11,000).
(ii) Aus$625,000 ($400,000) as sign-on fees to the former
principals of NHS together with interest of Aus$7,620
($5,000).
(Refer Note 9 "Investment in Affiliated Company" for further details)
16
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
General
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
The business of the Company is the design and supply of a range of member
benefit programs to corporations, affinity groups and individuals on an
international scale.
The future success of the Company is dependent upon its ability to increase its
membership base and broaden the range of member benefit programs offered. The
acquisition, with Transmedia Asia Pacific, Inc ("TMAP"), of Countdown Holdings
plc and 51% of the issued and outstanding share capital Nationwide Helpline
Services ("NHS") has enabled the Company to commence implementation of its
strategy to create a broader based international member benefits business.
The Company will continue to look for new opportunities within the member
benefits industry and expand its operations through acquisition and organic
growth. Management believes that while the industry has shown good growth, which
is expected to continue, this has been primarily in the United States. Outside
the United States, the international market is significantly less well-developed
providing an excellent opportunity for the Company to expand its operations from
its established base in Europe and Australasia and its network of sub-licensees
and franchisees in a number of other countries.
The Company recorded significant losses in its fiscal year ended September
30, 1997 and in prior years. Such losses and the Company's acquisition and
expansion program to date have been funded by the sale of equity securities
and loan finance. The Company's ability to continue as a going concern may
depend on its ability to obtain outside financing sufficient to support its
operations and expansion plans. Based upon the Company's history of obtaining
necessary financing, management remains confident that sufficient funds will
be available to the Company to enable it to operate for the foreseeable
future and complete identified acquisitions, there can be no assurance given
that the Company will obtain such short-term or long-term outside financing
or complete such acquisitions. In addition there can be no assurance as to
the acceptability of the terms of any future financing.
Results of Operations
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
The Company generated revenues of $3,136,534 (1997: $963,452) for the three
months ended March 31, 1998, an increase of 225% over the corresponding period
in 1997. This increase in revenues is due to the acquisition of Countdown in
April 1997 ($2,284,261) and Transmedia France ($78,643) being consolidated for
the first time. Revenues generated by pre-existing operations totalled $776,630,
a decrease of 19.4% compared to the corresponding period in 1997. This decrease
is due to a refocusing and rationalisation of the participating restaurant base
to remove low-usage participants.
Cost of sales totalled $2,142,686 (1997: $567,750) for the three months ended
March 31, 1998, generating a gross profit percent of 31.7% (1997: 41.1%). Gross
profit percents for Countdown and Transmedia France were 29.7% and 56.9%
respectively. The gross profit percent for pre-existing operations was 34.8%.
Gross profit decline reflects the impact of the lower margin Countdown business.
17
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
(continued)
Selling, general and administrative expenses, for the three months ended March
31, 1998 were $1,296,406 (1997: 1,083,363) an increase of 19.7% on the
corresponding period in 1997. Selling, general and administrative expenses for
Countdown and Transmedia France totalled $672,062 and $224,019 respectively.
Selling, general and administrative expenses generated by pre-existing
operations totalled $400,325 a 63.1% decrease from the corresponding period in
1997. This reduction is primarily due to significantly lower professional fees
in 1998 as compared to 1997. The 1997 professional fees included costs of
Countdown acquisition and proposed merger of the Company and TMAP.
The Company's share of profits/(losses) of associated company is $77,476 (1997:
$(184,885) for the three months ended March 31, 1998. The 1997 associated
company losses relate to Transmedia France which is now fully consolidated. The
1998 profits relate to the Company's investment in NHS.
The Company's minority interest comprises 49.9% of Transmedia France and 50% of
Countdown.
Six months ended March 31, 1998 compared to Six months ended March 31, 1997
The Company generated revenues of $6,119,394 (1997: 1,997,297) for the six
months ended March 31, 1998, an increase of 206.4% on the corresponding period
in 1997. This increase is due to the inclusion of Countdown and Transmedia
France for the first time. Countdown and Transmedia France generated revenues of
$4,292,723 and $218,069 respectively for the six months ended March 31, 1998.
Revenues generated by pre-existing operations totalled $1,608,602, a decrease of
19.5% from the corresponding period in 1997. This decrease is due to a
refocusing and rationalisation of the participating restaurant base to remove
low-usage participants.
Cost of sales totalled $3,963,408 (1997: $1,169,657) for the six months ended
March 31 generating a gross profit percent of 35.2% (1997: 41.4%). Gross profit
percents for Countdown and Transmedia France were 32.8% and 50.1% respectively.
The gross profit percent for pre-existing operations was 39.5%. Gross profit
decline reflects the impact of the lower margin Countdown business.
Selling, general and administrative expenses were $3,006,422 (1997: 2,082,108),
for the six months ended March 31, 1998, an increase of 44.4 % on the
corresponding period in 1997. Selling, general and administrative expenses for
Countdown and Transmedia France totalled $1,402,290 and $461,056 respectively.
Selling, general and administrative expenses generated by pre-existing
operations totalled $1,143,076, a 45.1% decrease from the corresponding period
in 1997. This reduction is primarily due to significantly lower professional
fees in 1998 as compared to 1997. The 1997 professional fees included the costs
of the Countdown acquisition and the proposed merger of the Company and TMAP.
The Company's share of profits/(losses) of associated company is $83,108 (1997:
$(311,637)) for the six months ended March 31, 1998. The 1997 associated company
losses relate to Transmedia France which is now fully consolidated. The 1998
profits relate to the Company's investment in NHS.
The Company's minority interest comprises 49.9% of Transmedia France and 50% of
Countdown.
18
Liquidity and Capital Resources
The Company's audited financial statements for the year ended September 30, 1997
recorded losses for the year then ended of $3,746,248, which, when taken with
prior year results, recorded an accumulated deficit of $10,655,176 as of
September 30, 1997.
During the six months ended March 31, 1998 the Company recorded further losses
of $759,127 resulting in net cash outflows from operating activities of
$1,399,142 compared to $555,852 for the corresponding period in 1997. During the
period the Company relied on net revenues and the net proceeds of equity
placements to fund its operating needs. Management has taken steps to reduce the
amount of cash used by operations, including reducing staffing levels, however
the Company's operations may not provide sufficient internally generated cash
flows to meet its projected requirements.
Additionally the Company is committed to funding a number of business
acquisitions, increasing its investments in Transmedia France and its investment
in NHS through Transmedia Australia, as described in Notes 13 and 16 to the
unaudited consolidated financial statements for the quarter ended March 31,
1998.
Subsequent to March 31, 1998 the Company received net proceeds of $1million from
the private placement of 800,000 shares of common stock. To supplement the
funding of its operations and its acquisition program, the Company also obtained
net cash proceeds from short term loans of approximately $1,567,750 from
unaffiliated third parties (Refer Note 17 to the unaudited consolidated
financial statements).
The Company will require capital infusions in order to complete its
acquisition commitments and meet the funding requirements of its operation.
Based upon the Company's history of obtaining necessary financing Management
remains confident that sufficient funds will be available to the Company to
operate in the foreseeable future and complete its investments and committed
acquisitions there can be no assurance given that the Company will be able to
obtain such funding. In addition there can be no assurance as to the
acceptability of the terms of any future financing.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation. Individual Company Participating Restaurants may be seasonal
depending on their location and the type of food and beverage sold. However, the
Company has no basis on which to project seasonal effects, if any, to its
business as a whole.
19
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorised.
TRANSMEDIA EUROPE, INC.
By:
- -------------------------------------
Paul Harrison
President and Chief Financial Officer
20