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 SEPTEMBER 30, 1995
------------------
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 0-22922
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THE WESTERN TRANSMEDIA COMPANY, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 06-0995978
- ---------------------------- ----------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organi- Number)
zation)
475 Sansome St., San Francisco, CA 94111
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415) 397-3001
--------------
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At November 1, 1995
there were outstanding 7,903,421 shares of the Registrant's Common Stock, $.60
par value.
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THE WESTERN TRANSMEDIA COMPANY, INC.
INDEX
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PAGE(S)
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PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995 2
(unaudited) and December 31, 1994
Consolidated Statements of Operations - Nine and Three 3
Months Ended September 30, 1995 and 1994 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended 4
September 30, 1995 and 1994 (unaudited)
Notes to Interim Consolidated Financial Statements 5
(unaudited)
ITEM 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. Other Information 12
SIGNATURES 13
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ASSETS -
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<CAPTION>
September 30, December 31,
1995 1994
--------------------- -----------------
(unaudited)
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CURRENT ASSETS:
Cash (including interest bearing deposits) $2,697,827 $2,674,409
Accounts receivable 96,362 149,240
Rights to receive - net of allowances for 2,787,215 3,268,919
doubtful amounts of $234,034 and $168,235 at September 30, 1995 and
December 31, 1994, respectively (Note 2)
Prepaid expenses and other current assets 128,653 33,307
--------- ---------
TOTAL CURRENT ASSETS 5,710,057 6,125,875
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PROPERTY AND EQUIPMENT - NET 98,655 98,557
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OTHER ASSETS:
Franchise agreements - net of accumulated 462,925 383,250
amortization of $88,075 and $67,750
Security deposits 8,850 8,015
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471,775 391,265
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TOTAL ASSETS $6,280,487 $6,615,697
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive (Note 2) $ 388,562 $ 778,564
Accrued liabilities 110,257 219,237
Capitalized lease obligations - current portion 1,205 1,832
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TOTAL CURRENT LIABILITIES 500,024 999,633
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LONG-TERM DEBT:
Capitalized lease obligations 3,176 4,108
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value, 2,000,000 -- --
shares authorized; none issued or outstanding
Common stock, $.60 par value, 25,000,000 shares 4,742,053 4,721,053
authorized; 7,903,421 and 7,868,421 shares
issued and outstanding as of September 30,
1995 and December 31, 1994, respectively
Additional paid-in capital 5,542,062 5,463,062
Retained earnings (deficit) (4,506,828) (4,572,159)
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TOTAL SHAREHOLDERS' EQUITY 5,777,287 5,611,956
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,280,487 $6,615,697
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
----------------------------------- ------------------------------------
1995 1994 1995 1994
---------------- ------------- ------------------ ---------------
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NET SALES $8,896,966 45,410,086 $2,739,925 $3,052,861
COST OF SALES 5,926,102 3,613,412 1,821,449 2,037,288
---------- ---------- ---------- ----------
GROSS PROFIT 2,970,864 1,796,674 917,576 1,015,573
---------- ---------- ---------- ----------
EXPENSES AND OTHER (INCOME):
Franchise costs 1,240,820 753,907 383,068 424,731
Operating expenses 1,772,789 1,483,099 603,723 516,970
Interest expense 1,039 1,386 308 472
Interest income (109,115) (35,034) (37,025) (7,516)
---------- ---------- ---------- ---------
2,905,533 2,203,358 950,074 934,657
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 65,331 (406,684) (32,498) 80,916
Provision for income taxes
Note (3) -- -- -- --
--------- ---------- ----------- ---------
NET INCOME (LOSS) $ 65,331 $(406,684) $ (32,498) $ 80,916
========= =========== =========== =========
EARNINGS (LOSS) PER COMMON
SHARE (Note 4) $ 0.01 $ (0.06) $ -- $ 0.01
======== ========= ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(Note 4) 7,970,008 7,052,605 7,959,339 7,062,668
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1995 1994
----------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder $ 8,962,778 $ 5,255,694
restaurant spending
Cash paid for franchise fees (1,251,974) (732,189)
Cash paid for rights to receive (5,976,280) (4,953,442)
Cash paid to suppliers and employees (1,799,122) (1,540,440)
Interest received 109,115 35,034
Interest paid (1,039) (1,386)
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Net cash provided (utilized) by operating activities 43,478 (1,936,729)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (17,666) (58,043)
Security deposits (835) (4,064)
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Net cash (utilized) by investing activities (18,501) (62,107)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (1,559) (4,671)
Proceeds from exercise of stock options - 13,375
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Net cash (utilized) provided by financing activities (1,559) 8,704
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,418 (1,990,132)
Cash and cash equivalents, at beginning of year 2,674,409 2,646,045
------------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,697,827 $ 655,913
============= ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED (UTILIZED) BY OPERATING ACTIVITIES:
Net income (loss) $ 65,331 $ (406,684)
Adjustments to reconcile net income (loss) to net
cash provided (utilized) by operating activities:
Allowance for doubtful rights to receive 134,190 103,624
Depreciation and amortization 37,893 33,250
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 52,878 (138,005)
Decrease (increase) in rights to receive 347,514 (2,357,206)
(Increase) in prepaid expenses and other current
assets (95,346) (45,515)
(Decrease) increase in accounts payable - rights to
receive (390,002) 1,017,176
(Decrease) in accrued expenses (108,980) (143,369)
----------- -----------
Net cash provided (utilized) by operating activities $ 43,478 $(1,936,729)
========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
a) During the nine month period ended September 30, 1995, the Company
exercised its franchise rights for the state of Oregon in exchange for
35,000 shares of common stock. These shares are valued by the Company at
$100,000.
b) Capital lease obligations aggregating $6,263 were
incurred during the period ended September 30, 1994
when the Company entered into leases for new
equipment.
The accompanying notes are an integral part of these financial statements.
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of The Western Transmedia
Company, Inc. (the "Company") and its subsidiary TM West Corp.
("TM West") contain all adjustments necessary (consisting of
normal recurring accruals or adjustments only) to present fairly
the Company's financial position as of September 30, 1995 and the
results of its operations and cash flows for the nine and three
month periods ended September 30, 1995 and 1994.
The accounting policies followed by the Company are set forth in
Note 2 to the Company's consolidated financial statements included
in its Annual Report on Form 10-K for the year ended December 31,
1994, which is incorporated herein by reference. Specific
reference is made to this report for a description of the
Company's securities and the notes to consolidated financial
statements included therein.
The results of operations for the nine and three month periods
ended September 30, 1995 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - DESCRIPTION OF THE COMPANY:
In December 1991, the Company entered into a franchise agreement
(the "Franchise Agreement") with Transmedia Network Inc.
("Network") that granted to the Company the exclusive right to
operate a franchise (the "Franchise"), the primary business of
which is the acquisition of "Rights to Receive" (food and beverage
credits) from restaurants located in California, that accept the
Transmedia Restaurant Card (a private restaurant charge card
marketed and issued by Network). The Company sells such Rights to
Receive to holders of the card who are then entitled to a 25%
savings from listed menu prices when dining at participating
restaurants.
The Company derives its revenues from the difference between the
amount it pays to restaurants for the food and beverage credits
and cardmember's charges at such restaurants, net of the 25%
savings (exclusive of tip and applicable taxes) and franchise fees
payable to Network. The Company also receives 40% of the
Restaurant Card membership fees for the initial year of membership
of cardholders solicited by the Company and no portion of any
renewal fees. However, the Company and Network have waived
substantially all first year membership fees in connection with
its marketing programs.
NOTE 3 - INCOME TAXES:
At December 31, 1990, the Company had operating loss
carryforwards, aggregating approximately $2,600,000. Due to the
change in the Company's type of business, benefits from the
aforementioned loss carryforwards are not available to offset
future income. Since the change in type of business the Company
generated losses through December 31, 1994 aggregating
approximately $1,900,000 which are being carried forward to offset
future taxable income.
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - INCOME TAXES (Continued):
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109") effective
January 1, 1993. The standards for SFAS No. 109 require that the
Company utilize an asset and liability approach for financial
accounting and reporting for income taxes. The primary objectives
of accounting for income taxes under SFAS No. 109 are to (a)
recognize the amount of tax payable for the current year and (b)
recognize the amount of deferred tax liability or asset based on
management's assessment of the tax consequences of events that
have been reflected in the Company's financial statements or tax
returns.
The provision for income taxes consists of the following:
September 30, December 31,
1995 1994
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Current:
Federal $22,000 $ -
State and local 4,000 $ -
--------- -----
26,000 $ -
--------- -----
Deferred due to benefit of operating loss
carryforwards:
Federal $22,000 $ -
State and local 4,000 $ -
--------- -----
26,000 $ -
--------- -----
Provision For Income Taxes $ - $ -
--------- -----
The tax effects of the temporary differences that give rise to
deferred tax assets and liabilities are as follows:
September 30, December 31,
1995 1994
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Deferred tax asset:
Allowance for rights to receive $104,000 $ 65,000
Net operating loss carryforward 694,000 $731,000
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798,000 $796,000
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Less valuation allowance (795,000) (793,000)
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Net deferred tax asset 3,000 3,000
Deferred tax liabilities:
Property and equipment 3,000 3,000
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Net deferred tax asset $ - $ -
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As mentioned above the Company has available, at September 30,
1995, unused operating loss carryforwards of approximately
$1,800,000 which may be applied against future taxable income
expiring in various years through 2008. Since there is no
assurance that the Company will generate future taxable income to
utilize the asset created by these carryforward losses, a
valuation allowance has been provided as of September 30, 1995 and
December 31, 1994. This allowance will be evaluated at the end of
each period, considering both positive and negative evidence
concerning the realizability of the asset, and will be adjusted
accordingly.
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THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented.
NOTE 5 - RECLASSIFICATIONS:
Certain reclassifications were made to the 1994 financial
statements to conform to the current period reporting format.
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On December 9, 1991 the Company entered into a Franchise Agreement (the
"Franchise Agreement") with Transmedia Network Inc. ("Network"), which granted
to the Company the exclusive right to operate a franchise (the "Franchise") in
the State of California. The Franchise features the Restaurant Card, a private
restaurant charge card developed, marketed and issued by Network, which entitles
cardholders (the "Cardholders") to a 25% savings on the regular menu prices of
food and beverages when dining at participating restaurants (the "Participating
Restaurants").
The Company's franchise business activities under the Franchise
Agreement, which the Company commenced in August 1992, are to (i) provide cash
payments to Participating Restaurants that it recruits in its Franchise
Territory to join the Transmedia Network in exchange for food and beverage
credits, known as "Rights to Receive", and (ii) obtain additional holders of the
Restaurant Card in its Franchise Territory. The Company generally purchases its
inventory of Rights to Receive directly from a Participating Restaurant through
cash payments to the Participating Restaurant in an amount equal to
approximately 50% of the dollar value of the Rights to Receive being purchased.
The Company may also purchase Rights to Receive by paying for other services and
goods utilized by the Participating Restaurant, such as media placement services
and restaurant equipment. The Company expects to derive substantially all of its
revenues from operations by purchasing Rights to Receive from Participating
Restaurants in its Franchise Territory and the sale of such Rights to Receive to
holders of the Restaurant Card.
In December 1993, the Company exercised its option to obtain a
Transmedia Network franchise for the State of Washington and agreed to purchase
a franchise for Reno, Nevada and the Nevada portion of the Lake Tahoe, Nevada
resort area in exchange for 50,000 and 10,000 shares of Common Stock,
respectively. These shares are valued by the Company at $150,000 and $30,000,
respectively. In June 1995, the Company exercised its option to obtain a
Transmedia Network franchise for the State of Oregon in exchange for 35,000
shares of Common Stock valued by the Company at $100,000.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994
Net sales for the three and nine month period ended September 30, 1995
were $2,739,025 and $8,896,966, respectively, as the Company continued its third
full year of operations in the San Francisco Bay area and its second full year
of operations in the Los Angeles Metropolitan area. This was a decrease of
$313,836 as compared to $3,052,861 in net sales during the three month period
ended September 30, 1994 and an increase of $3,486,880 as compared to $5,410,086
in net sales during the nine month period ended September 30, 1994. Sales for
both the three and nine month periods ended September 30, 1995 were negatively
impacted by a decrease in the average restaurant spending per cardholder. The
Company attributes the decrease in average restaurant spending per cardholder to
increasing competition from other restaurant promotion programs that have been
introduced into the California market and to softness in California's economy in
general. The Company does not know what effect these factors will have upon
short term earnings trends. However, the Company believes that there will be
long term earnings growth as a result of both the competitive advantages offered
by the Transmedia program compared to other restaurant promotion programs, and
through continued expansion in the Company's primary areas as well as expansion
into new geographical areas including Lake Tahoe, San Diego, Seattle, and
Portland, Oregon. The Company began operating its business under the Franchise
Agreement in the San Francisco Bay Area in August 1992, in the Los Angeles
Metropolitan Area in November 1993 and in Orange County in January 1995.
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<PAGE>
The Company operates with a gross profit margin from net sales of
Rights to Receive to Cardholders of approximately 33%. The Company's net sales
resulted in $917,576 and $2,970,864 in gross profit for the three and nine month
periods ended September 30, 1995, and $1,015,573 and $1,796,674 for the three
and nine month periods ended September 30, 1994, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $603,723 and $1,772,789 for the three and nine month periods ended
September 30, 1995 as compared to $516,970 and $1,483,099 for the three and nine
month periods ended September 30, 1994, respectively. The increases of $86,753
and $289,690 were primarily due to the fact that the Company incurred additional
salaries and associated payroll expenses related to the operation of its
business in San Francisco and Los Angeles during the periods ended September 30,
1995, and initiated active operations in Orange County in January 1995. The
Company incurred approximately $61,000 and $202,000 in additional salaries and
associated payroll expenses, excluding Orange County, during the three and nine
month periods ended September 30, 1995, respectively compared with the three and
nine month periods ended September 30, 1994. These expenses related to the
operation of its business in San Francisco and Los Angeles and were primarily
attributable to increased officers' and employee compensation including certain
bonus and commission arrangements. The Company also incurred additional
operating expenses of approximately $24,000 and $111,000 related to the
operation of its business in Orange County for the three and nine months ending
September 30, 1995. The Company did not actively operate in Orange County in
1994 and therefore incurred no such expenses for the three and nine months ended
September 30, 1994.
For the three month period ended September 30, 1995, combined operating
expenses consisted primarily of salaries and associated payroll expenses
($296,000), professional and consulting fees ($47,000), rent and office expenses
($66,000), the Company's reserve for unrealizable Rights to Receive ($53,000),
advertising and promotional expenses in connection with attracting and
maintaining California Cardholders ($23,000, net of Transmedia Network
reimbursement), and promotion and marketing expenses in connection with
attracting and maintaining Participating California Restaurants ($78,000). For
the three month period ended September 30, 1994, combined operating expenses
consisted primarily of salaries and associated payroll expenses ($225,000),
professional and consulting fees ($54,000), rent and office expenses ($57,000),
the Company's reserve for unrealizable Rights to Receive ($56,000), advertising
and promotional expenses in connection with attracting and maintaining
California Cardholders ($47,000, net of Transmedia Network reimbursement), and
promotion and marketing expenses in connection with attracting and maintaining
Participating California Restaurants ($43,000).
For the nine month period ended September 30, 1995, operating expenses
consisted primarily of salaries and associated payroll expenses ($960,000),
professional and consulting fees ($139,000), rent and office expenses
($197,000), the Company's reserve for unrealizable Rights to Receive ($134,000),
advertising and promotional expenses in connection with attracting and
maintaining California Cardholders ($48,000, net of Transmedia Network
reimbursement), and promotion and marketing expenses in connection with
attracting and maintaining Participating California Restaurants ($188,000). For
the nine month period ended September 30, 1994, combined operating expenses
consisted primarily of salaries and associated payroll expenses ($683,000),
professional and consulting fees ($148,000), rent and office expenses
($172,000), the Company's reserve for unrealizable Rights to Receive ($104,000),
advertising and promotional expenses in connection with attracting and
maintaining California Cardholders ($112,000, net of Transmedia Network
reimbursement), and promotion and marketing expenses in connection with
attracting and maintaining Participating California Restaurants ($134,000).
For the three month and nine month periods ended September 30, 1995,
interest income was $37,025 and $109,115, respectively. This was an increase of
$29,509 as compared to $7,516 during the three month period ended September 30,
1994 and an increase of $74,081 as compared to $35,034 during the nine month
period ended September 30, 1994. Interest income for the three and nine month
periods in 1995 increased primarily because of the interest earned on the
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approximate $2,138,000 net proceeds from the Company's December 1994 Unit Offer
referred to below.
For the three month period ended September 30, 1995, the Company
generated a net loss of ($32,498), equal to break even on a per share basis,
compared to a net profit of $80,916, or $.01 on a per share basis, for the three
month period ended September 30, 1994. The approximately $113,000 reduction in
net income (loss) was primarily due to the decreased gross profit for the period
net of franchise costs and increased operating expenses (including Orange County
expenses), partially offset by an increase in interest income as described
above. For the nine month period ended September 30, 1995, however, the Company
earned a net profit of $65,331 or $.01 per share compared to a net loss of
($406,684), or ($.06) on a per share basis, for the nine month period ended
September 30, 1994. The approximately $472,000 increase in net income (loss) was
primarily due to the increased gross profit for the period net of franchise
costs and increased interest income, partially offset by increased operating
expenses (including Orange County expenses), as described above.
Orange County operations resulted in net losses of approximately
$14,000 and $96,000, respectively for the three and nine month periods ended
September 30, 1995. Without giving effect to the Orange County losses, the
Company would have generated a net loss of approximately $18,000, equal to break
even on a per share basis, for the three month period ended September 30, 1995
and a net profit of approximately $161,000, or $.02 per share, for the nine
month period ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced active operations in August 1992. The Company's
principal expenditures are made to (i) purchase Rights to Receive from
Participating Restaurants, (ii) advertise and market for Cardholders in
California and (iii) pay for general and administrative expenses, including
officers' compensation and compensation to sales employees, for the recruitment
of Participating Restaurants in the Company's franchise territory. The Company's
principal revenues result from the sale of Rights to Receive to Cardholders.
The Company is actively engaged in acquiring Rights to Receive from
Participating Restaurants solicited primarily in the San Francisco Bay Area, the
Los Angeles Metropolitan Area, and the Orange County Area. The Company initiated
operations in January 1995 in a new office in Orange County, adjacent to the Los
Angeles Metropolitan Area. The number of restaurants that participate in the
Transmedia Network depends primarily upon several factors, including general
market acceptance of the Company's business in California, competition, economic
trends in the restaurant industry in California, the number of sales employees
soliciting Participating Restaurants and the general effectiveness of the
Company's and Network's advertising and marketing activities. These factors make
it difficult to estimate the number of restaurants from which it will purchase
Rights to Receive. At September 30, 1995 there were an aggregate 582
Participating Restaurants consisting of 281 in the San Francisco Bay Area, 244
in the Los Angeles Metropolitan Area, and 57 in Orange County. At December 31,
1994 there were an aggregate 519 Participating Restaurants consisting of 304 in
the San Francisco Bay Area and 215 in the Los Angeles Metropolitan Area. At
September 30, 1995 there was an average Rights to Receive balance (net of Rights
to Receive payable by the Company) per Participating Restaurant for the San
Francisco Bay Area, Los Angeles Metropolitan area, and Orange County area of
approximately $4,000, $5,600, and $2,500, respectively. At December 31, 1994
there was an average Rights to Receive balance (net of Rights to Receive payable
by the Company) per Participating Restaurant for the San Francisco Bay Area and
Los Angeles Metropolitan area of approximately $3,900 and $6,800, respectively.
It is the Company's experience that approximately 85% of all the Company's
participating Restaurants listed in the Network's published directories renew
their Rights to Receive agreements after the initial amount of Rights to Receive
purchased by the Company from such Participating Restaurants are expended, that
65% of all Participating Restaurants renew their Rights to Receive for a second
time and that 55% of all Participating Restaurants renew their Rights to Receive
for three or more times. The foregoing percentages are based on a constant
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initial number of Participating Restaurants so that if, for example, there were
initially 100 Participating Restaurants, 55 of such Participating Restaurants
would have renewed their Rights to Receive for at least a third time. The
restaurant renewal rates given represent the renewal experience of the Company
prior to a significant number of Participating Restaurants entering into
commitment agreements as discussed below. The impact of the commitment
agreements in effect at September 30, 1995 upon restaurant renewal rates is not
yet known.
The Company has also entered into six to 12 month commitment agreements
with certain Participating Restaurants. The commitment agreements establish a
minimum time period of participation by the restaurant in the event that the
initial credits purchased by the Company from the restaurant are exhausted prior
to the expiration of the commitment period. The commitment agreements provide
that during the course of the commitment once the initial credits have been
exhausted the Participating Restaurant will continue in the program and the
Company will purchase additional Rights to Receive as Cardholder charges are
submitted. At September 30, 1995 there were 423 Participating Restaurants which
had entered into commitment agreements.
The Company's working capital increased to approximately $5,210,000 at
September 30, 1995 from $5,126,000 at December 31, 1994. The $84,000 increase
was primarily due to the Company's net profit for the nine month period ended
September 30, 1995.
The Company's cash balances were approximately $2,698,000 and
$2,674,000 at September 30, 1995 and December 31, 1994, respectively. The
Company's current ratio at September 30, 1995 was 11.4:1 and its debt to net
worth was approximately .1:1.
Cash flow provided by operating activities during the nine month period
ended September 30, 1995 was $43,478 compared with cash used by operating
activities of $1,936,729 during the nine month period ended September 30, 1994.
During the nine month period ended September 30, 1995 cash generated from
Cardholder restaurant spending net of franchise fees was approximately
$7,711,000 and interest income was approximately $109,000. Operating
expenditures during the nine month period ended September 30, 1995 consisted of
approximately $5,976,000 paid to purchase Rights to Receive and $1,799,000 paid
to suppliers and employees. During the nine month period ended September 30,
1994 cash generated from Cardholder restaurant spending net of franchise fees
was approximately $4,524,000 and interest income was approximately $35,000.
Operating expenditures during the nine month period ending September 30, 1994
consisted of approximately $4,953,000 paid to purchase Rights to Receive and
$1,540,000 paid to suppliers and employees.
Cash flow used by investing activities during the nine month period
ended September 30, 1995 was $18,501 compared with $62,107 during the nine month
period ended September 30, 1994. Cash flow used by investing activities was
primarily for the purchase of office furniture and equipment.
Cash flow used in financing activities during the nine month period
ended September 30, 1995 was $1,559 for the payment of capital lease
obligations. Net cash flow provided by financing activities during the nine
month period ended September 30, 1994 was $8,704 consisting of cash proceeds of
$13,375 from the exercise of stock options which was partially offset by $4,671
of cash used for the payment of capital lease obligations.
In December 1994, the Company completed the 1994 Unit Offer of 800,000
Units at a price per unit of $3.00. Each unit consists of one share of Common
Stock and one Warrant to purchase a share of Common Stock at an exercise price
of $4.00 per share on or prior to June 24, 1996. After payment of fees, and
commissions associated with the Unit Offer, net proceeds to the Company
aggregated approximately $2,138,000. The Units were offered to, and subscribed
for by, the holders of 800,000 outstanding warrants, who exercised those
warrants in acquiring the Units.
-11-
<PAGE>
The Company intends to continue expanding its operations during the
next 3 months and on a long-term basis in the San Francisco Bay Area, the Los
Angeles Metropolitan Area, and in Orange County. The Company has begun expansion
into the Lake Tahoe market and also plans additional expansion into the States
of Washington and Oregon. The Company plans to begin operations in San Diego and
Seattle in 1996. The Company's initial obligation to begin operations under its
Washington Franchises commences in April 1996 and under its Oregon Franchise in
April 1997.
The Company believes that cash on hand at September 30, 1995 and cash
flows from operations will be sufficient to fund the Company's planned
operations through at least December 31, 1996. The Company generated a net
profit for the nine month period ended September 30, 1995 and each of the three
month periods ended March 31, 1995, December 31, 1994, and September 30, 1994.
Additionally, the Company generated positive cash flow from operations of
approximately $43,000 during the nine month period ended September 30, 1995.
On a long-term basis, the Company anticipates cash flow from operations
as a result of increased usage of the Restaurant Card through expansion of the
number of Participating Restaurants and Cardholders. To accomplish this result,
the Company actively continues to recruit new California Cardholders, recruit
new Participating Restaurants that will accept the Restaurant Card and incur
advertising and promotion and marketing costs in this connection. The Company
also anticipates that additional California Cardholders will be recruited as a
result of National Cardholder programs to be conducted by Network. Network
reports that for its fiscal year ended September 30, 1994, between fifty-five
and sixty (55-60%) percent of all Cardholders renewed their memberships.
The Company presently has outstanding 2,052,987 warrants exercisable at
$4.00 per share. The warrants expire June 24, 1996. The level of long term
expansion in California, Washington, and in Oregon may be dependent upon
additional capital raised by the exercise in 1995 and 1996 of the Company's
Warrants. No assurance can be given, however, that the Company will raise
additional capital from the exercise of its Warrants or obtain additional
financing. The Company presently has no other unused internal sources of
liquidity other than cash (or equivalents) on hand and no external sources of
liquidity such as a line of credit from a financial institution.
The Company has not made any significant expenditures or capital
commitments other than such expenditures and commitments made under the
Franchise Agreement as discussed above. The Company does not anticipate making
any other significant expenditures or capital commitments in the foreseeable
future.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly
impact its business nor does it believe that its business is seasonal.
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports:
(a) Exhibits
11 Computation of Earnings Per Common Share.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during
the quarter ended September 30, 1995.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTERN TRANSMEDIA COMPANY, INC.
Date: November 10, 1995 /s/ Stuart M. Pellman
------------------------------------
Stuart M. Pellman President, Chief
Executive Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
-13-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
11 Computation of Earnings Per Common Share.
27 Financial Data Schedule
-14-
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------- ------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $65,331 $(406,684) $(32,498) $80,916
======= ========== ========= =========
SHARES:
Weighted average number of 7,957,957 7,052,605 7,924,339 7,062,688
common shares outstanding
Assumed conversions of stock options 12,051 -- 35,000 --
--------- ---------- --------- ---------
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING 7,970,008 7,052,605 7,959,339 7,062,688
========= ========= ========= =========
PRIMARY EARNINGS (LOSS) PER
COMMON SHARE:
Continuing operations $ .01 $ (.06) $ - $.01
======== ========= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the third quarter ended September 30, 1995
and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,697,827
<SECURITIES> 0
<RECEIVABLES> 3,117,611
<ALLOWANCES> 234,034
<INVENTORY> 0
<CURRENT-ASSETS> 5,710,057
<PP&E> 144,314
<DEPRECIATION> 45,659
<TOTAL-ASSETS> 6,280,487
<CURRENT-LIABILITIES> 500,024
<BONDS> 0
<COMMON> 4,742,053
0
0
<OTHER-SE> 1,035,234
<TOTAL-LIABILITY-AND-EQUITY> 6,280,487
<SALES> 8,896,966
<TOTAL-REVENUES> 8,896,966
<CGS> 5,926,102
<TOTAL-COSTS> 8,939,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,039
<INCOME-PRETAX> 65,331
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,331
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
