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 June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organi- Number)
zation)
475 Sansome St., San Francisco, CA 94111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415) 397-3001
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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 August
8, 1996 there were outstanding 7,903,421 shares of the issuer's Common Stock,
$.60 par value.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC.
INDEX
Page(s)
PART 1. Financial Information 3.
ITEM 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996
(unaudited) and December 31, 1995 3.
Consolidated Statements of Operations - Six
and Three Months Ended June 30, 1996 and
1995 (unaudited) 4.
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 (unaudited) 5.
Notes to Interim Consolidated Financial Statements
(unaudited) 6.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8.
PART 2. Other Information 15.
SIGNATURES 16.
EXHIBITS:
Exhibit 11 - Earnings Per Share 18.
Exhibit 27 - Financial Data Schedule 19.
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<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash (including interest bearing deposits) $ 2,643,530 $ 3,040,620
Accounts receivable 146,825 134,544
Rights to receive - net of allowances for doubtful amounts of $363,288 and
$294,415 (Note 2) 2,732,299 2,321,626
Prepaid expenses and other current assets 94,390 133,590
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TOTAL CURRENT ASSETS 5,617,044 5,630,380
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PROPERTY AND EQUIPMENT - NET 96,192 109,376
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OTHER ASSETS:
Franchise agreements - net of accumulated amortization of
$111,400 and $95,600 (Note 2) 439,600 455,400
Security deposits and other assets 31,580 8,820
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471,180 464,220
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TOTAL ASSETS $ 6,184,416 $ 6,203,976
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive (Note 2) $ 379,756 $ 365,941
Accrued liabilities 79,994 96,681
Capitalized lease obligations - current portion 3,194 2,854
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TOTAL CURRENT LIABILITIES 462,944 465,476
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LONG-TERM DEBT:
Capitalized lease obligations 13,915 15,602
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COMMITMENTS AND CONTINGENCIES (Note 5)
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 authorized;
7,903,421 shares issued and outstanding as of June 30, 1996
and December 31, 1995 4,742,053 4,742,053
Additional paid-in capital 5,542,062 5,542,062
Retained earnings (deficit) (4,576,558) (4,561,217)
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TOTAL SHAREHOLDERS' EQUITY 5,707,557 5,722,898
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,184,416 $ 6,203,976
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months For the Three Months
Ended June 30, Ended June 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
NET SALES $5,109,892 $6,157,941 $2,518,434 $2,897,014
COST OF SALES 3,367,502 4,104,653 1,653,902 1,930,577
----------- ----------- ----------- -----------
GROSS PROFIT 1,742,390 2,053,288 864,532 966,437
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EXPENSES AND OTHER (INCOME):
Franchise costs 706,385 857,752 347,160 403,528
Operating expenses 1,119,167 1,169,066 578,337 616,037
Interest expense 1,925 731 944 243
Interest income (69,746) (72,090) (34,425) (38,643)
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1,757,731 1,955,459 892,016 981,165
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INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (15,341) 97,829 (27,484) (14,728)
Provision for income taxes (Note 3) - - - -
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NET INCOME (LOSS) $ (15,341) $ 97,829 $ (27,484) $ (14,728)
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
(Note 4) $ - $.01 $ - $ -
=========== ==== ============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 4) 7,930,819 7,975,752 7,931,007 7,975,647
============= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------------
1996 1995
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder restaurant spending $ 5,108,052 $ 6,251,115
Cash paid for franchise fees (706,782) (872,475)
Cash paid for rights to receive (3,889,106) (4,227,785)
Cash paid to suppliers and employees (951,457) (1,308,927)
Interest received 69,746 72,090
Interest paid (1,925) (731)
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Net cash (utilized) by operating activities (371,472) (86,713)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,125) (16,334)
Purchase of restaurant point of sale equipment (23,100) --
Security deposits (45) (835)
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Net cash (utilized) by investing activities (24,270) (17,169)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (1,348) (1,001)
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Net cash (utilized) by financing activities (1,348) (1,001)
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (397,090) (104,883)
Cash and cash equivalents, at beginning of year 3,040,620 2,674,409
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,643,530 $ 2,569,526
============= ==============
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH (UTILIZED) BY OPERATING ACTIVITIES:
Net income (loss) $ (15,341) $ 97,829
Adjustments to reconcile net income (loss) to net cash (utilized)
by operating activities:
Allowance for doubtful rights to receive 102,547 80,702
Depreciation and amortization 30,495 25,232
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (12,281) 74,745
(Increase) in rights to receive (513,220) (37,056)
Decrease (increase) in prepaid expenses and other current assets 39,200 (133,841)
(Decrease) increase in accounts payable - rights to receive 13,815 (86,311)
(Decrease) in accrued expenses (16,687) (108,013)
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Net cash (utilized) by operating activities $ (371,472) $ (86,713)
============= =============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
a) During the year ended December 31, 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.
The accompanying notes are an integral part of these financial statements.
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<PAGE>
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 June 30, 1996 and the
results of its operations for the three and six month periods
ended June 30, 1996 and 1995 and its cash flows for the six month
periods ended June 30, 1996 and 1995.
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, 1995, 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 three and six month periods
ended June 30, 1996 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 up to a 25% savings from listed menu prices when
dining at participating restaurants.
In December 1993, the Company exercised its option to acquire the
franchise to operate in the state of Washington. The Company also
acquired the franchise to operate in the city of Reno, Nevada and
the Nevada portion of the Lake Tahoe resort area. The Company
also exercised an option in June 1995 to operate in the state of
Oregon.
The Company derives its revenues from the difference between the
amount it pays to restaurants for the food and beverage credits
and cardmembers' charges at such restaurants, net of up to 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.
In January 1996, Network initiated a policy to offer both new and
existing cardholders an alternative to the traditional
arrangement of a 25% savings with an annual membership fee to a
new 20% program. The new program provides a 20% savings to
cardholders with no annual fee, as long as cardholder usage is at
least $200 during each membership year.
Transmedia restaurant charges in participating restaurants by
cardholders who have enrolled in the 20% program will result in
the receipt by the Company of net sales from each such
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<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - DESCRIPTION OF THE COMPANY (Continued):
individual transaction that are 5% greater than those received
under the traditional 25% savings arrangement. Accordingly, the
Company's gross profit from each such individual 20% Program
restaurant charge transaction will increase from approximately
33% to 37%. There will be no change with respect to the Company's
approximately 33% gross profit from individual Transmedia
restaurant charges by cardholders who remain enrolled in the
traditional 25% savings program. No assurance, however, can be
given as to the number of cardholders residing in or outside
California that will enroll or convert to the 20% program.
Therefore, the Company is presently unable to predict the effect
the 20% program will have upon total overall net sales or gross
profit. During the six month period ended June 30, 1996, the
Company's gross profit margin increased from approximately 33% to
approximately 34%, which is attributable to restaurant charges
under the 20% program.
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 in 1991, benefits from
the aforementioned loss carryforwards are not available to offset
future income. Since the change in type of business the Company
has generated losses aggregating approximately $1,730,000, which
are being carried forward to offset future taxable income.
NOTE 4 - EARNINGS 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 - SUBSEQUENT EVENT:
The Company and Network announced on July 15, 1996 that they had
entered into an agreement in principle under which Network will
repurchase the Company's Franchise covering the States of
California, Oregon, Washington and parts of Nevada. The
transaction is expected to be valued in excess of $8 million in
cash, which, in addition to the Franchise, would include the
purchase of the Company's Rights to Receive. The Company will
retain its cash and cash equivalents, which amounted to
approximately $2,644,000 at June 30, 1996. In addition to the
cash purchase price to be paid to the Company, Western
Transmedia's shareholders will receive a pro rata distribution of
800,000 Network three year common stock purchase warrants,
exercisable at $15 per share. The transaction, which is subject
to shareholder approval, is expected to be completed in October
1996. The cash proceeds from the transaction, along with its
existing cash, will be utilized by the Company for the
acquisition of, or affiliation with, other businesses. The
Company is in active, preliminary discussions and is pursuing due
diligence toward consummation of two possible acquisitions,
although at the present time no firm commitments have been
reached. Prior to closing, the Company will continue to operate
in the ordinary course of business, but will suspend any further
geographic expansion.
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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 Transmedia Card, a private
charge card developed, marketed and issued by Network, which entitles
cardholders to a savings of up to 25% 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 (i) to 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) to obtain additional holders of
the Transmedia 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 Transmedia 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.
In January 1996, Network initiated a policy to offer both new and
existing cardholders an alternative to the traditional arrangement of a 25%
savings with an annual membership fee of $50.00. The new program (the "20%
Program") provides a 20% savings to cardholders with no annual fee so long as
cardholder usage is at least $200 during each membership year.
Network has indicated that commencing in 1996, substantially all
programs to obtain new cardholders will utilize the 20% Program and that Network
will take a leading role to promote the Transmedia Card on a national basis
utilizing arrangements with large national organizations and businesses. The
Company believes that because of the portion of the overall U.S. population
residing in California, Network's national programs will result in the addition
of a meaningful number of new California Cardholders. The Company also believes
that a substantial number of new Cardholders residing in California will
initially enroll in the 20% Program and that an increasing number of existing
Cardholders in California will convert to the 20% Program.
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<PAGE>
All costs of such national programs will be borne by Network. No
commissions will be paid by Network to the Company with respect to new 20%
Program cardholders obtained from theses national programs.
Transmedia restaurant charges in Participating Restaurants by
Cardholders who have enrolled in the 20% Program will result in the receipt by
the Company of net sales from each such individual transaction that are 5%
greater than those received under the traditional 25% savings arrangement.
Accordingly, the Company's gross profit from each such individual 20% Program
restaurant charge transaction will increase from approximately 33% to 37%. There
will be no change with respect to the Company's approximately 33% gross profit
from individual Transmedia restaurant charges by Cardholders who remain enrolled
in the traditional 25% savings program. No assurances, however, can be given as
to the number of Cardholders residing in or outside California that will enroll
in or convert to the 20% Program. The effect of the 20% program upon the
Company's gross profit during the three and six month periods ended June 30,
1996 is discussed in "Results of Operations."
The Company anticipates that its own 1996 activities directed to obtain
new cardholders residing in California will be reduced as a result of the
national programs of Network discussed above. However, the Company intends to
continue soliciting new cardholders utilizing the 20% Program through programs
in California with organizations and businesses with significant memberships or
customers that will involve distribution of at least 50,000 applications per
program. With respect to these activities of the Company, the Company
anticipates that it will be reimbursed for its expenses by Transmedia for a
significant number of such programs.
In 1995, Network began to offer to Cardholders use of the Transmedia
Card at certain hotels, resorts, golf courses, ski lifts and access to discount
long distance telephone services. The Company's rights under the Franchise
Agreement relate only to Participating Restaurants in the Company's franchise
territory. The Company does not have any rights to participate in or derive any
income from these programs.
The Transmedia Card may also be used to charge other services,
including hotel rooms, recreational, telephone and other miscellaneous services.
The Company's rights under the Franchise Agreement relate only to Participating
Restaurants in the Company's Franchise Territory. The Company does not have any
rights to participate in or derive any income from these other services.
Recent Developments
The Company and Network announced on July 15, 1996 that they had
entered into an agreement in principle under which Network will repurchase the
Company's Franchise covering the States of California, Oregon, Washington and
parts of Nevada. The transaction is expected to be valued in excess of $8
million in cash, which, in addition to the Franchise, would include the purchase
of the Company's Rights to Receive. The Company will retain its cash and cash
equivalents, which amounted to approximately $2,644,000 at June 30, 1996. In
addition to the cash purchase price to be paid to the Company, Western
Transmedia's shareholders will receive a pro rata distribution of 800,000
Network 3-year common stock purchase warrants, exercisable at $15 per share. The
transaction, which is subject to shareholder approval, is expected to be
completed in October 1996. The cash proceeds from the transaction, along with
its existing cash, will be utilized by the Company for the acquisition of, or
affiliation with, other businesses. The Company is in active, preliminary
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<PAGE>
discussions and is pursuing due diligence toward consummation of two possible
acquisitions, although at the present time no firm commitments have been
reached. Prior to closing, the Company will continue to operate in the ordinary
course of business, but will suspend any further geographic expansion.
Results of Operations
Three and Six Months Ended June 30, 1996 Compared
to the Three and Six Months Ended June 30, 1995
Net sales for the three and six month periods ended June 30, 1996 were
$2,518,434 and $5,109,892, respectively. This was a decrease of $378,580 as
compared to $2,897,014 in net sales during the three month period ended June 30,
1995 and a decrease of $1,048,049 as compared to $6,157,941 in net sales during
the six month period ended June 30, 1995. Sales for the three and six months
periods ended June 30, 1996 continued to be 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 as well as continued general weakness in the economy in
California. The Company does not know what effect these factors will have upon
future short term earnings trends.
The Company's net sales contributed $864,532 and $966,437 in gross
profit for the three month periods ended June 30, 1996 and 1995, respectively,
and $1,742,390 and $2,053,288 for the six month periods ended June 30, 1996 and
1995, respectively. The Company operated with an approximate 34% gross profit
margin from net sales of Rights to Receive to Cardholders during the three and
six months ended June 30, 1996 compared to 33% during the three and six months
ended June 30, 1995. The approximate 1% increase in gross profit margin is
attributable to restaurant charges by Cardholders who have enrolled in the 20%
program (see "General").
The Company incurs franchise costs of approximately 14% of net sales.
Franchise costs were $347,160 and $706,385 for the three and six month periods
ended June 30, 1996 and $403,528 and $857,752 for the three and six month
periods ended June 30, 1995, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $578,337 and $616,037 for the three month periods ended June 30, 1996
and 1995, respectively. Operating expenses (selling, general and administrative
expenses) aggregated $1,119,167 and $1,169,066 for the six month periods ended
June 30, 1996 and 1995, respectively. The decreases of $37,700 and $49,899 for
the three and six month periods ended June 30, 1996 compared to the
corresponding periods ended June 30, 1995 are primarily attributable to a
reduction in payroll and related expenses. However, operating expenses as a
percentage of net sales increased to 23.0 % for the three month period ended
June 30, 1996 compared to 21.3% for the three month period ended June 30, 1995.
Operating expenses as a percentage of net sales increased to 21.9 % for the six
month period ended June 30, 1996 compared to 19.0% for the six month period
ended June 30, 1995. The 1.7 % and 2.9 % increases in operating expenses as a
percentage of net sales are attributable to the primarily fixed nature of the
Company's operating expenses (overhead) while net sales decreased, partially
offset by the payroll cost savings, as discussed above.
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<PAGE>
For the three month period ended June 30, 1996, operating expenses
consisted primarily of salaries and payroll related expenses ($282,000),
professional and consulting fees ($50,000), rent and office expenses ($64,000),
the Company's reserve for unrealizable Rights to Receive ($51,000), advertising
and promotional expenses in connection with attracting and maintaining
California cardholders ($18,000 net of Transmedia Network reimbursement), and
marketing expenses in connection with attracting and maintaining participating
California restaurants ($55,000).
For the three month period ended June 30, 1995, operating expenses
consisted primarily of salaries and payroll related expenses ($341,000),
professional and consulting fees ($59,000), rent and office expenses ($68,000),
the Company's reserve for unrealizable Rights to Receive ($37,000), advertising
and promotional expenses in connection with attracting and maintaining
California cardholders ($7,000, net of Transmedia Network reimbursement), and
marketing expenses in connection with attracting and maintaining participating
California restaurants ($59,000).
For the six month period ended June 30, 1996, operating expenses
consisted primarily of salaries and payroll related expenses ($580,000),
professional and consulting fees ($82,000), rent and office expenses ($131,000),
the Company's reserve for unrealizable Rights to Receive ($103,000), advertising
and promotional expenses in connection with attracting and maintaining
California cardholders ($31,000 net of Transmedia Network reimbursement), and
marketing expenses in connection with attracting and maintaining participating
California restaurants ($101,000).
For the six month period ended June 30, 1995, operating expenses
consisted primarily of salaries and payroll related expenses ($664,000),
professional and consulting fees ($92,000), rent and office expenses ($130,000),
the Company's reserve for unrealizable Rights to Receive ($81,000), advertising
and promotional expenses in connection with attracting and maintaining
California cardholders ($25,000, net of Transmedia Network reimbursement), and
marketing expenses in connection with attracting and maintaining participating
California restaurants ($110,000).
Interest income was $34,425 and $38,643 for the three month periods
ending June 30, 1996 and 1995, respectively and $69,746 and $72,090 for the six
month periods ending June 30, 1996 and 1995, respectively.
For the three month period ended June 30, 1996, the Company incurred a
net loss of $27,484 or $.00 per share compared to a loss of $14,728 or $.00 per
share for the three month period ended June 30, 1995. The increase in losses of
$12,756 was primarily attributable to the lower gross profit (net of franchise
fees) resulting from the decrease in net sales experienced by the Company and
lower interest income, partially offset by reduced operating expenses.
For the six month period ended June 30, 1996, the Company incurred a
net loss of $15,341 or $.00 per share compared to net income of $97,829 or $.00
per share for the six month period ended June 30, 1995. The decrease in earnings
of $113,170 was primarily attributable to the lower gross profit (net of
franchise fees) resulting from the decrease in net sales experienced by the
Company partially offset by reduced operating expenses.
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<PAGE>
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 and
restaurants 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 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 June 30, 1996,
there was an aggregate 521 Participating Restaurants consisting of 233 in the
San Francisco Bay Area, 235 in the Los Angeles Metropolitan Area and 53 in
Orange County. At December 31, 1995, there was an aggregate 553 Participating
Restaurants consisting of 265 in the San Francisco Bay Area, 231 in the Los
Angeles Metropolitan Area, and 57 in Orange County. At June 30, 1996, 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 $5,500 each, and approximately $2,500
for the Orange County area. At December 31, 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, the Los Angeles
Metropolitan area, and the Orange County area of approximately $4,250, $4,300,
and $2,200, respectively. It is the Company's experience that approximately 70%
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 and additionally 70% of all Participating Restaurants eligible for
their second renewal renew their contract. After the second renewal, renewal
rates drop sharply because the Participating Restaurants with the Company's help
have become successful and no longer wish to sell food and beverage credits at a
discount, the Company chooses not to renew the Participating Restaurant or the
Participating Restaurant has been sold or gone out of business. However,
offsetting this drop is the fact that new restaurants start-up as old ones go
out of business, providing the Company with new restaurant prospects.
The Company continues to actively recruit new Participating Restaurants
that will accept the Transmedia Card and incur advertising and promotion and
marketing costs in this connection. Through the year ended December 31, 1995,
the Company actively recruited new California Cardholders and also anticipates
that commencing in 1996 additional California Cardholders will be recruited as a
result of national Cardholder programs to be conducted by Network. See "General"
for additional discussion regarding new national Cardholder programs to be
developed by Network. Network reports that for its fiscal year ended September
30, 1995, between fifty-five and sixty (55-60%) percent of all Cardholders
renewed their memberships. At September 30, 1995, substantially all Cardholders
were enrolled in the 25% program. Since January 1, 1996, substantially all new
cardholders were enrolled in the 20% Program.
-12-
<PAGE>
During the year ended December 31, 1995, the Company began entering
into nine to twelve 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 June 30, 1996 and
December 31, 1995 there were 464 and 431 Participating Restaurants,
respectively, which had entered into commitment agreements. The Company believes
that the commitment agreements have had a positive effect upon restaurant
retention and cash flow and will have a continuing long term positive impact on
operations.
The Company's working capital was approximately $5,154,000 and
$5,165,000 at June 30, 1996 and December 31, 1995, respectively.
The Company's cash balances were approximately $2,644,000 and
$3,041,000 at June 30, 1996 and December 31, 1995, respectively. The
approximately $397,000 decrease is primarily attributable to the Company's
payment for additional Rights to Receive. The Company's funded Rights to Receive
balance (Rights to Receive less Rights to Receive payable) increased by
approximately $465,000 during the six month period ended June 30, 1996. This
compared to an approximately $105,000 decrease in cash during the six month
period ended June 30, 1995 when the increase in the Company's funded rights to
receive balance increased by approximately $98,000. Additionally, during the six
months ended June 30, 1995 cash generated by operations from the Company's
higher net profit was utilized by the payment of accrued professional fees
associated with the Company's 1994 capital raising activities.
The Company's current ratio at June 30, 1996 was 12.1:1 and its debt to
net worth was approximately .1:1.
Cash flow used in operating activities for the six month period ended
June 30, 1996 was $371,472. During the six month period ended June 30, 1996 cash
generated from cardholder restaurant spending net of franchise fees was
approximately $4,401,000 and interest income was approximately $70,000.
Operating expenditures during the six month period ending June 30, 1996
consisted of approximately $3,889,000 paid to purchase Rights to Receive and
$951,000 paid to suppliers and employees.
Cash flow used in operating activities for the six month period ended
June 30, 1995 was $86,713. During the six month period ended June 30, 1995 cash
generated from cardholder restaurant spending net of franchise fees was
approximately $5,379,000 and interest income was approximately $72,000.
Operating expenditures during the six month period ending June 30, 1995
consisted of approximately $4,228,000 paid to purchase Rights to Receive and
$1,309,000 paid to suppliers and employees.
Cash flow used in investing activities for the six month period ended
June 30, 1996 was $24,270 compared with cash flow used in investing activities
of $17,169 in the six month period ending June 30, 1995. Cash flow used by
investing activities was primarily for the purchase of restaurant electronic
point of sale ("POS") processing equipment during the six months ended June 30,
1996 and for the purchase of office furniture and equipment during the six
months ended June 30, 1995. During the six month period ended June 30, 1995 the
Company paid a monthly operating rental fee to a major credit card processor for
POS equipment provided to certain participating restaurants during the course of
the restaurant's participation. As of June 1996 the Company discontinued its
rental arrangement with the major credit card
-13-
<PAGE>
processor for new POS equipment and began to purchase from Network the POS
equipment that the Company provides to certain participating restaurants during
the course of the restaurant's participation.
Cash flow used in financing activities for the six month period ended
June 30, 1996 was $1,347 compared with cash flow used in financing activities of
$1,001 in the six month period ended June 30, 1995. Cash flow used by financing
activities was for the payment of capital lease obligations.
The Company generated modest net losses of $27,484 and $15,341 for the
three and six month periods ended June 30, 1996, respectively. However, the
Company generated net profits for the three months ended March 31, 1996, the
year ended December 31, 1995 and each of the three month periods ended December
31, 1994, and September 30, 1994. Additionally, the Company generated positive
cash flow from operations of approximately $392,000 during the year ended
December 31, 1995.
The Company believes that cash on hand at June 30, 1996 will be
sufficient to fund the Company's planned operations at least through December
31, 1996.
The Company presently has outstanding 2,052,987 warrants exercisable at
$4.00 per share. No assurance can be given, however, that the Company will raise
additional capital from the exercise of its Warrants. The warrants expire
December 31, 1997. 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 or otherwise from a financial institution.
The Company has not made any significant expenditures or firm capital
commitments other than such expenditures and commitments made under the
Franchise Agreement as discussed above. However, the Company and Network
announced July 15, 1996 that they had entered into an agreement in principle
under which Network will repurchase the Company's Franchise and the cash
proceeds from the transaction, along with its existing cash, will be utilized
for the acquisition of, or affiliation with, other businesses (see "Recent
Developments").
Inflation and Seasonality
The Company does not anticipate that inflation will significantly
impact its business nor does it believe that its business is seasonal.
-14-
<PAGE>
PART II: OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held June 13, 1996.
(b) All of the management nominees, as listed in the Proxy
Statement, were elected. There was no solicitation in
opposition to the management's nominees.
(c) Matters voted on at the meeting and the number of votes cast
were as follows:
(1) Directors
<TABLE>
<CAPTION>
Total Vote For Each Total Vote Withheld From
Nominee Each Nominee
--------------------------- ------------------------------
<S> <C> <C>
Richard O. Starbird 5,797,487 22,016
C. Scott Bartlett, Jr. 5,797,487 22,016
Howard Grafman 5,797,487 22,016
</TABLE>
(2) Ratification of the appointment of Lazar, Levine &
Company LLP as independent auditors of the Company
for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
For 5,757,585
Against 41,511
Abstaining 20,407
Broker Non-Votes 0
</TABLE>
ITEM 6. Exhibits and Reports:
(a) Exhibits
11 Computation of Earnings Per Common
Share.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports of Form 8-K were filed during the quarter
ended June 30, 1996.
-15-
<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: August 13, 1996 /s/ Stuart M. Pellman
---------------------
Stuart M. Pellman
President, Chief Executive Officer
and Director
(Principal Executive Officer,
Principal Financial Officer
and Principal Accounting Officer)
-16-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
11 Computation of Earnings Per Common Share. 18.
27 Financial Data Schedule 19.
-17-
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS: NET
INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ (15,341) $ 97,829 $ (27,484) $ (14,728)
========= =========== ========= =========
Weighted average number of common
shares outstanding 7,903,421 7,868,808 7,903,421 7,868,190
Assumed conversions of stock options 27,398 106,944 27,586 107,457
--------- --------- --------- ---------
TOTAL WEIGHTED AVERAGE
SHARES OUTSTANDING 7,930,819 7,975,752 7,931,007 7,975,647
========= ========= ========= =========
PRIMARY EARNINGS (LOSS) PER
COMMON SHARE:
Continuing operations $ -- $ .01 $ -- $ --
========== ============ =========== =======
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,643,530
<SECURITIES> 0
<RECEIVABLES> 3,242,412
<ALLOWANCES> 363,288
<INVENTORY> 0
<CURRENT-ASSETS> 5,617,044
<PP&E> 161,995
<DEPRECIATION> 65,803
<TOTAL-ASSETS> 6,184,416
<CURRENT-LIABILITIES> 462,944
<BONDS> 0
0
0
<COMMON> 4,742,053
<OTHER-SE> 965,504
<TOTAL-LIABILITY-AND-EQUITY> 6,184,416
<SALES> 5,109,892
<TOTAL-REVENUES> 5,109,892
<CGS> 3,367,502
<TOTAL-COSTS> 3,367,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,925
<INCOME-PRETAX> (15,341)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,341)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
