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, 1996
--------------
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
--------
THE WESTERN TRANSMEDIA COMPANY, INC.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 April 29, 1996
there were outstanding 7,903,421 shares of the Registrant's Common Stock, $.60
par value.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE(S)
<S> <C> <C>
PART 1. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1996 (unaudited)
and December 31, 1995 3.
Consolidated Statements of Operations - Three Months Ended
March 31, 1996 and 1995 (unaudited) 4.
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 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 16P.
</TABLE>
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash (including interest bearing deposits) $ 2,659,584 $ 3,040,620
Accounts receivable 125,536 134,544
Rights to receive - net of reserve for unrealizable rights to receive of
$318,864 and $294,415 at March 31, 1996 and December 31, 1995,
respectively (Note 2) 3,278,824 2,321,626
Prepaid expenses and other current assets 118,765 133,590
------------- ------------
TOTAL CURRENT ASSETS 6,182,709 5,630,380
------------- ------------
PROPERTY AND EQUIPMENT - NET 103,352 109,376
------------ ------------
OTHER ASSETS:
Franchise agreement - net of accumulated amortization of $103,500 and $95,600
at March 31, 1996 and December 31,
1995, respectively 447,500 455,400
Security deposits 8,865 8,820
-------------- -------------
456,365 464,220
------------- ------------
TOTAL ASSETS $ 6,742,426 $ 6,203,976
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive (Note 2) $ 916,178 $ 365,941
Accrued liabilities 73,406 96,681
Capitalized lease obligations - current portion 3,019 2,854
-------------- --------------
TOTAL CURRENT LIABILITIES 992,603 465,476
------------- -------------
LONG-TERM DEBT:
Capitalized lease obligations 14,782 15,602
-------------- --------------
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 authorized; 7,903,421
shares issued and outstanding as of March 31, 1996 and December 31,
1995, respectively 4,742,053 4,742,053
Additional paid-in capital 5,542,062 5,542,062
Retained earnings (deficit) (4,549,074) (4,561,217)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 5,735,041 5,722,898
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,742,426 $ 6,203,976
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
NET SALES $2,591,458 $3,260,927
COST OF SALES 1,713,600 2,174,076
----------- -----------
GROSS PROFIT 877,858 1,086,851
----------- -----------
EXPENSES AND OTHER (INCOME):
Franchise costs 359,225 454,224
Operating expenses 540,830 553,029
Interest expense 981 488
Interest income (35,321) (33,447)
----------- -----------
865,715 974,294
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 12,143 112,557
PROVISION FOR INCOME TAXES (NOTE 3) - -
----------- -----------
NET INCOME $ 12,143 $ 112,557
=========== ===========
EARNINGS PER COMMON SHARE (NOTE 4) $ - $ .01
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (NOTE 4) 7,950,803 7,980,930
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------------
1996 1995
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder restaurant spending $ 2,600,564 $ 3,317,493
Cash paid for franchise fees (360,927) (462,025)
Cash paid for rights to receive (2,164,476) (2,232,359)
Cash paid to suppliers and employees (488,712) (678,630)
Interest received 35,321 33,447
Interest paid (982) (488)
----------- -----------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES (379,212) (22,562)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,125) (16,002)
Security deposits (45) (959)
----------- -----------
NET CASH (UTILIZED) BY INVESTING ACTIVITIES (1,170) (16,961)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (654) (483)
----------- -----------
NET CASH (UTILIZED) BY FINANCING ACTIVITIES (654) (483)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (381,036) (40,006)
Cash and cash equivalents, at beginning of year 3,040,620 2,674,409
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,659,584 $ 2,634,403
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH
(UTILIZED) BY OPERATING ACTIVITIES:
Net income $ 12,143 $ 112,557
Adjustments to reconcile net income to net cash (utilized) by
operating activities:
Allowance for unrealizable rights to receive 52,038 43,963
Depreciation and amortization 15,048 12,571
Changes in assets and liabilities:
Decrease in accounts receivable 9,007 39,142
Decrease (increase) in rights to receive (1,009,235) 251,742
Decrease (increase) in prepaid expenses and other current assets 14,825 (63,634)
Increase (decrease) in accounts payable - rights to receive 550,238 (306,887)
(Decrease) in accrued expenses (23,276) (112,016)
----------- -----------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES $ (379,212) $ (22,562)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<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 March
31, 1996 and the results of its operations and cash flows for
the three month periods ended March 31, 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 month period ended
March 31, 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).
Rights to Receive are stated at cost which approximates 50% of
the retail value of Rights to Receive obtained. Rights to
Receive, as presented in the current asset section of the
Company's balance sheets, include both the funded and unfunded
portion. Accounts payable - Rights to Receive represents the
unfunded portion. 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 cardmember's charges at such restaurants, net of
the 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.
-6-
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - DESCRIPTION OF THE COMPANY (CONTINUED):
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
Transmedia 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 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. The amount of net sales during the three
month period ended March 31, 1996 attributable to Transmedia
restaurant charges in participating restaurants by cardholders
who have enrolled in the 20% program was not significant.
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 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.
-7-
<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 placements
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. See "Recent
Developments" for additional discussion regarding the 20% Program and new
national cardholder programs to be developed by Network.
The Transmedia Card may also be used to charge other services,
including hotel rooms, recreational, telephone and other miscellaneous services
(see "Recent Developments.") 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.
-8-
<PAGE>
RECENT DEVELOPMENTS
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. 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.
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 these 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
Transmedia 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 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. The amount of net sales during the three
month period ended March 31, 1996 attributable to Transmedia restaurant charges
in Participating Restaurants by Cardholders who have enrolled in the 20% Program
was not significant.
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.
As mentioned above, in fiscal 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.
-9-
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED
TO THE THREE MONTHS ENDED MARCH 31, 1995
Net sales for the three month period ended March 31, 1996 were
$2,591,458. This was a decrease of $669,469 as compared to $3,260,927 in net
sales during the three month period ended March 31, 1995. Sales for the quarter
ended March 31, 1996 were negatively impacted by a decrease in the average
restaurant spending per Cardholder, which the Company attributes to general
weakness in restaurant sales and the economy in California as well as increasing
competition for other restaurant promotion programs that have been introduced
into the California market. The Company does not know what effect these factors
will have upon future short term earnings trends. However, the Company believes
that it will realize 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 into new
geographical areas including San Diego and Seattle, Washington.
The Company incurs franchise costs of approximately 14% of net sales.
Franchise costs were $359,225 and $454,224 for the three month periods ended
March 31, 1996 and 1995, respectively.
The Company operates with an approximate 33% gross profit margin from
net sales of Rights to Receive to Cardholders. The Company's net sales
contributed $877,858 and $1,086,851 in gross profit for the three month periods
ended March 31, 1996 and 1995, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $540,830 and $553,029 for the three month periods ended March 31,
1996 and 1995, respectively. Operating expenses as a percentage of net sales
increased to 20.9% for the three month period ended March 31, 1996 compared to
17.0% for the three month period ended March 31, 1995. The 3.9% increase in
operating expenses as a percentage of net sales is attributable to the primarily
fixed nature of the Company's operating expenses (overhead) while net sales
decreased, as discussed above.
For the three month period ended March 31, 1996, operating expenses
consisted primarily of salaries and payroll related expenses ($298,000),
professional and consulting fees ($32,000), rent and office expenses ($67,000),
the Company's reserve for unrealizable Rights to Receive ($52,000), advertising
and promotional expenses in connection with attracting and maintaining
California cardholders ($13,000 net of Transmedia Network reimbursement), and
marketing expenses in connection with attracting and maintaining participating
California restaurants ($46,000).
For the three month period ended March 31, 1995, operating expenses
consisted primarily of salaries and payroll related expenses ($323,000),
professional and consulting fees ($34,000), rent and office expenses ($62,000),
the Company's reserve for unrealizable Rights to Receive ($44,000), 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 ($51,000).
Interest income was $35,321 and $33,447 for the three month periods
ending March 31, 1996 and 1995, respectively.
-10-
<PAGE>
For the three month period ended March 31, 1996, the Company generated
a net profit of $12,143 or $.00 per share compared to a net profit of $112,557
or $.01 per share for the three month period ended March 31, 1996. The decrease
of $100,414 was primarily attributable to the lower gross profit (net of
franchise fees) corresponding to the decrease in net sales experienced by the
Company.
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 March 31, 1996
there was an aggregate 538 Participating Restaurants consisting of 248 in the
San Francisco Bay Area and 233 in the Los Angeles Metropolitan Area and 57 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 March 31, 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, Los
Angeles Metropolitan area, and Orange County area of approximately $5,000,
$5,500, and $2,500, respectively. 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
is 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.
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
-11-
<PAGE>
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 March 31, 1996 and December 31, 1995 there were 436 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. The long term impact of
the commitment agreements with Participating Restaurants upon restaurant renewal
rates and rights to receive balances is not yet known.
The Company's working capital was approximately $5,190,000 at March 31,
1996 and $5,165,000 at December 31, 1995. The approximately $25,000 increase is
primarily attributable to the Company's net income for the three month period
ended March 31, 1996 adjusted for depreciation and amortization expense.
The Company's cash balances were approximately $2,600,000 and
$3,041,000 at March 31, 1996 and December 31, 1995, respectively. The
approximately $381,000 decrease is primarily attributable to the Company's
payment for additional Rights to Receive partially offset by the Company's net
income for the three month period ended March 31, 1996. The Company's funded
Rights to Receive balance (Rights to Receive less Rights to Receive payable)
increased by approximately $431,000 during the three month period ended March
31, 1996. This compared to an approximately $40,000 decrease in cash during the
three month period ended March 31, 1995 when the increase in the Company's
funded Rights to Receive balance was not significant. Additionally, during this
period the cash generated by operations from the Company's higher net profit was
utilized by the payment of accrued professional fees related to the Company's
December 1994 Unit Offer.
The Company's current ratio at March 31, 1996 was 6.2:1 and its debt to
net worth was approximately .2:1.
Cash flow used in operating activities for the three month period ended
March 31, 1996 was $379,212. During the three month period ended March 31, 1996
cash generated from cardholder restaurant spending net of franchise fees was
approximately $2,240,000 and interest income was approximately $35,000.
Operating expenditures during the three month period ending March 31, 1996
consisted of approximately $2,164,000 paid to purchase Rights to Receive and
$489,000 paid to suppliers and employees.
Cash flow used in operating activities for the three month period ended
March 31, 1995 was $22,562. During the three month period ended March 31, 1995
cash generated from cardholder restaurant spending net of franchise fees was
approximately $2,855,000 and interest income was approximately $33,000.
Operating expenditures during the three month period ending March 31, 1995
consisted of approximately $2,232,000 paid to purchase Rights to Receive and
$679,000 paid to suppliers and employees.
Cash flow used in investing activities for the three month period ended
March 31, 1996 was $1,170 compared with cash flow used in investing activities
$16,961 in the three month period ending March 31, 1995. Cash flow used by
investing activities was primarily for the purchase of office furniture and
equipment.
-12-
<PAGE>
Cash flow used in financing activities for the three month period ended
March 31, 1996 was $654 compared with cash flow used in financing activities of
$483 in the three month period ended March 31, 1995. Cash flow used by financing
activities was for the payment of capital lease obligations.
The Company intends to continue expanding its operations during the
next 9 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 and Carmel/Monterey Bay markets and also plans additional
expansion into the San Diego market and the States of Washington and Oregon. The
Company's initial obligation to being operations under its Washington Franchise
commences December 31, 1996 and under its Oregon Franchise in April 1997.
The Company generated a net profit 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
cash flow from operations of approximately $392,000 during the year ended
December 31, 1995.
The Company believes that cash on hand at March 31, 1996 will be
sufficient to fund the Company's planned operations at least through December
31, 1996.
On a long-term basis, the Company anticipates cash flow from operations
as a result of increased usage of the Transmedia Card through expansion of the
number of Participating Restaurants and Cardholders. To accomplish this result,
the Company actively continues to 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 "New
Developments" 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.
The Company presently has outstanding 2,052,987 warrants exercisable at
$4.00 per share. The warrants expire December 31, 1997. The level of long term
expansion in California, Washington and Oregon may be dependent upon additional
capital raised by the exercise in 1996 and 1997 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 or otherwise 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.
-13-
<PAGE>
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 6. Exhibits and Reports:
(a) Exhibits
11 Computation of Earnings Per Common Share.
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 14, 1996, the Company filed a Report on Form
8-K reporting under Item 5 thereof that on March 7,
1996, the Company's Board of Directors voted to
extend the expiration date of the Company's Common
Stock Purchase Warrants, which were due to expire on
June 24, 1996, until 5:00 P.M. (New York time) on
December 31, 1997.
-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: May 7, 1996 /S/ STUART 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.
THE WESTERN TRANSMEDIA COMPANY INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1996 1995
------------------- --------------
<S> <C> <C>
PRIMARY EARNINGS:
Income from continuing operations $ 12,143 $112,557
--------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 12,143 $112,557
========= ========
SHARES:
Weighted average number of common shares outstanding 7,903,421 7,868,421
Assumed conversions of stock options 47,382 112,509
---------- ----------
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING 7,950,803 7,980,930
========= =========
PRIMARY EARNINGS PER COMMON SHARE:
Continuing operations $ - $.01
===== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
condensed consolidated financial statements for the three months ended March 31,
1996 and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,659,584
<SECURITIES> 0
<RECEIVABLES> 3,723,224
<ALLOWANCES> 318,864
<INVENTORY> 0
<CURRENT-ASSETS> 6,182,709
<PP&E> 161,994
<DEPRECIATION> 58,642
<TOTAL-ASSETS> 6,742,426
<CURRENT-LIABILITIES> 992,603
<BONDS> 0
0
0
<COMMON> 4,742,053
<OTHER-SE> 992,988
<TOTAL-LIABILITY-AND-EQUITY> 6,742,426
<SALES> 2,591,458
<TOTAL-REVENUES> 2,591,458
<CGS> 1,713,600
<TOTAL-COSTS> 900,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 981
<INCOME-PRETAX> 12,143
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,143
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
