SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
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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
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
September 30, 1996 there were outstanding 7,903,421 shares of the issuer's
Common Stock, $.60 par value.
<PAGE>
INDEX
Page(s)
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PART 1. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
(unaudited) and December 31, 1995 3.
Consolidated Statements of Operations - Nine and Three Months
Ended September 30, 1996 and 1995 (unaudited) 4.
Consolidated Statements of Cash Flows - Nine Months Ended
September 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 9.
SIGNATURES 17.
EXHIBITS:
Exhibit 11 - Computation of Earnings
Exhibit 27 - Financial Data Schedule
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash (including interest bearing deposits) $ 2,575,692 $ 3,040,620
Accounts receivable 126,734 134,544
Rights to receive - net of allowances for doubtful amounts of $365,959 and
$294,415 (Note 2) 2,705,356 2,321,626
Prepaid expenses and other current assets 79,914 133,590
------------ ------------
TOTAL CURRENT ASSETS 5,487,696 5,630,380
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PROPERTY AND EQUIPMENT - NET 89,032 109,376
------------ ------------
OTHER ASSETS:
Franchise agreements - net of accumulated amortization of
$119,300 and $95,600 (Note 2) 431,700 455,400
Security deposits and other assets 35,582 8,820
------------ ------------
467,282 464,220
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TOTAL ASSETS $ 6,044,010 $ 6,203,976
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive (Note 2) $ 349,306 $ 365,941
Accrued liabilities 138,276 96,681
Capitalized lease obligations - current portion 3,380 2,854
------------ ------------
TOTAL CURRENT LIABILITIES 490,962 465,476
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LONG-TERM DEBT:
Capitalized lease obligations 12,997 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 September 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) (4,744,064) (4,561,217)
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TOTAL SHAREHOLDERS' EQUITY 5,540,051 5,722,898
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,044,010 $ 6,203,976
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
--------------------------- ------------------------
1996 1995 1996 1995
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
NET SALES $7,378,409 $8,896,966 $2,268,517 $2,739,025
COST OF SALES 4,857,671 5,926,102 1,490,169 1,821,449
---------- ---------- ---------- ----------
GROSS PROFIT (Note 2) 2,520,738 2,970,864 778,348 917,576
---------- ---------- ---------- ----------
EXPENSES AND OTHER (INCOME):
Franchise costs 1,020,104 1,240,820 313,719 383,068
Operating expenses 1,783,411 1,772,789 664,244 603,723
Interest expense 2,829 1,039 904 308
Interest income (102,759) (109,115) (33,013) (37,025)
---------- ---------- ---------- ----------
2,703,585 2,905,533 945,854 950,074
--------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (182,847) 65,331 (167,506) (32,498)
Provision for income taxes (Note 3) - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (182,847) $ 65,331 $ (167,506) $ (32,498)
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
(Note 4) $(.02) $.01 $(.02) $ -
===== ==== ===== =======----
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 4) 7,949,505 7,970,008 7,948,421 7,959,339
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder restaurant spending $ 7,377,157 $ 8,962,778
Cash paid for franchise fees (1,020,565) (1,251,974)
Cash paid for rights to receive (5,421,635) (5,976,280)
Cash paid to suppliers and employees (1,468,166) (1,799,122)
Interest received 102,759 109,115
Interest paid (2,829) (1,039)
------------ ------------
Net cash (utilized) provided by operating activities (433,279) 43,478
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,125) (17,666)
Purchase of restaurant point of sale equipment (28,400) -
Security deposits (45) (835)
------------ ------------
Net cash (utilized) by investing activities (29,570) (18,501)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (2,079) (1,559)
------------ ------------
Net cash (utilized) by financing activities (2,079) (1,559)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (464,928) 23,418
Cash and cash equivalents, at beginning of year 3,040,620 2,674,409
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,575,692 $ 2,697,827
============ ============
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH (UTILIZED) PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ (182,847) $ 65,331
Adjustments to reconcile net income (loss) to net cash (utilized)
provided by operating activities:
Allowance for doubtful rights to receive 140,745 134,190
Depreciation and amortization 46,851 37,893
Changes in assets and liabilities:
Decrease in accounts receivable 7,810 52,878
(Increase) decrease in rights to receive (524,474) 347,514
Decrease (increase) in prepaid expenses and other current assets 53,676 (95,346)
(Decrease) in accounts payable - rights to receive (16,634) (390,002)
Increase (decrease) in accrued expenses 41,594 (108,980)
------------ ------------
Net cash (utilized) provided by operating activities $ (433,279) $ 43,478
============ ============
</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.
Page 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.
contain all adjustments necessary (consisting of normal recurring
accruals or adjustments only) to present fairly the Company's
financial position as of September 30, 1996 and the results of
its operations for the three and nine month periods ended
September 30, 1996 and 1995 and its cash flows for the nine month
periods ended September 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 nine month periods
ended September 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 it's 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 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, substantially all first year
membership fees in connection with marketing programs have been
waived.
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. 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.
Page 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 assurance, however, can be
given as to the number of cardholders residing in or outside
California who will enroll or convert to the 20% program.
Therefore, the Company is presently unable to predict the
long-term effect the 20% program will have upon total overall net
sales or gross profit. During the nine month period ended
September 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 - SALE OF ASSETS:
The Company and Network announced on July 15, 1996 that they had
entered into an agreement in principle under which Network will
repurchase all of the Company's Franchise covering the States of
California, Oregon, Washington and parts of Nevada. The
transaction, as negotiated subsequent to the agreement in
principle, is expected to be valued at approximately $7.2 million
in cash, which, in addition to the Franchise, would include the
purchase of the Company's Rights to Receive. The parties have
also agreed to eliminate the 800,000 Network warrants exercisable
at $15.00 per share originally proposed to be issued in the
transaction. The Company will retain its cash and cash
equivalents, which amount to approximately $2,576,000 at
September 30, 1996. The
Page 7.
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - SALE OF ASSETS (Continued):
transaction, which is subject to shareholder approval, is
expected to be completed in late December 1996 or early January
1997. 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. Prior to
closing, the Company will continue to operate in the ordinary
course of business, but will suspend any further geographic
expansion.
Page 8.
<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 derives 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.
Commencing in 1996, substantially all programs initiated by Network to
obtain new cardholders utilize the 20% Program and Network has taken a leading
role to promote the Transmedia Card on a national basis utilizing arrangements
with large national organizations and businesses. Since January 1, 1996
substantially all new cardholders were enrolled in the 20% Program.
Page 9.
<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 these national programs.
Transmedia Card 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. The effect of the 20% program
upon the Company's gross profit during the three and nine month periods ended
September 30, 1996 is discussed in "Results of Operations." The Company's own
1996 activities directed to obtaining new cardholders residing in California
were reduced as a result of the national programs of Network discussed above.
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.
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, as negotiated subsequent to the agreement in
principle, is expected to be valued at approximately $7.2 million in cash,
which, in addition to the Franchise, would include the purchase of the Company's
Rights to Receive. The parties have also agreed to eliminate the 800,000 Network
warrants exercisable at $15.00 per share originally proposed to be issued in the
transaction. The Company will retain its cash and cash equivalents, which
amounted to approximately $2,576,000 at September 30, 1996. The transaction,
which is subject to shareholder approval, is expected to be completed in late
December 1996 or early January 1997. 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. At the present time, no
agreements, arrangements or understandings exist with respect to any such
acquisition or affiliation. Prior to closing, the Company will continue to
operate in the ordinary course of business, but has suspended any further
geographic expansion.
Page 10.
<PAGE>
Results of Operations
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the three and nine month periods ended September 30,
1996 were $2,268,517 and $7,378,409, respectively. This was a decrease of
$470,508 as compared to $2,739,025 in net sales during the three month period
ended September 30, 1995 and a decrease of $1,518,557 as compared to $8,896,966
in net sales during the nine month period ended September 30, 1995. Sales for
the three and nine month periods ended September 30, 1996 continued to be
negatively impacted by a decrease in the average restaurant spending per
Cardholder and by continued competition from other restaurant promotion programs
that have been introduced into the Califormia market. Since the beginning of
1996 substantially all new cardholders have been developed, primarily utilizing
telemarketing, under national 20% Programs by Network as discussed above in
"General". Although these programs have resulted in a significant increase in
Cardholders, the percentage of these cardholders who are active card users is
not as great as the percentage of active card users from 25% Program
Cardholders. The Company attributes the continued decrease in average restaurant
spending per cardholder to this fact as well as to continued competition.
The Company's net sales contributed $778,348 and $917,576 in gross
profit for the three month periods ended September 30, 1996 and 1995,
respectively, and $2,520,738 and $2,970,864 for the nine month periods ended
September 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 nine months ended September 30, 1996 compared
to 33% during the three and nine months ended September 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 $313,719 and $1,020,104 for the three and nine month
periods ended September 30, 1996 and $383,068 and $1,240,820 for the three and
nine month periods ended September 30, 1995, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $664,244 and $603,723 for the three month periods ended September 30,
1996 and 1995, respectively. Operating expenses (selling, general and
administrative expenses) aggregated $1,783,411 and $1,772,789 for the nine month
periods ended September 30, 1996 and 1995, respectively. The increase of $60,521
for the three month period ended September 30, 1996 compared to the
corresponding period ended September 30, 1995 is primarily attributable to an
increase in professional fees related to the Company's pending Franchise Sale to
Network and acquisition due diligence (see "Recent Developments"). Operating
expenses for the nine month period ended September 30, 1996 compared to the
corresponding period ended September 30, 1995 increased by only $10,622,
however, as the increase in professional fees related to the Company's pending
Page 11.
<PAGE>
Franchise Sale to Network and acquisition due diligence were offset by a
reduction in payroll and related expenses. Operating expenses as a percentage of
net sales increased to 29.3% for the three month period ended September 30, 1996
compared to 22.0% for the three month period ended September 30, 1995. Operating
expenses as a percentage of net sales increased to 24.2% for the nine month
period ended September 30, 1996 compared to 19.9% for the nine month period
ended September 30, 1995. The 7.3% and 4.3% increases, respectively, 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.
For the three month period ended September 30, 1996, operating expenses
consisted primarily of salaries and payroll related expenses ($282,000),
professional and consulting fees ($111,000) including approximately $56,000 in
professional fees related to the Company's pending Franchise Sale to Network and
acquisition due diligence, rent and office expenses ($70,000), the Company's
reserve for unrealizable Rights to Receive ($38,000), 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 ($78,000).
For the three month period ended September 30, 1995, operating expenses
consisted primarily of salaries and payroll related 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
marketing expenses in connection with attracting and maintaining participating
California restaurants ($78,000).
For the nine month period ended September 30, 1996, operating expenses
consisted primarily of salaries and payroll related expenses ($862,000),
professional and consulting fees ($139,000) including approximately $56,000 in
professional fees related to the Company's pending Franchise Sale to Network and
acquisition due diligence, 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 ($56,000, net of Transmedia Network reimbursement), and marketing
expenses in connection with attracting and maintaining participating California
restaurants ($179,000).
For the nine month period ended September 30, 1995, operating expenses
consisted primarily of salaries and payroll related 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 marketing expenses in connection with attracting and
maintaining participating California restaurants ($188,000).
Page 12.
<PAGE>
Interest income was $33,013 and $37,025 for the three month periods
ending September 30, 1996 and 1995, respectively and $102,759 and $109,115 for
the nine month periods ending September 30, 1996 and 1995, respectively.
For the three month period ended September 30, 1996, the Company
incurred a net loss of $167,506 or $.02 per share compared to a loss of $32,498
or $.00 per share for the three month period ended September 30, 1995. The
increased loss of $135,008 was primarily attributable to the lower gross profit
(net of franchise fees) resulting from the decrease in net sales experienced by
the Company, increased operating expenses (including professional fees related
to the Company's pending Franchise Sale to Network and acquisition due
diligence) and lower interest income. Excluding the professional fees related to
the Company's pending Franchise Sale to Network and acquisition due diligence,
the Company incurred a net loss of $111,135 or $.02 per share for the three
month period ended September 30, 1996.
For the nine month period ended September 30, 1996, the Company
incurred a net loss of $182,847 or $.02 per share compared to net income of
$65,331 or $.01 per share for the nine month period ended September 30, 1995.
The decrease in earnings of $248,178 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. Excluding the professional
fees related to the Company's pending Franchise Sale to Network and acquisition
due diligence, the Company incurred a net loss of $126,476 or $.02 per share for
the three month period ended September 30, 1996.
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 September 30, 1996
there was an aggregate 541 Participating Restaurants consisting of 231 in the
San Francisco Bay Area, 249 in the Los Angeles Metropolitan Area and 61 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
Page 13.
<PAGE>
57 in Orange County. At September 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, Los Angeles
Metropolitan area and the Orange County Area of approximately $5,800, $5,000 and
$2,400, 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
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.
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 September 30, 1996 and
December 31, 1995 there were 478 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 $ 4,997,000 and
$5,165,000 at September 30, 1996 and December 31, 1995, respectively.
Page 14.
<PAGE>
The Company's cash balances were approximately $2,576,000 and
$3,041,000 at September 30, 1996 and December 31, 1995, respectively. The
approximately $465,000 decrease is primarily attributable to the Company's
payments for additional Rights to Receive. The Company's funded Rights to
Receive balance (Rights to Receive less Rights to Receive payable) increased by
approximately $472,000 during the nine month period ended September 30, 1996.
This compared to an approximately $105,000 decrease in cash during the nine
month period ended September 30, 1995 when the cash generated by operations from
the Company's higher net profit was offset by the payment of accrued
professional fees associated with the Company's 1994 capital raising activities.
During the nine months ended September 30, 1995 the Company's funded rights to
receive balance changed only by approximately $26,000 and therefore did not have
a material effect upon the Company's cash position.
The Company's current ratio at September 30, 1996 was 11:1 and its
debt to net worth was approximately .1:1.
Cash flow used by operating activities for the nine month period
ended September 30, 1996 was $433,279. During the nine month period ended
September 30, 1996 cash generated from cardholder restaurant spending net of
franchise fees was approximately $6,357,000 and interest income was
approximately $103,000. Operating expenditures during the nine month period
ending September 30, 1996 consisted of approximately $5,422,000 paid to purchase
Rights to Receive and $1,468,000 paid to suppliers and employees.
Cash flow provided by operating activities for the nine month period
ended September 30, 1995 was $43,478. 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
ending September 30, 1995 consisted of approximately $5,976,000 paid to purchase
Rights to Receive and $1,799,000 paid to suppliers and employees.
Cash flow used in investing activities for the nine month period
ended September 30, 1996 was $29,570 compared with cash flow used in investing
activities of $18,501 in the nine month period ending September 30, 1995. Cash
flow used by investing activities was primarily for the purchase of restaurant
electronic point of sale ("POS") processing equipment during the nine months
ended September 30, 1996 and for the purchase of office furniture and equipment
during the nine months ended September 30, 1995. During the nine month period
ended September 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 such major credit card
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 nine month period ended
September 30, 1996 was $2,079 compared with cash flow used in financing
activities of $1,559 in the nine month
Page 15.
<PAGE>
period ended September 30, 1995. Cash flow used by financing activities was for
the payment of capital lease obligations.
The Company generated net losses of $167,506 and $182,847 for the
three and nine month periods ended September 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 September 30, 1996 will be
sufficient to fund the Company's planned activities at least through 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. The Company and
Network have agreed that prior to closing the Company will suspend any further
geographic expansion (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.
Page 16.
<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 18, 1996 /s/ Stuart M. Pellman
-------------------------------------------------
Stuart M. Pellman
President, Chief Executive Officer and Director
(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
Page 17.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
11 Computation of Earnings
27 Financial Data Schedule
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
-------------------------- ------------------------
1996 1995 1996 1995
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $(182,847) $ 65,331 $(167,506) $(32,498)
========= ========== ========= ========
SHARES:
Weighted average number of common shares
outstanding 7,903,421 7,957,957 7,903,421 7,924,339
Assumed conversions of stock options 46,084 12,051 45,000 35,000
--------- ---------- --------- ----------
TOTAL WEIGHTED AVERAGE SHARES
OUTSTANDING 7,949,505 7,970,008 7,948,421 7,959,339
========= -========= ========= =========
PRIMARY EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations $(.02) $.01 $(.02) $ -
===== ==== ===== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,575,692
<SECURITIES> 0
<RECEIVABLES> 3,198,049
<ALLOWANCES> 365,959
<INVENTORY> 0
<CURRENT-ASSETS> 5,487,696
<PP&E> 161,995
<DEPRECIATION> 72,963
<TOTAL-ASSETS> 6,044,010
<CURRENT-LIABILITIES> 490,962
<BONDS> 0
0
0
<COMMON> 4,742,053
<OTHER-SE> 797,998
<TOTAL-LIABILITY-AND-EQUITY> 6,044,010
<SALES> 7,378,409
<TOTAL-REVENUES> 7,378,409
<CGS> 4,857,671
<TOTAL-COSTS> 4,857,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 140,745
<INTEREST-EXPENSE> 2,829
<INCOME-PRETAX> (182,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (182,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (182,847)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
