SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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 Street, 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.60 par value
Common Stock Purchase Warrants entitling holders to purchase one share
of Common Stock per Warrant prior to December 31, 1997
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 / /
(continued next page)
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of voting stock (Common Stock, $.60 par
value) held by non-affiliates of the Registrant as of March 1, 1996 was
approximately $10,011,483 (based on the mean between the closing bid and asked
prices of the Common Stock on such date), which value, solely for the purpose of
this calculation, excludes shares held by Registrant's executive officers and
directors. Such exclusion should not be deemed a determination by Registrant
that all such individuals are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At March 1, 1996,
there were outstanding 7,903,421 shares of the Registrant's Common Stock, $.60
par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement to be
filed not later than April 29, 1996 pursuant to Regulation 14A are incorporated
by reference in Items 10 through 13 of Part III of this Annual Report on Form
10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
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" from client
restaurants and other dining establishments located in California that accept a
charge card, "The Transmedia Card," and the sale of such Rights to Receive to
holders of The Transmedia Card ("Cardholders"). The Transmedia Card, a private
charge card marketed and issued by Network, which utilizes a diner's
MasterCard(R), Visa(R), American Express(R) or Discover(R) charge account to
bill Transmedia Card charges, is used by Cardholders to pay for food and
beverages when dining at restaurants or other dining establishments (the
"Participating Restaurants") that participate in the network of such
establishments that accept The Transmedia Card (the "Transmedia Network(R)").
Rights to Receive are the Company's rights to food and beverage credits of
Participating Restaurants that are purchased by the Company in exchange for cash
in an amount equal to approximately 50% of the retail value of such food and
beverage credits.
The Transmedia Network is a unified system that entitles Cardholders
recruited by Network, the Company or any other Network franchisee to a savings
of up to 25% on the regular menu prices of food and beverages charged on The
Transmedia Card. The Transmedia Card is accepted for payment with very few
restrictions by all Participating Restaurants. The only significant restriction
is that Cardholders must arrange reservations for parties of more than six
persons by contacting the Company. Participating Restaurants contacted by the
Company for purposes of making such reservations are free to accept or not
accept them.
The Company derives substantially all of its revenues from the excess
of the proceeds of Cardholders' charges on their Transmedia Cards incurred at
Participating Restaurants in the territory included within the Franchise (net of
the up to 25% Cardholder savings and of fees and other charges payable to
Network) over the Company's cost of purchasing Rights to Receive from
Participating Restaurants. Revenues from Cardholders' membership fees are not
expected to be significant as the Company will only receive 40% of initial
membership fees (and no portion of renewal fees) and, under arrangements with
Network, such initial fees are generally expected to be waived by the Company
during its early years of operations in connection with solicitations of members
of organizations with large enrolled memberships. (See "--
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Recent Developments" with respect to programs to provide no fee cards in the
future.)
The Company commenced its franchise operations in the San Francisco
Bay Area in August 1992, in the Los Angeles metropolitan area in October 1993,
in Orange County in January 1995, and in the Lake Tahoe Nevada area in October
1995. At December 31, 1995, there was an aggregate of 553 Participating
Restaurants, consisting of 265 in the San Francisco Bay Area (including Lake
Tahoe), 231 in the Los Angeles Metropolitan Area and 57 in Orange County. At
December 31, 1994, there was an aggregate of 519 Participating Restaurants,
consisting of 304 in the San Francisco Bay Area and 215 in the Los Angeles
Metropolitan 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, Los Angeles Metropolitan Area and
Orange County Area of approximately $4,250, $4,400, and $2,200, respectively. At
December 31, 1994, there was an average Rights to Receive balance (net of Rights
to Receive payable by the Company) per Participating Restaurant for the San
Francisco Bay Area and Los Angeles Metropolitan Area of approximately $4,000 and
$6,800, respectively. During 1995, the Company added 52,000 new Cardholders
residing in California. At December 31, 1995, there were approximately 82,000
Cardholders after giving effect to non- renewals during the year. At December
31, 1994, there were approximately 62,000 California Cardholders.
In addition to acquiring the California franchise, the Company
acquired options to operate Transmedia Network franchises in Oregon and
Washington upon payment of certain prescribed fees. In December 1993, the
Company exercised its option to operate the Transmedia Network franchise in
Washington and also agreed with Network to purchase a franchise in Reno, Nevada
and the Nevada portion of the Lake Tahoe resort area. In June 1995, the Company
exercised its option to obtain a Transmedia Network franchise for the State of
Oregon. As used herein, the term "Franchise Territory" means the States of
California, Oregon and Washington, and Reno and Lake Tahoe, Nevada.
In 1995, Network began to offer to holders of The Transmedia Card use
of the 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 Franchise
Territory. The Company does not now have any rights to participate in or derive
any income from these other services.
RIGHTS TO RECEIVE
The Company's primary business is the acquisition of Rights to Receive
from Participating Restaurants that it recruits to join the Transmedia Network
of dining establishments and the
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sale of such Rights to Receive to Cardholders. The Company derives substantially
all of its revenues from purchasing Rights to Receive from Participating
Restaurants operating in the Franchise Territory in exchange for cash in an
amount equal to approximately 50% of the retail value of the food and beverage
credits underlying such Rights to Receive and applying such Rights to Receive
against Cardholder charges made at Participating Restaurants operating in its
Franchise Territory. At December 31, 1995, no Participating Restaurant's Rights
to Receive balance represented more than 5% of the total Rights to Receive
outstanding at that date.
Before becoming a Participating Restaurant, and before the Company
will purchase Rights to Receive from it, a dining establishment's
creditworthiness is analyzed in relation to certain credit standards developed
by Network and the Company. These credit standards are based upon criteria
intended to evaluate the dining establishment's financial viability. As part of
its analysis of the creditworthiness of a prospective Participating Restaurant,
the owner of such restaurant is required to provide the Company with a list of
references for the dining establishment, including references from landlords,
banks and suppliers. The owner also is required to respond to a questionnaire
that requests detailed information about the dining establishment's business,
including hours of operation, seating capacity and types of beverages (beer,
wine and/or liquor) served. In addition, the premises of the dining
establishment are physically inspected by the Company's sales employees. Owners
of Participating Restaurants generally are required to provide a security
interest in the restaurant and a personal guaranty in support of the obligations
to the Company arising in respect of Rights to Receive purchased from the
Participating Restaurant.
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 pay for
Rights to Receive by financing the purchase of other services and goods required
by the Participating Restaurant, such as media placement services and restaurant
equipment utilized by the Participating Restaurant. As of December 31, 1995,
less than 2% of Rights to Receive purchased by the Company had been purchased
for consideration other than cash.
The Company enters into a contract (a "Restaurant Contract") with each
Participating Restaurant in its Franchise Territory in connection with its
purchase from it of Rights to Receive. At present, the typical Restaurant
Contract provides for the purchase by the Company of between $3,000 and $7,000
in Rights to Receive. Generally, such Rights to Receive are paid for by the
Company in installments during the initial two-to-three month period thereof.
Except as discussed below, the Company has no
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obligation to purchase Rights to Receive from a Participating Restaurant in
excess of the amounts initially provided for in the Restaurant Contract and
Participating Restaurants are under no obligation to sell Rights to Receive in
excess of such amounts. Although a Restaurant Contract provides that the Company
may utilize the Rights to Receive purchased by it during an indefinite period of
time, Rights to Receive are generally intended to be utilized by Cardholders
during a period of six to 12 months after the Restaurant Contract is entered
into by the parties.
Beginning in 1995, the Company has also entered into nine to 12 month
commitment agreements with certain Participating Restaurants. The commitment
agreements establish a minimum period of participation by the Participating
Restaurant in the event that the initial credits purchased by the Company from
the Participating 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 monthly as Cardholder charges are submitted. The amount of
additional Rights to Receive to be purchased under the commitment agreement is
determined with reference to the manner in which the initial Rights to Receive
were utilized. At December 31, 1995 there were 431 Participating Restaurants
that had entered into commitment agreements.
The Company believes that these commitment agreements had a positive
effect during 1995 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.
Although no assurance can be given, based upon the experience of
Network and its own experience, the Company believes that more than a majority
of Participating Restaurants will extend the Restaurant Contracts to provide for
the purchase by the Company of additional Rights to Receive. It is the Company's
experience that approximately 70% of all Participating Restaurants renew their
Rights to Receive after the initial amount of Rights to Receive purchased by the
Company from such Participating Restaurants are expended and that 70% of all
Participating Restaurants renew their Rights to Receive for a second time. After
the second renewal, renewal rates drop sharply because the Participating
Restaurants with the Company's help have become more successful and no longer
wish to sell Rights to Receive at a discount, the Company chooses not to renew
the Participating Restaurant or the Participating Restaurant has 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.
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Participating Restaurants are not under any restrictions in respect of
their use of the proceeds of their sale of Rights to Receive.
The Company solicits Participating Restaurants through full-time sales
employees. As of March 15, 1996, the Company employed nine such employees, one
of whom is the general manager of the Los Angeles office. The Company attracts
Participating Restaurants by offering to provide them with two essential needs:
increased liquidity in the form of cash payments and additional patrons. The
cash paid by the Company in exchange for Rights to Receive may serve to
supplement other sources of funds and financing available to the Participating
Restaurants. It may also constitute a source of funds that may be unavailable
from more conventional sources such as banks by reason of economic conditions or
the reluctance of such sources to lend to dining establishments. The potential
for new patrons will arise from the pool of Cardholders who will want to avail
themselves of the savings to be realized by dining at restaurants that accept
The Transmedia Card. It is essential that Network and the Company continue to
recruit a substantial body of Cardholders resident in the Franchise Territory,
because the Company believes that the use by non-resident Cardholders of Rights
to Receive purchased from Participating Restaurants in the Franchise Territory
has not been significant.
TRANSMEDIA CARD
The Transmedia Card is a private charge card that entitles Cardholders
to a savings of up to 25% on the regular menu price of food and beverages
purchased at any Participating Restaurant within the Transmedia Network.
Participating Restaurants solicited by the Company are located in the San
Francisco Bay Area, metropolitan Los Angeles and Orange County. Other
Participating Restaurants are at present located in the tri-state New York
metropolitan area (New York City, Connecticut and northern New Jersey), the
Chicago, Atlanta, Boston, Philadelphia and Detroit metropolitan areas, northern
Delaware, southern New Jersey, the Washington D.C./Baltimore metropolitan area,
southern Florida, North Carolina, South Carolina, Dallas/Ft. Worth and Houston
Texas, Georgia and Tennessee, and in Paris, France, England, Australia and New
Zealand. The Transmedia Card was developed and is issued and marketed by
Network.
Cardholders may use The Transmedia Card as they would any major credit
card. When paying the check at a Participating Restaurant, a Cardholder presents
The Transmedia Card in payment for the amount of goods and services received, as
well as for taxes and tips, and signs a Network credit card receipt for such
amount. Network, upon receiving the credit card receipt from the Participating
Restaurant, gives the Participating Restaurant a credit against the balance of
Rights to Receive that are held by
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the Company in respect of such Participating Restaurant. Network then arranges
for the processing of the receipt for the full amount of the charges through the
major credit card account (Visa, Mastercard, American Express or Discover)
designated by the Cardholder in his or her application (the "Major Credit Card
Account") and simultaneously issues a credit to the Cardholder's Major Credit
Card Account in an amount equal to the up to 25% savings on the appropriate food
and beverage charges. Taxes and tips are not eligible for the up to 25% savings.
Upon receipt by Network of payment from the Major Credit Card Account, it pays
the Participating Restaurant the taxes and tips incurred by the Cardholder,
deducts the fees and expenses payable to it under the Franchise Agreement and
remits the balance to the Company on a weekly basis.
The use of point of sale equipment to electronically process
Transmedia Card charges became available to the Company in 1995. As of March 1,
1996, approximately 161 of the Company's 553 Participating Restaurants utilized
this equipment. The Company plans to expand use of electronic processing in 1996
because the convenience and prestige associated with point of sale processing
enhances the Company's marketing position and because such processing
accelerates the Company's cash flow.
Network issues The Transmedia Card to Cardholders recruited by Network
and the Company on an expedited basis, without lengthy and time consuming credit
checks. The creditworthiness of a prospective Cardholder is determined by
Network primarily upon the basis of confirmation that the prospective Cardholder
holds a valid Visa, MasterCard, Discover, or American Express card or by other
means. The credit risk of a Cardholder's failure to pay charges incurred on an
Transmedia Card are borne by Network, because Network is obligated to remit
amounts due to the Company whether or not Cardholders pay their charges. An
initial membership fee of $50, which may be waived by the Company during the
first three years of the Franchise Agreement, is payable to Network by
Cardholders recruited by the Company. Thereafter, a $50 annual renewal fee is
charged by Network to such Cardholders. The Company receives no payments for
renewal fees paid by Cardholders. Network reports that for its fiscal year ended
September 30, 1995, between 55 and 60% of all Cardholders renewed their
memberships. At September 30, 1995, substantially all Cardholders were enrolled
in the 25% Program. (See "-- Recent Developments" for discussion of a new
cardholder program that eliminates any membership fee.)
Network maintains and updates at its own expense a directory of all
dining establishments that accept The Transmedia Card. Directories are provided
to all Cardholders by Network at its own expense approximately every six weeks.
The Company also provides to California Cardholders a newsletter on a quarterly
basis at the Company's expense.
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CARDHOLDER MARKETING
In 1995, the Company's Cardholder marketing and solicitation
activities were primarily coordinated by its President and Executive Vice
President. The Company's sales employees also engage in such activities to a
more limited extent. To date, the Company has marketed and solicited new
Cardholders from a wide variety of sources utilizing the basic marketing
programs developed by Network. In this connection, the Company initially
marketed to and solicited California affiliates of organizations, associations
and businesses with which Network has established marketing programs as well as
a substantial number of other organizations. The Company believes that it has
recruited most of its Cardholders as a result of direct solicitation of
businesses and organizations located in California that are not directly
affiliated with Network's existing programs. The Company's marketing program has
utilized direct written or mail solicitation of employees and members of
targeted businesses and organizations. Media advertising campaigns for
Cardholders have been limited. See "Recent Developments" for a discussion of new
national cardholder programs to be initiated by Network and their effect upon
the Company's marketing activities.
The Company commenced active franchise operations in the San Francisco
Bay Area in August 1992. During 1993, the Company focused its principal efforts
on recruiting restaurants and other dining establishments doing business in the
San Francisco Bay Area to join the Transmedia Network and on marketing The
Transmedia Card to prospective Cardholders. Initial franchise activities
concentrated primarily on establishing a base of restaurants in San Francisco as
a foundation for commencing programs to market The Transmedia Card to
prospective Cardholders. Active marketing efforts to solicit Cardholders
commenced in late 1992 and were directed primarily to professionals, investment
banking and real estate firms and various small and mid-sized businesses.
Marketing to larger businesses, banks, radio station listeners' clubs and
various non-profit organizations commenced in April 1993. Since May 1993, the
Company has initiated arrangements with the following businesses and
organizations in the San Francisco Bay Area to offer The Transmedia Card to
their respective customers, employees, listeners or members on an initial
membership fee waived basis: First Republic Bank, KKSF-FM Radio, United Jewish
Community Centers, California Society of Certified Public Accountants, the San
Francisco Medical Association, the Oakland Athletics, the San Francisco 49er's,
the San Francisco Ballet, Cellular One, The San Francisco Jazz Festival, and The
San Francisco Chronicle.
Active marketing efforts to solicit Cardholders in the Los Angeles
metropolitan area commenced in January 1994 and have followed the same marketing
strategy implemented by the Company in the San Francisco Bay Area. Cardholder
programs have been initiated through First Republic Bank, L.A. Magazine, the
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California Society of Certified Public Accountants, The Neil Bogart Foundation,
KABC Radio, the Los Angeles Medical Society, the Los Angeles Philharmonic,
Air-Touch Cellular and Hollywood Bowl. Active marketing efforts to solicit
Cardholders in Orange County commenced in mid-1995. Although the Company
believes that Network will actively promote national Cardholder programs and
that the Company will continue to have opportunities to enter into California
Cardholder programs with additional larger businesses and organizations in the
Franchise Territory in the future, no assurance can be given as to the number of
such additional programs or the number of additional Cardholders that will
result from the Company's or Network's Cardholder marketing programs (See "--
Recent Developments").
TRANSACTION ILLUSTRATION
The following is a descriptive illustration of a hypothetical
transaction in the Network system under the traditional 25% savings arrangement.
The Company, through its sales employee, recruits Restaurant A, a full
service restaurant operating in California, as a Participating Restaurant. The
Company purchases Rights to Receive valued at $6,000 from Restaurant A in
exchange for cash in the amount of $3,000. John Smith, a Transmedia Card
Cardholder, enjoys a meal at Restaurant A and pays the $100 check (consisting of
$80 for food and beverages and $20 for taxes and tip) with his Transmedia Card.
Mr. Smith does not have to present his Major Credit Card Account credit card.
Restaurant A delivers The Transmedia Card receipt for Mr. Smith's meal to
Network for processing through the Major Credit Card Account designated by Mr.
Smith in his Transmedia Card application for payment. Network reduces Restaurant
A's Rights to Receive balance by $80. Network submits a credit to Mr. Smith's
Major Credit Card Account in the amount of $20 (representing 25% of the $80 food
and beverage portion of his meal check). Upon receipt from Mr. Smith's Major
Credit Card Account company of $80, Network forwards $20 of this amount
(representing the tax and tip portion of Mr. Smith's meal check) to Restaurant A
and forwards $51.80 (representing the balance of $60 less the 10% service charge
of $8.00 and less a $.20 transaction charge retained by Network) to the Company.
This compares with a cost to the Company of $40 paid to Restaurant A for the
Rights to Receive of $80 utilized in providing Mr. Smith his meal.
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
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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,
including MBNA, United Airlines and Unocal. The Company believes that because of
the size of the overall U.S. population 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 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 can be given as to the number of Cardholders residing in
or outside California that will enroll in or convert to the 20% Program.
Therefore, the Company is presently unable to predict the magnitude of the
effect that the 20% Program will have upon its overall net sales or gross
profit.
The Company anticipates that its own 1996 activities directed to
obtaining new Cardholders in California will be reduced as a result of the
national programs of Network discussed above. However, the Company will continue
to solicit 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. The Company anticipates that it will be reimbursed for its expenses by
Network for a significant number of such programs.
In 1995, Network began to offer to holders of The Transmedia Card use
of the card at certain hotels, resorts, golf courses and ski lifts located
primarily on the East Coast, and
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access to discount long distance telephone services. The Company's rights under
the Franchise Agreement relate only to Participating Restaurants in the
Franchise Territory. The Company does not now have any rights to participate in
or derive any income from these other services.
In February 1996, the Company's obligation to begin operations under
its Washington Franchise was extended by mutual agreement with Network from
April to December 31, 1996.
On March 7, 1996, the Company's Board of Directors voted to extend the
expiration date of the Company's Common Stock Purchase Warrants. The Warrants,
which were due to expire on June 24, 1996, will now expire at 5:00 P.M. (New
York time) on December 31, 1997.
Each Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock, $.60 par value, at a price of $4.00 per share (subject
to adjustment as provided in the agreement under which the Warrants were
issued).
FRANCHISE AGREEMENT
General Terms. The Company entered into the Franchise Agreement with
Network on December 9, 1991. The Franchise Agreement provides that (i) the
Company, as franchisee, has the exclusive right to utilize the Transmedia
Network in the entire State of California with options for the States of Oregon
and Washington and (ii) the initial term of the Franchise Agreement is 10 years
ending December 2001 with an option exercisable by the Company to extend the
term, without additional initial fees arising solely from such extension, for
two additional successive 10-year periods, provided certain conditions are met.
In December 1993, the Company exercised its option for the State of Washington,
thereby extending its option for the State of Oregon until June 1995. In June
1995, the Company exercised its option for the State of Oregon. The Company also
agreed in December 1993 to purchase Transmedia Network franchises for Reno,
Nevada and the Nevada portion of the Lake Tahoe resort area. Except for the
territories described in this paragraph, Network has not granted the Company any
other territorial rights and the Company has no rights to sub-franchise or
license to third parties in the Franchise Territory.
Network does not have the right of first refusal to purchase the
business of the Company or any shares of the Company's equity, but Network's
consent is required in connection with the sale of the Company's business.
However, the Company may enter into business arrangements with third parties
pursuant to which said third parties may have rights to share in the Company's
profits from operating all or a part of the Franchise in the Franchise
Territory.
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No individual, whether a director, officer or stockholder, is liable
to Network for any obligation of the Company under the Franchise Agreement.
The President of the Company has agreed in the Franchise Agreement (i)
to devote his full time to the management and operations of the Company, and
(ii) not to compete with the business of the Company for a period of two years
immediately following his resignation or other termination of employment.
The Company has agreed during the initial term of the Franchise
Agreement and any renewal and for a period of two years thereafter that, without
Network's prior written approval, it will not directly or indirectly compete
with Network in providing discount dining or restaurant services or in
soliciting of a charge card for discount services and activities or promoting a
charge card or providing services the same as or similar to that sold, offered
or provided by Network. These restrictions apply within the Franchise Territory
and within a radius of 10 miles of the Franchise Territory or location of any
other business using the Transmedia Network system, whether franchised or owned
by Network.
Fees and Charges. Under the original terms of the Franchise Agreement,
the Company was required to pay Network the following fees and charges: (i)
$250,000 as an initial franchise fee (which has been paid); (ii) $250,000 as an
initial contribution to Network's advertising and development fund, of which
$125,000 has been paid and the remaining $125,000 is payable, without interest,
in 12 consecutive equal monthly payments commencing July 1993; and (iii) 150,000
shares of the Common Stock of the Company valued at $21,000, which have been
issued.
In September 1993, the Company and Network agreed that the Company
would pay for substantially all of its advertising in California and entered
into an agreement providing, effective as of September 30, 1993, for (i) a
refund to the Company of the remaining unused balance (approximately $55,000) of
the Company's previously advanced $145,000 initial contribution to Network's
advertising and development fund (which refund has been made) and (ii) the
termination of the Company's obligation to pay the remaining monthly
installments of such obligation (approximately $105,000). The Company believes
that the agreement to pay for substantially all of its advertising in California
will not result in a material increase or decrease in the Company's advertising
costs because the Company will be paying its own advertising directly, rather
than funding such advertising through Network. In 1995, Network reimbursed the
Company for substantially all expenses incurred in obtaining California
Cardholders.
In addition, the Company is obligated to pay to Network continuing
service charges as follows: (i) a general service charge equal to 7.5%, and an
advertising fee of 2.5%, of the total dollar
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amount of Rights to Receive meal credits used by Cardholders at Participating
Restaurants within the Franchise Territory; (ii) a monthly restaurant service
charge of $1.00 per Participating Restaurant located in the preceding month
within the Franchise Territory; and (iii) a processing charge equal to $.20 per
Cardholder transaction slip forwarded to Network by Participating Restaurants in
the Franchise Territory. Such charges are to be deducted by Network from funds
to be paid to the Company. Network has agreed that the general service charge
and the advertising fee shall not aggregate more than 11% during the first 10
year extension, if any, of the Franchise Agreement and shall not aggregate more
than 12% for the second such extension, if any.
The Company receives from Network an amount equal to 40% of the
initial fee paid by new Cardholders introduced by the Company; to date, amounts
received have not been significant. The Company receives no payments for renewal
fees of such Cardholders. Network agreed for the initial three year period of
the Franchise Agreement to make available to the Company an unlimited number of
Transmedia Cards, which the Company had the right to distribute on a
"complimentary," i.e., no initial fee basis or reduced initial fee basis.
Currently, the availability of an unlimited number of "complimentary" Transmedia
Cards for the Company to distribute continues on a year to year basis subject to
90 days prior written notice from either party. The Company has received from
Network a $5 fee for each complimentary Transmedia Card obtained by the Company.
(See "-- Recent Developments" for a discussion of the 20% Program, which
eliminates any membership fee.)
Under the Franchise Agreement, the Company purchased options to obtain
Transmedia Network franchises for the States of Oregon and/or Washington for
initial total franchise and advertising fees of $200,000 and $300,000,
respectively. In December 1993, the Company exercised its option for the State
of Washington and in June 1995, the Company exercised its option for the State
of Oregon. In connection with the exercise of such option and the Company's
assumption of certain advertising costs described above, the Company also agreed
with Network to provide for (i) a reduction in the Company's exercise price for
the Transmedia Network franchises in the States of Oregon and/or Washington to
$100,000 and $150,000, respectively, to reflect the Company's assumption of such
advertising obligations; (ii) the exercise of the Washington option by issuance
to Network of 50,000 shares of Common Stock (in lieu of the $150,000 exercise
price) and the exercise of the Oregon option by issuance to the Network of
35,000 shares of Common Stock (in lieu of the $100,000 exercise price); and
(iii) the acquisition of the right to operate the Transmedia Network franchise
in limited areas of Nevada by issuance to Network of 10,000 shares of Common
Stock. The Company is required to commence franchise operations in the State of
Washington, by December 31, 1996 and in the State of Oregon by April 1997.
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Network Obligations. Network is obligated under the Franchise
Agreement at its own expense to provide to the Company operations assistance
consisting of advice and guidance with respect to the following, among others
(i) purchase of marketing presentation packets, supplies, equipment and
materials; (ii) institution of proper administrative, bookkeeping, accounting,
supervisory and general operating procedures; (iii) marketing programs for both
Cardholder and restaurant acquisition; and (iv) employment by Network of
supervisors to visit the Company on a regular basis to provide assistance and
assess franchise performance. Network is responsible for any bad debt expenses
resulting from Cardholders' failure to pay their food and beverage bills and for
compiling and mailing restaurant directories and other Cardholder support
materials.
Network is also obligated at its cost to (i) conduct all monitoring
and tracking functions of Participating Restaurant accounts and Transmedia
Network franchise credit transactions and to forward sales tax and tip refunds
and monthly statements of Cardholder usage and Rights to Receive credit balances
directly to Participating Restaurants, and (ii) undertake all Cardholder
fulfillment and processing services and activities, including providing
Transmedia Card charge slips and restaurant contracts.
Termination. The Franchise Agreement may be terminated by Network if
any of the following, among other events, occurs: (i) the Company commits an
affirmative act of insolvency, or files any petition or action of insolvency, or
for the appointment of a receiver or trustee, or makes any assignment for the
benefit of creditors, or fails to vacate or dismiss within 60 days after filing
any such proceedings commenced against the Company by another; (ii) the Company
breaches its covenant not to compete; (iii) the Company fails or refuses to make
payments due to Network within 10 days of notice of such failure; (iv) the
Company fails to maintain specified minimum quota requirements for Cardholders,
Participating Restaurants and Participating Restaurant renewals; (v) the Company
attempts to sell, assign or otherwise transfer all or part of the Franchise or
equity interests in the Company other than in compliance with the Franchise
Agreement; or (vi) the Company fails or refuses to comply with certain terms of
the Franchise Agreement and fails to cure within 30 days after written notice.
The Franchise Agreement also provides, with certain exceptions, that
Network may terminate the Franchise Agreement in the event that any person or
entity becomes the beneficial owner of 30% or more of the Common Stock without
Network's prior written consent.
Under the Franchise Agreement, the determination of the breach of
certain material conditions and covenants that affect the right of Network and
the Company to terminate the Franchise
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Agreement and the right of the Company to renew the term of the Franchise
Agreement are subject to arbitration with the parties obligated to conduct
business in the ordinary course pending resolution of the matters submitted to
arbitration.
Quotas. Under the Franchise Agreement, the Company was required to
satisfy certain quotas for the recruitment and renewal of Participating
Restaurants and the recruitment of Cardholders in the Franchise Territory. The
Company met or exceeded all such quota requirements. In October 1994, Network
agreed with the Company to delete all such quota requirements from the Franchise
Agreement.
EMPLOYEES
As of March 15, 1996, the Company employed a total of 18 persons, one
of whom is the general manager of the Los Angeles office and one of whom is an
executive officer and director of the Company.
COMPETITION
The charge card business, including the restaurant charge card
business, is highly competitive and the Company competes for both Cardholders
and restaurants. Competitors include discount programs offered by major credit
card companies such as American Express(R), Visa, MasterCard and Diners Club(R),
other companies (including Dining a la Card(sm) and Entertainment(R)) that offer
different kinds of discount marketing programs and numerous smaller companies
that may compete with the services offered or to be offered by the Company.
Certain of the Company's competitors may have substantially greater financial,
personnel, technological, marketing and other resources than the Company and
expend considerably larger sums than does the Company. Further, the Company must
compete with many larger and better established companies for the hiring and
retention of qualified marketing and sales personnel. The Company believes that
the unique features of the Transmedia program - that The Transmedia Card can be
used by cardmembers at participating establishments with very few restrictions,
that The Transmedia Card provides substantial savings without the need for a
cardmember to present discount coupons when paying for a meal, and that
participating establishments are provided with cash in advance of customer
charges - contribute to the Company's competitiveness and allow the Company to
offer better value and service to Cardholders.
ITEM 2. PROPERTIES
The Company's principal executive and sales offices are located at 475
Sansome Street, San Francisco, California. These premises consist of
approximately 3,000 square feet of space leased until August 31, 1999. The
current annual base rental is
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approximately $55,200. The Company leases an additional executive office located
at 233 Wilshire Boulevard, Santa Monica, California. These premises consist of
approximately 2,000 square feet of space leased until February 1997 at a monthly
base rent of approximately $4,200. The Company has an option for an additional
two year period at a rental equal to fair market value. The Company leases
approximately 100 square feet of space at an executive suite in Costa Mesa in
Orange County at a cost of $640 per month. The Company believes that these
facilities are adequate and suitable for its current needs and for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company
is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
9 Not applicable.
------------------------------------
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company and their respective
ages and positions with the Company are as follows:
NAME AGE POSITION HELD
Stuart M. Pellman 54 President, Chief
Executive Officer,
Treasurer and Director
William J. Barrett 56 Director, Assistant
Treasurer and Secretary
STUART M. PELLMAN has served as President, Chief Executive Officer and
director of the Company since January 1992. From May 1989 until September 1991,
he was a corporate securities attorney with, and a member of, the San Francisco,
California law firm of Steefel, Levitt & Weiss. Prior thereto and since 1965, he
was engaged in the private practice of law in New York City. In 1979, he
co-founded the law firm of Slade & Pellman in New York City and was a member of
that firm until December 1988. Commencing in 1986, Mr. Pellman supervised Slade
& Pellman's representation as general counsel to Network. In his representation,
Mr. Pellman was actively involved in advising Network's executive management on
various legal issues. From January 1989 to April 1989, he was counsel to Slade &
Pellman.
WILLIAM J. BARRETT has served as a director of the Company since
January 1992 and as Secretary and Assistant Treasurer
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of the Company since August 1992. Mr. Barrett has been employed as a Senior Vice
President of Janney Montgomery Scott Inc., an investment banking firm, for more
than five years. Mr. Barrett is a director of the following publicly-held
corporations: Supreme Industries, Inc., a specialized truck body manufacturer,
Fredericks of Hollywood, Inc., an apparel marketing company, Shelter Components
Corporation, a distributor to the manufactured housing and recreation vehicle
industries and manufacturer of carpet and bathroom products, TGC Industries,
Inc., which provides geophysical services to the oil and gas industries and
manufactures and distributes specialty packaging products, and Esmor
Correctional Services, Inc., a manager of correctional facilities. Mr. Barrett
is Secretary and a director of Contempri Homes, Inc., a modular housing
manufacturer.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was traded in the over-the-counter market
in what is commonly referred to as the "pink sheets" or on the "OTC Bulletin
Board" of the National Association of Securities Dealers, Inc. under the symbol
"WTSM" from July 16, 1992 to December 22, 1993.
The Company's Common Stock has been traded on NASDAQ under the symbol
("WTSM") since December 23, 1993. The Company's Units are traded on NASDAQ under
the symbol ("WTSMU"). The Company's Warrants are traded on NASDAQ under the
symbol ("WTSMW").
The following table sets forth the high and low bid prices on the OTC
Bulletin Board and the high and low closing bid prices as reported on NASDAQ for
the Company's Common Stock during the quarters indicated. The prices reported
reflect inter-dealer quotations and may not represent actual transactions and do
not include retail mark-ups, mark-downs or commissions.
QUARTER ENDED HIGH LOW
March 31, 1994 ................................. 4.25 3.375
June 30, 1994................................... 3.625 2.50
September 30, 1994.............................. 4.25 3.25
December 31, 1994............................... 3.875 3.00
March 31, 1995.................................. 3.875 3.25
June 30, 1995................................... 3.75 2.75
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September 30, 1995.............................. 2.75 1.375
December 31, 1995............................... 2.50 1.00
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SELECTED INCOME STATEMENT
DATA:
<S> <C> <C> <C> <C> <C>
Net Sales...........................$11,368,903 $8,698,738 $926,852 $14,023 $ 0
Interest Income..................... 146,342 38,941 44,709 16,924 826
Net Income (Loss)................... 10,942 (280,994) (924,733) (741,882) (52,187)
Net Income (Loss) Per Common
Share*........................... $0.0 $(.04) $(.16) $(.24) $(.16)
SELECTED BALANCE SHEET DATA:
Total Assets........................ $6,203,976 $6,615,697 $4,017,551 $1,493,718 $145,250
Long Term Obligations............... 15,602 4,108 1,702 64,862 0
</TABLE>
- -----------------
*Based on a weighted average number of shares of Common Stock (as restated,
see Note 8(a) of Notes to Financial Statements) outstanding: 8,030,685,
7,072,754, 5,804,297, 3,123,659, and 326,159 shares, respectively, at December
31, 1995, 1994, 1993, 1992 and 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On December 9, 1991, the Company entered into the Franchise Agreement
with Network, which granted to the Company the exclusive right to operate 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 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 Restaurant Card in the Franchise Territory. The Company generally purchases
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its inventory of Rights to Receive directly from a Participating Restaurant
through cash payments to the Participating Restaurant in an amount equal to
approximately 50% of the dollar value of the Rights to Receive being purchased.
The Company may also purchase Rights to Receive by paying for other services and
goods utilized by the Participating Restaurant, such as media placement services
and restaurant equipment. The Company expects to derive substantially all of its
revenues from operations by purchasing Rights to Receive from Participating
Restaurants in its Franchise Territory and the sale of such Rights to Receive to
holders of the Restaurant Card.
In December 1993, the Company exercised its option to obtain a
Transmedia Network franchise for the State of Washington and agreed to purchase
a franchise for Reno, Nevada and the Nevada portion of the Lake Tahoe, Nevada
resort area in exchange for 50,000 and 10,000 shares of Common Stock,
respectively. These shares are valued by the Company at $150,000 and $30,000,
respectively. In June 1995, the Company exercised its option to obtain a
Transmedia Network franchise for the State of Oregon in exchange for 35,000
shares of Common Stock valued by the Company at $100,000.
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 Franchise Territory.
The Company does not now have any rights to participate in or derive any income
from these other services.
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared to Year
Ended December 31, 1994
Net sales for the year ended December 31, 1995 were $11,368,903. This
was an increase of $2,670,165, as compared to $8,698,738 in net sales during the
year ended December 31, 1994. Sales for the year ended December 31, 1995 were
negatively impacted by a decrease in the average restaurant spending per
Cardholder. The Company attributes the decrease in average restaurant spending
per Cardholder to general weakness in restaurant sales and the
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<PAGE>
economy in California as well as increasing competition from 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 (See "Recent Developments"). The Company began operating its
business under the Franchise Agreement in the San Francisco Bay Area in August
1992, in the Los Angeles Metropolitan area in November 1993 and in Orange County
in January 1995.
The Company operates with a gross profit margin from net sales of
Rights to Receive to Cardholders of approximately 33%. The Company's net sales
resulted in $3,792,589 and $2,891,229 in gross profit for the years ended
December 31, 1995 and 1994, respectively.
The Company incurs franchise costs of approximately 14% of net sales.
Franchise costs were $1,586,781 and $1,212,262 for the years ended December 31,
1995 and 1994, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $2,339,648 and $1,996,347 for the years ended December 31, 1995 and
1994, respectively. The net increase of $343,301 was primarily due to the fact
that the Company incurred additional salaries and associated payroll expenses
related to the operation of its business in San Francisco and Los Angeles during
the year ended December 31, 1995 and initiated active operations in Orange
County in January 1995. The Company incurred approximately $219,000 in
additional San Francisco and Los Angeles area salaries and associated payroll
expenses, primarily attributable to increased officers' and sales employee
compensation including certain bonus and commission arrangements, during the
year ended December 31, 1995 compared to the year ended December 31, 1994. The
Company also incurred operating expenses for the year ended December 31, 1995 of
approximately $131,000 related to the January 1995 initiation of its business in
Orange County. The Company did not operate in Orange County and therefore
incurred no such expenses in the year ended December 31, 1994.
For the year ended December 31, 1995, combined operating expenses
consisted primarily of salaries and associated payroll expenses ($1,239,000),
professional and consulting fees ($196,000), rent and office expenses
($262,000), the Company's reserve for unrealizable Rights to Receive ($194,000),
advertising and promotional expenses in connection
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<PAGE>
with attracting and maintaining California Cardholders ($51,000, net of
Transmedia Network reimbursement), and promotion and marketing expenses in
connection with attracting and maintaining Participating Restaurants in
California ($235,000).
Operating expenses as a percentage of net sales decreased to 20.6% for
the year ended December 31, 1995 compared to 22.9% for the year ended December
31, 1994. The 2.3% reduction in operating expenses as a percentage of net sales
is attributable to the primarily fixed nature of the Company's operating
expenses (overhead). As a result, the Company was able to experience an increase
in net sales to their present level in San Francisco and Los Angeles, without a
corresponding increase in operating expenses. However, as discussed above,
partially offsetting this effect were the expenses of initiating the Company's
Orange County office in January 1995 and certain increases in compensation
expense.
For the year ended December 31, 1994, combined operating expenses
consisted primarily of salaries and associated payroll expenses ($934,000),
professional and consulting fees ($191,000), rent and office expenses
($224,000), the Company's reserve for unrealizable Rights to Receive ($159,000),
advertising and promotional expenses in connection with attracting and
maintaining California Cardholders ($153,000 net of Transmedia Network
reimbursement), and marketing expenses in connection with attracting and
maintaining Participating Restaurants in California ($169,000).
Interest income was $146,342 and $38,941 for the years ended December
31, 1995 and 1994, respectively. Interest income increased in 1995 primarily
because of the interest earned on the approximately $2,138,000 net proceeds from
the Company's December 1994 Unit Offer referred to below.
For the year ended December 31, 1995, the Company earned a net profit
of $10,942 or $0.00 per share. For the year ended December 31, 1994, however,
the Company incurred a net loss of $280,994 or $.04 per share. The approximately
$292,000 increase in earnings was primarily due to the increased gross profit
for the period net of franchise costs and increased interest income, partially
offset by increased operating expenses (including Orange County expenses), as
described above.
Orange County operations resulted in a net loss of approximately
$108,000 for the year ended December 31, 1995. Without giving effect to the
Orange County losses, the Company would have generated a net profit of
approximately $119,000, or $.01 per share, for the year ended December 31, 1995.
Year Ended December 31, 1994 Compared to the Year
Ended December 31, 1993
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<PAGE>
Net sales for the year ended December 31, 1994 were $8,698,738. This
was an increase of $7,771,886, as compared to $926,852 in net sales during the
year ended December 31, 1993. The sales increase was primarily attributable to
the increasing number of Cardholders and Participating Restaurants available to
Cardholders as the Company continued to grow and expand operations. The Company
began operating its business under the Franchise Agreement in the San Francisco
Bay Area in August 1992 and in the Los Angeles Metropolitan area in November
1993.
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 $2,891,229 and $303,140 in gross profit for the years ended December
31, 1994 and 1993, respectively.
The Company incurs franchise costs of approximately 14% of net sales.
Franchise costs were $1,212,262 and $132,103 for the years ended December 31,
1994 and 1993, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $1,996,347 and $1,139,905 for the years ended December 31, 1994 and
1993, respectively. The total increase of $856,442 was primarily due to the fact
that the Company initiated active operations in the Los Angeles Metropolitan
area in November 1993. The Company incurred operating expenses of approximately
$800,000 related to its business in Southern California during twelve months of
operations for the year ended December 31, 1994, an increase of $657,000
compared with operating expenses of approximately $143,000 incurred during two
months of operations for the year ended December 31, 1993. The Company also
experienced increased operating expenses related to its San Francisco office of
approximately $139,000 for the year ended December 31, 1994, primarily due to
the increased size of the Company's San Francisco operations. Additionally,
during the year ended December 31, 1994, the Company incurred a nonrecurring
expense of $60,000 related to the settlement of a former employee claim.
For the year ended December 31, 1993, combined operating expenses
consisted primarily of salaries and payroll related expenses ($517,000),
professional and consulting fees ($184,000), rent and office expenses
($131,000), advertising and promotional expenses in connection with attracting
and maintaining California Cardholders ($107,000), and marketing expenses in
connection with attracting and maintaining Participating Restaurants in
California ($84,000).
Interest income was $38,941 and $44,709 for the years ended December
31, 1994 and 1993, respectively.
The Company incurred net losses of $280,994 or $.04 per share and
$924,733 or $.16 per share for the years ended December
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<PAGE>
31, 1994 and 1993, respectively. The approximately $644,000 reduction in the net
loss was primarily due to the increased gross profit, for the period ended
December 31, 1994 net of franchise costs partially offset by increased operating
expenses.
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,
including MBNA, United Airlines and Unocal. 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 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 can be given as to the number of Cardholders residing in
or outside California that will enroll in or convert to the 20% Program.
Therefore, the Company is presently unable to predict the magnitude of the
effect that the 20% Program will have upon overall net sales or gross profit.
The Company anticipates that its own 1996 activities directed to
obtaining new Cardholders in California will be reduced as a result of the
national programs of Network discussed above.
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However, the Company will continue to solicit 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. The Company anticipates that it will be
reimbursed for its expenses by Network for a significant number of such
programs.
As mentioned above, in 1995, Network began to offer to holders of The
Transmedia Card use of the 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 Franchise Territory. The Company does not have any rights to participate in
or derive any income from these programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced 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 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 December 31, 1995,
there was an aggregate of 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 December 31, 1994, there was an aggregate of 519 Participating
Restaurants, consisting of 304 in the San Francisco Bay Area and 215 in the Los
Angeles Metropolitan 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. At December 31, 1994, there was an average Rights to
Receive balance (net of Rights to Receive payable by the Company)
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per Participating Restaurant for the San Francisco Bay Area and Los Angeles
Metropolitan area of approximately $3,900 and $6,800, respectively. It is the
Company's experience that approximately 70% of all of the Participating
Restaurants listed in the Transmedia 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 that 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 more successful and no longer wish to sell Rights to Receive at a
discount, the Company chooses not to renew the Participating Restaurant or the
Participant Restaurant has 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 12 month commitment agreements with certain Participating
Restaurants. The commitment agreements establish a minimum time period of
participation by the restaurant in the event that the initial credits purchased
by the Company from the restaurant are exhausted prior to the expiration of the
commitment period. The commitment agreements provide that during the course of
the commitment once the initial credits have been exhausted, the Participating
Restaurant will continue in the program and the Company will purchase additional
Rights to Receive as Cardholder charges are submitted. At December 31, 1995,
there were 431 Participating Restaurants that had entered into commitment
agreements. The Company believes that these commitment agreements had a positive
effect in 1995 upon restaurant retention and the Company's 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 at December 31, 1995 and 1994 was
approximately $5,165,000 and $5,126,000, respectively.
The Company's cash balances were approximately $3,041,000 and
$2,674,000 at December 31, 1995 and 1994, respectively. The Company's current
ratio at December 31, 1995 was 12:1 and its debt to net worth was approximately
.1:1.
Cash flow provided by operating activities was $391,714 for the year
ended December 31, 1995, compared with cash used by operating activities of
$2,072,428 during the year ended December 31, 1994, and cash used by operating
activities of $1,172,937 in 1993. During the year ended December 31, 1995, cash
generated from Cardholder restaurant spending net of franchise fees was
approximately $9,800,000 and interest income was approximately $146,000.
Operating expenditures during the year ended December
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31, 1995 consisted of approximately $7,238,000 paid to purchase Rights to
Receive and $2,315,000 paid to suppliers and employees. During the year ended
December 31, 1994, cash generated from Cardholder restaurant spending net of
franchise fees was approximately $7,344,000 and interest income was
approximately $39,000. Operating expenditures during the year ended December 31,
1994 consisted of approximately $7,698,000 paid to purchase Rights to Receive
and $1,755,000 paid to suppliers and employees. During the year ended December
31, 1993, cash generated from Cardholder restaurant spending net of franchise
fees was approximately $792,000 and interest income was approximately $45,000.
Operating expenditures during the year ended December 31, 1993 consisted of
approximately $1,221,000 paid to purchase Rights to Receive and $787,000 paid to
suppliers and employees.
Cash flow used by investing activities for the year ended December 31,
1995 was $22,829, compared with $63,117 for the year ended December 31, 1994 and
$41,788 in 1993. Cash flow used by investing activities was primarily for the
purchase of office furniture and equipment.
Cash flow used by financing activities for the year ended December 31,
1995 was $2,674 for payment of capital lease obligations. Net cash flow provided
by financing activities during the year ended December 31, 1994 was $2,163,909,
compared with cash flow from financing activities of $3,042,487 in 1993. The
principal source of cash flow in this category during the years ended December
31, 1994 and 1993 was the net proceeds received from the issuance of common
stock and common stock purchase warrants. The Company did not undertake any new
equity capital raising activities during the year ended December 31, 1995.
In July 1993, the Company completed the 1993 Unit Private Placement of
1,764,624 units at a price per unit of $1.70. Each Unit consisted of one share
of Common Stock and one three-year Warrant to purchase a share of Common Stock
at an exercise price of $3.00 per share until December 1994 and $4.00 per share
thereafter. After payment of fees, commissions, and continuing professional fee
costs associated with the private placement, net proceeds to the Company
aggregated approximately $2,625,000.
In August 1993, the Company entered into an agreement with an
institutional investor to sell an additional 294,117 Units at $1.70 per Unit for
a total of $500,000. After payment of fees and commissions associated with the
institutional investor sale, net proceeds to the Company aggregated
approximately $463,000.
In December 1994, the Company completed the 1994 Unit Offer of 800,000
units at a price per unit of $3.00. Each unit consisted of one share of Common
Stock and one Warrant to purchase a share of Common Stock at an exercise price
of $4.00 per share on or prior to June 24, 1996. After payment of fees and
commissions
-25-
<PAGE>
associated with the unit Offer, net proceeds to the Company aggregated
approximately $2,138,000. The units were offered to and subscribed for by the
holders of 800,000 outstanding warrants, who exercised those warrants in
acquiring the units.
The Company intends to continue expanding its operations in the San
Francisco Bay Area, the Los Angeles Metropolitan Area and in Orange County. The
Company has begun expansion into the Lake Tahoe market and also plans additional
expansion into the States of Washington and Oregon. The Company plans to begin
operations in San Diego and Seattle in 1996. The Company's initial obligation to
begin operations under its Washington Franchise commences December 31, 1996 and
under its Oregon Franchise in April 1997.
The Company believes that cash on hand at December 31, 1995 and cash
flows from operations will be sufficient to fund the Company's planned
operations through at least December 31, 1996. The Company generated a net
profit for the year ended December 31, 1995 and each of the three month periods
ended March 31, 1995, December 31, 1994 and September 30, 1994. Additionally,
the Company generated positive cash flow from operations of approximately
$392,000 during the year ended December 31, 1995.
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 "-- Recent 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 55 and 60% 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 in Oregon may be dependent upon
additional capital raised by the exercise in 1996 or 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 from a financial institution.
-26-
<PAGE>
The Company has not made any significant expenditures or capital
commitments other than such expenditures and commitments made under the
Franchise Agreement as discussed above. The Company does not anticipate making
any other significant expenditures or capital commitments in the foreseeable
future.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly
impact its business, nor does it believe that its business is seasonal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included as part of Item 14 with this
Form 10-K.
ITEM 9. CHANGES IN AND DUSAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-27-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See Part I, Item 4. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than April 29, 1996
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934 ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than April
29, 1996 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than April
29, 1996 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than April
29, 1996 pursuant to Regulation 14A.
-28-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements: Page
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for
the Three Years in the Period ended
December 31, 1995 F-4
Consolidated Statement of Stockholders'
Equity for the Three Years in the Period
ended December 31, 1995 F-5
Consolidated Statements of Cash Flows for
the Three Years in the Period ended
December 31, 1995 F-6
Notes to Financial Statements F-7
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits
3.1 Amended Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 (the "1991 10- K").
3.2 Certificate of Amendment to Amended Certificate of
Incorporation, incorporated by reference to Exhibit 3(d)
to the Company's Registration Statement on Form S-1 (File
No. 33-44845) (the "1992 Form S-1").
3.3 Amended and Restated By-Laws of the Company, incorporated
by reference to Exhibit 3(b) to the Company's Registration
Statement on Form S-1 (File No. 33-84234) (the "1994 Form
S-1").
4.1 Form of Common Stock Certificate, incorporated by
reference to Exhibit 4(b) to the 1992 Form S-1.
-29-
<PAGE>
4.2 Form of Warrant Certificate, incorporated by reference to
Exhibit 4(b) to the 1994 S-1.
4.3 Warrant Agreement dated as of June 25, 1993, between the
Registrant and American Stock Transfer & Trust Company, as
Warrant Agent, incorporated by reference to Exhibit 4(c)
to the 1994 S-1.
4.4 Form of Amendment of Warrant Agreement, incorporated by
reference to Exhibit 4(d) to the 1994 S-1.
10.1 Franchise Agreement dated December 9, 1991 between TM West
Corp. and Network, as amended by Amendment dated December
9, 1991, incorporated by reference to Exhibit 10(a) to the
1992 Form S-1.
10.2 Employment Agreement dated as of October 1, 1991 between
the Company and Stuart M. Pellman, incorporated by
reference to Exhibit 10.4 to the 1991 10-K.
10.3 Amendment to Employment Agreement dated May 14, 1992
between the Company and Stuart M. Pellman, as further
amended by Amendment to Employment Agreement dated
September 21, 1993, incorporated by reference to Exhibit
10(r) to the Company's Registration Statement on Form S-1
(Registration No. 33-68884).
10.4 The Company's 1992 Stock Option Plan, incorporated by
reference to Exhibit 10(b) to the 1992 Form S-1.
10.5 Form of Indemnification Agreement between the Company and
its officers and directors, incorporated by reference to
Exhibit 10(d) to the 1992 Form S-1.
10.6 Amendment No. 2 dated April 1, 1992 to Franchise Agreement
between TM Corp. and Transmedia Network Inc., incorporated
by reference to Exhibit 10(j) to the 1992 Form S-1.
10.7 Amendment No. 3 dated as of May 1, 1992 to Franchise
Agreement between TM West Corp. and Transmedia Network
Inc., incorporated by reference to Exhibit 10(k) to the
1992 Form S-1.
10.8 Form of Registration Rights Agreement between the Company
and certain of the Company's stockholders, incorporated by
reference to Exhibit 10(l) to the 1992 Form S-1.
-30-
<PAGE>
10.9 Amendment No. 4 to Franchise Agreement between the Company
and Transmedia Network Inc., incorporated by reference to
Exhibit 10(j) to the 1992 Form S-1.
10.10 Lease dated December 1993 between West Coast Freeholds and
the Company, incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (the "1993 10-K").
10.11 Letter Agreement dated January 25, 1994 between the Company
and Transmedia Network Inc. relating to the Company's
exercise of its franchise option for the State of
Washington and portions of the State of Nevada,
incorporated by reference to Exhibit 10.10 to the 1993
10-K.
*11. Computation of earnings per share of Common Stock.
22. Subsidiaries of the Registrant, incorporated by reference
to Exhibit 22 to the 1991 10-K.
- -------------------------
*Filed herewith.
(d) Financial Statement Schedules: none
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 1996 /s/ Stuart M. Pellman
-----------------------------------
Stuart M. Pellman
President, Chief Executive Officer
and Director (Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stuart M. Pellman and William J. Barrett
his true and lawful attorney-in-fact, each acting alone, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 26, 1996 /s/ Stuart M. Pellman
-----------------------------------
Stuart M. Pellman
President, Chief Executive Officer
and Director (Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer)
-32-
<PAGE>
Date: March 26, 1996 /s/ William J. Barrett
-----------------------------------
William J. Barrett
Director
Date: March 26, 1996 /s/ C. Scott Bartlett, Jr.
-----------------------------------
C. Scott Bartlett, Jr.
Director
Date: March 26, 1996 /s/ Herbert M. Gardner
-----------------------------------
Herbert M. Gardner
Director
Date: March 26, 1996 /s/ Howard Graffman
-----------------------------------
Howard Grafman
Director
Date: March 26, 1996 /s/ Paulette Graffman
-----------------------------------
Paulette Grafman
Director
Date: March 26, 1996 /s/ Richard O. Starbird
-----------------------------------
Richard O. Starbird
Director
-33-
<PAGE>
EXHIBIT INDEX
EXHIBIT
-------
11. Computation of earnings per share of Common Stock
27. Financial Data Schedule
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
Independent Auditors' Report F - 2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 F - 3
Consolidated Statements of Operations for the Three Years in the
Period ended December 31, 1995 F - 4
Consolidated Statement of Shareholders' Equity for the Three Years
in the Period Ended December 31, 1995 F - 5
Consolidated Statements of Cash Flows for the Three Years in
the Period ended December 31, 1995 F - 6
Notes to Consolidated Financial Statements F - 8
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
The Western Transmedia Company, Inc.
San Francisco, California
We have audited the accompanying consolidated balance sheets of The Western
Transmedia Company, Inc., and subsidiary as of December 31, 1995 and 1994 and
the consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Western
Transmedia Company, Inc. and subsidiary as of December 31, 1995 and 1994 and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
LAZAR, LEVINE & COMPANY LLP
New York, New York
February 27, 1996
F - 2
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------ -----
<S> <C> <C>
CURRENT ASSETS:
Cash (including interest bearing deposits) (Note 2b) $ 3,040,620 $ 2,674,409
Accounts receivable (Note 2d) 134,544 149,240
Rights to receive - net of reserve for unrealizable
rights to receive (Notes 2b and 2e) 2,321,626 3,268,919
Prepaid expenses and other current assets 133,590 33,307
------------ ------------
TOTAL CURRENT ASSETS 5,630,380 6,125,875
PROPERTY AND EQUIPMENT - NET (Notes 2f, 3 and 6) 109,376 98,557
OTHER ASSETS (Notes 2g, 4 and 5) 464,220 391,265
------------ ------------
TOTAL ASSETS $ 6,203,976 $ 6,615,697
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive (Note 2e) $ 365,941 $ 778,564
Accrued liabilities 96,681 219,237
Capitalized lease obligations - current portion (Note 6) 2,854 1,832
------------- -------------
TOTAL CURRENT LIABILITIES 465,476 999,633
------------- -------------
LONG-TERM DEBT (Note 6) 15,602 4,108
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 10 and 11)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
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 and 7,868,421 issued and outstanding for
December 31, 1995 and 1994, respectively 4,742,053 4,721,053
Additional paid-in capital 5,542,062 5,463,062
Retained earnings (deficit) (4,561,217) (4,572,159)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 5,722,898 5,611,956
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,203,976 $ 6,615,697
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES (Note 2h) $11,368,903 $8,698,738 $ 926,852
COST OF SALES (Note 2h) 7,576,314 5,807,509 623,712
----------- ---------- -----------
GROSS PROFIT 3,792,589 2,891,229 303,140
----------- ---------- -----------
EXPENSES AND OTHER (INCOME):
Franchise costs 1,586,781 1,212,262 132,103
Operating expenses 2,339,648 1,996,347 1,139,905
Interest expense 1,560 2,555 574
Interest income (146,342) (38,941) (44,709)
----------- ---------- -----------
3,781,647 3,172,223 1,227,873
----------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 10,942 (280,994) (924,733)
PROVISION FOR INCOME TAXES (Note 2i) - - -
----------- ---------- -----------
NET INCOME (LOSS) $ 10,942 $ (280,994) $ (924,733)
=========== ========== ==========
INCOME (LOSS) PER COMMON SHARE
(Note 9) $ - $(.04) $(.16)
======== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Notes 7 and 9) 8,030,685 7,072,754 5,804,297
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Additional
(As Restated Common Paid-In
Notes 7a and 7b) Stock Capital
---------------- ----- ----------
<S> <C> <C> <C>
Balance at December 31, 1992 4,897,265 $2,938,359 $1,752,883
Net proceeds from sale of stock (Note 7c) 2,058,741 1,235,245 1,852,558
Common stock subscribed (Note 7c) - - -
Compensatory stock (Note 7c) 2,500 1,500 4,750
Exercise of stock options 1,666 999 1,916
Adjustment for fractional shares resulting from
reverse stock split (3) (2) 2
Net loss for the year ended December 31, 1993 - - -
---------- ---------- ----------
Balance at December 31, 1993 6,960,169 4,176,101 3,612,109
Shares issued in connection with exercise of franchise
option (Note 7c) 60,000 36,000 144,000
Shares issued re: employment agreement (Note 7c) 25,000 15,000 31,875
Exercise of stock options 17,500 10,500 2,875
Shares issued upon exercise of warrants in unit offering
(Note 7d) 800,000 480,000 1,658,393
Exercise of warrants (Note 7d) 5,754 3,452 13,810
Adjustment for fractional shares resulting from reverse
stock split (2) - -
Net loss for the year ended December 31, 1994 - - -
---------- ---------- ----------
Balance at December 31, 1994 7,868,421 4,721,053 5,463,062
Shares issued in connection with exercise of franchise
option (Note 7e) 35,000 21,000 79,000
Net income for the year ended December 31, 1995 - - -
---------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 7,903,421 $4,742,053 $5,542,062
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Retained Common Total
Earnings Stock Shareholders'
(Deficit) Subscribed Equity
--------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992 $(3,366,432) $ - $1,324,810
Net proceeds from sale of stock (Note 7c) - - 3,087,803
Common stock subscribed (Note 7c) - 226,875 226,875
Compensatory stock (Note 7c) - - 6,250
Exercise of stock options - - 2,915
Adjustment for fractional shares resulting from
reverse stock split - - -
Net loss for the year ended December 31, 1993 (924,733) - (924,733)
---------- ---------- ----------
Balance at December 31, 1993 (4,291,165) 226,875 3,723,920
Shares issued in connection with exercise of franchise
option (Note 7c) - (180,000) -
Shares issued re: employment agreement (Note 7c) - (46,875) -
Exercise of stock options - - 13,375
Shares issued upon exercise of warrants in unit offering
(Note 7d) - - 2,138,393
Exercise of warrants (Note 7d) - - 17,262
Adjustment for fractional shares resulting from reverse
stock split - - -
Net loss for the year ended December 31, 1994 (280,994) - (280,994)
---------- ---------- ----------
Balance at December 31, 1994 (4,572,159) - 5,611,956
Shares issued in connection with exercise of franchise
option (Note 7e) - - 100,000
Net income for the year ended December 31, 1995 10,942 - 10,942
----------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 $(4,561,217) $ - $5,722,898
============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 5
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for cardholder restaurant
spending $11,390,947 $ 8,533,074 $ 923,802
Cash paid for franchise fees (1,591,277) (1,188,947) (132,103)
Cash paid for rights to receive (7,237,918) (7,698,146) (1,221,362)
Cash paid to suppliers and employees (2,314,820) (1,754,795) (787,409)
Interest received 146,342 38,941 44,709
Interest paid (1,560) (2,555) (574)
----------- ------------ ------------
Net cash provided (utilized) by operating activities 391,714 (2,072,428) (1,172,937)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,024) (59,053) (17,583)
Security deposits (805) (4,064) (24,205)
----------- ------------ ------------
Net cash (utilized) by investing activities (22,829) (63,117) (41,788)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt - - (41,667)
Proceeds from exercise of stock options - 13,375 2,915
Proceeds from exercise of warrants - 17,262 -
Proceeds from sale of units - 2,400,000 3,499,860
Expenses associated with offering of stock and units - (261,607) (412,057)
Payments on capital lease obligations (2,674) (5,121) (6,564)
----------- ------------ ------------
Net cash (utilized) provided by financing activities (2,674) 2,163,909 3,042,487
----------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 366,211 28,364 1,827,762
Cash and cash equivalents, at beginning of year 2,674,409 2,646,045 818,283
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 3,040,620 $ 2,674,409 $ 2,646,045
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 6
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 2 of 2
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED (UTILIZED) BY OPERATING ACTIVITIES:
Net income (loss) $ 10,942 $ (280,994) $ (924,733)
Adjustments to reconcile net income (loss) to net cash
provided (utilized) by operating activities:
Depreciation and amortization 53,348 43,731 36,450
Reserve for unrealizable rights to receive 194,112 158,570 18,084
Compensatory stock - 53,125
Other 897 - -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 14,696 (143,021) (3,050)
Decrease (increase) in rights to receive 753,181 (2,564,153) (697,986)
(Increase) decrease in prepaid expenses and other current assets (100,283) 4,471 94,144
(Decrease) increase in accounts payable - rights to receive (412,624) 672,148 100,336
(Decrease) increase in accrued expenses (122,555) 36,820 150,693
----------- ------------ ------------
Net cash provided (utilized) by operating activities $ 391,714 $(2,072,428) $(1,172,937)
=========== ============ ============
</TABLE>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
a) During the year ended December 31, 1994, the Company acquired the
franchise rights for the states of Washington and Nevada in exchange for
an aggregate of 60,000 shares of common stock. These shares are valued by
the Company at $180,000.
b) During the year ended December 31, 1995, the Company acquired the
franchise rights for the state of Oregon in exchange for 35,000 shares of
its common stock. These shares are valued by the Company at $100,000.
c) During the years ended December 31, 1995 and 1994 the Company entered
into capitalized lease obligations aggregating $15,190 and $6,263,
respectively, for new office equipment.
The accompanying notes are an integral part of these consolidated financial
statements.
F - 7
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 1 - DESCRIPTION OF COMPANY:
The Western Transmedia Company, Inc. (formerly Vigilance Systems
Corp.), the "Company", was incorporated in the State of Delaware
on May 30, 1978.
In accordance with Statement of Financial Accounting Standards
No. 7, the Company was treated as a development stage company
from January 1, 1991, the date the Company began devoting
substantially all of its efforts towards establishing a new
business, through September 30, 1993. During this period, the
Company incurred a cumulative loss of $1,009,443.
In December 1991, the Company, through an exchange of stock,
acquired 100% of the shares of a newly formed affiliate, TM West
Corp. ("TM West"). This transaction was accounted for as the
reorganization of entities under common control which is
accounted for utilizing the pooling of interests method. TM West
had raised approximately $150,000 in a private offering of its
common stock in October 1991. In December 1991, TM West entered
into a franchise agreement with Transmedia Network Inc.
(Network). See also Note 5.
The franchise agreement (which was assigned by TM West to the
Company in May 1992) allows the Company to acquire rights to
receive goods and services from restaurants ("Rights to Receive"
- see Note 2e) which are then sold to the franchisors'
cardholders for cash. The Rights to Receive are primarily
purchased for cash or obtained in exchange for media advertising
and other services purchased by the Company on behalf of the
restaurants.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's financial statements are prepared in accordance
with generally accepted accounting principles (GAAP). Those
principles considered particularly significant are detailed
below. GAAP requires management to make estimates and
assumptions, if applicable, affecting the reported amounts of
assets, liabilities, revenues and expenses. Actual results could
differ from these estimates.
(a) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of The
Western Transmedia Company, Inc. and its wholly-owned subsidiary,
TM West, an inactive company. All material intercompany balances
and transactions have been eliminated.
F - 8
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued):
(b) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
investments and rights to receive.
The Company maintains significant cash investments, which exceed
the Federal depository insurance coverage limit, primarily with
one financial institution. The Company performs periodic reviews
of the relative credit rating of this institution as part of its
investment strategy.
Concentration with regards to rights to receive (see Note 2e
below) are limited due to the Company's large customer base.
However, at December 31, 1995 all of these rights to receive do
pertain to the restaurant industry.
(c) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(d) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
An allowance for doubtful accounts has not been established as of
December 31, 1995 and 1994, since accounts receivable as
reflected on the balance sheet consists entirely of cash
collected by and in transit from the franchisor (see Note 5).
(e) RIGHTS TO RECEIVE:
Rights to Receive (see Note 5) are composed primarily of food and
beverage credits due from restaurants. Rights to Receive are
stated at cost which approximates 50% of the retail value of
Rights to Receive obtained. Cost is determined by the first-in,
first-out method. Accounts payable - Rights to Receive represents
the unfunded portion of the total commitment.
The Company reviews the realizability of the Rights to Receive on
a periodic basis and writes-off those amounts receivable from
restaurants that have ceased operations or whose credits are not
utilized by the franchisors' cardholders. The analysis of rights
to receive is as follows:
F - 9
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued):
(e) RIGHTS TO RECEIVE:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------
Total Funded Unfunded
--------- ----------- --------
<S> <C> <C> <C>
Cost $2,616,041 $2,250,100 $365,941
Reserve for unrealizable rights to receive (294,415) (294,415) -
----------- ----------- --------
Net $2,321,626 $1,955,685 $365,941
=========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------
Total Funded Unfunded
--------- ----------- --------
<S> <C> <C> <C>
Cost $3,437,154 $2,658,590 $778,564
Reserve for unrealizable rights to receive (168,235) (168,235) -
----------- ----------- --------
Net $3,268,919 $2,490,355 $778,564
=========== =========== ========
</TABLE>
(f) PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation on
property and equipment is provided on a straight-line basis over
the estimated useful lives of the assets of 5 to 7 years.
Leasehold improvements are amortized over the term of the lease.
Maintenance and repairs are charged to operating expenses as
incurred; renewals and betterments are capitalized.
Depreciation expense for the years ended December 31, 1995, 1994
and 1993 aggregated $25,498, $16,631 and $9,350, respectively.
(g) AMORTIZATION:
The cost of the franchise rights acquired (see Note 5) is being
amortized on a straight-line basis through the end of the
franchise term. Amortization expense charged to operations for
the years ended December 31, 1995, 1994 and 1993 aggregated
$27,850, $27,100 and $27,100, respectively.
The costs of an advertising and promotion fund (see Note 5) were
being amortized on a straight-line basis over its contractual
life of two years. Effective September 30, 1993, the Company
entered into an agreement with Network whereby substantially all
local advertising expenses would be paid directly by the Company,
instead of through the advertising and promotional fund to which
the Company had contributed (see Note 5 regarding reimbursement).
F - 10
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued):
(h) NET SALES/COST OF SALES:
Net sales represent the retail value of the Rights to Receive
sold, less the 25% savings offered to the franchisors'
cardholders. A sale is recognized when the franchisor (see Note
5) receives a restaurant charge card receipt from a restaurant in
the Company's franchise area, indicating that a cardholder has
charged a meal. The cost of a sale consists of the actual cost of
rights to receive from a restaurant (see Note 2e above).
Revenues from card membership fees have not been material to date
and are not expected to become material since the Company has
waived substantially all first year membership fees. In addition,
the Company receives no portion of renewal fees. If these fees
become material, they will be reflected as deferred membership
fees and amortized over the period benefitted.
See also Note 5.
(i) 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 (see Note 5), benefits
from the aforementioned loss carryforwards are not available to
offset future income.
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires the use of the asset and liability approach of
providing for income taxes and required implementation no later
than for fiscal years beginning after December 15, 1992.
Effective January 1, 1993 the Company adopted the provisions of
SFAS 109. These provisions have not had a material impact on the
Company's financial statements.
The tax effects of the temporary differences that give rise to
deferred tax assets and liabilities at December 31, 1995 and 1994
are as follows:
December 31, December 31,
1995 1994
------------ -----------
Deferred tax assets:
Allowance for rights to receive $ 115,000 $ 65,000
Net operating loss carryforward 680,000 731,000
---------- ----------
795,000 796,000
Less valuation allowance (792,500) (793,000)
---------- ----------
Net deferred tax asset 2,500 3,000
Deferred tax liabilities:
Property and equipment (2,500) (3,000)
---------- -----------
Net deferred tax asset $ - $ -
========== ===========
F - 11
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued):
(i) INCOME TAXES (CONTINUED):
The Company has available at December 31, 1995 and 1994 unused
operating loss carryforwards of approximately $1,744,000 and
$1,881,000, respectively, which may be applied against future
taxable income expiring in various years through 2008. At an
assumed tax rate of 39%, these carryforwards and other items may
result in deferred tax assets of approximately $795,000 and
$796,000, respectively. Since there is no assurance that the
Company will generate future taxable income to utilize this
asset, a valuation allowance has been provided as of December 31,
1995 and 1994.
(j) RECLASSIFICATIONS:
Certain reclassifications were made to the 1994 and 1993
financial statements to conform to the current year's reporting
format.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
--------- --------
<S> <C> <C>
Furniture and fixtures $ 69,990 $ 68,592
Office equipment 89,594 56,771
Leasehold improvements 1,285 1,285
--------- ---------
160,869 126,648
Less: accumulated depreciation and amortization 51,493 28,091
--------- ---------
$109,376 $ 98,557
========= =========
</TABLE>
NOTE 4 - OTHER ASSETS:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- -----
<S> <C> <C>
Other assets consists of the following:
Franchise agreement - net of accumulated amortization of
$95,600 and $67,750 for 1995 and 1994, respectively
(Notes 2g and 5) $455,400 $383,250
Security deposits 8,820 8,015
-------- --------
$464,220 $391,265
======== =========
</TABLE>
F - 12
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 5 - FRANCHISE AGREEMENT:
TM West, a wholly-owned subsidiary of the Company (see Note 1),
was formed for the purpose of negotiating and entering into a
franchise agreement with Network. This franchise agreement was
executed in December, 1991, and assigned by TM West to the
Company in May 1992. The term of the franchise agreement is for
10 years with an option exercisable by the Company for two
additional successive 10 year periods, provided certain
conditions are met. In connection with this operation, the
Company changed its name to The Western Transmedia Company, Inc.
(see Note 1).
Under the initial franchise agreement, the Company acquired the
exclusive right to operate a franchise in the state of
California, the primary business of which is the acquisition of
"Rights to Receive" from restaurants located in California that
accept the Transmedia Card (a private charge card marketed and
issued by Network) and the sale of such Rights to Receive to
holders of the card who are then entitled to a 25% savings from
listed menu prices when dining at participating restaurants.
Restaurants that join the Transmedia program are provided with
two of their essential needs: advance financing and additional
diners. The Company purchases for cash, and in some instances,
prepaid advertising, from full service restaurants, food and
beverage credits (Rights to Receive) which are then used by card
members when patronizing such restaurants. Rights to Receive are
purchased in an amount equal to approximately 50% of the listed
menu prices of such food and beverage credits.
The Company derives its revenues from the difference between the
amount it pays to restaurants for the food and beverage credits
and the cardmember's charges at such restaurants net of the 25%
savings (exclusive of tip and applicable taxes) and franchise
fees payable to Network. The Company also receives 40% of the
Restaurant Card membership fee 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.
The franchise agreement to operate in California, provided for an
initial franchise fee of $250,000 (which was paid in July 1992)
as well as 150,000 shares of common stock of the Company (see
Note 7b), which shares were issued in January 1992. The franchise
agreement also provided for payments to Network's advertising and
promotion fund in the amount of $250,000; one-half of which was
paid with the initial franchise fee and the balance to be paid in
12 equal consecutive monthly installments, without interest,
commencing in July 1993. The funds for advertising and promotion
were to be used by Network for the exclusive benefit of the
Company during the two year period following the effective date
of the franchise agreement. Effective September 30, 1993 the
Company entered into an agreement with Network whereby
substantially all local advertising expenses would be paid
directly by the Company, instead of through the advertising and
promotional fund to which the Company had contributed. As a
result of this agreement, the Company's remaining obligation
under this note was terminated. In addition, Network reimbursed
the Company approximately $55,000 for the unused portion of the
fund contributed by the Company.
F - 13
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 5 - FRANCHISE AGREEMENT (Continued):
In December 1993, the Company exercised it's option to acquire
the franchise to operate in the state of Washington through the
issuance of 50,000 shares of common stock to Network valued by
the Company at $150,000. The Company also acquired the franchise
to operate in the City of Reno, Nevada and the Nevada portion of
the Lake Tahoe resort area by issuing 10,000 shares of common
stock to Network at a value of $30,000. The Company also
exercised an option in June, 1995 to operate in the state of
Oregon for an initial payment of $100,000. The Company issued
35,000 shares of its common stock to effect this payment.
For each of the franchises, the Company is also required to pay
Network a 7 1/2% general service charge and a 2 1/2% advertising
fee based on the gross dollar amount of food and beverage credits
used by cardmembers within each territory. The Company is also
required to pay a miscellaneous administrative fee based upon the
number of participating restaurants and charge card transactions
during any given month. Additionally, the Company is subject to a
non-compete agreement.
NOTE 6 - LONG-TERM DEBT:
The Company is the lessee of office and computer equipment
through leases which expire in years through 2000. The assets
(and liability) under these leases are recorded at the lower of
the present value of the minimum lease payments or the fair
market value of the asset. The assets are depreciated over their
estimated productive lives. Depreciation of assets under
capitalized leases, included in depreciation expense for the
years ended December 31, 1995 and 1994, aggregated $3,381 and
$2,914, respectively.
Minimum future lease payments under capitalized leases as of
December 31, 1995 and for each of the next five fiscal years and
in the aggregate are as follows:
1996 $ 6,544
1997 6,544
1998 5,583
1999 4,349
2000 6,324
--------
Total minimum lease payments 29,344
Less: amount representing interest 10,888
--------
$18,456
========
F - 14
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 6 - LONG-TERM DEBT:
The interest rate has been calculated at approximately 10% and
was based upon the lower of the Company's incremental borrowing
rate at the inception of the lease or the lessor's implicit rate
of return.
NOTE 7 - COMMON STOCK:
(a) In December 1991, the Company effected a reverse stock split of
its issued and outstanding common stock on a one (1) for thirty
(30) basis. The number of authorized shares (25,000,000) was not
changed.
In May 1992, the Company effected a second reverse stock split on
a one (1) for two (2) basis resulting in 1,500,000 shares, $.60
par value, issued and outstanding. The number of authorized
shares was not changed.
All references to the number of common shares and per share
amounts in the accompanying financial statements, have been
restated to reflect the reverse stock splits.
(b) In January 1992, the Company issued 150,000 shares, as restated,
of its common stock to Network (see Note 5) in connection with
the franchise agreement. These shares were issued at a post
reverse stock split price of $.14 per share.
In July 1992, the Company completed a private placement of
3,397,317 shares of its common stock at a price of $.60 per share
(par value) which yielded net proceeds of approximately
$1,966,000. With the completion of this private placement, the
Company had 4,897,265 shares of its common stock outstanding. In
addition, during 1991 and 1992 the Company also expended
approximately $369,000 in costs associated with a terminated
public offering.
(c) In July 1993, the Company completed a private placement of
1,764,624 units (each unit consisting of one share of common
stock and one common stock purchase warrant) at a price of $1.70
per unit which yielded net proceeds of approximately $2,625,000.
In November 1993, the Company also completed a private placement
of 294,117 units (each unit consisting of one share of common
stock and one common stock purchase warrant) at a price of $1.70
per unit for net proceeds of approximately $463,000. The warrants
are exercisable at a price of $3.00 per share through December
1994 and at $4.00 per share thereafter and through June 1996. The
warrants are also redeemable at a price of $1.00 per warrant, at
the option of the Company, based upon certain circumstances.
F - 15
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 7 - COMMON STOCK (Continued):
(c) In July 1993, the Company also issued 2,500 shares of common
stock in lieu of consulting fees aggregating $6,250.
Pursuant to the terms of a employment agreement with an officer
of the Company (see Note 10a) the Company has reflected $46,875
as additional compensation for the year ended December 31, 1993.
Payment was made by issuing 25,000 shares of common stock. The
value of the shares is included in common stock subscribed as of
December 31, 1993.
As payment for the exercise of franchise options for the states
of Washington and the City of Reno, Nevada and the Nevada portion
of the Lake Tahoe resort area (see Note 5), the Company has
agreed to issue 60,000 shares of common stock to Network. These
shares are valued by the Company at $180,000. This amount is also
included in common stock subscribed as of December 31, 1993.
(d) In December 1994, through a unit offering, warrant holders of
800,000 warrants exchanged their warrants and paid $3.00 per
warrant for a unit consisting of a share of common stock and a
new warrant. This offering resulted in net proceeds to the
Company of $2,138,393. These new warrants are exercisable at a
price of $4.00 per share through December 31, 1997. In addition,
in December 1994, holders of 5,754 existing warrants exercised
their right to purchase common stock at a price of $3.00 per
share.
(e) In June 1995, as payment for the exercise of a franchise option
for the state of Oregon, the Company issued 35,000 shares of its
common stock to Network. These shares are valued by the Company
at $100,000.
NOTE 8 - STOCK OPTION PLAN:
The Company has established a Stock Option Plan, as amended,
under which options to purchase up to a maximum of 750,000 shares
of common stock may be granted to officers and other key
employees. Stock options granted under this plan, which may be
either incentive stock options or nonqualified stock options for
federal income tax purposes, expire up to ten years after date of
grant and become exercisable over a three year period. Employees
who have left the Company have 90 days to exercise their options.
F - 16
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 8 - STOCK OPTION PLAN (Continued):
As of December 31, 1995 options granted under this plan were as
follows:
<TABLE>
<CAPTION>
Total Option
Shares Option Price Price
------ ------------ -------------
<S> <C> <C> <C> <C>
Balance outstanding at December 31, 1992 159,000 $.60 - $1.75 $ 177,750
Granted 20,000 2.75 55,000
Granted 125,000 1.875 234,375
Granted 50,000 2.8125 140,625
Exercised (1,666) 1.75 (2,915)
Canceled (3,334) 1.75 (5,835)
-------- ------------- -----------
Balance outstanding December 31, 1993 349,000 599,000
Granted 32,500 3.25 105,625
Exercised (15,000) .60 (9,000)
Exercised (2,500) 1.75 (4,375)
Canceled (5,000) 1.75 (8,750)
Canceled (7,500) 1.875 (14,062)
-------- ------------- -----------
Balance outstanding December 31, 1994 351,500 668,438
Granted 320,000 $2.00 - $3.75 568,128
Canceled (2,500) 1.75 (4,375)
-------- -----------
Balance Outstanding December 31, 1995 669,000 $1,232,191
======== ===========
</TABLE>
The Company has not adopted SFAS No. 123 - accounting for stock
based compensation for the year ended December 31, 1995 but will
adopt this standard for the year ended December 31, 1996, as
required.
NOTE 9 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented. The effect on
earnings (loss) per share resulting from the exercise of common
stock warrants is antidilutive and therefore not shown.
A detailed computation of earnings per common share appears in
Exhibit 11 of this Form 10-K.
F - 17
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
(a) EMPLOYMENT/CONSULTING AGREEMENTS:
The Company entered into a new employment agreement with its
Chief Executive Officer, which agreement commenced January 1,
1995 and expires on December 31, 1996. The agreement provides for
a base annual salary of $175,000 for the first year and $200,000
for 1996. This employee is also entitled to a bonus, based upon
pre-tax earnings, of 5% on the first $2,000,000 and 6 1/2% on all
earnings in excess of $2,000,000. The employee was also granted
options to acquire 150,000 shares of common stock at prices
ranging from $2.82 to $3.75 per share. The employment agreement
also contains provisions for a covenant not to compete in the
event of termination and various buy-out provisions in the event
of termination, disability, death or a sale of a controlling
interest or substantially all the assets of the Company.
The Company also entered into an agreement with an Executive Vice
President. This agreement was effective as of January 1, 1995 and
would have expired on December 31, 1996. The terms of this
agreement provided for an annual base salary of $115,000 for the
first year and $140,000 for the second year. This employee was
also granted options to acquire 105,000 shares of common stock at
prices ranging from $2.82 to $3.75 per share. The Executive Vice
President resigned from the Company in January 1996.
The Company also entered into a consulting agreement with a
company in which a director and its executive vice president are
shareholders. The agreement provided for monthly consulting fees
of $2,500 for the first 12 months, increasing to $2,917 per month
thereafter through December 1996. This agreement was terminated
effective December 31, 1995.
(b) OPERATING LEASE:
The Company has entered into operating leases for office space
which expire in various years through 1999 with renewal options.
The leases provide for payment of taxes and the Company's
proportionate share of basic operating costs.
Minimum future base rental payments under these leases, for each
of the next four years and in the aggregate are as follows:
Year ending December 31, 1996 $102,882
Year ending December 31, 1997 60,078
Year ending December 31, 1998 58,874
Year ending December 31, 1999 40,399
--------
$262,233
========
F - 18
<PAGE>
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued):
(b) OPERATING LEASE (CONTINUED):
Rent expense for the years ended December 31, 1995, 1994 and 1993
aggregated $113,859, $91,931 and $46,707, respectively.
The Company also leases office space in Orange County,
California, on a month-to-month basis, at a cost of $640 per
month.
NOTE 11 - BUSINESS CONCENTRATIONS:
Most of the Company's participating restaurants are located in
the San Francisco/Los Angeles areas. No single participating
restaurant accounted for more than 5% of the Company's sales in
any fiscal year presented.
One participating restaurant's Rights to receive balance was
greater than 5% (5.2%) of the total Rights to receive balance at
December 31, 1994. No single participating restaurant's Rights to
receive balance was greater than 5% of the total Rights to
receive balance at December 31, 1995.
F - 19
THE WESTERN TRANSMEDIA COMPANY, INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
PRIMARY EARNINGS:
Net income (loss) $ 10,942 $ (280,994) $ (924,733)
========== ============ ============
SHARES:
Weighted average of common shares outstanding 7,886,257 7,072,754 5,804,297
Assumed conversions of stock options 144,428 - -
---------- ------------ ------------
8,030,685 7,072,754 5,804,297
========== ============ ============
PRIMARY INCOME (LOSS) PER COMMON SHARE $ - $(.04) $(.16)
========= ====== ======
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the year ended December 31, 1995 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,040,620
<SECURITIES> 0
<RECEIVABLES> 2,750,585
<ALLOWANCES> 294,415
<INVENTORY> 0
<CURRENT-ASSETS> 5,630,380
<PP&E> 160,869
<DEPRECIATION> 51,493
<TOTAL-ASSETS> 6,203,976
<CURRENT-LIABILITIES> 465,476
<BONDS> 0
0
0
<COMMON> 4,742,053
<OTHER-SE> 980,845
<TOTAL-LIABILITY-AND-EQUITY> 6,203,976
<SALES> 11,368,903
<TOTAL-REVENUES> 11,368,903
<CGS> 7,576,314
<TOTAL-COSTS> 11,504,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,560
<INCOME-PRETAX> 10,942
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,942
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
