2
The following items were the
subject of a Form 12b-25 and
are included herein (Item 6,
Item 7 and Item 8).
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission file number 0-4028
TRANSMEDIA NETWORK INC.
---------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
- ---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
11900 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33181
----------------------------------------------
(Address of principal executive offices) (zip code)
305-892-3300
------------------------
Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.02 PER SHARE
--------------------------------------
(Title of Class)
Indicate by (X) 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 and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
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 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.
<PAGE>
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of December 9, 1996: $44,361,461.00.
Number of shares outstanding of Registrant's Common Stock, as of December 30,
1996: 10,126,926.
DOCUMENTS INCORPORATED BY REFERENCE:
LOCATION IN FORM 10-K IN WHICH
DOCUMENT DOCUMENT IS INCORPORATED
-------- ------------------------
Registrant's Proxy Statement Part III
relating to the 1997
Annual Meeting of Stockholders
- 2 -
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Transmedia Network Inc., through its operating subsidiaries (collectively,
the "Company"), owns and markets a charge card ("The Transmedia Card")
offering savings to the Company's cardmembers on dining costs for
restaurants both within and outside the United States from which the
Company, its franchisees and its licensees have purchased food and
beverage credits. The Company also offers to holders of The Transmedia
Card savings on lodging costs at selected hotels, resorts, golf courses
and ski lifts around the country and on purchases of merchandise from
selected retailers. The Company's cardholders also have access to discount
long distance telephone services through a program the Company operates
jointly with a subsidiary of General Electric Company. The Company derives
its income principally from retaining the difference between the amounts
paid in advance by the Company to restaurants and amounts paid by
cardmembers to the Company (through their credit card companies) for the
related meals and from cardmember membership fees. The Company also enters
into contracts with companies which own hotels, golf courses and ski lifts
as well as merchandise retailers. In exchange for listing in the Company's
directory, the Company receives commissions when Transmedia cardholders
frequent these establishments. The Company also receives commissions when
cardholders use their Transmedia/GE Capital telephone cards. The Company
derives income from franchising and licensing The Transmedia Card and
related proprietary rights and know-how, including rights to solicit
restaurants, hotels, resorts and motels and acquire food, beverage and
lodging credits, in the United States. The Company also receives revenue
from licensing The Transmedia Card and related proprietary rights and
know-how outside the United States.
CORPORATE STRUCTURE
The Company commenced operations in 1984 and was reincorporated as a
Delaware corporation in 1987. Currently, it has the following principal
operating subsidiaries:
/bullet/ Transmedia Service Company Inc. which is responsible
for soliciting and servicing all cardmembers in the United States
and for all domestic franchising of The Transmedia Card and
related property rights and know- how.
/bullet/ Transmedia Restaurant Company Inc. which is responsible
for obtaining and servicing restaurants and obtaining other
locations such as hotels, golf courses and ski lifts and retailers
where the Transmedia Card may be used.
/bullet/ TMNI International Incorporated which licenses the
Transmedia Card, service marks, proprietary software and know-how
outside the United States and has licensed rights to Europe,
Turkey, the countries comprising the former Union of Soviet
Socialist Republics, Australia, New Zealand and the Asia-Pacific
region to date.
- 3 -
<PAGE>
DESCRIPTION OF RIGHTS TO RECEIVE AND THE TRANSMEDIA CARD
The Company's primary business is the acquisition of Rights to Receive
from participating establishments which are then sold for cash to holders
of The Transmedia Card. "Rights to Receive" are rights to receive goods
and services, principally food and beverages, which are acquired and
purchased from participating restaurants, for an amount equal to
approximately fifty percent (50%) of the food and beverage credits or by
financing the purchase of other goods or services as well as for having
provided advertising and media placement services to the participating
establishments. Approximately ninety percent (90%) of Rights to Receive
are purchased for cash. The Company typically purchases that amount of
food and beverage credits which will be consumed in a period of no more
than six months; however, it has not always been possible for the Company
to predict with accuracy the amount of time in which such credits will be
consumed, especially when the Company begins operating in new areas, as
evidenced by the 1996 turn on Rights to Receive of 1.42 times, or 257
days.
The Transmedia Card is only issued to applicants who are determined to be
creditworthy by virtue of their having a current, valid MasterCard, Visa,
Discover or American Express credit card or who are otherwise deemed
creditworthy by Company management. The Transmedia Cardmembers have a
choice of programs, including a "Free for Life" Transmedia Card which
affords them 20% savings at participating establishments, an account which
offers mileage credits with Continental Airlines, Delta Airlines and
United Airlines of 10 miles for each dollar spent on food and beverage at
participating establishments for a one-time fee of $9.95, and a card which
offers a 25% savings at participating establishments, for which there is a
$50 annual fee. Each account may have more than one user and, accordingly,
more than one cardmember.
In presenting The Transmedia Card, cardmembers sign for the goods or
services rendered, as well as for the taxes and tips as they would with
any other charge card. The Company, upon obtaining the receipt (directly
or via electronic point of sale transmission) from the appropriate
establishment, gives the establishment credit against Rights to Receive
which are owned by the Company. The Company then (i) processes the receipt
through the cardmember's MasterCard, Visa, Discover or American Express
card account, which remits to the Company the full amount of the bill, and
(ii) credits to the cardmember's MasterCard, Visa, Discover or American
Express account the appropriate discount or credits to the cardmember's
airline account the appropriate mileage. Taxes and tips are not discounted
and such sums are remitted to the various establishments.
DOMESTIC FRANCHISING
In 1990, the Company commenced franchising The Transmedia Card (then known as
The Restaurant Card) and related proprietary rights and know-how, including
rights to solicit restaurants and acquire Rights to Receive, in the United
States. At September 30, 1996, the Company had franchises in the following
territories: a large part of New Jersey, California, the Washington,
D.C./Baltimore, Maryland Metropolitan area, Dallas, Ft. Worth and Houston,
Texas, the States of Virginia, North Carolina, South Carolina, Washington and
Oregon and Atlanta, Georgia, eastern Tennessee, Reno, Nevada and the Nevada side
of Lake Tahoe. The Company has also granted a certain third party an option to
acquire a franchise for the State of Hawaii. The
- 4 -
<PAGE>
Company has determined that it will no longer offer franchises at various
locations throughout the United States. In November 1996, the Company entered
into an agreement to terminate the franchise and to purchase certain of the
assets of The Western Transmedia Company, Inc., the Company's franchisee in the
States of California, Nevada, Oregon and Washington. After the completion of
this transaction (which is expected to occur in January 1997), the Company will
operate in these States directly.
Each franchise sold by the Company is operated under a ten year franchise
agreement that is renewable for one additional ten-year term for all locations.
Each agreement provides that the Company will assist the franchisee with
marketing, advertising, training and other administrative support; relates to a
territory that contains 625 or more full-service restaurants that accept
MasterCard, Visa, Discover or American Express credit cards; and licenses the
franchisee to use the Company's trademarks in connection with the solicitation
of new cardmembers (which is not restricted to the franchisee's territory) and
the purchase of Rights to Receive from restaurants in the territory granted to
the franchisee. The franchisee is responsible for, among other things,
soliciting cardmembers and participating establishments, purchasing Rights to
Receive from participating establishments in its territory, and maintaining
adequate insurance. In consideration for the grant of the franchise, the
franchisee (i) paid to the Company a franchise fee which varies based upon the
number of full-service restaurants located within the territory granted to the
franchisee, and (ii) pays the following continuing fees during the term of the
franchise agreement: (A) 7 1/2% of the total meal credits used within the
franchisee's territory; (B) 2 1/2% of the total meal credits sold within the
franchisee's territory into the Company's advertising and development fund; (C)
a processing fee of $.20 per sales transaction from the franchisee's territory;
and (D) a monthly service charge of $1.00 per participating establishment in the
franchisee's territory. The franchisee receives a commission from the Company
equal to forty percent (40%) of the membership fees paid by all new cardmembers
solicited by the franchisee, with a minimum of $5.00 per account.
U.S. LICENSING
In November, 1995, the Company entered into a license arrangement under
which the licensee was authorized to solicit Rights to Receive from various
types of resorts, hotels and other entities. The territory covered by the
license agreement is the continental United States, excluding the State of
Minnesota. The term of this arrangement is ten years, with a potential renewal
period of ten years. Under this arrangement, the Company compensates the
licensee through a commission.
NON-U.S. LICENSING
In 1993, the Company commenced licensing The Transmedia Card and related
proprietary rights and know-how outside the United States. The Company's
non-U.S. operations are conducted by its subsidiary, TMNI International
Incorporated. In 1993, the Company granted an exclusive, perpetual license to
Transmedia Europe, Inc. to establish the Company's business in Europe, Turkey
and the countries that formerly comprised the Union of Soviet Socialist
Republics. The
- 5 -
<PAGE>
license is governed by a Master License Agreement which provides that, among
other things, (i) the licensee has the right to sublicense the rights granted
under the Master License Agreement to others within the territory, provided that
each such sublicense is approved by the Company, (ii) the Company will assist
the licensee with training relating to sales, administration, technical and
operations of the business, and (iii) the licensee is solely responsible for
developing its own market, paying its own expenses for advertising and
soliciting cardmembers and participating establishments in its territory. In
consideration for the license, the licensee (i) paid the Company a
non-refundable purchase price of One Million One Hundred Twenty-Five Thousand
($1,125,000) Dollars, (ii) will pay to the Company two percent (2%) of the gross
volume with respect to the United Kingdom sublicense, (iii) will pay to the
Company twenty-five percent (25%) of initial sublicense fees (with a minimum of
$250,000) paid for each country licensed in the territory, (iv) will pay to the
Company twenty-five percent (25%) of royalties paid by sublicensees to the
licensee, and (v) granted to the Company a five percent (5%) equity interest in
the licenses. Melvin Chasen, the Chairman and Chief Executive Officer of the
Company, served as a director of the licensee until March 1, 1995. In December
1996, Transmedia Europe Inc. amended the sublicense it had granted for France
and expanded the sublicensee's territory to include Belgium and Luxemborg,
Italy, Spain and Switzerland (other than the German speaking area).
In 1994, the Company granted an exclusive perpetual license to Transmedia Asia
Pacific Inc. to establish the Company's business in Australia, New Zealand and
the Asia-Pacific region (such region covering approximately 16 major countries
and areas including, among others, Japan, Hong Kong, Taiwan, Korea, the
Philippines and India). The licensee also took an option to purchase a franchise
for the State of Hawaii. The license granted by the Company is governed by a
Master License Agreement which provides, among other things, that (i) the
Company will assist the licensee with training relating to sales,
administration, technical and operations of the business, and (ii) the licensee
is solely responsible for developing its own market, paying its own expenses for
advertising and soliciting cardmembers and restaurants in its territory. In
consideration for the license, the licensee paid the Company $1,250,000, and
(ii) granted to the Company a five percent (5%) equity interest in the licensee.
The license also provides for the following payments to the Company: (i) With
respect to sublicenses granted in all territories other than Australia and New
Zealand, the licensee will pay to the Company twenty-five percent (25%) of all
initial sublicense fees (in no event less than $500,000 in the People's Republic
of China and Japan, and not less than $250,000 in all other territories), as
well as twenty-five percent (25%) of all royalties, transfer fee payments and
any other monies received; and (ii) with respect to sublicenses granted in
Australia and New Zealand, the licensee will pay to the Company two percent (2%)
of gross sales within such territories. Mr. Chasen served as a director of
Transmedia Asia Pacific Inc. until March 1, 1995.
In December 1996, the Company entered into an agreement with Transmedia Europe,
Inc. and Transmedia Asia Pacific Inc. amending both of the licenses, among other
things, to permit the companies to be reorganized under one entity and to allow
them to acquire and operate worldwide the business of Countdown plc., which
conducts a restaurant discount program in Europe and, to a lesser extent, in the
United States.
- 6 -
<PAGE>
AREAS OF OPERATION
The Company's principal areas of operation, through its subsidiaries and its
domestic franchising operations, include the New York Metropolitan area
(consisting of New York City and the counties of Nassau, Suffolk, Westchester,
Rockland, Putnam and Orange in New York State, Northern New Jersey and
Connecticut); Central, Southwest and Southeast Florida; Massachusetts; the
Chicago, Illinois Metropolitan area; Rhode Island; New Hampshire; Maine;
Vermont; Philadelphia, Pennsylvania; Phoenix, Arizona; Denver, Colorado;
Milwaukee, Wisconsin; Indianapolis, Indiana; California; Delaware; Georgia; the
Washington, D.C. Metropolitan area; the Baltimore, Maryland Metropolitan area;
North and South Carolina; the Dallas,/Ft. Worth and Houston, Texas Metropolitan
areas; Atlanta, Georgia, eastern Tennessee; and Virginia.
PARTICIPATING RESTAURANTS AND CARDMEMBERS
As of September 30, 1996, directories published by the Company, which are
distributed to cardmembers six times a year, listed 6,974 restaurants available
to cardmembers, and The Transmedia Card was held by an aggregate of 924,418
cardmembers, comprised of 634,761 accounts with an average of 1.46 cardmembers
per account. The following table sets forth (i) the number of restaurants listed
in directories published by the Company and (ii) the number of cardmembers, as
of the fiscal years ended September 30, 1992 though 1996:
1996 1995 1994 1993 1992
--------- ---------- ----------- ---------- ---------
RESTAURANTS 6,974 5,330 3,628 2,328 1,449
- ---------------- ------------ ---------- ----------- ---------- ---------
CARDMEMBERS 924,418 593,161 395,968 197,166 112,029
As the table indicates, the number of restaurants listed in directories
published by the Company has risen nearly three hundred eighty-one percent
(381%) during the fiscal years ended September 30, 1992 through September 30,
1996, and the number of cardmembers has risen nearly seven hundred twenty-five
percent (725%) for the same period. In fiscal 1996, between fifty-five and sixty
percent (55-60%) of all cardmembers renewed their memberships, and approximately
ninety percent (90%) of all restaurants listed in the directories published by
the Company whose initial amount of Rights to Receive were expended in 1996
renewed their contracts with the Company. In addition, eighty percent (80%) of
all restaurants eligible for their second year of renewals in fiscal 1996
renewed their contracts. The Company generally experiences a sharp decline in
renewals among restaurants eligible for a third year of renewals. It has been
the Company's experience, however, that the addition of new restaurants
generally offsets the drop-off in renewing restaurants, and the Company believes
that its service areas are not close to cardmember saturation.
- 7 -
<PAGE>
MARKETING
The Company markets The Transmedia Card through the use of advertising, direct
mail and through promotion with co-marketing partners such as banks and affinity
groups.
EMPLOYEES
As of December 20, 1996, the Company employed 145 persons. The Company believes
that its relationships with its employees are good.
COMPETITION
The charge card business is highly competitive and the Company competes for both
cardmembers and participating restaurants, hotels and other applicable services.
Competitors include discount programs offered by major credit card companies,
such as American Express, Visa, MasterCard and Diners Club and other companies
that offer different kinds of discount marketing programs and numerous small
companies which offer services which may compete with the services offered or to
be offered by the Company. Certain of the Company's competitors may have
substantially greater financial resources and expend considerably larger sums
than does the Company for new product development and marketing. Further, the
Company must compete with many larger and better established companies for the
hiring and retaining of qualified marketing personnel. The Company believes that
the unique features of its 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 its cardmembers.
ITEM 2. PROPERTIES
The Company's present executive office consists of 8,303 square feet, located in
Miami, Florida, which the Company occupies pursuant to a lease expiring on
February 28, 1997 and which provides for an annual base rental of $148,860. The
Company's Miami office also houses the Company's cardmember service center. The
Company has entered into a new lease, which commences on March 1, 1997, for
13,096 square feet, thus adding an additional 4,793 square feet of contiguous
space to its current office. The lease will expire on February 28, 2002 and
provides for an annual base rent of $270,825. The Company leases offices in New
York City for 5,710 square feet of office space pursuant to a lease entered into
in May 1996. The lease, which expires on June 30, 2001, provides for minimum
annual rentals of $199,850. In addition, the Company has a four and one-half
year office lease in Philadelphia, Pennsylvania for approximately 1,641 square
feet, which commenced April 1, 1994. The lease provides for a base annual rental
of approximately $24,500 in the first year, which will increase by approximately
$800 each year thereafter. In Boston, Massachusetts, the Company has a
sixty-four month lease for approximately 1,500 square feet, which commenced May
1, 1995. The lease provides for base annual rentals of $29,400. The Company has
an option for one three-year renewal. In Chicago, the Company has a thirty-nine
month lease for approximately 1,183 square feet, which commenced October 1,
1995. The lease provides for an initial annual lease rental of $26,730
- 8 -
<PAGE>
increasing by approximately $600 each year thereafter. In Detroit, the Company
leases an executive office for a twelve-month period which began on May 1, 1995
at an annual fee of $6,840. In Tampa, the Company leases an executive office for
a thirteen-month period which began on June 1, 1995. The total rental for the
thirteen month period is $9,795. In Phoenix, the Company leases an executive
office for a thirteen-month period which began on March 6, 1996 for a total rent
of $9,620 for the thirteen months. In Denver, the Company leases on a
month-to-month basis, an executive office for $450 per month.
In connection with the termination of the franchise granted to The Western
Transmedia Company Inc. and the acquisition of certain of its assets, the
Company will be assuming ongoing leases for two office properties in San
Francisco, California and Los Angeles, California. In San Francisco, California,
the Company would be assuming a lease for approximately 3,000 square feet, at an
annual rent of $54,686.04 from August 1, 1996 to July 31, 1997, $57,642.00 from
August 1, 1997 to July 31, 1998 and $60,597.96 from August 1, 1998 to August 31,
1999. The lease expires on August 31, 1999. In Los Angeles, California, the
Company would be assuming a lease for approximately 2,000 square feet at a
monthly base rent of approximately $4,200. The lease expires on January 31,
1997, however, the Company intends to exercise an option to extend the lease for
two years at a rental equal to market value.
ITEM 3. LEGAL PROCEEDINGS
As of September 30, 1996, there were no material legal proceedings pending
involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1996, no matters were submitted to a vote
of the security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME POSITION AGE
- ---- -------- ---
Melvin Chasen Director, Chairman of the Board, President 68
and Chief Executive Officer
James M. Callaghan Director and Vice President; President of 57
Transmedia Restaurant
Company Inc.
Barry S. Kaplan Director and Vice President;
President of Transmedia Service Company Inc. 38
- 9 -
<PAGE>
David L. Weinberg Vice President and Chief 51
Financial Officer;
President of TMNI International Inc.
Paul A. Ficalora Executive Vice President 45
of Transmedia Restaurant
Company Inc.
Gregory Borges Treasurer 60
Kathryn Ferara Secretary 40
Mr. Chasen has been a director and the Chairman of the Board, President and
Chief Executive Officer of the Company since 1983. From 1984 through 1987, he
was a director, Chairman of the Board, President and Chief Executive Officer of
Transmedia Network Inc., a Colorado corporation, which was the predecessor of
the Company.
Mr. Callaghan, a director of the Company since 1991, was elected Vice President
of the Company and President of Transmedia Restaurant Company Inc., a
subsidiary, in 1994. He joined the Company in 1989 and served as its Executive
Vice President, Vice President, Sales and Marketing and Treasurer.
Mr. Kaplan was elected a Vice President of the Company and President of
Transmedia Service Company Inc., a subsidiary, in September 1995 and was elected
a Director of the Company in March 1996. From 1986 until joining the Company, he
served in various positions including Executive Vice President, Chief Operating
Officer of Liberty Travel, Inc., a chain of full-service travel agencies.
Mr. Weinberg was elected Vice President and Chief Financial Officer of the
Company in 1992 and in 1994 was also elected President of TMNI International
Incorporated, a subsidiary. He joined the Company as Vice President Finance in
1991. From 1987 to 1991, Mr. Weinberg served as Vice President Finance and
Administration, Chief Financial Officer, Treasurer and Secretary of Columbia
Laboratories, Inc., a health care products company.
Mr. Ficalora was elected Executive Vice President of the Restaurant Company in
1994, having served as Vice President, Operations of the Company from 1992 until
1994, and Director of Franchise Sales from 1991 to 1992.
Mr. Borges was elected Treasurer of the Company in 1992. He joined the Company
in 1985 as Controller.
Mrs. Ferara was elected Secretary of the Company in 1992. She joined the Company
in 1989 as Office Manager and Assistant Secretary.
- 10 -
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "TMN". Prior to June 28, 1995, the Company's Common Stock was
included in the Nasdaq National Market . The following table sets forth the high
and low sale prices for the common stock for each fiscal quarter ended from
December 31, 1994 (adjusted for the three-for-two stock split effected on April
22, 1994 and applied retroactively where appropriate) as reported on the New
York Stock Exchange or the Nasdaq National Market, as well as the dividends paid
during each such fiscal quarter.
The payment of dividends, if any, in the future, will depend upon,
among other things, the Company's earnings and financial requirements, as well
as general business conditions.
QUARTER ENDED LOW HIGH DIVIDEND PAID
------------- --- ---- -------------
December 31, 1994 $8.313 $13.750 $.02
March 31, 1995 8.500 13.250 --
June 30, 1995 8.000 13.250 .02
September 30, 1995 8.375 11.375 --
December 31, 1995 8.750 11.000 .02
March 31, 1996 7.125 9.750 --
June 30, 1996 7.125 9.000 .02
September 30, 1996 5.500 8.625 --
The aggregate number of holders of record of the Company's Common Stock
on December 20, 1996 was approximately 2,400.
The payment of dividends, if any, in the future, will depend upon,
among other things, the Company's earnings and financial requirements, as well
as general and business conditions.
- 11 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $68,600,122 $ 58,792,454 $ 45,605,606 $ 33,512,234 $ 23,777,303
Membership and renewal
fee income 6,833,013 4,207,368 2,769,618 1,686,423 1,142,345
Continuing franchise and
royalty fee income 2,469,316 2,633,031 1,503,028 360,076 167,084
Commission income 682,121 605,441 405,054 -- --
Total revenues 78,584,572 66,238,294 50,283,356 35,558,733 25,086,732
Operating income 4,756,552 6,344,850 5,216,578 3,425,433 2,609,244
Net income 2,546,072 4,196,213 4,176,171 2,734,225 1,744,894
Net income per share
Primary 0.25 0.42 0.42 0.29 0.20
Fully diluted 0.25 0.42 0.42 0.28 0.20
BALANCE SHEET DATA:
Total assets $54,514,255 $38,383,020 $28,477,060 $ 17,903,666 $ 13,459,098
Total long-term debt 15,000,000 2,000,000 -- -- --
Stockholders' equity 25,752,898 24,191,249 18,924,979 12,618,829 9,438,386
Cash dividends per
common share .04 .04 .04 .02 --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT
The financial statements for 1994, 1995 and the first three quarters of 1996
have been restated to reflect the writedown of certain costs of acquiring
cardmembers. Previously, to the extent that membership and renewal fees were
expected to be received, the Company had been deferring certain costs of
acquiring cardmembers and amortizing them over the average life of a
cardmembers, 24 months. The restatement reflects the deferral of costs of
acquiring fee paying members only to the extent that initial membership fees are
generated and the amortization of these costs, as required by generally accepted
accounting principles, over twelve months, the period of initial membership.
Accordingly, the restatement resulted in a writedown of previously capitalized
and deferred costs and a corresponding increase in cardmember acquisition
expenses
- 12 -
<PAGE>
for the respective periods, indicative of the recent trend away from the
Company's utilization of an initial fee requirement and the growing practice of
no fee memberships. The impact of the restatement can be seen in Footnote 17 to
the Consolidated Financial Statements.
STATEMENT PRESENTATION
The Company has included all non-capitalizable advertising expenses related to
membership acquisition as a separate line item on its income statement. Also
included on this separate line item is the amortization of capitalizable
advertising costs. Previously, the amortization had been netted against
membership and renewal fee income and all non-capitalizable advertising expenses
had been included in selling, general and administrative expenses. All periods
presented reflect this presentation.
NEW ACCOUNTING PRONOUNCEMENTS
i. Accounting for Stock-Based Compensation
On October 23, 1995, the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation (FAS "123"). This Statement applies to all
transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price. The Statement covers transactions with
employees and nonemployees and is applicable to both public and nonpublic
entities. Entities are allowed (1) to to continue to use the Accounting
Principles Board Opinion No. 25 (APB 25"), or (2) to adopt the FAS 123 fair
value based method. Once the method is adopted, an entity cannot change and the
method selected applies to all of an entity's compensation plans and
transactions. For entities not adopting the FAS 123 fair value based method, the
disclosure requirements of FAS 123, including the pro forma information, are
effective for financial statements for fiscal years beginning after December 15,
1995. The pro forma disclosure are to include all awards granted in fiscal years
that begin after December 15, 1994. However, the disclosures, including the pro
forma net income and earnings per share disclosures, for the fiscal year
beginning after December 15, 1994 will not be included in that year's financial
statements, but will be included in the following year-end financial statements
if the first fiscal year is presented for comparative purposes. Management has
determined that it will follow the accounting method for APB 25 for employees
and that the effect of FAS 123 for non-employees is not significant. FAS 123
will be adopted by the Company as of October 1, 1996.
ii. Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the FASB issued Statement of financial Accounting
Standards No. 125 ("FAS 125"), "Accounting for Transfers of Servicing of
Financial Assets and Extinguishments of Liabilities." FAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on a financial-components
approach that focuses on control. FAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be prospectively
- 13 -
<PAGE>
applied. The Company believes that the adoption of FAS 125 will have no impact
on its financial statements.
RESULTS OF OPERATIONS (1996 VERSUS 1995)
Net sales for the fiscal year ended September 30, 1996 increased 16.7% to
$68,600,122 as compared to $58,792,454 for the year ended September 30, 1995.
The sales increase was due to an increased number of cardmembers and restaurants
available to cardmembers. Approximately ninety percent (90%) of all restaurants
listed in the directories published by the Company renew their contracts with
the Company after the initial amount of rights to receive meal credits purchased
by the Company is expended. In the second year of renewal, the Company renews
approximately 80% of those restaurants continuing in business. After the second
year, renewal rates drop sharply because the restaurants with the Company's help
have become successful and no longer need the Company, the Company chooses not
to renew the restaurant or the 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. The
Company believes that in no area where the Company operates is it close to
restaurant or cardmember saturation. At September 30, 1996, the average Rights
to Receive balance per Company restaurant participating was $9,220 versus $8,592
at September 30, 1995. Membership and renewal fee income increased to
$6,833,013, of which $1,164,883 was initial fee income in 1996 from $4,207,368,
of which $835,151 was initial fee income in 1995 as the result of an increased
number of cardmembers, as well as renewals.
In 1996, 7% of joining cardmembers paid a fee. The others joined under no-fee
programs. In 1995, the initial fee was waived 93% of the time. The renewal rates
in both 1996 and 1995 approximated 55% to 60%. Fee income is recognized over a
twelve-month period beginning in the month the fee is received. Continuing
franchise fee and royalty income decreased to $2,469,316 from $2,633,031. This
decrease resulted from the purchase by the Company of its Chicago franchisee on
July 1, 1995. As a result in the growth in the overall elements of revenue,
gross profits increased by $6,688,213 to $33,438,014 in 1996.
In 1996, selling, general and administrative ("SG&A") expenses increased by
$5,262,636, as compared to 1995, representing a 27.8% increase. In 1996, SG&A
expenses of a variable nature amounted to $11,170,000 (46.1% of total SG&A
expenses) versus $9,498,000 (50.1% of total SG&A expenses) in 1995. Main
components of SG&A expenses included sales salaries and commissions ($2,362,000
in 1996 versus $1,866,000 in 1995), bank processing fees ($3,433,000 in 1996
versus $2,834,000 in 1995), Rights to Receive loss expense ($2,075,000 in 1996
versus $2,332,000 in 1995) and salaries expense ($4,230,000 in 1996 versus
$3,604,000 in 1995). The Company also incurred $801,000 of expenses in 1996
associated with the start-up of new territories operated by the Company compared
with $268,000 in 1995.
In 1996, cardmember acquisition expenses were $4,456,435 versus $1,442,560 in
1995. Included in cardmember acquisition expenses was the amortization of
deferred advertising costs amounting to $1,164,865 in 1996 and $751,802 in 1995.
Costs capitalized in 1996 and 1995 were $969,129 and $1,012,740, respectively.
(See Footnote 1(e) to Consolidated Financial Statements.)
- 14 -
<PAGE>
Operating income in 1996 was $4,756,552, a 25.0% decrease from $6,344,850 in
1995.
Other income, net of expense in 1996 was a net expense amounting to $650,000
versus net income of $534,000 in 1995, a difference of $1,184,000. Reasons for
the reduction included $736,000 more interest expense and financing costs in
1996 than 1995, $578,000 less initial franchise fee and license income in 1996
than 1995, $165,000 less in interest and other income in 1996 than 1995, and no
merger and acquisition expenses in 1996 versus $295,000 in 1995, which was
related to the Company's acquisition of its Chicago franchisee.
Earnings before taxes amounted to $4,106,572 in 1996 compared with $6,879,013 in
1995. The effective tax rate in 1996 was 38.0% versus 39.0% in 1995.
Net income was $2,546,072 or $.25 per share, versus $4,196,213 or $.42 per share
in 1995.
RESULTS OF OPERATIONS (1995 VERSUS 1994)
Net sales for the fiscal year ended September 30, 1995 increased 28.9% to
$58,792,454, as compared to $45,605,656 for the year ended September 30, 1994.
The sales increase was primarily due to an increased number of cardmembers and
restaurants available to cardmembers. Approximately ninety percent (90%) of all
restaurants listed in the directories published by the Company renew their
contracts with the Company after the initial amount of Rights to Receive meal
credits purchased by the Company is expended. In the second year of renewal, the
Company renews approximately 80% of those restaurants continuing in business.
After the second year, renewal rates drop sharply because the restaurants with
the Company's help have become successful and no longer need the Company, the
Company chooses not to renew the restaurant or the 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. The Company believes that in no area where the Company
operates is it close to restaurant or cardmember saturation. At September 30,
1995, the average Rights to Receive balance per Company restaurant participating
was $8,592 versus $8,719 at September 30, 1994. Membership and renewal fee
income increased to $4,207,368, of which $835,151 was initial fee income in 1995
from $2,769,618, of which $788,345 was initial fee income in 1994 as the result
of an increased number of cardmembers, as well as renewals. In 1995 and 1994,
the initial fee was waived 93% and 90% of the time, respectively. In April 1994
the Company ceased waiving renewal fees. In 1994 prior to April, the Company
waived renewal fees 35% of the time. The renewal rate in 1995 and 1994
approximated 55% to 60%. Fee income is recognized into income over a
twelve-month period beginning in the month the fee is received. Continuing
franchise fee and royalty income increased to $2,633,031 in 1995 from $1,503,028
in 1994 as a result of the growth in the Company's franchisees and the start-up
of the licensees in the United Kingdom and Australia. Commission income received
by the company increased to $605,441 in 1995 from $405,054 in 1994. As a result
of the growth in the overall elements of revenue, gross profits increased by
$6,938,391 to $26,749,801 in 1995.
- 15 -
<PAGE>
In 1995, selling, general and administrative ("SG&A") expenses increased by
$4,910,504, as compared to 1994, representing a 34.9% increase. In 1995, SG&A
expenses of a variable nature amounted to $9,498,000 (50.1% of total SG&A
expenses) versus $6,540,000 (46.5% of total SG&A expenses) in 1994. Main
components of SG&A expenses included sales salaries and commissions ($1,866,000
in 1995 versus $1,147,000 in 1994), bank processing fees ($2,834,000 in 1995
versus $2,045,000 in 1994), Rights to Receive loss expense ($2,332,000 in 1995
versus $1,743,000 in 1994) and salaries expense ($3,604,000 in 1995 versus
$2,603,000 in 1994). The Company also incurred $268,000 of expenses in 1995
associated with the start-up of new territories operated by the Company.
In 1995 cardmember acquisition expenses were $1,442,560 versus $542,945 in 1994.
Included in cardmember acquisition expenses was the amortization of deferred
advertising costs amounting to $751,802 in 1995 and $303,590 in 1994. Costs
capitalized in 1995 and 1994 were $1,012,740 and $581,770, respectively. (See
Footnote 1(e) to Consolidated Financial Statements.)
Operating income in 1995 was $6,344,850, a 21.6% increase over the $5,216,578 in
1994.
Other income, net of expense in 1995 amounted to $534,163 compared to $1,757,093
in 1994. The reduction of $1,222,930 results from an $863,789 decrease in
initial franchise and license fee income, net of expenses in 1995. The Company
in 1994 had entered into a major license for Australia, New Zealand and the
right to sublicense Asia. In 1995, the Company incurred merger and acquisitions
costs amounting to $294,600 in connection with the acquisition of its Chicago
franchisee.
Earnings before taxes amounted to $6,879,013 in 1995 compared with 6,973,671 in
1994. The effective tax rate in 1995 was 39.0% compared with 40.1% in 1994.
Net income in 1995 was $4,196,213 or $.42 per share, versus $4,176,171 or $.42
per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $21,952,478 at September 30,
1996 from $23,263,096 at September 30, 1995. The Company's
rights-to-receive increased by $11,378,557; however, this was offset by
the increase in the use of the Companys line of credit which increased
by $13,000,000 to $15,000,000 at September 30, 1996, all of which was
classified as a current liability.
On June 30, 1995 the Company obtained a loan facility with NationsBank
of Florida ("NationsBank") under which it could borrow, at the bank's
prime rate of interest, up to Six Million Dollars ($6,000,000) until
May 15, 1996, and thereafter, up to Seven Million Five Hundred Thousand
Dollars ($7,500,000). On January 26, 1996, the loan facility was
amended and increased to Twenty Million Dollars ($20,000,000) and the
expiration date was changed to January 26, 1999; however, because of
the Company's asset securitization described below, the line of credit
terminated on December 24, 1996.
- 16 -
<PAGE>
In December 1996, the Company entered into a revolving securitization
transaction to provide for additional liquidity, as well as a platform
for future growth, at a cost of funds lower than had been historically
available to it. The transaction structure, among other things,
isolated the securitized rights-to-receive beyond the reach of the
Company in the unlikely event of bankruptcy or receivership, thus
enabling characterization of the transferred assets as a true sale at
law and an "A" rating on the securities issued. The Company believed
that the transaction also allowed for derecognition of the transferred
rights-to-receive and treatment of the securitization as off-balance
sheet financing under generally accepted accounting principles.
On December 24, 1995, the Company made an initial transfer of $33
million of its rights-to-receive to a special purpose corporation
("SPC"), an indirect wholly owned subsidiary of the Company, as part of
the revolving securitization. The rights-to-receive, which were sold to
the SPC without recourse, were in turn transferred to a limited
liability corporation (Issuer), which issued $33 million of fixed rate,
five-year term securities in a private placement to various third party
investors. In exchange for the rights-to-receive, which have a retail
value of $66 million before cardmember discounts, the Company will
receive approximately $32 million, after transactions costs, and a 1%
equity interest in the Issuer. Future excess cash flows, expected to be
generated from the securitized assets as the rights-to-receive are
exchanged for meals by Company cardholders, are to be remitted to the
Company on a monthly basis as a return on capital from the Issuer.
Excess cash flows are determined after payments of interest to
noteholders and investors, as well as trustee and servicing fees.
During the five-year revolving period, the issuer will be responsible
for ongoing purchase of rights-to-receive from the Company to ensure
that the initial pool of $33 million is continually replenished. It is
anticipated that the net revenue from securitized assets will be
received in approximately the same amount and within the same time
frame that such revenue would have been received had the secuitization
not taken place.
In March 1997, the Company was advised by the SEC staff that, while
the transfers of assets may be a true sale under applicable legal
principles, the second transfer of assets from the SPC to the Issuer
should not be characterized as a sale under applicable generally
accepted accounting principles, thus precluding the derecognition of
the rights-to-receive and resulting in the presentation of the
transaction as secured non-recourse financing on the consolidated
balance sheet of the Company.
Assuming the December 24, 1996 securitization had been completed on
September 30, 1996 and that part of the proceeds was used to pay off
the Company's outstanding line-of-credit balance, the following
pro-forma condensed balance sheet is presented:
- 17 0
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
ORIGINAL PRO-FORMA
------------ ------------
<S> <C> <C>
Cash $ 3,603,409 $20,603,409
Rights-to Receive
UNRESTRICTED 37,525,957 4,525,957
SECURITIZED -- 33,000,000
Other current assets 4,545,339 4,545,339
------------ ------------
Total current assets 45,674,705 62,674,705
Non-current assets 8,839,550 9,839,550
------------ ------------
Total assets $54,515,255 $72,514,255
============ ===========
Current liabilities 8,722,226 8,722,226
Line of credit 15,000,000 --
SECURED NON-RECOURSE NOTES PAYABLE -- 33,000,000
OTHER non-current liabilities 5,039,131 5,039,131
------------ ------------
Total liabilities 28,761,357 46,761,357
Stockholders' equity 25,752,898 25,752,898
------------ ------------
Total liabilities and
stockholders' equity $54,514,255 $72,514,255
============ ===========
</TABLE>
On November 15, 1996, the Company entered into a purchase agreement
with The Western Transmedia Company, Inc. ("Western"), a franchisee of
the Company. Under the terms of the agreement, the Company reacquired
the right to operate its business in California, Oregon, Washington and
a portion of Nevada. In addition, the Company acquired Western's Rights
to Receive, and its furniture, fixtures and equipment. The purchase
price will approximate $7,750,00, of which $4,750,000, represents the
cost of the franchise. Closing of the proposed transaction occurred in
take place in January 1997.
Capital expenditures by the Company over the past three fiscal years
(approximately $7,062,105) have been due almost exclusively to the
Company's development and acquisition of computer hardware and software
necessary for the operation of the Cardmember Service Center. The
Company estimates that it will spend approximately $2,600,000 on
capital expenditures, consisting primarily of computer software in
fiscal year 1997.
The Company believes that cash on hand at September 30, 1996, together
with cash generation by operations plus cash received from the December
1996 securitization after paying off the Company's line of credit will
satisfy the Company's total need for cash during the 1997 fiscal year.
The Company's inventory of Rights to Receive increased by $11,378,557
to a total of $37,525,957 at September 30, 1996. As noted above, the
Company sold approximately $33,000,000 of its Rights to Receive in a
securitization transaction in December 1996.
- 18 -
<PAGE>
In many instances the Rights to Receive purchased by the Company are
secured by the furniture, fixtures and kitchen equipment of the related
restaurants as filed pursuant to the Uniform Commercial Code. The
Company also attempts to obtain personal guarantees from the restaurant
owners.
<TABLE>
<CAPTION>
Analysis of Rights to Receive
1996 1995 1994
---- ---- ----
- ----------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
RIGHTS TO RECEIVE, BEGINNING OF YEAR $26,147,400 $17,472,712 $ 9,968,102
- ----------------------------------------- --------------- -------------- --------------
PURCHASE OF RIGHTS TO RECEIVE 59,179,978 50,295,531 39,419,189
- ----------------------------------------- --------------- -------------- --------------
WRITE-OFFS OF RIGHTS TO RECEIVE (2,654,863) (2,132,350) (1,442,633)
------------- ------------- -------------
82,672,515 65,635,893 47,944,658
- ----------------------------------------- --------------- -------------- --------------
COST OF SALES 45,146,558 39,488,493 30,471,946
------------ ------------ ------------
- ----------------------------------------- --------------- -------------- --------------
RIGHTS TO RECEIVE, END OF YEAR $37,525,957 $26,147,400 $17,472,712
=========== =========== ===========
</TABLE>
Management of the Company believes that continued increase in the
number of restaurants which honor the Transmedia Card (and, therefore,
increases in the inventory of Rights to Receive purchased) is essential
to attract additional cardmembers, satisfy existing cardmembers and
continue the Company's revenues growth. Further, management believes
that the purchase of Rights to Receive can be funded generally from
cash on hand, from operations and from funds made available from future
securitizations.
Cash flow used in operating activities was $7,941,637 in fiscal year
ended September 30, 1996, compared with cash used in operating
activities of $843,422 and $1,526,902 in 1995 and 1994, respectively.
Cash is primarily used in purchasing Rights to Receive meal credits.
Management of the Company anticipates that the expenditure for the
purchases of Rights to Receive will continue to increase as the Company
expands the number of participating full service restaurants available
to its cardmembers.
Cash used in investing activities was $3,354,072 in the fiscal year
ended September 30, 1996, compared with $2,020,055 used in 1995 and
$1,860,978 used in 1994. Cash flow deficits from investing activities
were due primarily to the development and acquisition of computer
hardware and software necessary for the operation of the Company's
Cardmember Service Center. Management believes that cash to be used in
investing activities in the fiscal year ended September 30, 1997 will
approximate $2,600,000.
Cash flow provided by financing activities was $12,628,796 for the
fiscal year ended September 30, 1996, compared with cash flows provided
by financing activities of $2,654,900 in 1995 and $861,734 in 1994. In
1996, the principal source of cash flow was from borrowings under the
Company's bank line of credit. In 1995, the principal source of cash
flow were from borrowings under the Company's bank line of credit and
from the exercise of options for common stock. In 1994, the principal
source of cash flow from financing activities was from the exercise of
options for common stock and the conversion of warrants.
- 19 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F - 1
Financial Statements:
Consolidated Balance Sheets, F - 2
September 30, 1996 and 1995
Consolidated Statements of Income F - 3
for each of the years in the three-year
period ended September 30, 1996
Consolidated Statements of Stockholders' F - 4
Equity for each of the years in the three-year
period ended September 30, 1996
Consolidated Statements of Cash Flows F - 5,6
for each of the years in the three-year
period ended September 30, 1996
Notes to Consolidated Financial Statements F - 7
- 20 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders
Transmedia Network Inc.:
We have audited the accompanying consolidated balance sheets of Transmedia
Network Inc. and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audit 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 consolidated financial position of
Transmedia Network Inc. and subsidiaries at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 16(b) to the consolidated financial statements, the Company
changed its accounting policy for certain costs of acquiring new card members.
/s/ KPMG PEAT MARWICK LLP
-------------------------------
KPMG Peat Marwick LLP
December 6, 1996, except as to notes 13,
16(b) and 16(c), which are dated as of
December 24, 1996 and note 16(a), which
is dated as of March 31, 1997
Miami, Florida
F-1
<PAGE>
<TABLE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) $ 3,603,409 2,270,322
Accounts receivable, less allowance for doubtful accounts
of $15,000 in 1996 and 1995 (note 5) 2,616,586 1,771,821
Rights to receive (note 5) 37,525,957 26,147,400
Prepaid expenses and other current assets 1,035,083 708,253
Unamortized advertising costs (note 16) 343,385 539,118
Income taxes receivable 307,377 -
Deferred income taxes (note 8) 242,908 441,285
------------- -----------
Total current assets 45,674,705 31,878,199
Securities available for sale, at fair value (note 3) 1,868,375 2,899,691
Property and equipment, net (note 2) 5,663,693 3,471,700
Other assets 1,307,482 133,430
------------- -----------
Total assets $ 54,514,255 38,383,020
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - Rights to receive $ 4,784,352 4,933,070
Accounts payable - reimbursable tax and tips 485,245 428,000
Accounts payable - other 2,679,290 1,663,754
Income taxes payable - 22,600
Accrued expenses 773,339 1,028,561
------------- -----------
Total current liabilities 8,722,226 8,075,985
Line of credit (note 13) 15,000,000 2,000,000
Deferred membership and renewal fee income (note 1) 4,102,786 2,866,916
Deferred income taxes (note 8) 936,345 1,248,870
------------- -----------
Total liabilities 28,761,357 14,191,771
------------- -----------
Stockholders' equity (notes 6 and 7):
Preferred stock, $.10 par value per share - -
Common stock, $.02 par value per share 202,539 202,375
Additional paid-in capital 10,546,612 10,513,055
Unrealized gain on securities available for sale (net of
deferred income taxes of $603,582 in 1996 and
$1,021,679 in 1995) 984,792 1,598,011
Retained earnings 14,018,955 11,877,808
------------- -----------
Total stockholders' equity 25,752,898 24,191,249
Commitments (notes 6, 11 and 12)
------------- -----------
Total liabilities and stockholders' equity $ 54,514,255 38,383,020
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For each of the years in the three-year period ended September 30, 1996
1996 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Net sales $ 68,600,122 58,792,454 45,605,656
Membership and renewal fee income 6,833,013 4,207,368 2,769,618
Continuing franchise fee and royalty income 2,469,316 2,633,031 1,503,028
Commission income 682,121 605,441 405,054
-------------- ----------- -----------
78,584,572 66,238,294 50,283,356
Cost of sales 45,146,558 39,488,493 30,471,946
-------------- ----------- -----------
Gross profit 33,438,014 26,749,801 19,811,410
Selling, general and administrative expenses 24,225,027 18,962,391 14,051,887
Cardmember acquisition expenses 4,456,435 1,442,560 542,945
-------------- ----------- -----------
Operating income 4,756,552 6,344,850 5,216,578
-------------- ----------- -----------
Other income (expense):
Initial franchise fee and license fee income, net of
expense 30,100 608,211 1,472,000
Merger and acquisition expenses - (294,600) -
Interest and other income 171,772 336,742 290,197
Interest expense and financing costs (851,852) (116,190) (5,104)
-------------- ----------- -----------
(649,980) 534,163 1,757,093
-------------- ----------- -----------
Income before income taxes 4,106,572 6,879,013 6,973,671
Income taxes (note 6) 1,560,500 2,682,800 2,797,500
-------------- ----------- -----------
Net income $ 2,546,072 4,196,213 4,176,171
============== =========== ===========
Net income per common and common equivalent share:
Primary $ .25 .42 .42
============== =========== ===========
Fully diluted $ .25 .42 .42
============== =========== ===========
Weighted average number of common and common equivalent
shares outstanding:
Primary 10,299,229 10,112,326 9,980,302
============== =========== ===========
Fully diluted 10,299,229 10,112,326 10,024,175
============== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of the years in the three-year period ended September 30, 1996
COMMON STOCK
----------------------------- ADDITIONAL
NUMBER PAID-IN
OF SHARES AMOUNT CAPITAL
------------ ------------ -----------
<S> <C> <C> <C>
Balance, September 30, 1993 6,184,716 $ 123,694 8,245,386
Net income - - -
Three-for-two stock split 3,177,607 63,552 -
Exercise of stock options 189,758 3,795 181,404
Income tax benefit related to stock option plan - - 663,104
Conversion of warrants to stock 66,397 1,329 388,299
Dividend - - -
Unrealized gains, net - - -
------------ ------------ -----------
Balance, September 30, 1994 9,618,478 192,370 9,478,193
Net income - - -
Exercise of stock options 221,905 4,438 341,820
Income tax benefit related to stock option plan - - 688,610
Dividend - - -
Acquisition of franchise 278,387 5,567 4,432
Unrealized gains, net - - -
------------ ------------ -----------
Balance, September 30, 1995 10,118,770 202,375 10,513,055
Net income - - -
Exercise of stock options 8,156 164 33,557
Dividend - - -
Unrealized loss, net - - -
------------ ------------ -----------
Balance, September 30, 1996 10,126,926 $ 202,539 10,546,612
============ ============ ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
[CONTINUED FROM PREVIOUS PAGE]
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
For each of the years in the three-year period ended September 30, 1996
UNREALIZED
GAINS RETAINED
(LOSSES), NET EARNINGS TOTAL
------------- ------------ -----------
Balance, September 30, 1993 - 4,249,749 12,618,829
Net income - 4,176,171 4,176,171
Three-for-two stock split - (63,552) -
Exercise of stock options - - 185,199
Income tax benefit related to stock option plan - - 663,104
Conversion of warrants to stock - - 389,628
Dividend - (383,025) (383,025)
Unrealized gains, net 1,275,073 - 1,275,073
------------ ------------ -----------
Balance, September 30, 1994 1,275,073 7,979,343 18,924,979
Net income - 4,196,213 4,196,213
Exercise of stock options - - 346,258
Income tax benefit related to stock option plan - - 688,610
Dividend - (397,861) (397,861)
Acquisition of franchise - 100,113 110,112
Unrealized gains, net 322,938 - 322,938
------------ ------------ -----------
Balance, September 30, 1995 1,598,011 11,877,808 24,191,249
Net income - 2,546,072 2,546,072
Exercise of stock options - - 33,721
Dividend - (404,925) (404,925)
Unrealized loss, net (613,219) - (613,219)
------------ ------------ -----------
Balance, September 30, 1996 984,792 14,018,955 25,752,898
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years in the three-year period ended September 30, 1996
1996 1995 1994
------------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,546,072 4,196,213 4,176,171
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,163,367 693,960 360,621
Deferred income taxes 303,948 (115,054) 45,826
Loss on disposal of property and equipment 8,712 4,090 71,717
Changes in assets and liabilities:
Accounts receivable (844,765) 526,684 (732,418)
Rights to receive (11,378,557) (8,674,688) (7,504,610)
Income taxes receivable (307,377) - -
Prepaid expenses and other current assets (326,830) (137,289) (408,475)
Unamortized advertising costs 195,733 (260,938) (278,180)
Other assets (1,184,052) 177,553 (203,876)
Accounts payable - Rights to receive (148,718) 1,290,739 1,907,463
Accounts payable - other 1,072,781 242,812 592,414
Income taxes payable (22,600) (318,739) (202,293)
Accrued expenses (255,221) 184,082 43,583
Deferred membership and renewal fee
income 1,235,870 1,347,153 605,155
------------- ----------- ----------
Net cash used in operating activities (7,941,637) (843,422) (1,526,902)
------------- ----------- ----------
Cash flow from investing activities:
Additions to property and equipment (3,354,572) (2,020,055) (1,687,478)
Purchase of securities available for sale - - (180,000)
Proceeds from sale of property and equipment 500 - 6,500
------------- ----------- ----------
Net cash used in investing activities (3,354,072) (2,020,055) (1,860,978)
------------- ----------- ----------
Cash flows from financing activities:
Net borrowings on note payable to bank under revolving
line of credit 13,000,000 2,000,000 -
Conversion of warrants and options for common stock, net
of tax benefits 33,721 1,034,868 1,237,931
Dividends paid (404,925) (379,968) (376,197)
------------- ----------- ----------
Net cash provided by financing activities
12,628,796 2,654,900 861,734
------------- ----------- ----------
F-5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1996 1995 1994
Net (decrease) increase in cash $ 1,333,087 (208,577) (2,526,146)
Cash and cash equivalents, beginning of year 2,270,322 2,478,899 5,005,045
------------- ----------- ----------
Cash and cash equivalents, end of year $ 3,603,409 2,270,322 2,478,899
============= =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 580,379 95,135 -
============= =========== ==========
Income taxes $ 1,382,330 2,138,000 2,293,855
============= =========== ==========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Noncash investing and financing activities:
During the years ended September 30, 1996 and 1995, the Company
adjusted its available for sale investment portfolio to fair value;
resulting in a net (decrease) increase to stockholders' equity of
($613,219) and $322,938, net of deferred income taxes.
On March 20, 1996 and September 16, 1996, the Company declared a
cash dividend of $.02 per share of common stock outstanding, payable
on April 19, 1996 and October 24, 1996, respectively, to
stockholders' of record at close of business on April 5, 1996 and
October 10, 1996, respectively. At September 30, 1996, the dividend
payable of $213,801 is recorded as accrued expenses.
On March 23, 1995 and September 18, 1995, the Company declared a
cash dividend of $.02 per share of common stock outstanding, payable
on April 21, 1995 and October 19, 1995, respectively, to
stockholders' of record at close of business on April 7, 1995 and
October 5, 1995, respectively. At September 30, 1995, the dividend
payable of $210,263 is recorded in accrued expenses.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Transmedia Network Inc. and subsidiaries' (the "Company") main
business activity is to acquire rights to receive goods and
services from restaurants and other establishments ("Rights to
receive"), which are then sold to the Company's cardholders for
cash. These Rights to receive are primarily purchased by the
Company for cash.
The Company's primary area of operations includes the Central
and Southeast Florida area, the New York and Chicago
metropolitan areas, Boston and Philadelphia, as well as its
surrounding areas, including Delaware, also Detroit,
Indianapolis, Milwaukee, Denver and Phoenix. Franchised areas
include most of New Jersey, Washington, D.C., Maryland,
Virginia, Texas, Oregon, North and South Carolina; Atlanta,
Georgia, and parts of Tennessee, and California, including parts
of Nevada and the state of Washington. Licensing arrangements
exist for the United Kingdom, Canada, and Europe, as well as the
Asia-Pacific region.
Transmedia Network Inc.'s corporate structure consists of three
wholly owned subsidiaries: Transmedia Restaurant Company Inc.,
is in charge of all restaurant-oriented functions of the
Company; TMNI International Incorporated is responsible for all
foreign licensing; and Transmedia Service Company Inc. which is
responsible for all card member-related facets of the business,
including the card member service center and domestic
franchising. All intercompany accounts and transactions have
been eliminated in consolidation.
(B) RIGHTS TO RECEIVE
Rights to receive ("Rights") are composed primarily of food and
beverage credits from restaurants. Rights are stated at the
gross amount of the commitment to the establishment
(approximately 50 percent of the retail value of Rights
obtained). Accounts payable-Rights represent the unfunded
portion of the total commitments. Cost is determined by the
first-in, first-out method. The Company reviews the
realizability of the Rights on a periodic basis, provides for
write-offs of rights to receive and write-off of Rights from
restaurants that have ceased operations or whose credits are not
utilized by cardholders. These write-offs are offset by
recoveries from restaurants.
(C) SECURITIES AVAILABLE FOR SALE
The company classifies any debt and marketable equity securities
in one of three categories: trading, available for sale, or held
to maturity. Securities available for sale are recorded at fair
value. Realized gains and losses from the sale of securities
available for sale are computed using the specific
identification method. Unrealized gains and losses, net of the
related tax effects, on securities are recorded as a separate
component of stockholders' equity until realized.
F-7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on
property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets.
Amortization of leasehold improvements is calculated over the
shorter of the lease term or estimated useful life of the asset.
(E) DEFERRED MEMBERSHIP AND RENEWAL FEE INCOME AND UNAMORTIZED
ADVERTISING COSTS
Deferred membership and renewal fee income is billed in advance
and amortized, straight-line, over the period of membership.
Deferred membership and renewal fee income, is classified as a
noncurrent liability since working capital will not be required
as the deferred income is recognized over future periods.
Certain costs of acquiring cardmembers are deferred and
amortized, on a straight-line basis, over 12 months, which is
the initial cardholder membership period. The advertising costs
capitalized as assets by the Company represent initial
fee-paying member acquisition costs resulting from
direct-response campaign costs which are recorded as incurred.
Campaign costs include incremental direct costs of
direct-response advertising, such as printing of brochures,
campaign applications and mailings; as well as, payroll and
payroll-related costs paid to employees directly related to the
campaigns and to outside sources. Such costs are deferred only
to the extent of membership fees generated by the campaign.
Card member acquisition expenses represent the cost of acquiring
cardmembers and consist primarily of direct-response advertising
costs.
(F) FRANCHISE AND LICENSE FEE INCOME
Continuing franchise fee revenue is based on the franchisees'
sales and are recognized when earned.
Initial franchise fees and license fees are recognized when
material services or conditions relating to the sale have been
substantially performed. Initial franchise fees and license fees
consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Initial franchise and license fees $ 75,000 725,000 1,680,000
Initial franchise and license expenses 44,900 (116,789) (208,000)
------ -------- ----------
$ 30,100 608,211 1,472,000
====== ======= =========
</TABLE>
F-8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(G) NET SALES
Net sales represent the retail value usage of the rights to
receive sold, less the 20-30 percent discount offered to the
Company's cardholders.
(H) COMMISSION INCOME
Commission income represents income for advertising services
provided by the Company to restaurants or other establishments,
other than services derived from the purchase of rights to
receive in advance.
(I) INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Primary income per common and common equivalent share is
computed by dividing net income by the weighted average number
of common stock outstanding and common stock equivalents. Fully
diluted income per share computation reflects the effect of
common shares contingently issuable upon the exercise warrants
in periods in which such exercise would cause dilution. Fully
diluted income per share also reflects additional dilution
related to stock options due to the use of the market price at
the end of the period, when higher than the average price for
the period.
(J) INCOME TAXES
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(K) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are instruments with original
maturities at the date of purchase of three months or less.
(L) RECLASSIFICATION
Certain prior year amounts have been reclassified to conform
with the 1996 presentation.
(M) NEW ACCOUNTING PRONOUNCEMENTS
(I) ACCOUNTING FOR STOCK-BASED COMPENSATION
On October 23, 1995, the FASB issued Statement No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" ("FAS 123").
This Statement applies to all transactions in which an
entity acquires goods or services by issuing equity
instruments or by
F-9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incurring liabilities where the payment amounts are based
on the entity's common stock price. The Statement covers
transactions with employees and nonemployees and is
applicable to both public and nonpublic entities.
Entities are allowed (1) to continue to use the
Accounting Principles Board Opinion No. 25 method ("APB
25"), or (2) to adopt the FAS 123 fair value based
method. Once the method is adopted, an entity cannot
change and the method selected applies to all of an
entity's compensation plans and transactions. For
entities not adopting the FAS 123 fair value based
method, FAS 123 requires pro forma net income and
earnings per share information as if the fair value based
method has been adopted. For entities not adopting the
fair value based method, the disclosure requirements of
FAS 123, including the pro forma information, are
effective for financial statements for fiscal years
beginning after December 15, 1995. The pro forma
disclosure are to include all awards granted in fiscal
years that begin after December 15, 1994. However, the
disclosures, including the pro forma net income and
earnings per share disclosures, for the fiscal year
beginning after December 15, 1994 will not be included in
that year's financial statements but will be included in
the following year-end financial statements if the first
fiscal year is presented for comparative purposes.
Management has determined that it will follow the
accounting method for APB 25 for employees and that the
effect of FAS 123 for nonemployees is not significant.
FAS 123 will be adopted by the Company as of October 1,
1996.
(II) ACCOUNTING FOR TRANSFERS OF SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the FASB issued Statement of Financial
Accounting Standards No. 125 ("FAS 125"), "ACCOUNTING FOR
TRANSFERS OF SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES." FAS 125 provides
accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of
liabilities based on a financial-components approach that
focuses on control. FAS 125 is effective for transfers
and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to
be prospectively applied. The Company believes that the
adoption of FAS 125 will have no impact on its financial
statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
ESTIMATED
SEPTEMBER 30, USEFUL LIVES
----------------------------- -------------
1996 1995
---- ----
<S> <C> <C> <C>
Furniture and fixtures $ 354,502 169,875 5 years
Office equipment 7,386,056 4,334,136 5 years
Leasehold improvements 53,791 61,272 Life of lease
----------- -----------
7,794,349 4,565,283
Less accumulated depreciation (2,130,656) (1,093,583)
--------- ---------
$ 5,663,693 3,471,700
========= =========
</TABLE>
Depreciation and amortization expense for the years ended September 30,
1996 and 1995 was $1,153,367 and $683,960, respectively.
(3) SECURITIES AVAILABLE FOR SALE
Securities available for sale are recorded at fair value and consist of
shares of common stock of various companies with an aggregate cost of
$280,000 and $280,000 as of September 30, 1996 and 1995. Gross
unrealized gains were $1,749,625 and $2,685,941 as of September 30,
1996 and 1995, respectively. Gross unrealized losses were $161,250 and
$66,250 as of September 30, 1996 and 1995, respectively. There were no
realized gains or losses for the years ended September 30, 1996 and
1995.
(4) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS," defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. For the financial instruments shown
below. The following presents the carrying amount and fair value of the
Company's financial instruments at September 30, 1996:
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Rights to receive $ 37,525,957 37,525,957
========== ==========
Securities available for sale $ 1,868,375 1,868,375
=========== ===========
Line of credit $ 15,000,000 15,000,000
========== ==========
F-11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the rights to receive is based upon the sale
described in note 16(a). The fair value of the securities available for
sale is based upon quoted market prices for these or similar
instruments. Amounts outstanding under the line of credit are
considered to be at fair value because the rate of increase fluctuates
as market conditions charge.
(5) ALLOWANCE ACCOUNTS
The following tables describe the activity in the allowance accounts
for accounts receivable and rights to receive:
<TABLE>
<CAPTION>
BALANCE, CHARGED BALANCE,
BEGINNING TO END OF
OF YEAR EXPENSES WRITE-OFFS YEAR
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Accounts receivable:
Year ended September 30, 1966:
Allowance for doubtful accounts $ 15,000 424,807 (424,807) 15,000
======== ========== ========== ========
Year ended September 30, 1995:
Allowance for doubtful accounts $ 25,000 332,528 (342,528) 15,000
======== ========== ========== ========
Year ended September 30, 1994:
Allowance for doubtful accounts $ 20,000 111,527 (106,527) 25,000
======== ========== ========== ========
Rights to receive:
Year ended September 30, 1996:
Allowance for doubtful accounts $ 900,000 2,074,863 (2,654,863) 320,000
======= ========= ========== =======
Year ended September 30, 1995:
Allowance for doubtful accounts $ 700,000 2,332,350 (2,132,350) 900,000
======= ========= ========== =======
Year ended September 30, 1994:
Allowance for doubtful accounts $ 400,000 1,742,633 (1,442,633) 700,000
======= ========= ========= =======
Write-offs for rights to receive are offset by recoveries from restaurants.
</TABLE>
(6) STOCK OPTION PLANS
Under the Company's 1987 Stock Option and Rights Plan (the "1987
Plan"), the Company may grant stock options and related stock
appreciation rights to persons who are now or who during the term of
the 1987 Plan become key employees (including those who are also
directors) and independent sales agents. Stock options granted under
the 1987 Plan may either be incentive stock options or nonqualified
stock options for federal income tax purposes. The 1987 Plan, as
amended in 1992, provides that the stock option committee of the board
of directors may grant stock options or stock appreciation rights with
respect to a maximum of 1,012,500 shares of common stock at a price not
less than the fair market value at the date of grant for qualified and
nonqualified stock options. The exercise price under an incentive stock
option granted to a person owning stock representing more than 10
percent of the common stock must equal at least 110 percent of the fair
market value at the date of grant. Options are exercisable beginning
not less than one year after date of grant. All options expire either
five or ten years from the date of grant
F-12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and each becomes exercisable in installments of 25 percent of the
underlying shares for each year the option is outstanding, commencing
on the first anniversary of the date of grant.
In March 1996, the 1996 Long-Term Incentive Plan (the "1996 Plan") was
approved for adoption by the Company's stockholders. Under the 1996
Plan, the Company may grant awards, which may include stock options,
stock appreciation rights, restricted stock, deferred stock, stock
granted as a bonus or in lieu of other awards, dividend equivalents and
other stock based awards to directors, officers and other key employees
and consultants of the Company. A maximum of 505,966 shares of the
Company's common stock is included in the 1996 Plan. Stock options
granted under the 1996 Plan may be either incentive stock options or
nonqualified stock options for federal income tax purposes. The
exercise price under an incentive stock option to a person owning stock
representing more than 10 percent of the common stock must equal at
least 110 percent of the fair market value at the date of grant.
Options are excercisable not less than one year after the date of
grant.
The following table summarizes the stock options granted and exercised
during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Total stock options granted - common stock 85,000 165,500
========= =======
Total stock options exercised - common stock 8,156 221,905
========= =======
Average exercise price $ 4.13 $ 1.56
======== =======
Nonqualified stock options exercised - common stock - 208,686
========= ========
Current windfall tax benefit $ - 688,610
========= ========
Total warrants converted to common stock - -
Average exercise price $ - $ 4.56
========= =======
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1996 and 1995, options under the Plans to purchase
586,373 and 509,529 shares of common stock are outstanding as follows:
SEPTEMBER 30, 1996
--------------------------------
ISSUANCE NUMBER OF EXERCISE EXPIRATION
DATE SHARES PRICE DATE
--------- ------------ ------------ -----------
<S> <C> <C> <C>
March 1992 26,157 $ 3.8889 March 1997
May 1992 102,093 4.8333 May 1997
September 1993 77,623 7.4445 September 2003
February 1994 37,500 12.2500 February 2004
March 1994 97,500 15.0000 March 2004
March 1995 135,500 12.2500 March 2005
August 1995 25,000 9.2500 August 2005
December 1995 50,000 10.0000 December 2000
March 1996 25,000 7.8750 March 2001
June 1996 10,000 8.0000 June 2001
--------
586,373
========
SEPTEMBER 30, 1995
--------------------------------
ISSUANCE NUMBER OF EXERCISE EXPIRATION
DATE SHARES PRICE DATE
--------- ------------ ------------ -----------
March 1992 33,750 $ 3.8889 March 1997
May 1992 102,093 4.8333 May 1997
September 1993 78,186 7.4445 September 2003
February 1994 37,500 12.2500 February 2004
March 1994 97,500 15.0000 March 2004
March 1995 135,500 12.2500 March 2005
August 1995 25,000 9.2500 August 2005
--------
509,529
========
In addition to the options under the Plan, at September 30, 1996 and
1995, the Company has issued the following nonqualified options to
purchase an additional 421,250 and 421,250 shares of common stock
outstanding as follows:
SEPTEMBER 30, 1996
--------------------------------
ISSUANCE NUMBER OF EXERCISE EXPIRATION
DATE SHARES PRICE DATE
--------- ------------ ------------ -----------
March 1992 168,750 3.8889 March 1997
May 1992 135,000 4.8333 May 1997
September 1993 112,500 7.4445 September 1998
May 1995 5,000 11.375 May 2000
---------
421,250
=========
F-14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
--------------------------------
ISSUANCE NUMBER OF EXERCISE EXPIRATION
DATE SHARES PRICE DATE
--------- ------------ ------------ -----------
March 1992 168,750 $ 3.8889 March 1997
May 1992 135,000 4.8333 May 1997
September 1993 112,500 7.4445 September 1998
May 1995 5,000 11.375 May 2000
---------
421,250
=========
</TABLE>
During 1996 and 1995, expired or canceled stock options totaled -0- and
17,500, respectively.
(7) STOCKHOLDERS' EQUITY
The Company has 1 million authorized shares of preferred stock, $.10
par value per share; none of which has been issued.
Effective March 22, 1994, the Company effected a three-for-two stock
split recorded in the form of a 50 percent stock dividend on its common
stock. All references to the number of common shares and per common
share amounts have been restated to reflect the split.
During March 1994, the Company amended its certificate of incorporation
to increase the number of shares of authorized common stock from 10
million to 20 million.
(8) INCOME TAXES
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Deferred tax assets:
Travel programs $ 98,730 -
Amortization of leasehold improvements 5,956 -
Rights to receive 132,032 351,000
Accrued expenses - 84,435
Accounts receivable 6,190 5,850
--------- ---------
Total gross deferred tax assets 242,908 441,285
Less valuation allowance - -
--------- ---------
Net deferred tax assets 242,908 441,285
--------- ---------
Deferred tax liabilities:
Unrealized gain on securities available for sale 603,582 1,021,679
Deferred advertising costs 141,681 210,786
Property and equipment 191,082 21,405
--------- ---------
Total gross deferred tax liabilities 936,345 1,248,870
--------- ---------
Net deferred tax liability (693,437) (807,585)
========= =========
</TABLE>
F-15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There was no valuation allowance for deferred tax assets as of
September 30, 1996 and 1995. The increase/(decrease) in deferred taxes
related to securities available for sale was (418,097) and $135,611
during 1996 and 1995, respectively.
Income tax expense (benefit) for the years ended September 30, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C> <C>
1996:
U.S. federal $ 921,553 336,313 1,257,866
State and local 334,999 (32,365) 302,634
---------- -------- ----------
$ 1,256,552 303,948 1,560,500
========= ======= =========
1995:
U.S. federal $ 2,179,357 (75,488) 2,103,869
State and local 618,497 (39,566) 578,931
----------- -------- -----------
$ 2,797,854 (115,054) 2,682,800
========= ======= =========
1994:
U.S. federal $ 2,018,072 195,618 2,213,690
State and local 733,602 (149,792) 583,810
---------- ------- ----------
$ 2,751,674 45,826 2,797,500
========= ======== =========
</TABLE>
Reconciliation of the statutory federal income tax rate and the
Company's effective rate for the years ended September 30, 1996, 1995
and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- -------------------------- -------------------------
% OF PRETAX % OF PRETAX % OF PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Federal tax rate $ 1,396,276 34.0% $ 2,338,864 34.0% $ 2,371,048 34.0%
State and local taxes,
net of federal
income tax benefit 302,634 7.4 578,931 8.4 583,810 8.4
Other (138,410) (3.4) (234,995) (3.4) (157,358) (2.3)
---------- ---- ---------- ----- --------- -----
$ 1,560,500 38.0% $ 2,682,800 39.0% $ 2,797,500 40.1%
========= ==== ========= ==== ========= ====
</TABLE>
(9) FRANCHISE AGREEMENTS
The Company, as franchiser, has entered into various ten-year
franchising agreements with franchisees. In accordance with these
agreements, the Company has agreed to provide marketing, advertising,
training and other administrative support. All material services or
conditions relating to the franchise sales have been substantially
performed or satisfied by the Company as of September 30, 1996. In
addition, the Company has agreed to grant a territory with at least 625
full-service restaurants that accept certain major credit cards; and
will continue to develop trademarks for itself and the system of
franchisees. The Company also has agreed to pay a commission to the
franchisees in an amount equal to 40 percent of the initial membership
cardholders' fees for all new cardholders solicited by the franchisees.
F-16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The franchisees are responsible for soliciting restaurants and
cardholders, paying consideration to the restaurants to obtain Rights
to receive meal and beverage credits, and maintaining adequate
insurance. During 1994, the Company funded two of its franchisees
through the issuance of notes receivable totaling $220,000 (included in
other assets). Such notes are secured by Rights to receive purchased by
such franchisees in their respective geographic territories. As of
September 1996, no amounts were outstanding for these notes.
In consideration for granting the franchises, the franchisees paid the
Company initial franchise fees and an initial fee to the Company's
advertising and development fund. Continuing fees to be paid by the
franchisees are as follows:
/bullet/ 7.5 percent of the total meal credits used within the
franchisee's territory.
/bullet/ 2.5 percent of the total meal credits used within the
franchisee's territory to be deposited into the
advertising and development fund.
/bullet/ A processing fee of $0.20 per sale transaction slip
forwarded to the Company from the franchisee's
territory.
/bullet/ A weekly service charge of $0.23 per participating
restaurant in the franchisee's territory.
As of September 30, 1996 and 1995, the Company maintained $1,897 and
$1,068, respectively, in its advertising and development fund, which is
included as cash in the accompanying consolidated financial statements.
These funds may be used in the Company's sole discretion to meet any
and all costs of maintaining, administering, directing and preparing
advertising for purposes of enhancing the franchise system, the
restaurant card and for soliciting and marketing to restaurants and
restaurant card holders.
The Company received 60,000 shares of publicly traded common stock in
connection with the sale of its fourth and fifth franchise territories
during 1995, which represented 2.3 percent of the franchisee's 1995
common stock. There were no franchise territories sold during 1996. The
shares are included in securities available for sale. In addition, the
chairman and a director of the Company own 0.3 percent and 6.5 percent
of the franchisee's common stock, respectively.
(10) LICENSE AGREEMENTS
In March 1994, the Company entered into an agreement for an exclusive
perpetual license of its software and trademark in the Asia-Pacific
region. In accordance with the agreement, the Company agreed to assist
the licensee with training relating to sales, administration,
technology and operations of the business. All material services or
conditions relating to the license sale had been substantially
performed or satisfied by the Company as of September 30, 1994. The
licensee may grant sublicenses in the territory and is responsible for
the operations of the business in the Asia-Pacific region, including
procuring member restaurants and providing related services and
activities throughout the territory.
F-17
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In consideration for granting the exclusive license, the licensee paid
the Company in fiscal 1994 a license fee totaling $1,250,000 for the
master license agreement and has granted to the Company a 5 percent
equity interest in the new entity which will operate in Australia and
New Zealand. The shares comprising the equity interest are included in
securities available for sale. Continuing fees to be paid by the
licensee are as follows:
/bullet/ 25 percent of any amounts that the licensee receives
from any sublicensee within the territory, other than
Australia and New Zealand. Such amounts shall include,
but not be limited to, royalty payments, transfer fee
payments and up-front sublicense fee payments. The
portion of the up-front sublicense fee paid to the
Company shall not be less than $250,000, unless
otherwise agreed to by the Company, and in no event
less than $500,000, for each of the People's Republic
of China and Japan.
/bullet/ Royalty of two percent of gross sales of the Australia
and New Zealand sublicensee, and 25 percent of any
other amounts that the licensee receives from the
sublicensee.
The Company has an agreement for an exclusive perpetual license of its
software and trademarks in the continent of Europe. In accordance with
this agreement, the Company agreed to assist the licensee with training
relating to sales, administration, technology, and operations of the
business. All material services or conditions relating to the license
sale have been substantially performed or satisfied by the Company. The
licensee may grant sublicenses in the territory and is responsible for
the operations of the business in Europe, including procuring member
restaurants and providing related services and activities throughout
the territory.
In consideration for granting the exclusive license, the licensee paid
the Company in August 1993 a license fee of $1,125,000 for the master
license agreement and has granted to the Company a five percent equity
interest in the new entity which will operate in the United Kingdom.
Continuing fees to be paid by the licensee are as follows:
/bullet/ 25 percent of any amounts that licensee receives from
any sublicensee within the territory, other than the
United Kingdom. Such amounts shall include, but not be
limited to, royalty payments, transfer fee payments
and up-front sublicense fee payments. The portion of
the up-front sublicense fee paid to the Company shall
not be less than $250,000, unless otherwise agreed to
by the Company.
/bullet/ Royalty of two percent of gross sales of the United
Kingdom sublicensee, and 25 percent of any other
amounts that the licensee receives from the
sublicensee.
During 1995, the Company received $250,000 from the European licensee
when it exercised its right to sublicense within the territory.
(11) LEASES
The Company leases certain equipment and office space under long-term
lease agreements.
F-18
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under noncancelable operating leases as
of September 30, 1996 are as follows:
YEAR ENDING
SEPTEMBER 30,
-------------
1997 $ 341,872
1998 269,783
1999 230,585
2000 210,707
2001 137,800
----------
Total minimum lease payments $ 1,190,747
=========
Rent expense charged to operations was $386,915, $292,907, and $263,821
for the years ended September 30, 1996, 1995 and 1994, respectively.
(12) COMMITMENTS
On July 14, 1995, the Company entered into an unconditional guaranty
agreement with a financial institution, to extend credit in the amount
of $450,000 to a franchisee, which agreement is still outstanding at
September 30, 1996.
On October 1, 1994, the Company amended its employment agreement with
its president through September 30, 1997. The agreement provides for
salary at an annual rate of $275,000 through September 30, 1995;
$300,000 through September 30, 1996; and $350,000 through September 30,
1997, plus 5 percent of the Company's pretax income not to exceed
$600,000 for the fiscal years ended September 30, 1995 and 1996 and
$700,000 for the fiscal year ended September 30, 1997. In addition, in
the event of a sale of the Company, the president has the right to
resign from his positions with Transmedia within one year and receive
$1 million upon such resignation.
On November 24, 1993, the Company also entered into a consulting
agreement with its president to commence on September 30, 1997 through
January 1, 2005. The agreement provides compensation at an annual
amount equal to 50 percent of the sum of the highest base salary and
bonus received by the president in any year under the employment
agreement, discussed above, not to exceed in any one year during the
term of the consulting agreement, 10 percent of the Company's prior
year's pretax income, but in any event not less than $100,000.
On October 1, 1994, the Company also amended an employment agreement
with an executive vice president through September 30, 1997. The
agreement provides for salary at an annual rate of $180,000 through
September 30, 1995; $250,000 through September 30, 1996; and $300,000
through September 30, 1997, plus 3 percent of the increase in the
Company's pretax income over the prior fiscal year for fiscal years
1995, 1996 and 1997. In addition, this executive received a $150,000
signing bonus, forfeitable pro rata over the term of the agreement. In
the event of a sale of the Company, this executive has the right to
resign from his positions with Transmedia within one year and receive
$750,000 upon such resignation.
F-19
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 31, 1994, the Company approved a severance plan for selected
officers and key employees of the Company. This plan offers one year of
salary for each year of service with the Company, up to a maximum of
three years, if, within the two-year period following a change in
control of the Company, the individual is terminated or voluntarily
resigns from the Company.
On December 5, 1995, the Company entered into an employment agreement
with a vice president through September 30, 1997. This agreement
provides for salary at an annual rate of $225,000 through September 30,
1996 and $250,000 through September 30, 1997, and is eligible for a
performance bonus in each year up to one-third of the annual salary. In
addition, a $500,000 split dollar life insurance policy, options to
purchase 50,000 shares of the Company's common stock, and a $500,000
severance payment in the event of termination following a change in
control.
(13) LINE OF CREDIT
The Company maintains a line of credit with a bank to finance the
purchase of Rights to receive. On January 26, 1996 the Company
increased the line of credit to $20 million. The facility matures on
January 26, 1999. As of September 30, 1996 and 1995, $15 million and $2
million were outstanding under this credit facility, respectively. The
credit facility has an interest rate of prime and is unsecured. There
were no conditions under which the line of credit may be withdrawn. As
a result of the sale of the rights to receive described in note 16(a),
the outstanding obligation under the line of credit was refinanced and
the credit facility was terminated on December 24, 1996.
(14) BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are located in the New York City and
Southeast Florida areas. No single customer accounted for more than 5
percent of the Company's sales in any fiscal year presented.
No single restaurant's Rights to receive balance was greater than 5
percent of the total Rights to receive balance at September 30, 1996 or
1995.
(15) BUSINESS COMBINATIONS
On July 1, 1995, the Chicago franchisee (the "franchisee"), was merged
into the Company, and 278,387 shares of the Company's common stock were
issued in exchange for all the outstanding common stock of the
franchisee. The merger was accounted for as a pooling of interests and
the accompanying financial statements reflect this transaction.
(16) SUBSEQUENT EVENTS
(A) SALE OF RIGHTS TO RECEIVE
On December 24, 1996, the Company made an initial transfer of
$33 million of its rights-to-receive to a special purpose
corporation ("SPC"), an indirect wholly owned subsidiary, as
part of a revolving securitization. The rights-to-receive, which
were sold to the SPC without recourse, were in turn transferred
to a limited liability corporation ("Issuer"), which issued $33
million of fixed rate securities in a private placement to
various third party
F-20
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investors. In exchange for the rights-to-receive, which have a
retail value of approximately $66 million before cardmember
discounts, the Company will receive approximately $32 million,
after transaction costs, and a one percent equity interest in
the Issuer. Future excess cash flows, expected to be generated
from the securitized assets as the rights-to-receive are
exchanged for meals by Company cardholders, are to be remitted
to the Company on a monthly basis as a return on capital from
the Issuer. Excess cash flows are determined after payments of
interest to noteholders and investors, as well as trustee and
servicing fees. It is anticipated that the net revenue from
securitized assets will be received in approximately the same
amount and within the same time frame that such revenue would
have been received had the securitization not taken place.
The private placement certificates have a five-year term before
amortization of principal. During this revolving period, the
Issuer is responsible for the ongoing purchase of
rights-to-receive from the Company to ensure that the initial
pool of $33 million is continually replenished as the
rights-to-receive are utilized by cardholders. It is anticipated
that replenishment of rights-to-receive will provide for a
continuous stream of additional net revenue throughout the
period.
The Company's intention in executing the revolving
securitization transaction was to provide current liquidity, as
well as a platform for future growth, at a cost of funds lower
than has been historically available to the Company. This was
accomplished by, among other things, isolating the
rights-to-receive beyond the reach of the Company or its
creditors in the event of bankruptcy or other receivership
through a transfer of assets that constitutes a true sale at
law. It was also the Company's belief that the structure of the
transaction provided for derecognition of the rights-to-receive
and treatment of the securitization as off-balance sheet
financing under generally accepted accounting principles.
In March 1997, the Company was advised by the SEC staff that
while the transfers of assets may be a true sale under
applicable legal principles, the second transfer of assets from
the SPC to the Issuer should not be characterized as a sale
under applicable generally accepted accounting principles, thus
precluding the derecognition of the rights-to-receive and
resulting in the presentation of the transaction as secured
nonrecourse financing on the consolidated balance sheet of the
Company.
(B) RESTATEMENT OF PRIOR FINANCIAL STATEMENTS
The financial statements for 1994, 1995 and the first three
quarters of 1996 have been restated to reflect the writedown of
certain costs of acquiring card members. Previously, to the
extent that membership and renewal fees were expected to be
received, the Company had been deferring certain costs of
acquiring card members and amortizing them over the average life
of a card member, 24 months. The restatement reflects the
deferral of costs of acquiring fee paying card members only to
the extent that initial membership fees are generated and the
amortization of these costs, as required by generally accepted
accounting principles, over twelve months, the period of initial
membership. The impact of the restatement can be seen in
Footnote 17 to the Consolidated Financial Statements.
F-21
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) PURCHASE OF FRANCHISE
On November 15, 1996, The Company entered into a purchase
agreement with The Western Transmedia Company, Inc. ("Western"),
a franchisee of the Company. Under the terms of the agreement,
the Company will reacquire the right to operate its business in
California, Oregon, Washington and a portion of Nevada. In
addition, the Company will acquire Western's rights to receive,
its furniture, fixtures and equipment. The purchase price will
approximate $7,750,000, of which $4,750,000 represents the cost
of the franchise. Closing of the proposed transaction is
expected to take place in January 1997.
(17) SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
--------------------------------------------------------- ---------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1996 1995 1996
------------- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenue:
Previously reported $ N/A 19,746,529 19,304,706 17,338,991 N/A
As restated 20,830,262 20,343,320 19,740,219 17,670,771 78,584,572
Gross Profit:
Previously reported N/A 7,991,865 7,841,164 6,985,808 N/A
As restated 8,255,093 8,588,656 8,276,677 7,317,588 33,438,014
Net Income:
Previously reported N/A 1,112,005 1,106,157 906,933 N/A
As restated 464,312 839,878 461,295 780,587 2,546,072
Earnings per share:
Previously reported N/A .11 .11 .09 N/A
As restated .05 .08 .05 .08 .25
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
----------------------------------------------------------- ------------- ---------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1995 1994 1995 1994
---------------- ---------- ---------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Previously reported $ 17,725,220 16,376,824 16,517,893 14,920,410 65,540,347 50,145,362
As restated 17,964,875 16,565,425 16,671,376 15,036,618 66,238,294 50,283,356
Gross Profit:
Previously reported 7,039,702 6,478,398 6,544,404 5,989,350 26,051,854 19,673,416
As restated 7,279,357 6,666,999 6,697,887 6,105,558 26,749,801 19,811,410
Net Income:
Previously reported 1,090,026 1,173,582 1,196,567 1,167,551 4,627,726 4,406,622
As restated 736,295 1,221,446 1,115,971 1,122,501 4,196,213 4,176,171
Earnings per share:
Previously reported .11 .12 .12 .12 .46 .44
As restated .07 .12 .11 .11 .42 .42
</TABLE>
F-22
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is set forth under the heading
"Executive Officers of the Registrant" in Part I hereof and in
"Election of Directors" in the Company's 1997 Proxy Statement, which is
incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is set forth under the heading
"Executive Compensation" in the Company's 1997 Proxy Statement, which
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for in Item 12 is set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1997 Proxy Statement, which is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for in Item 13 is set forth under the heading
"Certain Relationships and Related Transactions" in the Company's 1997
Proxy Statement, which is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report:
(a)(1) Financial Statements:
Transmedia Network Inc.
See "Index to Financial Statements" contained in Part II,
Item 8.
- 21 -
<PAGE>
(a)(2) Financial Statement Schedules
No schedules have been included because they are not applicable or the
required information is shown in the Financial Statements or the Notes
thereto.
(a)(3) Exhibits
DESIGNATION DESCRIPTION
2.1 Assignment and Assumption of Franchise Agreements dated September 30,
1994 between Transmedia Network Inc. and the Service Company.(1)
2.2 Capital Contribution dated September 30, 1994 by Transmedia Network
Inc. to the Service Company.(1)
2.3 Trademark Contribution dated September 30, 1994 from Transmedia Network
to the Service Company.(1)
2.4 Capital Contribution dated September 30, 1994 from Transmedia Network
Inc. to the Restaurant Company.(1)
2.5 Administrative Services Agreement dated as of September 30, 1994
between Transmedia Service Company Inc. and Transmedia Restaurant
Company Inc.(1)
2.6 Franchise Agreement dated September 30, 1994 between Transmedia Service
Company Inc. and Transmedia Restaurant Company Inc.(1)
3.1 Certificate of Incorporation of the Company, as amended.(2)
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company.(9)
3.3 Certificate of Amendment to the Certificate of Incorporation of the
Company, as filed with the Delaware Secretary of State on March 22,
1994.(1)
3.4 By-Laws of the Company.(3)
10.2 1987 Stock Option and Rights Plan, as amended.(1)(10)
10.3 Form of Stock Option Agreement (as modified) between the Company and
certain Directors and Schedule of Options granted and outstanding (as
of September 30, 1995) to such Directors pursuant to the respective
Stock Option Agreements with such Directors.(10) (11)
10.4 Amended and Restated Employment Agreement dated as of November 15, 1996
between the Company and Melvin Chasen.(12)
- 22 -
<PAGE>
10.5 Amended and Restated Consulting Agreement dated as of November 15, 1996
between the Company and Melvin Chasen.(12)
10.6 Employment Agreement effective April 1, 1992 between the Company and
James Callaghan.(9) (10)
10.7 Amendment dated October 1, 1994, to Employment Agreement between the
Company and James Callaghan.(1)(10)
10.8 Employment Agreement dated as of October 1, 1995 between the Company
and Barry Kaplan. (10)(12)
10.9 Master License Agreement dated December 14, 1992 between the Company
and Conestoga Partners, Inc.(8)
10.10 First Amendment to Master License Agreement dated April 12, 1993,
between the Company and Conestoga Partners, Inc.(9)
10.11 Second Amendment to Master License Agreement -- Assignment and
Assumption Agreement dated August 11, 1993 among the Company, TMNI
International Incorporated and Transmedia Europe, Inc.(9)
10.12 Master License Agreement Amendment No. 3 dated November 22, 1993
between TMNI International Incorporated and Transmedia Europe, Inc.(9)
10.13 Master License Agreement dated March 21, 1994 between TMNI
International Incorporated and Conestoga Partners II, Inc. licensing
rights in the Asia Pacific region.(1)
10.14 Agreement, dated as of December 6, 1996, among the Company, TMNI
International Incorporated, Transmedia Europe Inc. and Transmedia Asia
Pacific Inc.(12)
10.15 Agreement, dated as of November 15, 1996 between the Company and The
Western Transmedia Company Inc.(12)
21.1 Subsidiaries of Transmedia Network Inc.(1)
23.1 Consent of Independent Auditors.(13)
99.1 Prospectus of the Company dated July 10, 1992 filed pursuant to the
Securities Act of 1933.(5)
99.2 Prospectus of the Company dated August 12, 1992 filed pursuant to the
Securities Act of 1933.(6)
- 23 -
<PAGE>
99.3 Form of Subscription Agreement.(7)
99.4 Agency Agreement dated April 9, 1992 between the Company and Janney
Montgomery Scott Inc.(8)
99.5 Warrant Purchase Agreement dated June 15, 1992 between the Company and
Janney Montgomery Scott.(8)
_________________
(1) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994 and
incorporated by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1988, and
incorporated by reference thereto.
(3) Filed as an exhibit to the Post Effective Amendment to the
Registration Statement on Form S-1 (Registration No. 33-5036),
and incorporated by reference thereto.
(4) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1990, and
incorporated by reference thereto.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 33-494460), and incorporated by
reference thereto.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-49374), and incorporated by
reference thereto.
(7) Filed as an exhibit to the Company's Form 8-K Current Report
dated June 15, 1992, and incorporated by reference thereto.
(8) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, and
incorporated by reference thereto.
(9) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, and
incorporated by reference thereto.
(10) Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) hereof.
(11) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995 and
incorporated by reference.
(12) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996, and
incorporated by reference.
(13) Filed as an exhibit hereto.
- 24 -
<PAGE>
(b) The Company did not file any Form 8-K Current Reports during
the fiscal year ended September 30, 1995.
(c) Exhibits:
See paragraph (a) (3) above for items filed as exhibits to
this Annual Report on Form 10-K as required by Item 601 of
Regulation S-K.
(d) Financial Statement Schedules:
See paragraphs (a)(1) and (a)(2) above for financial statement
schedules and supplemental financial statements filed as part
of this Annual Report on Form 10-K.
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.
TRANSMEDIA NETWORK INC.
By: /S/MELVIN CHASEN
------------------------------
Melvin Chasen, President
and Chief Executive Officer
Dated: April 24, 1997
- 25 -
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Consent of Independent Auditor
27 Financial Data Schedule
EXHIBIT 23.1
The Board of Directors and
Stockholders
Transmedia Network, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-9002) on Form S-4 of Transmedia Network, Inc. of our report dated December 6,
1996, except as to notes 13, 16b and 16c, which are dated as of December 24,
1996, and note 16a which is dated as of March 31, 1997, relating to the
consolidated balance sheets of Transmedia Network, Inc. and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1996, and all related schedules, which report appears
in the September 30, 1996, annual report on Form 10-K of Transmedia Network Inc.
/s/ KPMG PEAT MARWICK
--------------------------
KPMG Peat Marwick
Miami, Florida
April 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 3,603,409
<SECURITIES> 0
<RECEIVABLES> 2,631,586
<ALLOWANCES> 15,000
<INVENTORY> 37,525,957
<CURRENT-ASSETS> 45,674,705
<PP&E> 7,794,349
<DEPRECIATION> 2,130,656
<TOTAL-ASSETS> 54,514,255
<CURRENT-LIABILITIES> 8,722,226
<BONDS> 0
0
0
<COMMON> 202,539
<OTHER-SE> 25,550,359
<TOTAL-LIABILITY-AND-EQUITY> 54,515,255
<SALES> 68,600,122
<TOTAL-REVENUES> 78,584,572
<CGS> 45,146,558
<TOTAL-COSTS> 73,828,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 851,852
<INCOME-PRETAX> 4,106,572
<INCOME-TAX> 1,560,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,546,072
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
