<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
--------------------
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 0-24404
-------
TRANSMEDIA EUROPE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3701141
------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
---------------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
---- ----
Yes No X
---- ----
18,388,454 Shares, $.00001 par value, as of June 30, 1998.
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PART I : CONSOLIDATED FINANCIAL INFORMATION
- -------------------------------------------
<TABLE>
<S> <C>
ITEM 1 ....................................................................................... Pages 1-17
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of June 30, 1998 and September 30, 1997
Consolidated Statement of Operations for the three months ended June 30, 1998
and 1997 and the nine months ended June 30, 1998 and 1997
Consolidated Statement of Cash Flows for the nine months ended June 30, 1998 and 1997
Notes to the Consolidated Financial Statements
ITEM 2 .......................................................................................Pages 18-21
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: OTHER INFORMATION ......................................................................Page 22
- ---------------------------
SIGNATURES ......................................................................................Page 22
</TABLE>
The consolidated financial statements are unaudited. However, management
believes that all necessary adjustments (which include only normal recurring
accruals) have been reflected to present fairly the financial position of the
company at September 30, 1997 and June 30, 1998, the results of its operations
for the three and nine months ended June 30, 1998 and 1997 and the changes in
its cash flows for the nine months ended June 30, 1998 and 1997
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
----------- -------------
<S> <C> <C>
Assets
Current assets
Cash (including temporary cash investments
of $ Nil at June 30, 1998 and
$168,350 at September 30, 1997) $ 763,857 $554,624
Trade accounts receivable 831,251 484,968
Restaurant credits, (net of allowance for irrecoverable
credits of $ 592,865 at June 30, 1998 and of $666,134
at September 30, 1997) 1,095,994 1,265,918
Amounts due from related parties (Note 15) 403,147 86,401
Prepaid expenses and other current assets 1,257,510 599,626
--------- -------
Total current assets 4,351,759 2,991,537
Non-current assets
Investment in and advances to affiliated company (Note 9) 4,509,769 0
Property and equipment (net of accumulated
depreciation of $423,657 at June 30, 1998
and $678,338 at September 30, 1997) 432,533 741,116
Intangible assets (net of accumulated
amortization of $ 655,770 at June 30, 1998
and $523,858 at September 30, 1997) (Note 10) 1,715,514 1,847,426
Goodwill (net of accumulated
amortization of $328,228 at June 30, 1998
and $145,970 at September 30, 1997) (Note 11) 4,036,770 3,350,000
Other assets 275,612 142,946
------- -------
Total assets $15,321,957 $9,073,025
----------- ----------
----------- ----------
</TABLE>
See accompanying notes
1
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
------------- --------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Bank Credit Line $ 535,083 $ 952,668
Trade accounts payable 2,959,542 2,384,516
Deferred membership fees 487,446 536,509
Accrued liabilities 928,279 1,459,388
Amount due to related party (Note 15) 3,291,017 2,345,841
Deferred cost of investment 1,506,167 0
Notes payable (Note 12) 1,599,163 0
----------- -----------
Total current liabilities 11,306,697 7,678,922
----------- -----------
Stockholders' equity
6 1/2 % Convertible Preferred Shares,
$0.01 par value, 5,000,000 shares
authorized, 590,857 issued and outstanding
shares at June 30, 1998 and 590,857 at
September 30, 1997 5,909 5,909
Common stock, $.00001 par value, 95,000,000
shares authorized, 18,388,454 issued as of
June 30, 1998 and 14,075,787 as of
September 30, 1997 184 140
Additional paid in capital 16,943,764 12,108,055
Accumulated deficit (12,564,956) (10,655,175)
Treasury Stock (at cost, 196,995 shares) (517,112) (517,112)
Cumulative foreign currency translation
adjustment (507,635) (382,668)
-------- --------
Total stockholders' equity 3,360,154 559,149
----------- -----------
Minority Interest 655,106 834,954
----------- -----------
Total liabilities and stockholders' equity $ 15,321,957 $ 9,073,025
----------- ------------
----------- ------------
</TABLE>
See accompanying notes
2
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total Revenues $ 2,377,942 $884,024 $8,497,335 $2,881,321
Cost of sales (862,984) (503,864) (4,826,392) (1,673,521)
----------- ----------- ----------- -----------
Gross profit 1,514,958 380,160 3,670,943 1,207,800
Selling, general and (3,032,643) (925,643) (6,039,064) (3,007,749)
administrative expenses
----------- ----------- ----------- -----------
Loss from operations (1,517,685) (545,483) (2,368,121) (1,799,949)
Share of profits/losses of associated company 106,351 (332,621) 189,459 (644,258)
Interest income/(expense) (4,377) (36,346) 12,578 (31,345)
----------- ----------- ----------- -----------
Loss before income taxes (1,406,957) (914,450) (2,166,085) (2,475,552)
Income taxes 49,050 0 49,050 0
----------- ----------- ----------- -----------
Net loss before preferred share dividends (1,357,908) (914,450) (2,117,035) (2,475,552)
Minority Interest 130,649 0 303,028 0
Preferred share dividends (28,564) (33,605) (95,774) (100,815)
----------- ----------- ----------- -----------
Net loss after preferred share dividends (1,255,823) (948,055) (1,909,781) (2,576,367)
Loss per common share $(0.07) $(0.07) $(0.12) $(0.20)
Weighted average number of common 17,866,476 13,878,792 15,928,331 13,065,605
shares outstanding
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes
3
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
June 30, June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows from Operating Activities:
- Net loss before preferred dividends $ (2,117,035) $(2,475,552)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation and amortization 405,956 34,111
- Amortization of deferred compensation 0 147,756
- Provision for irrecoverable restaurant credits 100,000 78,000
- Share of losses/(gains) of affiliated company (189,459) 100,298
Changes in assets and liabilities:
- Trade accounts payable 485,329 644,258
- Accrued liabilities (626,883) 418,105
- Restaurant credits 69,924 249,955
- Trade accounts receivable (287,740) 57,137
- Prepaid expenses and other current assets (653,026) 79,589
- Deferred membership fees (49,063) 36,605
- Notes receivable 0 (102,285)
----------- -----------
Net cash used in operating activities (2,861,997) (732,023)
----------- -----------
Cash flows from investing activities:
- Receipts from/(payments to) related parties 628,430 346,856
- Disposals of property and equipment 245,550 0
- Investment in associated company (2,314,143) (315,000)
- Purchase of Logan Leisure (897,455) 0
- Purchase of Countdown 0 (1,209,656)
- Purchase of NHS option 0 (142,946)
- Advances made (32,666) 0
----------- -----------
Net cash used in investing activities (2,370,284) (1,320,746)
----------- -----------
Cash flows from financing activities:
- Net proceeds received from issuance of
common stock 4,235,753 1,097,500
- Payment of preferred share dividends 0 (78,526)
- Bank credit line (391,615) 0
- Loan from related party 0 1,000,000
- Loans from third parties 1,599,163 0
----------- -----------
Net cash (used in)/provided by financing activities 5,443,301 2,018,974
----------- -----------
Effect of foreign currency on cash (124,967) 13,534
Minority interest 123,180
------- -----------
Net (decrease)/increase in cash and 209,233 (20,261)
cash equivalents
Cash and temporary cash investments at
beginning of period 554,624 61,661
----------- -----------
Cash and temporary cash investments at
at end of period. 763,857 41,400
----------- -----------
----------- -----------
</TABLE>
Supplemental disclosures of cash flow information:
No amounts of cash were paid for interest or income taxes for each of the
periods presented See accompanying notes
4
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. The Company
Transmedia Europe, Inc. ("TME" or "the Company") is a Delaware
corporation which was organized in February 1993 and commenced
operations in the UK in December 1993. On May 19, 1993 the Company
acquired from Conestoga Partners, Inc. ("Conestoga") the rights
Conestoga had previously acquired from Transmedia Network, Inc.
("Network"), pursuant to a Master License Agreement ("License
Agreement") dated December 14, 1992 as amended April 12, 1993 and
August 11, 1993. The rights acquired were an exclusive license (the
"License") to use certain trademarks and service marks, proprietary
computer software programs and know-how of Network in establishing and
operating a restaurant discount charge card business. The licensed
territories comprise all European countries, Turkey and other countries
that were formerly part of the Union of Soviet Socialist Republics (the
"Licensed Territories"). Network is an independent company which,
through its affiliate TMNI International Inc., ("TMNI"), is a
shareholder of the Company. The Company commenced operations in France
in March 1996.
On April 3, 1997 the Company acquired a 50% interest in the equity
capital of Countdown Holdings plc ("Countdown"). In a simultaneous
transaction Transmedia Asia Pacific, Inc. ("TMAP"), a Delaware
corporation which shares common directors and officers with the
Company, acquired the remaining 50% of Countdown's equity capital.
Founded 27 years ago, Countdown is a leading international provider of
shopping and leisure discount benefits to approximately 6,500,000
members with over 100,000 participating merchants in 47 countries .
Countdown's head office is located in London with further
infrastructure support provided by licensees operating in 14 countries.
Within the UK market, there are approximately 25,000 participating
merchants and 2,500,000 members.
On December 2, 1997, Transmedia Australia Holdings Pty Limited
("Transmedia Australia), a company owned equally by the Company and
TMAP, purchased 51% of the common stock of Nationwide Helpline Services
Pty. Limited ("NHS"), an Australian company through a newly
incorporated intermediary holding company. Transmedia Australia also
agreed to purchase the remaining 49% of the common stock of NHS on or
before June 30, 1998 with the right to extend such purchase to
September 30, 1998 (Refer Note 9. "Investment in Affiliated Company").
On May 14, 1998 the Company and TMAP purchased from Compass Trustees
Limited 100% of the outstanding capital stock of Porkpine Limited
("Porkpine"). The transaction was consummated pursuant to an
acquisition agreement dated May 14, 1998 between Compass Trustees
Limited, the Company, TMAP and Gavin and Joanne Logan. The
consideration paid totalled 1,060,000 pounds sterling ($1,749,000
approximately) subject to increase or decrease by an amount equal to
the net current assets of Porkpine and subsidiaries as of the date of
completion (Refer Note 14. "Acquisitions" for further details).
On May 22, 1998 Transmedia Australia Travel Holdings Pty Limited, a
company owned equally by the Company and TMAP acquired from Gisborne
Travel Holdings Pty Limited ("Gisborne") 100% of the issued share
capital of Breakaway Travel Club Pty Limited . The transaction was
consummated pursuant to a Share Sale Agreement dated March 26, 1998
between Gisborne, Transmedia Australia Travel Holdings Pty Limited ,
Peter Guy Gisborne and Terence John Gill. The total consideration
payable was Aus$375,000 (approximately $230,000). Such consideration
was paid in cash. (Refer Note 14. "Acquisitions" for further details).
5
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. The Company (continued)
As of June 30, 1998, the Company had the following equity interests in
its direct subsidiaries and affiliates:
<TABLE>
<CAPTION>
Name Country of Incorporation % owned
<S> <C> <C>
Transmedia Europe plc United Kingdom 100.0
Transmedia UK plc United Kingdom 100.0
Transmedia UK Inc. United States of America 100.0
Transmedia Australia Holdings Pty Limited Australia 50.0
Transmedia La Carte Restaurant S.A
(`Transmedia France') France 50.1
Countdown Holdings plc United Kingdom 50.0
Porkpine Ltd Channel Islands 50.0
Transmedia Australia Travel Holdings Pty Limited Australia 50.0
</TABLE>
All references herein to "Company" and "TME" include Transmedia Europe
Inc. and its subsidiaries unless otherwise indicated.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements.
In the opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of June 30, 1998, the results of
operations for the three and nine months ended June 30, 1998 and 1997
and the changes in cash flows for the nine months ended June 30, 1998
and 1997. The results of operations for the three and nine months ended
June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries including Countdown and
Porkpine. The consolidated balance sheet includes the assets and
liabilities of Countdown and Porkpine and the consolidated statement
of operations includes the results of operations of Countdown and
Porkpine notwithstanding that the Company's interest in the equity
capital in each of Countdown and Porkpine is both 50%. This basis of
presentation has been adopted because the Company has effective
control of Countdown and Porkpine. All significant intercompany
transactions have been eliminated in consolidation.
The September 30, 1997 balance sheet has been derived from the audited
consolidated financial statements at that date included in the
Company's annual report on Form 10-K. These unaudited consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report
on Form 10-K.
6
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Basis of Presentation (continued)
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company's ability to
continue as a going concern may depend on its ability to obtain
outside financing sufficient to support its operations and complete
identified acquisitions. Management remains confident that based upon
the Company's history of obtaining necessary financing, sufficient
funds will be available to the Company to enable it to operate for the
foreseeable future and complete identified acquisitions. However there
can be no assurance given that the Company will obtain such short-term
or long-term outside financing or complete the acquisitions.
Note 3. Foreign Currencies
The reporting currency of the Company is the United States dollar. The
functional currencies of the Company's operating subsidiaries and
affiliates are the UK pound sterling, the Irish Punt, the French franc
and the Australian dollar.
For consolidation purposes, the assets and liabilities of the
Company's subsidiaries are translated at the exchange rate in effect
at the balance sheet date. Consolidated statements of income for the
Company's subsidiaries are translated at the average rates of exchange
during the period. Exchange differences arising on these translations
are taken directly to stockholders' equity .
The average exchange rates during the three and nine months ended June
30, 1998 and March 31, 1997 and the exchange rates in effect at June
30, 1998 and September 30, 1997 were as follows:
<TABLE>
<CAPTION>
UK Pound French Australian Ireland
Sterling (L) Franc Dollar Punt (L)
<S> <C> <C> <C> <C>
Average exchange rates
- ----------------------
3 months ended June 30, 1998 1.6542 0.1663 0.6292 1.4067
3 months ended June 30, 1997 1.6357 0.1730 0.7697 1.5257
9 months ended June 30, 1998 1.6500 0.1665 0.6450 1.4100
9 months ended June 30, 1997 1.6347 0.1817 0.7810 1.5884
Closing exchange rate
- ---------------------
September 30, 1997 1.6125 0.1685 0.7251 1.4545
June 30, 1998 1.6697 0.1654 0.6211 1.3994
</TABLE>
7
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Income taxes
The Company adopts Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" which recognizes (a) the amount of taxes
payable or refundable in the current year and (b) deferred tax
liabilities and assets for the future tax consequences of events that
have been recognized in an enterprise's financial statements or tax
returns.
A valuation allowance is established to reduce any deferred tax assets
when management determines it is more likely than not that the related
tax benefits will not be realised.
Note 5. New Accounting Standards
Effective for the quarter ended March 31, 1998 the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per
Share". SFAS No. 128 requires that all prior period earnings per share
data be restated to conform to this statement. The adoption of this
standard has not had a material effect on the Company's restated
historic earnings per share.
Note 6. Revenues
Revenues comprise:
(i) the retail value of food and beverage purchased from participating
restaurants by the Company's Transmedia cardholders (less the
cardholders' 20% or 25% discount) and cardholders' membership fees.
(ii) Countdown cardholders' membership fees and Countdown voucher
sales.
(iii) Countdown license fees from licensees
Membership fees and Countdown license fees are recognised as revenue in
equal monthly instalments over the membership/license period.
Note 7. License Cost
The Company evaluates the carrying value of its investment in License
Costs for impairment based on estimated future net cash flows generated
by, and directly attributable to, the Transmedia License. If the
estimated future net cash flows are less than the carrying value of the
License Costs, it is the policy of the Company to recognize the
impairment and adjust the carrying value of the License Costs to their
estimated fair value. In the opinion of management, there has been no
permanent impairment of the License Costs as of June 30, 1998.
8
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Restaurant Credits
Restaurant credits represent the total advances made to participating
restaurants less the amount recouped by the Company as a result of
Company cardholders using their cards at participating restaurants.
Restaurant credits are recouped by the Company within one year of
advance and accordingly are classified as a current asset. The amount
by which such credits are recouped equates to approximately 50% of the
retail value of the food and beverage purchased by cardholders at
participating restaurants. The Company periodically reviews the
recoverability of restaurant credits and establishes an appropriate
provision against irrecoverability.
The funds advanced to participating restaurants are generally
unsecured.
Note 9. Investment in Affiliated Company
Investment in affiliated company of $4,509,769 comprises the Company's
interest in Transmedia Australia and Transmedia Australia Travel
Holdings Pty Limited which are made up as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Transmedia Australia
--------------------
Cost of investment $ 4,193,562 $ 0
Share of profits 184,631
------------ ------------
$ 4,378,193 $ 0
------------ ------------
------------ ------------
Transmedia Australia Travel Holdings Pty Limited
------------------------------------------------
Cost of investment $ 126,748 $ 0
Share of profits 4,828
------------ ------------
$ 131,576 $ 0
------------ ------------
------------ ------------
</TABLE>
9
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Investment in Affiliated Company (continued)
On December 2, 1997, Transmedia Australia, a company owned equally by
the Company and TMAP, purchased 51% of the common stock of NHS, through
a newly incorporated intermediary holding company. The total
consideration paid by Transmedia Australia for its 51% interest in the
equity capital of NHS was Aus$10,000,000 (approximately $7,150,000 as
at December 2, 1997). Transmedia Australia also agreed to purchase the
balance of the equity capital of NHS for Aus$2,500,000 on June 30, 1998
with the right to extend such obligation until September 30, 1998 by
paying interest at 5% per annum ("Balance Obligation"). Transmedia
Australia has exercised the extension right and accordingly the Balance
Obligation, including interest thereon, is now payable on September 30.
If Transmedia Australia fails to make such payments all amounts paid
are not subject to recovery and the entire 51% interest in NHS
previously purchased will revert to its former owners for nil
consideration.
The total consideration for the 51% interest in NHS was allocated by
the sellers as follows. Aus$6,000,000 for the equity capital of NHS and
Aus$4,000,000 in sign-on fees payable to the former principals of NHS.
As originally structured the Aus$10,000,000 was to be advanced to
Transmedia Australia by the Company and TMAP as follows:
Equity Capital Element:
<TABLE>
<CAPTION>
Company TMAP Total
<S> <C> <C> <C>
Deposit 200,000 200,000 400,000
1st Instalment 1,400,000 1,400,000 2,800,000
2nd Instalment 1,400,000 1,400,000 2,800,000
Total 3,000,000 3,000,000 6,000,000
</TABLE>
The deposit was advanced to Transmedia Australia and paid to the
sellers in June, 1997. The first instalment of Aus$2,800,000 was paid
in December 1997, 50% in cash and the balance by the issuance of
500,000 of the common stock of each of the Company and TMAP (valued at
the then market price). The second instalment payment date was extended
as provided by the terms of the agreement until May 1, 1998 and was
paid on that date along with interest of Aus$34,781.
Sign-on Fees
<TABLE>
<CAPTION>
Company TMAP Total
<S> <C> <C> <C>
1st Instalment 1,000,000 1,000,000 2,000,000
2nd Instalment 1,000,000 1,000,000 2,000,000
Total 2,000,000 2,000,000 4,000,000
</TABLE>
10
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Investment in Affiliated Company (continued)
The first instalment was payable on January 31, 1998 of which an
aggregate of Aus$1,250,000 could be deferred until May 1, 1998. On
January 31, 1998, in lieu of the required minimum payment of
Aus$750,000, Aus$203,571 was paid in cash and the balance was settled
by a promissory note in the sum of Aus$546,429 payable on June 30,
1998. As of the date hereof Aus$193,422 has been paid against such
promissory note, leaving a balance outstanding of Aus$353,007 together
with accrued interest. The Aus$1,250,000 due on May 1, 1998 was paid
together with accrued interest thereon at 5% per annum, approximately
Aus$15,240. The promissory note payable on June 30, 1998 bears interest
at 10% per annum. The second instalment was due for payment on June 30,
1998 but has been deferred until September 30, 1998.
On May 22, 1998 Transmedia Australia Travel Holdings Pty Limited a
company owned equally by the Company and TMAP, acquired from Gisborne
Travel Holdings Pty Limited ("Gisborne") 100% of the issued share
capital of Breakaway Travel Club Pty Limited ("Breakaway"). The
transaction was consummated pursuant to a Share Sale Agreement (the
"Agreement") dated March 26, 1998 between Gisborne, Transmedia
Australia Travel Holdings Pty Limited, Peter Guy Gisborne and Terence
John Gill. The total consideration paid was Aus$375,000 (approximately
$230,000), such consideration was paid in cash.
Note 10. Intangible assets
Intangible assets consist of the cost of the Transmedia License, net of
amortization. The Transmedia License cost is being amortized on a
straight line basis over its estimated useful life of fifteen years
from the commencement of operations on October 1, 1993. The carrying
value of the Transmedia License is made up as follows:
<TABLE>
Cost
<S> <C>
Balance as of September 30, 1997 $ 2,371,284
Additions 0
-----------
Balance as of June 30, 1998 2,371,284
-----------
Amortization
Balance as of September 30, 1997 523,858
Charge for period 131,912
-----------
Balance as of June 30, 1998 655,770
-----------
Net Intangible assets $ 1,715,514
-----------
</TABLE>
11
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Goodwill
The Company recognises the excess of the purchase price paid over the
fair value of net assets acquired in connection with its acquisitions
as goodwill. Goodwill arising on acquisitions is being amortized on a
straight line basis usually over a period of fifteen years and is made
up as follows:
<TABLE>
Cost
<S> <C>
Balance as of September 30, 1997 $ 3,495,970
Additions 869,028
-----------
Balance as of June 30, 1998 4,364,998
-----------
Amortization
Balance as of September 30, 1997 145,970
Charge for period 182,258
-----------
Balance as of June 30, 1998 328,228
-----------
Net book value $ 4,036,770
-----------
</TABLE>
Note 12. Notes Payable
On April 29, 1998 the Company engaged in a private placement of
securities. The Placement was made pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933,
as amended, and Regulation D promulgated thereunder. The placement
consisted of three L250,000 (approximately $413,000) face amount, 8%
promissory notes payable on November 1, 1998 and one L200,000
(approximately $330,000) face amount, 8% promissory note payable on
the same date. The holders of the L250,000 promissory notes each
received a three and a half year warrant to purchase 41,660 shares
of the common stock of the Company at an exercise price of $2.00 per
share and the holder of the L200,000 promissory note received a
warrant to purchase 33,328 shares on the same terms. The warrants
are exercisable at any time after issuance through November 1, 2001.
12
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Stockholders Equity
On August 7, 1997 the Company commenced a private placement (the
"Placement") of up to 1,250,000 shares of common stock at a price of
$1.00 per share. The Placement was made pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder. On November 17, 1997
the number of shares in the Placement was increased from 1,250,000 to
1,750,000. The Placement closed on December 31, 1997 upon the sale of
1,472,095 shares resulting in gross proceeds to the company of
$1,472,095. For every three shares sold subscribers received a three
year warrant to purchase one share of the common stock of the Company
at an exercise price of $1.00 per share for no additional
consideration. The warrants are exercisable at any time after the date
of grant for a period of three years. In addition, in consideration of
their agreement to purchase, on a standby basis, a number of shares in
the Placement, certain holders of preferred stock of the Company were
granted three-year warrants to purchase an aggregate of 327, 656 shares
of Common Stock of the Company at an exercise price of $1.00 per share.
On February 1, 1998 the Company commenced a private placement pursuant
to the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated
thereunder. The Placement closed on April 30, 1998 upon the sale of
1,950,000 shares of common stock of the Company resulting in net
proceeds to the company of $2,437,500. For every three shares sold each
subscriber received a three year warrant to purchase one share of the
common stock of the Company at an exercise price of $1.25 per share for
no additional consideration. The warrants are exercisable at any time
after the date of grant for a period of three years.
Note 14. Acquisitions
On May 14, 1998 the Company and TMAP purchased from Compass Trustees
Limited 100% of the outstanding capital stock of Porkpine Limited
("Porkpine"). The Company and TMAP each acquired 50% of the outstanding
capital stock of Porkpine. The acquisition was completed on May 15,
1998.
The transaction was consummated pursuant to an acquisition agreement
(the "Agreement") dated May 14, 1998 between Compass Trustees Limited,
the Company, TMAP and Gavin and Joanne Logan. The consideration paid
totalled 1,060,000 pounds sterling ($1,749,000 approximately) subject
to increase or decrease by an amount equal to the net current assets of
Porkpine and subsidiaries as of the date of acquisition. The net
current assets as of the date of acquisition were $33,627
(approximately $20,526). The consideration paid on consumation was as
follows:
<TABLE>
<CAPTION>
Company TMAP Total
Pounds Sterling
<S> <C> <C> <C>
Cash 330,000 330,000 660,000
Shares of common stock:
Company -225,000 shares 200,000 200,000 400,000
TMAP - 225,000 shares 200,000 200,000 400,000
------- ------- ---------
Total 530,000 530,000 1,060,000
------- ------- ---------
------- ------- ---------
</TABLE>
13
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Acquisitions (continued)
The Company has previously described the terms of a letter of intent to
acquire a privately owned corporation engaged in a business
complimentary to that of the Company for approximately $8,500,000 of
which the Company would be responsible for one half ($4,250,000). The
terms of the letter of intent were revised on April 30, 1998 and again
on July 29, 1998. Under the revised terms the Company and TMAP have
agreed to a purchase price of $9,100,000, represented by 300,000 shares
of the Company's common stock plus 300,000 shares of TMAP plus a number
of shares at closing equal to $600,000 in value plus cash of
$7,900,000. In addition the sellers will receive earn out payments over
a five year period if predetermined threshold profit levels are
achieved. To date the Company and TMAP have made cash payments of
$650,000 and each have issued 100,000 shares of common stock all of
which will not be recovered if the transaction does not close. In
addition, Edward J Guinan III, Chairman of the Company and TMAP, has
pledged 300,000 shares of each of the Company and TMAP owned by him,
which shares will be replaced by new shares issued by the Company and
TMAP if the transaction closes.
On January 9, 1998, the Company and TMAP entered into an agreement in
principle to purchase 85% of the issued and outstanding common stock of
Network America Inc. ("NAI"), a Texas corporation for a total
consideration $400,000 payable in cash ($200,000 each) and an
undertaking from the Company and TMAP to fund NAI's working capital
requirements over an eighteen month period by way a monthly loan
advance of $55,555 in total ($27,777 each) an aggregate of $1,000,000
over the eighteen month period, commencing April 1, 1998. The Company
and TMAP advanced the purchase consideration and the April working
capital instalment against a series of secured promissory notes. The
acquisition was due to complete on April 24, 1998. However, based upon
developments at NAI the Company and TMAP abandoned the acquisition and
commenced legal proceedings against NAI to recover the total sums
advanced of $447,000. In July 1998 the Company and TMAP recovered
$469,000, being the full amount of the moneys advanced and $22,000 as a
contribution to the costs of the action.
On June 30, 1998 the Company and TMAP entered into an agreement in
principle to purchase 100% of the issued and outstanding capital of
AwardTrack ("AT"), a Californian corporation, for a total consideration
comprised of two elements, a fixed element and a contingent element.
The fixed element comprises 500,000 shares of common stock of each of
the Company and TMAP, to be delivered at Completion. The contingent
element will comprise 250,000 shares of each of the Company and TMAP.
These shares will be issued to AT against achievement of to be agreed
performance criteria prior to Completion of the acquisition.
14
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Related party transactions
The net amounts due from/(to) related parties consist of the following:
<TABLE>
<CAPTION>
June 30, 30 September,
1998 1997
-------- -------------
<S> <C> <C>
Amounts due from:
- -----------------
International Advance Inc $ 230,237 $ 86,401
Conestoga 172,910 0
---------- ----------
403,147 86,401
Amounts due to:
- ---------------
E Guinan III 152,167 17,831
Transmedia Asia Pacific, Inc. 954,481 254,134
J V Vittoria 1,151,891 1,061,479
TMNI 1,032,478 1,012,397
---------- ----------
$3,291,017 $2,345,841
---------- ----------
</TABLE>
The Company has, effective January 16, 1998 accepted the resignation of
Christopher Radbone as a director of the Company and its subsidiary
Countdown plc. Contemporaneously with such resignation, Countdown plc has
agreed to release Mr. Radbone from his service contract, and Mr. Radbone
has agreed to grant an option to Edward J. Guinan III, Chairman of the
Company, at a value of $1 per share to purchase the shares of Common
Stock of the Company held by him.
As previously reported Mr Guinan used the proceeds (L293,753) from
the sale of part of his shareholdings in the Company and TMAP to make a
payment of L115,000 on account to the UK Inland Revenue against tax
liabilities and deposit L78,753 in escrow against any on-going tax
liabilities. Of the balance of L100,000 the Company and Mr Guinan
agreed that Mr Guinan would loan UKL90,000 ($148,899) to the
Company to replace a bank guarantee previously provided by Mr Radbone.
15
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Commitments and Contingencies
Transmedia Australia
The Company is committed, jointly with its affiliate TMAP through
Transmedia Australia, to purchase the balance of the equity capital of
NHS for Aus$2,500,000 on September 30, 1998 together with accrued
interest at 5% per annum from July 1, 1998. If Transmedia Australia
fails to make such payment, all amounts paid to date are not subject to
recovery and the entire 51% interest in NHS previously purchased will
revert to the former owners.
Management fully intends to acquire the balance of 49% of the equity
capital of NHS. However no assurance can be given that management will
have the necessary funds available for it to acquire the balance.
The Company is also committed to pay sign-on fees of Aus$2,000,000 on
September 30, 1998 and to repay a promissory note in the sum of
Aus$353,007 together with accrued interest. (Refer Note 14
"Acquisitions" for further details)
Transmedia France
The Company has undertaken to contribute sufficient assets and
marketable securities to the capital of Transmedia France to make good
on its capital deficiency and resultant non-compliance with minimum
equity requirements pursuant to the regulations of the Bank of France.
On December 4, 1997 the Company agreed in principle to purchase the
following minority interest holdings in Transmedia France:
(i) Partech International Inc. (US Growth Fund Ventures),
34.6% of the issued and outstanding capital stock of Transmedia France
for a total consideration of $750,000; and
(ii) Eric Knight's 5.3% share of the issued and outstanding
capital stock of Transmedia France for a total consideration of
$114,020.
The transaction was not completed as contemplated on January 31, 1998.
However, as of the date hereof negotiations to purchase such minority
interests are at an advanced stage. When, and if completed, the
Company's equity interest in Transmedia France will increase from 51.1%
to 90% of the issued share capital of that company.
Legal proceedings
In the opinion of management there are no lawsuits or claims pending
against the Company.
16
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 17. Subsequent Events
On July 2, 1998 the Company engaged in a private placement of
securities. The placement was made pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder. The placement
consisted of a $3,125,000 face amount, 8% promissory note payable on
January 5,1999 and resulted in net proceeds of $2,926,588 to the
Company after deduction of arrangement fees. These funds were raised
to meet the working capital requirements of the Company.
17
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
General
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
The business of the Company is the design and supply of a range of member
benefit programs to corporations, affinity groups and individuals on an
international scale.
The future success of the Company is dependent upon its ability to increase its
membership base and broaden the range of member benefit programs offered. The
acquisition, with Transmedia Asia Pacific, Inc ("TMAP"), of Countdown Holdings
plc and 51% of the issued and outstanding share capital of Nationwide Helpline
Services ("NHS") has enabled the Company to commence implementation of its
strategy to create a broader based international member benefits business.
The Company will continue to look for new opportunities within the member
benefits industry and expand its operations through acquisition and organic
growth. Management believes that while the industry has shown good growth, which
is expected to continue, this has been primarily in the United States. Outside
the United States, the international market is significantly less well-developed
providing an excellent opportunity for the Company to expand its operations from
its established base in Europe and Australasia and its network of sub-licensees
and franchisees in a number of other countries.
The Company recorded significant losses in its fiscal year ended September
30, 1997 and in prior years. Such losses, current year losses and the
Company's acquisition and expansion program to date have been funded by the
sale of equity securities and loan finance. The Company's ability to continue
as a going concern may depend on its ability to obtain outside financing
sufficient to support its operations and expansion plans. Based upon the
Company's history of obtaining necessary financing, management remains
confident that sufficient funds will be available to the Company to enable it
to operate for the foreseeable future and complete identified acquisitions.
However there can be no assurance given that the Company will obtain such
short-term or long-term outside financing or complete such acquisitions. In
addition there can be no assurance as to the acceptability of the terms of
any future financing.
18
<PAGE>
Results of Operations
Three Months Ended June 30, 1998 compared to Three Months Ended June 30, 1997
The Company generated revenues of $ 2,377,942 (1997: $ 884,024) for the three
months ended June 30, 1998, an increase of 169.0% over the corresponding period
in 1997. This increase in revenues is due to the Countdown ($1,554,648) and
Logan Leisure ($17,212) acquisitions and Transmedia France ($65,122) being
consolidated in 1998 but not in fiscal 1997. Revenues generated by pre-existing
operations totalled $ 741,111, a decrease of 16.2% compared to the corresponding
period in 1997. This decrease is due to a refocusing and rationalisation of the
participating restaurant base to remove low-usage participants.
Cost of sales totalled $ 862,984 (1997: $ 503,864) for the three months ended
June 30, 1998, generating a gross profit percentage of 64.0% (1997: 43.0%). This
increase in gross profit percentage is due primarily to the impact of the higher
margin Countdown business which achieved a gross profit of 70.0% in the three
months ended June 30, 1998. Additionally Transmedia France and pre-existing
operations achieved strong gross profit of 58.7% and 52.2% respectively.
Selling, general and administrative expenses, for the three months ended June
30, 1998 were $3,032,643, an increase of 227.6% or $2,107,000 as compared to the
corresponding period in 1997. Selling, general and administrative expenses for
Countdown, Transmedia France and Logan accounted for $1,437,204 of this
increase. Selling, general and administrative expenses incurred by pre-existing
operations and head office totalled $ 1,595,439 a 72.3% ($669,796) increase as
compared to the corresponding period in 1997. This increase is primarily due to
increased legal and professional fees and additional head office staff.
The Company's share of profits/(losses) of associated companies was $106,351
(1997: $(332,621) for the three months ended June 30, 1998. The 1997 associated
company losses comprise Transmedia France which is now fully consolidated. The
1998 associated company profits were generated by the Company's investment in
NHS and Breakaway Travel.
Minority interest comprises 49.9% of Transmedia France and 50% of Countdown.
19
<PAGE>
Nine months ended June 30, 1998 compared to Nine months ended June 30, 1997
The Company generated revenues of $ 8,497,335 (1997: $ 2,881,321) for the nine
months ended June 30, 1998, an increase of 194.9% on the corresponding period in
1997. This increase is due to the inclusion of Countdown ($5,847,220), Logan
Leisure ($17,212) and Transmedia France ($283,191) for the first time. Revenues
generated by pre-existing operations totalled $2,349,713, a decrease of 18.5%
from the corresponding period in 1997. This decrease is due to a refocusing and
rationalisation of the participating restaurant base to remove low-usage
participants.
Cost of sales totalled $4,826,392 (1997: $1,673,521) for the nine months ended
June 30 generating a gross profit percentage of 43.0% (1997: 41.9%). Gross
profit percentages for Countdown, Logan Leisure and and Transmedia France were
43.0%, 16.2% and 52.8% respectively. The gross profit percentage achieved by
pre-existing operations was 43.5%.
Gross profit at Countdown was adversely affected in the six months to March 31,
1998 by the level of low margin (2% approximately) voucher sales. Voucher
sales in the third quarter were restricted to $605,254 a decrease of $866,688
as compared to the quarter ended March 31, 1998.
Selling, general and administrative expenses totalled $6,039,064
(1997:$3,007,749), for the nine months ended June 30, 1998, an increase of
100.0% or $3,031,315 on the corresponding period in 1997. Selling, general and
administrative expenses for Countdown, Logan Leisure and Transmedia France
totalled $3,311,237 which were partially offset by a 9.3% decrease ($279,922) in
such costs in pre-existing operations as compared to the corresponding period in
1997. This reduction is primarily due to an overall fall in professional fees in
1998, despite the increase in the June quarter.
The Company's share of profits/(losses) of associated companies was $189,459
(1997: $(644,258)) for the nine months ended June 30, 1998. The 1997 associated
company losses relate to Transmedia France which is now fully consolidated. The
1998 profits relate to the Company's investment in NHS and Breakaway.
Minority interest comprises 49.9% of Transmedia France and 50% of Countdown.
20
<PAGE>
Liquidity and Capital Resources
The Company's audited financial statements for the year ended September 30, 1997
recorded losses for the year then ended of $3,746,248, which, when taken with
prior year results, recorded an accumulated deficit of $10,655,176 as of
September 30, 1997.
During the nine months ended June 30, 1998 the Company recorded further losses
of $1,909,781 resulting in net cash outflows from operating activities of
$2,861,997 compared to $732,023 for the corresponding period in 1997. During the
period the Company relied on net revenues and the net proceeds of equity and
debt placements to fund its operating needs. Management has taken steps to
reduce the amount of cash used by operations, including reducing staffing
levels, however the Company's operations may not provide sufficient internally
generated cash flows to meet its projected requirements.
Additionally the Company is committed to funding a number of business
acquisitions, increasing its investments in Transmedia France and its investment
in NHS through Transmedia Australia, as described in Notes 14 and 16 to the
unaudited consolidated financial statements for the quarter ended June 30, 1998.
In the quarter to June 30, 1998 the Company received net proceeds of $1.5
million from the private placement of 1,200,000 shares of common stock. To
supplement the funding of its operations and its acquisition program, the
Company also obtained net cash proceeds from short term loans of approximately
$1,567,750 from unaffiliated third parties (Refer Note 12 to the unaudited
consolidated financial statements).
The Company will require capital infusions in order to complete its acquisition
commitments and meet the funding requirements of its operations. Based upon the
Company's history of obtaining necessary financing, management remains confident
that sufficient funds will be available to the Company to operate in the
foreseeable future and complete its investments and committed acquisitions.
However there can be no assurance given that the Company will be able to obtain
such funding. In addition there can be no assurance as to the acceptability of
the terms of any future financing.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation. Individual Company Participating Restaurants may be seasonal
depending on their location and the type of food and beverage sold. However, the
Company has no basis on which to project seasonal effects, if any, to its
business as a whole.
Year 2000 disclosure issues
The Company has considered the guidance of the Statement of the Commission
regarding disclosure of Year 2000 issues for public companies (Release No.
33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues will
be made in the Company's annual report on Form 10-K for the year ending
September 30, 1998.
21
<PAGE>
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
Form 8K - Filed June 5, 1998 - Breakaway Travel Club
acquisition
Form 8K/A - Amendment No.1 to Form 8K filed June 5, 1998 -
Filed July 31, 1998
Form 8K - Filed May 29, 1998 - Logan Leisure acquisition
Form 8K/A - Amendment No.1 to Form 8K filed May 29, 1998 -
Filed July 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorised.
TRANSMEDIA EUROPE, INC.
By: /s/ Paul Harrison
- ---------------------
Paul Harrison
President and Chief Financial Officer
22
