<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 December 31, 1997
----------------------------
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 (I.R.S. Employer
of Incorporation of Identification No.)
organization)
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/
The number of shares outstanding of the issuer's common stock, $.00001 par
value, as of February 13, 1998: 15,058,597
INDEX
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PART I : CONDENSED CONSOLIDATED FINANCIAL INFORMATION
ITEM 1....................................................................... Pages 1-7
Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the three months ended December
31, 1996 and 1997 (unaudited).
Condensed Consolidated Balance Sheets as of:
- - December 31, 1996
- - December 31, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended December
31, 1996 and 1997 (unaudited).
Condensed Consolidated Statement of Changes in Stockholders Equity for the three
month periods ended December 31, 1996 and 1997 (unaudited) and for the fiscal
years ended September 30, 1996 and 1997.
Notes to the Condensed Consolidated Financial Statements
ITEM 2....................................................................... Pages 8-12
Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART II: OTHER INFORMATION.................................................. Page 13
SIGNATURES.................................................................. Page 13
</TABLE>
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31,
1996 1997
ENDED (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Revenues............................................................................ $ 910,845 $ 1,862,714
Membership fees..................................................................... 123,000 1,120,146
Other income........................................................................ -- --
------------- -------------
Total revenues and fees............................................................. 1,033,845 2,982,860
Cost of sales....................................................................... (601,907) (1,820,722)
------------- -------------
Gross profit........................................................................ 431,938 1,162,138
Selling, general and
administrative expenses............................................................. (998,745) (1,655,717)
Royalty............................................................................. -- (54,299)
------------- -------------
Loss from operations................................................................ (566,807) (547,878)
Share of profits/losses of associated company....................................... (126,752) 5,632
Interest income..................................................................... 3,670 --
------------- -------------
Loss before income taxes............................................................ (689,889) (542,246)
Income taxes........................................................................ -- --
------------- -------------
Net loss before preferred share dividends........................................... (689,889) (542,246)
Minority Interest................................................................... -- 92,083
Preferred share dividends........................................................... (33,605) (33,605)
------------- -------------
Net loss after preferred share dividends $ (723,494) $ (483,768)
------------- -------------
Loss per common share $ (0.06) $ (0.03)
Weighted average number ofcommon
shares outstanding.................................................................. 12,237,420 15,459,602
------------- -------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ -------------
<S> <C> <C>
Assets
Current assets
Cash (including temporary cash investments of $nil at December 31, 1997 and
$168,350 at December 31, 1996).................................................... $ 848,542 $ 568,189
Trade accounts receivable......................................................... 37,182 902,453
Restaurant credits, (net of allowance for irrecoverable credits of$452,736 at
December 31, 1997 and of$666,134 at December 31, 1996)............................ 1,492,933 1,272,938
Amounts due from related parties (note 4)......................................... 308,084 (100,158)
Prepaid expenses and other current assets......................................... 232,461 404,643
------------ -------------
Total current assets................................................................ 2,919,202 3,048,067
Non-current assets
Investment in and advances to affiliated company (note 2)......................... 567,653 1,148,578
Property and equipment(net of accumulated depreciation of $678,338 at December 31,
1996 and $171,882, at December 31, 1997).......................................... 71,433 680,733
Intangible and other assets (net of accumulated amortization of $669,828 at December
31, 1996 and $731,849 at December 31, 1997) (note 3).............................. 1,404,746 5,135,405
Other assets...................................................................... --
------------ -------------
Total assets........................................................................ $4,963,034 $ 10,012,783
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------- --------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Bank Overdraft................................................................... -- $ 920,825
Trade accounts payable........................................................... 618,083 2,450,733
Deferred membership fee income................................................... 384,820 498,523
Accrued liabilities.............................................................. 514,331 1,580,165
Amount due to related party (note 4)............................................. 251,806 2,110,425
------------- --------------
Total current liabilities........................................................ 1,769,040 7,650,674
Non-current liabilities
Deferred license fee income...................................................... 500,000 --
------------- --------------
Total liabilities................................................................ 2,269,040 7,650,674
------------- --------------
Stockholders' equity
6 1/2 % Convertible Preferred Shares, $0.01 par value, 5,000,000 shares authorised,
590,857 issued and outstanding shares at December 31, 1997 and December 31,
1996............................................................................. 5,909 5,909
Common stock, $.00001 par value, 95,000,000 shares authorised, 15,459,602
issued and outstanding at December 31, 1997 and 12,875,787 at December 31,
1996............................................................................. 128 155
Additional paid in capital....................................................... 10,744,567 13,608,035
Accumulated deficit.............................................................. (7,632,422) (11,138,943)
Treasury Stock (196,995 shares).................................................. (517,112) (517,112)
Unearned compensation -restricted stock.......................................... --
Cumulative foreign currency translation adjustment............................... 92,924 (343,839)
------------- --------------
Total stockholders' equity....................................................... $ 2,693,994 $ 1,614,209
Minority Interest................................................................ -- 837,900
------------- --------------
Total liabilities and stockholders' equity......................................... $ 4,963,034 $ 10,012,783
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- -------------
<S> <C> <C>
Cash flows from Operating Activities:
-Net loss before preferred dividends.............................................. $(689,889) $(542,246)
Adjustment to reconcile net loss to net cash used in operating activities
-Depreciation and amortization.................................................... 38,414 122,804
-Amortization of deferred compensation............................................ 78,000 --
-Provision for irrecoverable restaurant credits................................... 64,047 (100,000)
-Share of losses of affiliated company............................................ 126,752 (5,632)
Changes in assets and liabilities:
-Trade accounts payable........................................................... 62,370 66,217
-Accrued liabilities.............................................................. 52 86,772
-Restaurant credits............................................................... (51,310) 92,980
-Trade accounts receivable........................................................ 83,761 (417,485)
-Prepaid expense and other current assets......................................... 35,753 194,983
-Deferred membership fees......................................................... (20,603) (37,986)
-Deferred license fee income...................................................... -- --
------------- -------------
Net cash used in operating activities............................................... (272,653) (539,593)
------------- -------------
Cash flows from investing activities:
-Due from/(to) related parties.................................................... 57,968 (48,857)
-Purchase of property and equipment............................................... -- --
-Loan to affiliated company....................................................... -- --
-Net investment in associated company............................................. -- (1,000,000)
-Purchase of NHS option........................................................... (134,741) --
------------- -------------
Net cash used in investing activities............................................... (76,773) (1,048,857)
------------- -------------
Cash flows from financing activities:
-Net proceeds received from issuance of:
common stock..................................................................... 1,097,500 1,500,000
convertible preferred shares..................................................... --
-Payment of preferred share dividends............................................. (23,481) --
-Bank overdraft................................................................... -- (31,843)
-Proceeds from stock options exercised............................................ -- --
------------- -------------
Net cash (used in)/provided by financing activities................................. 1,074,019 1,468,157
------------- -------------
Effect of foreign currency on cash.................................................. 62,288 38,829
Minority interest................................................................... -- 95,029
------------- -------------
Net (decrease)/increase in cash and cash equivalents................................ 786,881 13,565
Cash and temporary cash investments at beginning of period.......................... 61,661 554,624
------------- -------------
Cash and temporary cash investments at at end of period............................. $ 848,542 $ 568,189
------------- -------------
------------- -------------
</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 to the financial statements
4
<PAGE>
TRANSMEDIA EUROPE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
NUMBER OF COMMON PREFERRED PREFERRED PAID- IN
COMMON SHARES STOCK SHARES STOCK CAPITAL
------------- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995........ 11,426,680 $114 590,857 $5,909 $ 8,412,081
Issuance of common stock........... 892,857 9 -- -- 1,249,991
Issue costs........................ -- -- -- -- (15,000)
Net loss after preferred share
dividends........................ -- -- -- -- --
Effect of foreign currency
translation...................... -- -- -- -- --
Compensation expense-- restricted
stock............................ -- -- -- -- --
Treasury stock..................... -- -- -- -- --
------------- ------ --------- --------- -----------
Balance, September 30, 1996........ 12,319,537 $123 590,857 $5,909 $ 9,647,072
Issuance of common stock........... 556,250 17 -- -- 2,310,983
Issue costs........................ -- -- -- -- (15,000)
Net loss after preferred share
dividends........................ -- -- -- -- --
Effect of foreign currency
translation...................... -- -- -- -- --
Compensation expense-- restricted
stock............................ -- -- -- -- --
Option re Countdown................ -- -- -- -- 165,000
------------- ------ --------- --------- -----------
Balance, September 30, 1997........ 12,875,787 $140 590,857 $5,909 $12,108,055
Issuance of common stock........... 1,500,000 15 -- -- 1,499,985
Issue costs........................ -- -- -- -- --
Net loss after preferred share
dividends........................ -- -- -- -- --
Effect of foreign currency
translation...................... -- -- -- -- --
Compensation expense-- restricted
stock............................ -- -- -- -- --
------------- ------ --------- --------- -----------
Balance, December 31, 1997......... 14,375,787 $155 590,857 $5,909 $13,608,040
------------- ------ --------- --------- -----------
------------- ------ --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE UNEARNED
FOREIGN COMPENSATION
TREASURY CURRENCY RESTRICTED ACCUMULATED
STOCK ADJUSTMENT STOCK DEFICIT TOTAL
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995........ -- $ 10,360 $(402,000) $ (4,213,404) $3,813,060
Issuance of common stock........... -- -- -- -- 1,250,000
Issue costs........................ -- -- -- -- (15,000)
Net loss after preferred share
dividends........................ -- -- -- (2,695,524) (2,695,524)
Effect of foreign currency
translation...................... -- (7,235) -- -- (7,235)
Compensation expense-- restricted
stock............................ -- -- 324,000 -- 324,000
Treasury stock..................... (517,112) -- -- -- (517,112)
--------- ---------- ------------ ------------ ----------
Balance, September 30, 1996........ $(517,112) $ 3,125 $ (78,000) $ (6,908,928) $2,152,189
Issuance of common stock........... -- -- -- -- 2,311,000
Issue costs........................ -- -- -- -- (15,000)
Net loss after preferred share
dividends........................ -- -- -- (3,746,248) (3,746,248)
Effect of foreign currency
translation...................... -- (239,305) -- -- (239,305)
Compensation expense-- restricted
stock............................ -- -- 78,000 -- 78,000
Option re Countdown................ -- -- -- -- 165,000
--------- ---------- ------------ ------------ ----------
Balance, September 30, 1997........ (517,112) $ (236,180) $ 0 $(10,655,175) $ 705,637
Issuance of common stock........... -- -- -- -- 1,500,000
Issue costs........................ -- -- -- -- --
Net loss after preferred share
dividends........................ -- -- -- (483,768) (483,768)
Effect of foreign currency
translation...................... -- (107,029) -- -- (107,029)
Compensation expense-- restricted
stock............................ -- -- -- -- --
--------- ---------- ------------ ------------ ----------
Balance, December 31, 1997......... $(517,112) $ (343,839) $ -- $(11,138,943) $1,614,839
--------- ---------- ------------ ------------ ----------
--------- ---------- ------------ ------------ ----------
</TABLE>
See accompanying notes to the financial statements
5
<PAGE>
TRANSMEDIA EUROPE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated balance sheet as of September 30, 1997 was derived from
the Company's audited financial statements.
The condensed consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles in
the United States and should be read in conjunction with the September
30, 1997 Form 10-K filing. The information presented in the unaudited
condensed consolidated financial statements, in the opinion of
management, reflects all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results for all
interim periods. The results for any interim period presented are not
necessarily indicative of the results to be expected for the full year.
(b) Description of business
Transmedia Europe, Inc. ('the Company') was incorporated in Delaware on
February 9, 1993.
The Company's main business activities through its wholly or partially
owned subsidiary companies, Transmedia UK plc, Transmedia La Carte
Restaurant SA and Countdown Holdings plc, are to make cash advances to
restaurants for food and beverage credits from certain participating
restaurants, which are then recovered as the Company's cardholders
utilise their restaurant charge card (see note 1(c)); and to make
available membership benefits to holders of the Countdown card through
discount privileges negotiated internationally with suppliers of goods
and services. Presently, the Company's operations are in the United
Kingdom and France through its subsidiaries, and internationally through
its Countdown licensees.
The Company has been granted a license, (the 'Transmedia License'), to
operate a specialised restaurant charge card business in Europe, Turkey
and the other countries outside of Europe that were formerly part of the
Union of Soviet Socialist Republics (the 'Licensed Territories') by
Transmedia Network Inc. ("Network"), a corporation which is incorporated
in the United States of America. The agreement to purchase the Transmedia
License was initially entered into by Conestoga Partners Inc.
('Conestoga'), a corporation which is related to the Company by virtue of
the majority shareholding in Conestoga held by Edward J Guinan III, the
President, Chief Executive Officer and Director of the Company (see note
3).
Through its Countdown subsidiary, the Company operates a membership
benefits services which allows holders of the Countdown card to take
advantage of discounts negotiated with major suppliers of goods and
services. As of December 31, 1997 there are approximately 6,500,000
Countdown cardholders with some 100,000 accepting merchants in 47
different countries.
The Company intends to expand operations in other portions of the
licensed territories through wholly-owned subsidiaries, unaffiliated
sublicensees and franchisees or through joint ventures.
As of December 31, 1997, Transmedia Europe, Inc. had equity interests in
the following companies:
<TABLE>
<CAPTION>
NAME COUNTRY OF INCORPORATION % OWNED
- -------------------------------------------------- -------------------------------------------------- -----------
<S> <C> <C>
Transmedia Europe plc............................. United Kingdom 100
Transmedia UK plc................................. United Kingdom 100
Transmedia UK Inc................................. United States of America 100
Transmedia La Carte Restaurant S.A
('Transmedia France')............................. France 50.1
Countdown Holdings plc............................ United Kingdom 50
</TABLE>
(c) Restaurant Credits
Restaurant credits represent the total advances made to participating
restaurants in exchange for credits less the amount by which these
credits are recouped by the Company as a result of Company cardholders
utilising their cards at participating restaurants. The amount by which
such credits is recouped amounts to approximately 50% of the retail value
of food and beverages consumed by cardholders. The Company reviews
recoverability of credits and establishes an allowance for credits to
restaurants that have ceased operations or whose credits may not be
utilised by cardholders.
6
<PAGE>
The funds advanced to participating restaurants are generally unsecured
and are recoverable as cardholders utilise their restaurant charge card
at the respective restaurant. In certain cases, the Company may request a
personal guarantee from the owner of a restaurant with respect of the
recoverability of the advance if the restaurant ceases operations or
ceases to be a participating restaurant. Generally, no other forms of
collateral or security are obtained from the restaurant owners.
(d) Revenues
Revenues represent the retail value of food and beverages acquired from
participating restaurants by the Company's cardholders, less the 20% or
25% discount offered to cardholders. Membership fees collected on the 25%
discount card are deferred and recognised as revenue in equal monthly
instalments over the periods benefited.
(e) License Cost
The Company evaluates the carrying value of its investment in License
Costs for impairment based on an estimate of future undiscounted net cash
flows that are expected to be generated and are directly attributable to
the Transmedia License. If the sum of those estimated future undiscounted
cash flows is less than the carrying value of the license costs, it is
the policy of the Company to measure impairment on the basis of the fair
value of the license costs, using a discounted cash flow technique. In
the opinion of management, there was no permanent impairment in the
carrying value of the license costs at September 30, 1997 or at December
31, 1997.
2. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANY
The investment in Transmedia France consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997
1997 (UNAUDITED)
------------- ------------
<S> <C> <C>
Cost of investment.................................................................. $ 1,800,000 $1,800,000
Less: Share of license fee.......................................................... (466,667) (458,334)
------------- ------------
1,333,333 1,341,666
Share of losses..................................................................... (635,192) (774,013)
Amounts due from affiliate.......................................................... -- --
------------- ------------
$ 698,141 $ 567,653
------------- ------------
------------- ------------
</TABLE>
Due to the provision of "put" and "call" options in the shareholders
agreement which establish a basis under which Transmedia France may
become a wholly owned subsidiary, $500,000 of the $1,000,000 sub-license
fee paid to the Company by Transmedia France in 1995 has not been
recognised but instead has been deferred until such time as these options
are exercised or expire. The remaining balance of $500,000 has also been
deferred against the investment in the Transmedia France and is being
amortised over a 15 year period commencing October 1995.
The Transmedia License requires the payment of a royalty to Network in
the event that the Company opens in another country being the greater of
$250,000 or 25% of the initial fee.
On April 19, 1996 Transmedia France completed a rights issue of shares.
Whilst the Company declined to subscribe it did acquire 15,000 shares, in
an unrelated transaction, from International Advance, Inc., a company of
which Edward J Guinan III, President of the Company, is the principal
shareholder and an officer and director, in exchange for $300,000 and
certain rights to jointly develop systems unrelated to the business of
Transmedia France. Accordingly the Company's interest was reduced to 36%.
In January 1997 the Company acquired 37,500 shares from other
shareholders in Transmedia France and in addition subscribed for 67,500
partly paid shares, increasing the Company's interest to 60%. In January
1997 the Bank of France granted Transmedia France an unconditional
banking license, replacing its previous provisional license.
In December 1996 the Company reached an agreement with Transmedia France
under which it will grant sub-licenses for Belgium/Luxembourg, Spain,
Italy and French speaking Switzerland for 9,250,000Ffr (approximately
$1,780,000). Network has agreed to defer the 25% royalties due upon the
completion of the agreement ($800,000 in aggregate) with payment to be
made of $250,000 as each country area is opened, except for $50,000 for
French speaking Switzerland. Under certain circumstances the payment
schedule can be accelerated.
On December 4, 1997 the Company agreed to purchase, in principle, not
later than January 31, 1998 the following minority interest holdings in
Transmedia France: (i) from Partech International Inc. (US Growth Fund
Ventures), 34.6% of
7
<PAGE>
the shares for a sum of $750,000; (ii) from Eric Knight 5.3% of the
shares for a sum of $114,020. Both purchases are subject to the
regulatory approval of the Commission Bancaire of the Bank of France. The
Company also undertook to contribute sufficient assets and marketable
securities to the capital of Transmedia France to make good on the
capital deficiency as revealed under the regulations of the Bank of
France. This capital contribution will include cash to a value of
FF1,000,000 ($165,200) as well as 2,000,000 shares of Common Stock in the
Company's affiliate Transmedia Asia Pacific Inc., which are being
unconditionally pledged for a period of not less than twelve months by
the Chairman of the Company, Edward J. Guinan III.
3. INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
COST ACCUMULATED AMORTISATION NET BOOK VALUE
$ $ $
---------- ------------------------ --------------
<S> <C> <C> <C>
License.................................................... 2,317,284 (550,879) 1,820,406
Goodwill................................................... 3,495,970 (180,970) 3,315,000
--------------
5,135,406
--------------
--------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
The net amounts due from/(to) related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
E Guinan III......................................................................... $ -- $ --
International Advance Inc............................................................ 308,084 308,084
Transmedia Asia Pacific, Inc......................................................... (251,806) (251,806)
------------ ------------
$ 56,278 $ 56,278
------------ ------------
------------ ------------
</TABLE>
5. PROPOSED MERGER
The Company entered into an Agreement and plan of Reorganization (the
'Agreement'), dated as of February 10, 1997, with Transmedia Asia
Pacific, Inc., a Delaware corporation, the Common Stock of which is
quoted on the NASDAQ Small Cap Market ('Transmedia Asia'). Although the
Agreement has expired by its terms, the Company's management has recently
re-confirmed its intention to pursue the possibility of a merger with
Transmedia Asia Pacific.
ITEM 2
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The discussion and analysis of financial condition and results of operations
should be read in conjunction with the consolidated financial statements, and
notes thereto, as well as the more detailed notes contained in the Company's
annual report on form 10-K for the year ended September 30, 1997.
The business of the Company is the design and supply of various member
benefit programs to corporations, affinity groups and individuals.
The success of the Company is dependent upon increasing the number of
members ("Company Members"), as well as broadening its product base. In
particular the joint acquisition with Transmedia Asia Pacific, Inc ("TMAP") of
Countdown Holdings, and the joint acquisition of the majority of Nationwide
Helpline Services ("NHS"), mark the start of the creation of a broader based
member benefits corporation. Management announced its intention to merge the
interests of the Company and TMAP during the course
8
<PAGE>
of the year ended September 30, 1997. This process has now been reactivated
following the completion of the first stage of the NHS acquisition, and is
expected to be completed in the medium term.
The Company will continue to look for new opportunities within the member
benefits industry through acquisition and organic growth. Management believes
that while the industry has grown dramatically in the USA with a number of
sizeable corporations participating, the opportunities internationally are
larger with the industry at a more immature stage in its development.
On April 3, 1997 the Company acquired a 50% interest in Countdown Holdings
plc ("Countdown"), whose results are consolidated in these statements using the
purchase method of accounting. Founded 27 years ago, Countdown is the leading
international provider of shopping and leisure discount benefits to
approximately 6,500,000 members in 47 countries with over 100,000 accepting
merchants. Countdown's head office is based in London with further
infrastructural support coming from licensees operating in 14 countries
internationally. Within the core UK market, there are approximately 25,000
merchants supporting 2,500,000 members.
On December 2, 1997, Transmedia Australia, a company owned equally by the
Company and TMAP, indirectly purchased in simultaneous transactions 51% of the
common stock of NHS. Transmedia Australia also acquired an option to purchase
the 49% balance of NHS's common stock. The option is exercisable at any time
through June 30, 1998, and is subject to an extension for up to 90 days. The
results of NHS will be reflected in future periods using the equity method of
accounting.
The nature of the Company's Transmedia Restaurant Card program is such that
there is a lead time before profitable operations can be anticipated. This is
demonstrated in the financial results for the three month periods ended December
31, 1997 and 1996, and the years ended September 30, 1997 and 1996. In order to
significantly promote the use of the Restaurant Card in the market, and at the
encouragement of Transmedia Network Inc. ("TMNI"), the Company's licensor, the
Company had embarked upon a series of free card campaigns. It was hoped that
this would lead to a commensurate increase in transaction revenue, and while the
number of Restaurant Cardholders did increase substantially year over year, the
anticipated increase in usage failed to materialise. The experience of TMNI in
the United States was similar to this.
The marketing approach of providing free memberships has now been abandoned,
since Restaurant Cardholders who enrolled on a free membership program had a low
perceived value for the product. Management will reduce the card base by those
free memberships which are not using the card -- thus reducing administrative
costs as well. New memberships will be pursued with an emphasis on the corporate
diner. Management believes that this segment of non-discretionary spending will
yield significantly greater use than the previously targeted retail market. The
other impact of this modification in the strategy has been to refocus the
restaurant base, effectively significantly reducing the number of restaurants
displaying low usage.
NEW PRODUCT DEVELOPMENT
COUNTDOWN DIRECT
After a detailed analysis of the Countdown product range, management has
decided to launch a new direct selling platform for the Countdown card.
Hitherto, very little emphasis was placed on direct marketing of the product to
consumers. A new management team with over forty years of collective direct
marketing experience, has been put together to establish a commission based
network marketing sales force on a national basis. This development represents
an important move for the Company. It will enable Countdown to capture credit
card details of the member directly and provide for a steadily growing base of
annuity type income flows from subsequent year renewals.
E-TAILING
Countdown is about to launch three-pronged attack on the internet market
place. Prior to acquisition, Countdown had not focussed on the enormous
opportunities represented by this medium. The e-tailing medium will be used to
direct attention to two new products --
Countdown Arcade
Kick Start
COUNTDOWN ARCADE
Countdown Arcade has been designed to offer a dynamic and fully interactive
web site listing of all Countdown accepting merchants, worldwide. The site has
firewall protection, allowing only bona fide members access to the merchant
listings. However, it has been designed to provide the casual browser with
enough information and examples to encourage immediate joining. Management
believes that Countdown Arcade will be the largest single collection of
international retailers and service providers of discounted products on the
internet.
Members will be able to search by name, category or location. All future
directory publications and newsletters will promote the web site heavily.
Management intends to use Countdown Arcade to promote other products and
services in the Company's range.
KICK START/ADVERTISING REVENUE
9
<PAGE>
The underlying Countdown program has over 100,000 participating merchants in
some 47 countries. While all will be listed on the Countdown Arcade, this
additional service will provide the opportunity to have four interactive pages
allocated for this use. For $799 annually, each retailer will have the ability
to advertise, promote, run specials etc., changing the content as frequently as
they wish. The Company, jointly with TMAP, has entered into a joint venture with
a quoted internet software house which will administer the program. The Kick
Start program will expose these merchants to an international membership base of
approximately 6,500,000 consumers.
NATIONWIDE HELPLINE SERVICES
OVERVIEW
Nationwide Helpline Services ("NHS") was formed several years ago in
Australia, and has become the leading supplier of affinity telephone help line
products to a wide range of major corporate customers, embracing 5,000,000
members across the country. NHS describes itself as "a builder of value through
relationship marketing".
NHS offers a broad range of telephone help line services including legal,
tax, accounting, medical, card protection, lockout assistance, emergency
assistance as well as an affinity travel business, Teletravel. In addition, the
group has another division, IMAN, International Medical Assistance Network. This
business handles the case management for individuals who become ill while
travelling abroad, for major insurance companies. In all, NHS offers a spread of
assistance and helpline products covering 15 different market segments.
BACKGROUND
NHS has successfully developed new products to cross market to the existing
5,000,000 members. From the core telephone business, additional complementary
products have been introduced to increase revenues. These new products include:
Teletravel -- a virtual travel agent established to sell a broad range of
travel products to the membership base;
Break Away Travel -- a travel club offering a wide range of discount
travel products and services to employees of the travel industry;
ICON -- one of Australia's leading General Selling Agents handling
ticketing and reservations in Australia and New Zealand for airlines,
hotel groups and cruise companies;
NHS Insurance -- a wholly owned brokerage business providing travel
insurance.
CURRENT OPERATION
The method of delivery of the product or service, is key to the NHS program:
- All professional services are outsourced to independent practicing
businesses. Advice given by telephone is from fully qualified
specialists;
- These specialists are linked to the main call-centre in Sydney;
- NHS pays the specialists either per call or on a flat rate basis,
thereby assuring quality advice;
- Access to the service is via a toll free number for members only.
Certain statements in this Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without
limitation, statements regarding future cash requirements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: the loss of a large number of Company Cardholders, Company
Participating Restaurants or large supplier of goods or services with whom
discount privileges have been arranged; general economic and business
conditions; industry capacity; industry trends; demographic changes;
competition; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; changes in,
or the failure to comply with, government regulations; and other factors
referenced in this Report.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 compared to Three Months Ended December
31, 1996
10
<PAGE>
The Company generated revenues of $1,862,714 (an increase of 104.5% over
1996) for the three months ended December 31, 1997. The increase in revenues is
principally due to the fact that the operations of the Company's French
subsidiary were fully consolidated into results for the first time, as well as
the fact that the Company's minority interest in NHS was included, also for the
first time. The Company marginally decreased its number of Company Participating
Restaurants from 465 at December 31, 1996 to 420 at December 31, 1997. This
decrease is attributable to the Company's policy of rationalising Participating
Restaurants with low levels of business. Membership fees for the three months
ended December 31, 1997 of $1,120,146 are $997,146 or 810.7% higher than for the
three months ended December 31, 1996. Cost of sales amounted to $1,820,722 (an
increase of 202.5% over 1996) for the three months ended December 31, 1997, in
line with the overall 188.5% increase in revenues and membership fees. Cost of
sales are approximately 50% of the gross food and beverages value consumed by
Company Cardholders and represents the recovery of the advances ('Restaurant
Credits') made by the Company to the respective Company Participating
Restaurants, as well as the cost of the memberships themselves.
Selling, general and administrative expenses, consisting primarily of the
costs of operations, for the three months ended December 31, 1997 amounted to
$1,620,717 representing an increase of 62.3% over 1996. The increase can be
mainly attributed to incremental overhead costs associated with the MBNA
campaign and the subsequent large increase in Company Cardholder numbers
together with other marketing related costs.
Transmedia France incurred losses of approximately $177,995 after revenues
of $107,493 for the three months ended December 31, 1997. The Company's share of
those losses amounted to $89,175. For the three months ended December 31, 1996
Transmedia France incurred pre-trading losses of approximately $89,175. The
Company's share of those losses amounted to $44,587.
The Company earned $nil for the three months ended December 31, 1997 from
the temporary investment of excess cash funds. The Company remains in a net
operating loss carry forward position for income tax purposes and no tax benefit
has been recognised for the three months ended December 31, 1997.
Year Ended September 30, 1997 compared to Year Ended September 30, 1996
The Company generated revenues of $6,928,936 (an increase of 121.7% over
1995) for the year ended September 30, 1996. The Company increased its number
of Company Cardholders from 43,500 to 52,000 at September 30, 1996 and at
September 30, 1997 respectively, largely as a result of sustained and
intensive marketing of the card. The Company substantially increased its
number of Participating Restaurants from 440 to 570 at September 30, 1996 and
at September 30, 1997 respectively. Membership fees for the year ended
September 30, 1997 of $941,320 are 65% higher than 1996 as a result of the
increasing numbers of Company Cardholders.
Cost of sales amounted to $4,709,911(an increase of 125.8% over 1996) for
the year ended September 30, 1997, in line with the 121.7% in revenues. Selling,
general and administrative expenses, consisting primarily of the costs of
operations, for the year ended September 30, 1997 amounted to $7,399,596
representing an increase of 101.6% over 1996.
The Company earned $11,287 for the 1997 fiscal year from the temporary
investment of excess cash funds. The Company remains in a net operating loss
carry forward position for income tax purposes and no tax benefit has been
recognised for the year ended September 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company was initially capitalised with 6,206,896 shares of Common Stock,
(after giving retroactive effect to stock dividends,) for consideration of $500.
On August 11, 1993, the Company issued 3,718,784 shares of Common Stock of which
(i) 225,000 shares were issued to Conestoga, a corporation which is related to
the Company by virtue of the majority shareholding in Conestoga held by Edward
J. Guinan III, the President, Chief Executive Officer and Director of the
Company, in consideration of costs incurred on behalf of the Company by
Conestoga, with respect to raising capital for the Company; (ii) 496,284 shares
were issued to Network, as partial consideration for the purchase of the
Transmedia License; (iii) 275,000 shares were issued to Conestoga as
reimbursement for a down payment of $275,000 made by Conestoga to Network for
the purchase of the Transmedia License; and (iv) the remaining 2,722,500 shares
were sold to private investors in a private placement at an offering price of $1
per share. In addition, the Company issued 85,000 shares of Common Stock as
consideration for services rendered in connection with the raising of capital in
the Company's private placement of shares in August 1993, of the cash proceeds
of $2,722,500, $850,000 was paid to Network for further consideration for the
purchase of the Transmedia License from the private placement of shares, leaving
a balance, after issue costs, of $1,744,623 available to the Company for use as
working capital in respect of the utilisation by the Company of its rights under
the Transmedia License.
In February 1994, the Company completed a second private placement of
700,000 shares of Common Stock at a price of $3 per share. The net proceeds of
such private placement were used as working capital in respect of the
utilisation by the Company of its rights under the Transmedia License. In
addition, the Company separately issued 10,000 shares of Common Stock as
consideration for services rendered in connection with the raising of capital in
the second private placement in February 1994.
On October 15, 1993 the Company entered into an agreement with Bostoner
International, pursuant to which Bostoner International agreed to Provide
certain consulting and financial advisory services to the Company through
December 31, 1996. Pursuant to such agreement, the Company has issued 700,000
shares of restricted Common Stock to Bostoner International.
11
<PAGE>
In July 1995 the Company issued 590,857 shares of 6 1/2 % Convertible
Preferred Stock at a price of $3.50 per share. The net proceeds of $1,964,600
have been used to finance the Company's investment in Transmedia France and to
provide working capital to existing operations.
In July 1996 the Company completed a private placement of 892,857 shares of
Common Stock at a price of $1.40 per share. The net proceeds of $1,235,000
have been used for working capital to existing operations. In December 1996
the Company issued, in a private placement, 556,250 shares of Common Stock at
a price of $2.00 per share together with warrants to purchase 185,417 shares
of Common Stock, which expire in December 1999 and have an exercise price of
$2.00 per share. The net proceeds of $1,097,500 are being used to provide
working capital to existing operations.
Net cash used in operating activities for the three months ended December
31, 1997 and 1996 were $539,593 and $272,653, respectively, and mainly results
from the net loss for the periods. Of these amounts $92,890 and $(51,310),
respectively, represents the net cash outflow for advances to Company
Participating Restaurants. These cash outflows were funded by the 1995 issue of
6 1/2% Convertible Preferred Stock and the two 1996 issues of Common Stock.
In December 1996 Transmedia Network, Inc. and its affiliate Transmedia
International, Inc. agreed, at the Company's request, to amend the Transmedia
License. The principal revisions are that the Company is now permitted to expand
into new businesses, acquire Countdown PLC and undertake a corporate
restructuring. In consideration a $750,000 fee will be payable when, and if, the
acquisition of Countdown PLC is completed and a $250,000 fee will be payable
when, and if, a corporate restructuring is completed.
In October 1996 the Company made an investment of $134,741 to acquire a
renewable 6 month option over 50% of the share capital of National Helpline
Services Pty Limited ('NHS'). NHS is an Australian business based in Sydney
which operates an innovative telephone helpline and medical evacuation business.
Its main clients are businesses in the financial services sector who are seeking
to augment the package offered to their customers. As of December, 1996, NHS had
approximately 4 million members in Australia. Transmedia Asia Pacific, Inc.
acquired an option, on identical terms to the Company, over the remaining 50%
share capital of NHS.
The Restaurant Credits are generally unsecured and are recoverable only as
Company Cardholders utilise The Restaurant Card at the respective Company
Participating Restaurant. In a small number of cases, the Company may request a
personal guarantee from the owner. Generally, no other forms of collateral or
security are obtained from restaurant owners. Recovery of Restaurant Credits as
well as generation of gross profit from operations is strongly dependent upon
the frequency of use by existing Company Cardholders of The Restaurant Card. The
Company makes provisions for irrecoverable restaurant credits.
On October 17, 1997 the Company signed a letter of intent to purchase 50% of
the shares of Common Stock of a privately held corporation engaged in a
complementary field of business. $50,000 in cash and 200,000 shares of Common
Stock in the Company, held by Edward J. Guinan III, the Chairman of the Board of
Directors were placed as a deposit. This deposit became the property of the
Principals in the corporation as of January 15, 1998. The Letter of Intent
provides for a purchase price of $3,750,000 in cash plus $500,000 in
unrestricted shares of Common Stock of the Company, the value of the shares of
Common Stock being that as of the day of closing of the purchase. If the closing
does not occur on or prior to March 31, 1998, the deposit is subject to
forfeiture to the seller.
On January 9, 1998, the Company entered into an agreement in principle,
subject to confirmation by contract, to purchase 85% of the share capital of
Network America Inc., of Dallas, Texas. The consideration consists of a cash
deposit of $50,000 to the Principals, the redemption by the Company on
January 19, 1998 an outstanding Promissory Note in an amount of $103,000 held
by an unrelated third party, an undertaking by the Company to pay a sum of
$250,000 in cash to the Principals on March 31, 1998, and an undertaking by
the Company to pay a sum of $1,000,000 in eighteen subsequent equal monthly
instalments of $55,555 each.
Additionally, the Company will require working capital financing to fund the
operating losses which have been, and are continuing to be, sustained. It is
expected that the Company will require approximately $1,000,000 until the end of
the third quarter (June 30, 1998) of it financial year. While the Company is
confident that sufficient funds will be available to meet its anticipated
business expansion needs for this period, and to fund the acquisitions of both
the privately held corporation and Network America, there can be no assurance
that the Company will be able to obtain such additional financing in the
remainder of fiscal year 1998.
The Company entered into an Agreement and plan of Reorganization (the
'Agreement'), dated as of February 10, 1997, with Transmedia Asia Pacific, Inc.,
a Delaware corporation, the Common Stock of which is quoted on the NASDAQ Small
Cap Market ('Transmedia Asia'), Transmedia Europe Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company ('Europe
Acquisition'), and Transmedia Asia Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company ('Asia Acquisition').
Under the terms of the Agreement, among other things (i) the Company will
make a contribution to the capital of Europe Acquisition by conveying
substantially all of the Company's assets, except for its equity interest in
Transmedia La Carte Restaurant S.A. , to Europe Acquisition; and (ii)
immediately thereafter Asia Acquisition will merge with and into Transmedia Asia
pursuant to which Transmedia Asia will be the surviving entity and become a
wholly-owned subsidiary of the Company and stockholders of Common Stock of
Transmedia Asia will be entitled to receive 0.9109 of a share of Common Stock of
the Company.
12
<PAGE>
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially
influenced by inflation. The business of individual Company Participating
Restaurants may be seasonal depending on their location and the type of food and
beverages served. However, the Company at this time has no basis on which to
project seasonal effects, if any, to its business as a whole.
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
Part II: OTHER INFORMATION
Items 1, 3, 4 and 5
Items 1, 3, 4 and 5 of Part II are either not applicable or are answered in
the negative and are omitted pursuant to the instructions to Part II.
ITEM 2: RECENT SALES OF UNREGISTERED SECURITIES
In July 1996 the Company completed a non-underwritten private placement of
892,857 shares of Common Stock at a price of $1.40 per share. The net
proceeds of $1,235,000 have been used for working capital to existing
operations. In December 1996 the Company issued, in a non-underwritten
private placement, 556,250 shares of Common Stock at a price of $2.00 per
share together with warrants to purchase 185,417 shares of Common Stock,
which expire in December 1999 and have an exercise price of $2.00 per share.
The net proceeds of $1,097,500 are being used to provide working capital to
existing operations. With regard to both private placements, the Company has
claimed an exemption from the registration requirements of the Securities Act
of 1933, as amended ('Securities Act') by relying on section 4 (2) of the
Securities Act, which allows for an exemption for transactions by an issuer
not involving a public offering, and the rules and regulations thereunder.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused their Report to be signed on its behalf by the
undersigned thereunto duly authorised.
TRANSMEDIA EUROPE, INC.
/s/ David S. Vaillancourt
Chief Financial Officer and Principal Financial Officer
February 22, 1997
13
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 568,189
<SECURITIES> 0
<RECEIVABLES> 2,628,127
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<OTHER-SE> 1,608,145
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