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, 2000
-------------
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|
35,844,931 Shares, $.00001 par value, as of July 31, 2000
(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
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited) (Audited)
----------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 619,731 $ 340,511
Trade accounts receivable 753,442 441,869
Restaurant credits (net of allowance for irrecoverable
credits of $ 22,422 as of June 30, 2000 and
$ 36,449 as of September 30, 1999) 590,843 705,996
Amounts due from related parties 341,841 1,095,783
Inventory 5,198,208 36,462
Other current assets 112,283 382,646
Prepaid fees 406,000 406,000
----------- -----------
Total current assets 8,022,348 3,409,267
----------- -----------
Non current assets
Investment in affiliated companies -- 21,269
Office furniture and equipment (net of accumulated
depreciation of $ 634,904 as of June 30, 2000 and
$988,807 as of September 30, 1999) 736,184 430,792
Goodwill, (net of accumulated
amortization of $1,899,221 as of June 30, 2000 and
$ 1,170,311 as of September 30, 1999) 9,304,659 10,033,569
Intangible and other assets (net of accumulated amortization
and impairment write-down of $40,000 as of June 30, 2000
and $ 763,362 as of September 30, 1999) 360,000 1,257,922
Other assets 458,552 320,753
Prepaid fees 101,500 406,000
----------- -----------
Total non-current assets 10,960,895 12,470,305
----------- -----------
TOTAL ASSETS $18,983,243 $15,879,572
=========== ===========
</TABLE>
See accompanying notes
2
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
Liabilities
Current liabilities
Bank lines of credit $ 206,488 $ 449,142
Trade accounts payable 2,899,975 1,511,409
Deferred income 4,797,940 1,029,550
Accrued liabilities 1,807,373 2,088,184
Amount due to related parties 3,649,450 1,138,872
Notes payable (Note 4) 2,100,230 3,132,425
------------ ------------
Total current liabilities 15,461,456 9,349,582
Non-current liabilities :
Amount due to related party -- 1,302,137
Other non-current liabilities 19,455 41,514
------------ ------------
Total liabilities 15,480,911 10,693,233
------------ ------------
Minority interest -- 389,864
------------ ------------
Stockholders' equity
6 1/2 % Convertible preferred stock, $0.01 par value
per share, 5,000,000 shares authorized, 590,857
issued and outstanding shares as of June 30, 2000
and September 30, 1999 5,909 5,909
Common stock, $0.00001 par value per share authorized
95,000,000 shares; (35,344,931 issued and outstanding
as of June 30, 2000 and 28,516,843 as of September 30, 1999) 352 285
Additional paid in capital 34,920,601 28,947,501
Treasury stock (196,995 shares at cost) (517,112) (517,112)
Cumulative foreign currency translation
adjustment 97,666 155,248
Accumulated deficit (31,005,084) (23,795,356)
------------ ------------
Total stockholders' equity 3,502,332 4,796,475
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,983,243 $ 15,879,572
============ ============
</TABLE>
See accompanying notes
3
<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,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,846,623 $ 2,213,530 $ 10,332,498 $ 7,273,831
Cost of revenues (1,847,421) (1,148,519) (5,476,050) (4,221,834)
------------ ------------ ------------ ------------
Gross profit 1,999,202 1,065,011 4,856,448 3,051,997
Selling, general and
administrative expenses (6,456,735) (1,673,628) (12,437,905) (5,688,240)
------------ ------------ ------------ ------------
Loss from operations (4,457,533) (608,617) (7,581,457) (2,636,243)
Share of profits/(losses), including amortization of
goodwill on investment, of affiliated companies (240,212) (106,964) (324,747) (107,239)
Interest expense (5,562) (162,447) (24,958) (485,996)
Interest income 2,981 1,172 7,127 7,525
------------ ------------ ------------ ------------
Loss before income taxes (4,700,326) (876,856) (7,924,035) (3,221,953)
Income taxes -- (1,049) -- (1,049)
------------ ------------ ------------ ------------
Loss after income taxes (4,700,326) (877,905) (7,924,035) (3,223,002)
Minority interest -- 103,464 815,122 --
Preferred stock dividend (33,605) (33,605) (100,815) (100,815)
------------ ------------ ------------ ------------
Net loss $ (4,733,931) $ (808,046) $ (7,209,728) $ (3,323,817)
============ ============ ============ ============
Loss per common share $ (0.13) $ (0.03) $ (0.22) $ (0.16)
Weighted average number of common
shares outstanding 35,207,431 22,154,619 33,059,937 20,608,318
</TABLE>
See accompanying notes
4
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $(4,733,931) $ (808,046) $(7,209,728) $(3,323,817)
Other comprehensive income (loss)
Foreign currency translation
adjustment (141,739) 183,439 (57,582) 404,343
----------- ----------- ----------- -----------
Comprehensive loss $(4,875,670) $ (624,607) $(7,267,310) $(2,919,474)
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 2000 June 30, 1999
----------------- -----------------
<S> <C> <C>
Cash flows from Operating Activities:
- Net loss $(7,209,728) $(3,323,817)
Adjustment to reconcile net loss
to net cash used in operating activities
- Depreciation of property and equipment 123,663 27,451
- Amortization: Goodwill 728,910 249,601
- Amortization: Affiliates 9,975 19,004
- Amortization: Intangibles 30,000 99,388
- Provision for irrecoverable restaurant credits (14,027) (43,401)
- Share of profits/losses of affiliates 314,772 88,235
- Termination of employment contract 959,781 --
- Gain on termination of TM licence (335,097) --
Changes in assets and liabilities:
- Trade accounts payable 1,388,566 (716,322)
- Accrued liabilities (280,811) (622,044)
- Restaurant credits 129,180 434,600
- Prepaid expense and other current assets -- 30,655
- Trade accounts receivable (311,573) 180,663
- Deferred income 3,768,390 264,232
- Accrued sign-on fees -- (296,500)
- Other assets 270,363 (95,391)
- Non-current liabilities (324,196) 7,310
- Accrued interest (31,513) 47,335
- Prepaid fees 304,500 --
- Other non-current assets (137,799) --
- Inventory (5,161,746) (36,462)
----------- -----------
Net cash used in operating activities (5,778,390) (3,685,463)
----------- -----------
Cash flows from investing activities:
- Purchase of NAMA -- (100,000)
- Purchase of Porkpine -- (25,575)
- Purchase of property and equipment (429,055) 25,878
----------- -----------
Net cash used in investing activities (429,055) (99,697)
----------- -----------
Cash flows from financing activities:
- Net proceeds received from issuance of common stock 3,604,583 3,757,000
- Due from related parties 4,229,377 1,126,319
- Repayment of notes payable (1,032,195) (1,432,459)
- Repayment of bank line of credit (242,654) (312,807)
- Loan note from related party -- --
- DBS Direct - Capital contribution by TMAP -- 375,000
----------- -----------
Net cash provided by financing activities 6,559,111 3,513,053
----------- -----------
Effect of foreign currency on cash (72,446) (93,940)
----------- -----------
Net increase/(decrease)increase in cash and
cash equivalents 279,220 (366,047)
Cash and cash equivalents at beginning of period 340,511 747,913
Cash acquired with acquisitions -- 2,728
----------- -----------
Cash and cash equivalents at end of period $ 619,731 $ 384,594
=========== ===========
</TABLE>
See accompanying notes
6
<PAGE>
TRANSMEDIA EUROPE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
Interest and income tax cash payments during the periods presented were as
follows:
Nine months ended Nine months ended
June 30, 2000 June 30, 1999
------------- -------------
Interest $ 23,054 $ 138,057
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
(i) In December 1998 the Company issued 600,000 shares of Common Stock
to acquire the interests of minority shareholders in Transmedia
France.
(ii) In November 1999 the Company issued 1,636,005 shares of Common Stock
to J. Vittoria, a former director and chairman of the board, in full
satisfaction of a loan note, together with accrued interest,
totaling $1,308,804.
(iii) In November 1999 the Company issued 125,000 shares of Common Stock
to M. Chambrello, former Chief Executive Officer, in full
satisfaction of a loan of $100,000.
(iv) In March 2000 the Company issued 50,000 shares of Common Stock to
its former Chief Executive Officer in part payment of a settlement
agreement.
(v) In May 2000 the Company issued 412,500 shares of Common Stock to
Charles Taylor, its former Chief Operating Officer in part payment
of a settlement agreement.
7
<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 global provider of
membership-based consumer and business services through its subsidiaries and
affiliates. These services are primarily marketed to major corporations
providing specifically designed loyalty programs to assist in customer
acquisition, activation and retention. The Company's various member-benefit
programs are currently offered in 28 countries and globally via the Internet.
The Company estimates that it currently has over 9 million members participating
in its various loyalty programs.
The business of the Company comprises four segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups. Additionally, the Company
provides member benefit packages to individuals on an international scale,
2. E-commerce and Internet services,
3. Direct marketing through DBS Direct, and
4. Travel services, through its affiliates.
History
The Company was incorporated under the laws of the State of Delaware in February
1993. On May 19, 1993 the Company acquired, pursuant to a Master License
Agreement ("License Agreement") dated December 14, 1992, as amended April 12,
and August 11, 1993 an exclusive license (the "License") to use certain
trademarks and service marks, proprietary computer software programs and
know-how of Transmedia Network, Inc. ("Network") to establish and operate a
discount restaurant charge card business in clearly defined geographical areas.
On April 7, 2000 the Company and Network executed a termination agreement
("Termination Agreement") pursuant to which the Company agreed to cancel the
License Agreement in return for forgiveness of indebtedness (see "Recent
Developments" below). The Company commenced operations as a discount restaurant
charge card business in the United Kingdom in January 1994 and in France in
March 1996.
The Company has worked closely with Transmedia Asia Pacific, Inc. ("TMAP") for a
number of years. TMAP acquired a similar license to that of the Company to
operate a discount restaurant charge card business in Asia and other Pacific Rim
countries. TMAP commenced operations in Sydney, Australia in November 1994. TMAP
also executed a termination agreement with Network on April 7, 2000.
Through 1996 the Company operated solely as a discount restaurant charge card
business in the United Kingdom through its wholly owned subsidiary Transmedia UK
PLC. In late 1996 management identified the need to expand the Company's
operations to become a broader based "member benefits" provider, believing that
the Company needed a range of benefits to offer its corporate clients and
individual members, in addition to discount dining. Such benefits included
discount shopping, travel, hotel accommodation and telephone helpline services.
TMAP made a similar strategic decision. As a result the Company and TMAP jointly
acquired in April 1997 Countdown Holdings Limited ("Countdown"), an
international provider of membership based discount shopping and services.
8
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - The Company (continued)
In December 1997 the Company and TMAP acquired control of NHS Australia Pty
Limited ("NHS"), through Transmedia Australia Holdings Pty Limited ("Transmedia
Australia"). NHS acquired the business operations of Nationwide Helpline
Services Pty Limited ("Nationwide"). NHS is a provider of telephone helpline
services covering advice on legal, tax, accounting, medical and home emergency.
In addition, NHS offers travel related products such as airline tickets,
vacation packages, insurance and provides international medical case management
and repatriation services to a number of insurance companies. On May 14, 1998
the Company and TMAP jointly acquired Porkpine Limited ("Porkpine"). Porkpine, a
company incorporated in Ireland, trades as Logan Leisure, a business which
produces and sells discount shopping and service directories in Ireland. On May
22, 1998 the Company and TMAP jointly acquired, through Transmedia Australia
Travel Holdings Pty Limited ("Transmedia Holdings") Breakaway Travel Club Pty
Limited ("Breakaway"). Breakaway is a licensed travel agent specializing in
discount packaged vacations for individuals employed in the travel industry in
Australia. In July 1998 the Company and TMAP jointly established Countdown USA,
Inc. ("Countdown USA") to offer member benefits in the United States and in
November 1998 Countdown USA acquired the membership base and certain assets of
National Association of Mature Americans, Inc., a provider primarily of
discounted mail order and retail pharmacy products. On November 17, 1998,
Transmedia Australia acquired the balance of 49% of the shares of common stock
of NHS. In November 1998 Countdown launched an Internet shopping web-site,
Countdown-Arcade. Finally, on June 15, 1999 the Company and TMAP jointly
acquired DSS Direct Connect, L.L.C. ("DBS Direct") a marketer and full-service
installer of DirecTV.
Recent Developments
In light of the close collaboration between the Company and TMAP since
incorporation and, more particularly, in view of their joint ownership of
Countdown, DBS Direct, Countdown USA, Logan Leisure, NHS, and Breakaway Travel,
management of the Company and TMAP assessed the rationale for a merger of the
two entities. Management believed that keeping the two companies distinct and
separate is not appropriate or advantageous to shareholders and therefore on
December 28, 1999 they executed a definitive merger agreement ("Merger
Agreement"). Under the terms of the Merger Agreement, TMAP will issue one share
of its common stock for each share of Common Stock of the Company. The merger,
which is expected to be completed by December 31, 2000, is subject to a number
of conditions, including shareholder approval. The Company and TMAP each
established independent committees to determine the fairness of the proposed
transaction from a financial point of view.
9
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - The Company (continued)
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License Agreement in return
for forgiveness of a promissory note in default in the sum of $250,000 together
with accrued interest of approximately $73,000, forgiveness of a non-interest
bearing promissory note in default in the sum of $750,000 and forgiveness of
past due royalty payments under the License Agreement in the sum of
approximately $83,000. Net of the carrying value of the License the Company
recorded a gain of approximately $335,000 on termination of the License. The
Termination Agreement provided for a transition period through June 30, 2000
during which period the Company transfered its restaurant cardholder and
participating restaurant bases to a new discount-dining product bearing the name
Taste Card. The Company believes that termination of the License Agreement is in
the best interests of the Company because the License Agreement was no longer
fundamental to the success of the Company's restaurant card business. The
restaurant card business is now an integral part of the Company's member
benefit/loyalty marketing operations and therefore is expected to operate more
favorably under the "Taste Card" brand developed by the Company. Further, the
Company developed its own software and systems and therefore the Company
received no benefit from the systems and software provided under the License
Agreement for the conduct of its day-to-day operations. The Company realized a
material financial benefit from the Termination Agreement.
As of June 30, 2000, Transmedia Europe, Inc., had the following equity interests
in its direct subsidiaries and affiliates:
Name Country of Incorporation % Owned
Subsidiaries:
Transmedia UK plc United Kingdom 100
Countdown Holdings Limited United Kingdom 50
Porkpine Limited Channel Islands 50
Countdown USA, Inc. United States 50
DSS Direct Connect, LLC United States 50
Affiliates:
Transmedia Australia Holdings Pty Ltd Australia 50
Transmedia Australia Travel Holdings Pty Ltd Australia 50
All references herein to "Company" and "TME" include Transmedia Europe, Inc. and
its subsidiaries unless otherwise indicated.
Although the Company has significant influence over the operating and financial
decisions of its affiliates, the Company does not have effective control over
their operations and therefore they are accounted for under the equity method.
10
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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, 2000, the results of
operations for the three and nine months ended June 30, 2000 and 1999 and the
changes in cash flows for the nine months ended June 30, 2000 and 1999. The
results of operations for the three and nine months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
The September 30, 1999 balance sheet has been derived from the audited
consolidated financial statements as of 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 audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K.
Note 3 - Significant accounting policies
(a) Principles of consolidation
The consolidated unaudited financial statements include the financial
statements of the Company and its subsidiaries and affiliates, including
50% held subsidiaries where effective control is exercised by the Company
over the financial and operational decisions of the subsidiary. All
significant inter-company transactions have been eliminated on
consolidation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
(b) Restaurant credits
Restaurant credits represent the total advances made to participating
restaurants in exchange for food and beverage credits, less the amount by
which these food and beverage credits are recouped by the Company as a
result of cardholders utilizing their cards at participating restaurants.
The amount by which such food and beverage credits are recouped amounts to
approximately 50% of the retail value of food and beverage consumed by
cardholders. The Company reviews recoverability of restaurant credits and
establishes an allowance for restaurant credits to restaurants that have
ceased operations or whose credits may not be utilized by cardholders.
The amount of funds advanced to participating restaurants are generally
unsecured and are recoverable as cardholders use their restaurant charge
card at such restaurants. In certain cases the Company may request a
personal guarantee from the owner of a restaurant as surety for advances
made. Generally no other forms of collateral or security are obtained from
restaurant owners.
11
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(c) Long-lived assets
Long-lived assets, such as office furniture and equipment, goodwill and
other intangibles, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the
use of these assets. When any such impairment exists, the related assets
will be written down to fair value.
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the Transmedia
License paid to Network in cash plus the fair value of shares of Common
Stock granted in exchange for the Transmedia License to operate in the
licensed territories using the systems, procedures and 'know how' of the
Transmedia business. The license cost was being amortized on a
straight-line basis over its estimated useful life of 15 years from the
commencement of operations in December 1993 until terminated in April
2000.
(e) Office furniture and equipment
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method
over the estimated lives of between three and five years.
(f) Goodwill
The excess of cost of investments over the fair value of net assets
acquired which is not otherwise allocated is determined to be goodwill and
is amortized on a straight-line basis over a period of ten or fifteen
years.
(g) Income taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Accordingly, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted rates in
effect for the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A
valuation allowance is established to reduce the deferred tax assets when
management determines it is more likely than not that the related tax
benefits will not be realized.
(h) Cash equivalents
For purposes of the statements of cash flows, the Company considers all
investments with an original maturity of three months or less to be a cash
equivalent.
(i) Inventory
Inventories are valued at the lower of cost or market, which approximates
the first in, first out method.
12
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(j) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, notes payable, restaurant credits and amounts due from/to
related parties and approximated fair value as of June 30, 2000 and
September 30, 1999 due to either short maturity or terms similar to those
available to similar companies in the open market.
(k) Revenue recognition
Revenues and fees comprise:
i) The retail value of food and beverages 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 licenses.
iv) Porkpine cardholders' membership fees and voucher sales.
v) Countdown USA membership fees.
vi) DBS Direct revenue from the sale of DirecTV equipment and
installation charges and subscriber activation commissions.
Transmedia card membership fees are recognized as revenue in equal monthly
installments over the membership period. All other components of revenue,
including other membership fees and Countdown license fees are
non-refundable and recognized as revenue when the related services have
been performed.
(l) 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 UK pound sterling, United States dollar, Irish punt and the
Australian dollar. The UK pound sterling (Countdown and Transmedia UK),
United States dollar (Countdown USA and DBS Direct) and Irish punt
(Porkpine) are the functional currencies of the Company's member
benefits/loyalty marketing businesses because it is the primary currency
of the environments in which the businesses operate as autonomous units.
All cash generated and expended by these businesses is in those
currencies. For the same reasons the functional currency of the company's
interests in Transmedia Australia and Breakaway is the Australian dollar
because those businesses are located, and primarily operate in Australia.
13
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(l) Foreign currencies (continued)
For consolidation purposes, the assets and liabilities of overseas
subsidiaries are translated at the closing exchange rates. Consolidated
statements of income of such subsidiaries are consolidated at the average
rates of exchange during the period. Exchange differences arising on the
translation of subsidiaries' financial statements are recorded in the
cumulative foreign currency translation adjustment account as a component
of stockholders' equity.
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of
exchange ruling at the balance sheet date and the gains or losses on
translation are included in the consolidated statement of operations.
The average exchange rates during the three and nine months ended June 30,
2000 and 1999 and the exchange rates in effect at June 30, 2000 and
September 30, 1999 were as follows:
<TABLE>
<CAPTION>
UK Pound Australian Irish
Sterling ((pound)) Dollar Punt
<S> <C> <C> <C>
Average exchange rates:
3 months ended June 30, 2000 1.5310 0.5895 1.1850
3 months ended June 30, 1999 1.6067 0.6539 1.3415
9 months ended June 30, 2000 1.5683 0.6094 1.2184
9 months ended June 30, 1999 1.6455 0.6374 1.4213
Closing exchange rate:
June 30, 2000 1.5131 0.5981 1.2123
September 30, 1999 1.6463 0.6528 1.3513
</TABLE>
(m) Comprehensive income
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No.130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income (loss), its components and
accumulated balances. Comprehensive income (loss) is defined to include
all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No.130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income (loss) be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The only item of comprehensive income (loss) is
foreign currency translation adjustments.
14
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(n) Recent accounting pronouncements not yet implemented
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities", which establishes standards for accounting for the various
derivative instruments commonly used in hedging activities. This standard
is now effective for fiscal years beginning after June 15, 2000. While
management is still reviewing the statement, it believes the adoption of
this statement will not have a material effect on the Company's
consolidated financial position, results of operations or cash flows, and
any effect will generally be limited to the form and content of its
disclosures.
Note 4 - Notes Payable
On July 2, 1998 the Company engaged in a private placement of debt 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 ("Note") payable on January 3, 1999 and resulted in net proceeds
to the Company of $2,926,588 after deduction of arrangement fees. The note was
secured by a pledge of 2 million shares of the common stock of TMAP ("Security
Shares") held by Edward J. Guinan III, then Chairman of the Board and Chief
Executive Office of the Company. The Company failed to pay the note on the due
date. The Company was in discussions with the noteholder through September 1999
to agree extensions of time to repay the Note. Through September 1999 the
Company made repayments totaling $1,050,000. In November 1999 the noteholder
commenced sales of the Security Shares realizing net proceeds of $2,100,230. As
of the date hereof the Company has repaid the balance of the note in full
together with accrued interest. The Company is currently in dispute with Mr.
Guinan with respect to amounts which the Company claims Mr. Guinan owes to the
Company and with respect to amounts which Mr. Guinan claims are owed to him by
the Company. See Part II - Other Information, Item 1 - Legal Proceedings. As of
the date hereof the Company is in negotiation with Mr. Guinan to resolve the
dispute. The Company may be required to arrange replacement of the Security
Shares sold by the noteholder.
Note 5 - Stockholders' Equity
During fiscal 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria
advanced a loan of $1,000,000 to the Company. The purpose of the loan was to
enable the Company to pay the cash element of Countdown acquisition purchase
consideration. The loan, which was bearing interest at 12% per annum and was
collateralized by a pledge of all the shares of Countdown purchased by the
Company, was originally scheduled to mature on September 27, 1997. The loan was
renewed upon maturity for an indefinite period by agreement between the Company
and Mr. Vittoria. On November 1, 1999, Mr. Vittoria agreed to convert the
principal of the loan, together with accrued interest in the sum of $308,804, to
shares of common stock at a price of $0.80 per share. Accordingly Mr. Vittoria
received 1,636,005 shares of common stock in full satisfaction of the principal
of the loan and accrued interest.
On October 25, 1999, Mr. M. Chambrello advanced a short-term loan to the Company
in the sum of $100,000. The loan was used to meet the short term cash needs of
the Company. On November 1, 1999 Mr. Chambrello agreed to convert the loan into
shares of common stock at $0.80 per share. Accordingly, 125,000 shares of common
stock were issued to Mr. Chambrello.
15
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 5 - Stockholders' Equity (continued)
On September 30, 1999 the Company commenced a private placement of shares of its
Common Stock 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 October 5, 1999 upon the sale of 625,000
shares of Common Stock at $.65 per share resulting in net proceeds to the
Company of $406,250.
On October 21, 1999 the Company commenced a private placement of shares of its
common stock, par value $.00001 per share ("Common Stock") 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 November 20, 1999 upon the sale of 3,906,250 shares of Common Stock at $.80
per share resulting in net proceeds to the Company of $3,125,000. The net
proceeds were applied to working capital.
In November 1999 the Company issued 1,636,005 shares of Common Stock to J.
Vittoria in full satisfaction of a loan note, together with accrued interest,
totaling $1,308,804 and 125,000 shares of Common Stock to M. Chambrello in full
satisfaction of a loan note of $100,000.
In February 2000 the Company issued 8,333 shares of Common Stock upon exercise
of a warrant, resulting in net proceeds to the Company of $8,333.
In March 2000 the Company issued 50,000 shares Common Stock in part payment of
its obligations pursuant to a settlement agreement executed by the Company and
Michael R. Chambrello, former Chief Executive Officer of the Company.
In March 2000 the Company issued 65,000 shares of Common Stock upon exercise of
a warrant, resulting in net proceeds to the Company of $65,000.
In May 2000 the Company issued 412,500 shares of Common Stock to Charles Taylor,
its former Chief Operating Officer, in part payment of a settlement agreement.
See Note 8 - Subsequent Events.
16
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 6 - Loss per common share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" in fiscal 1998. SFAS 128 requires restatement of prior
periods. Assumed exercise of warrants is not included in the calculation of
diluted loss per share since the effect would be anti-dilutive. Accordingly,
basic and diluted loss per share do not differ for any period presented. The
following table summarizes securities that were outstanding at June 30, 2000 and
1999 but not included in the calculation of diluted loss per share because such
shares are anti-dilutive.
June 30, June 30,
2000 1999
Stock options and warrants 12,935,093 4,436,343
Note 7 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in four lines of
business: member benefits/loyalty programs, travel services, direct marketing
and e-commerce, with the latter being insignificant in the three and nine months
ended June 30, 2000 and 1999. Operations of the Company's subsidiaries are
conducted in Europe and the United States. The following is a summary of the
Company's operations by business segment and by geographical segment. The
accounting policies of the segments are the same as those described in Note 3 -
Significant accounting policies.
17
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 7 - Industry and geographic area segments (continued)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(a) Statement of operations
Revenues:
Member benefits/loyalty programs $ 2,146,868 $ 2,174,598 $ 7,104,339 $ 7,234,889
Direct marketing 1,633,908 38,932 3,162,312 38,942
Internet services 65,847 -- 65,847 --
------------ ------------ ------------ ------------
Revenue for reportable segments
and consolidated revenues 3,846,623 2,213,530 10,332,498 7,273,831
============ ============ ============ ============
Operating loss:
Member benefits/loyalty programs (639,467) 117,870 (366,794) (108,808)
Direct marketing (1,393,818) (82,331) (3,428,045) (82,331)
Internet services (305,604) (305,604)
Corporate overhead (2,118,644) (644,156) (3,481,014) (2,445,104)
------------ ------------ ------------ ------------
Total operating loss for reportable segments (4,457,533) (608,617) (7,581,457) (2,636,243)
------------ ------------ ------------ ------------
Share of affiliate profits/(losses):
Member benefits/loyalty programs (193,803) (81,844) (270,397) (26,408)
Travel services (46,409) (25,120) (54,350) (80,831)
------------ ------------ ------------ ------------
Total share of affiliate profits/
(losses) (240,212) (106,964) (324,747) (107,239)
------------ ------------ ------------ ------------
Net interest expense (2,581) (161,275) (17,831) (478,471)
------------ ------------ ------------ ------------
Loss before taxation and
minority interests (4,700,326) (876,856) (7,924,035) (3,221,953)
============ ============ ============ ============
Geographic region
Revenues
Europe 2,121,268 2,112,313 7,029,971 7,095,351
United States of America 1,725,355 101,217 3,302,527 178,480
------------ ------------ ------------ ------------
$ 3,846,623 $ 2,213,530 $ 10,332,498 $ 7,273,831
============ ============ ============ ============
Net loss before taxation, minority interests
and dividends
Europe 1,151,974 (667,381) (2,726,123) (2,841,658)
United States of America (5,612,088) (102,511) (4,873,165) (273,056)
Australia (240,212) (106,964) (324,747) (107,239)
------------ ------------ ------------ ------------
$ (4,700,326) $ (876,856) $ (7,924,035) $ (3,221,953)
============ ============ ============ ============
</TABLE>
18
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 7 - Industry and geographic area segments (continued)
As of As of
June 30, September 30,
2000 1999
----------- -------------
Long-lived assets
Europe 3,657,183 3,940,570
United States of America 7,303,712 8,508,466
Australia -- 21,269
----------- -----------
$10,960,895 $12,470,305
=========== ===========
(b) Total assets
Member benefits/loyalty programs 13,043,647 7,682,655
Direct marketing 5,909,614 8,175,648
Internet services 29,982 --
Investment in affiliates -- 21,269
----------- -----------
Total assets $18,983,243 $15,879,572
=========== ===========
Note 8 - Subsequent Events
(i) Stockholders' Equity
In July 2000 the Company sold in a private placement 500,000 shares of
Common Stock resulting in net proceeds to the Company of $1,000,000. The
private placement was conducted 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 purchaser of the
shares of Common Stock received a three-year warrant to purchase 100,000
shares of Common Stock at an exercise price of $2.00 per share. The net
proceeds were applied to working capital and to part repayment of amounts
previously advanced to the Company by TMAP.
On July 21 the Company entered into an agreement with Mr. Thomas Flatley,
a director of TMAP and a shareholder of the Company, whereby Mr. Flatley
advanced a loan of $250,000 to the Company with conversion to common stock
privileges. On August 4 2000 Mr. Flatley exercised the conversion
privilege at an exercise price of $1.75 per share. Accordingly, the
Company issued 142,857 shares of Common Stock in full satisfaction of the
note. The exercise price of $1.75 per share was the market price on the
date of conversion. Mr. Flatley received a three-year warrant to purchase
30,000 shares of Common Stock at an exercise price of $2.00 per share.
Additionally, upon conversion of the note, Mr. Flatley received a further
three-year warrant to purchase 50,000 shares of Common Stock at an
exercise price of $1.75 per share. The net proceeds were used to make a
part repayment to TMAP of monies previously advanced to the Company by
TMAP.
19
<PAGE>
TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 8 - Subsequent Events (continued)
(ii) Notes Payable
On August 14, 2000 the Company executed in a private placement a
promissory note in the principle sum of $1,000,000. The private placement
was conducted 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 purchaser of the promissory note received a
three-year warrant to purchase 100,000 shares of Common Stock at an
exercise price of $1.50 per share. The promissory note is payable on
February 14, 2001 and bears interest at a rate of 5% per annum, payable on
maturity. The promissory note grants the holder the right to convert the
note at any time through October 13, 2000 into shares of Common Stock at a
conversion price of $1.50 per share. From October 14, 2000 through
December 13, 2000 the note is convertible into shares of Common Stock at a
conversion price of the lower of $1.50 or the average closing price of the
Common Stock for the five trading days pre-October 13, 2000. Finally, the
conversion price in the period December 14, 2000 through February 14,
2001, is the lower of $1.50 or the average closing price of the Common
Stock for the five trading days pre-December 13, 2000. Net proceeds were
applied to working capital and to part repayment of amounts previously
advanced to the Company by TMAP.
20
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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, those described below and those presented elsewhere by management
from time to time. When used in this Quarterly Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
General
Historically, the business of the Company was the design and supply of a range
of member-benefit programs to corporations, affinity groups and individuals. In
1996 the Company and TMAP decided to work closely to implement a strategy to
create a broader based international member benefits/loyalty marketing business.
As a result the Company currently has established business operations in Europe,
the United States and elsewhere through Countdown, Countdown USA, DBS Direct and
Logan Leisure. Additionally, through its affiliates Transmedia Australia and
Transmedia Holdings, it has an interest in businesses in Australia.
In light of the close collaboration between the Company and TMAP in recent years
and, more particularly, in view of the joint ownership of Countdown, Countdown
USA, DBS Direct, NHS, Logan Leisure and Breakaway Travel, management of the
Company and TMAP have executed a Merger Agreement, subject to shareholder
approval. Post completion of the merger the Company aims to become a leading
global provider of customized loyalty programs and services to corporations
worldwide, providing superior "business-to-consumer" solutions for businesses.
The Company's objective is to package online commerce and Internet content with
traditional offline commerce into a web-based and real world affinity solution
for corporations and associations. For members, online offerings will include
Internet access (free in some jurisdictions), a customized multi-media portal,
targeted e-commerce and global directory services. The Company's (including its
affiliates) offline content is currently available in 28 countries and includes
a wide range of products and services such as discount shopping, discount
dining, travel and telephone helpline services.
The future success of the Company is primarily dependent upon its ability to
implement its strategy to leverage its existing assets to develop and expand its
Internet activities and generate additional revenues from its member and
merchant bases.
The business of the Company comprises four segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups. Additionally, the Company
provides member benefit packages to individuals on an international scale,
2. E-commerce and Internet services,
3. Direct marketing through DBS Direct, and
4. Travel services.
21
<PAGE>
In its member benefits/loyalty marketing, the Company has recently focused its
sales effort as a loyalty and affinity marketing service to corporate clients.
Management will continue to build the Company's membership base and broaden the
range of member-benefit programs offered. Management is actively recruiting
senior executives to strengthen the management team to facilitate such
development and expansion. The Company will continue to look for new
opportunities within the member benefits/loyalty marketing industry and may
expand its operations through further acquisitions.
Management believes there is significant opportunity for the Company in its
e-commerce and Internet services business. Such opportunity includes revenue
generation, not only through the Countdown-Arcade shopping web site, but also by
providing Internet services to its merchant base, corporate clients and
Countdown licensees. The Company will continue to develop and expand its
e-commerce and Internet services activities primarily through strategic
alliances.
In the United States the Company intends to aggressively develop its Countdown
USA and DBS Direct businesses through cross marketing and strategic
partnerships. The Company is actively recruiting senior executives to be based
in the United States to support the development and expansion of Countdown USA
and DBS Direct. This strengthening of the Company's United States based
management team will also help to facilitate the expansion of its e-commerce and
other Internet services in the United States marketplace.
Results of Operations
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License in return for
forgiveness of debt, accrued interest and past due royalty payments under the
License, a total of approximately $1,156,000. Net of the carrying value of the
License, the Company recorded a gain on termination in the quarter ended June 30
2000 of approximately $335,000. Upon termination of the license, the Company
launched a new dining product, the Taste Card. The taste card program currently
operates in a similar manner to the restaurant charge card program it replaced.
However, the Company intends to expand the scope and appeal of the program. The
Taste Card program incorporates a transactional card with a complete restaurant
listing online through a new website, www.tastecard.com. The addition of the
web-based system provides several advantages including:
o superior customer service, with the ability for members to access
and track savings at any time;
o inexpensive promotion of Taste Card program online through affiliate
programs with existing retailers;
o improved restaurant promotion to a broader audience;
o superior customer profiling;
o incremental advertising and e-commerce revenue; and
o reduced mailing costs.
Additional interactivity and content will be added to the program over the
coming months, including online reservations, wireless applications and reviews.
Three Months ended June 30, 2000 compared to Three Months ended June 30, 1999
The Company generated revenues of $3,846,623 (1999: $2,213,530) in the three
months ended June 30, 2000, an increase of $1,633,093 or 73.8% over the
corresponding period in 1999. The Company's member benefit/loyalty marketing
businesses recorded a 1.3% decline in revenues over the corresponding period in
1999. Countdown and Logan Leisure recorded increases of $43,510 and $77,969
respectively which were offset by year on year decreases in the restaurant card
business ($131,930) and Countdown USA ($17,269). The decline in revenues in the
UK restaurant card business was in part due to the business not being promoted
in the period pre-termination of the Transmedia License. Such decreases were
off-set by revenue increases at DBS Direct ($1,594,966) which was acquired in
June 1999 and Internet services $65,847 (1999: $0).
22
<PAGE>
Cost of revenues totaled $1,847,421 (1999: $1,148,519) for the three months
ended June 30, 2000, generating a gross profit percentage of 52.0% (1999:
48.1%). The increase in gross profit percentage reflects a strong margin
performance at DBS Direct in particular. The Company's member benefits/loyalty
marketing operations improved gross profit in the three months ended June 30,
2000 to 50.6% as compared to 48.7% in the corresponding period in 1999.
Selling, general and administrative expenses totaled $6,456,735 (1999:
$1,673,628) for the three months ended June 30, 2000, an increase of $4,783,107
over the corresponding period in 1999. Excluding the impact of DBS Direct
($1,625,563), which was acquired in June 1999, selling general and
administrative expenses increased by $3,157,544 in the three months ended June
30, 2000 as compared to the corresponding period in 1999. Selling, general and
administrative expenses of the Company's member benefit/loyalty marketing
operations increased by $582,695 in the quarter ended June 30, 2000 primarily
due to higher payroll costs ($307,078) and the cost of re-branding and
re-launching the Company's restaurant card business post termination of the
Transmedia License of approximately $260,000. General administrative expenses of
the Company's Internet services division totalled $371,451. Head office expenses
increased by $2,203,398 as compared to the corresponding period in 1999. Head
office expenses in the quarter ended June 30, 2000 included a gain of $335,097
on termination of the Transmedia License, employment termination costs of
$1,100,781, investment banker fees in the sum of $101,500 and amortization of
goodwill arising on the acquisition of DBS Direct of $168,717 and costs
associated with the proposed merger of the Company and TMAP of approximately
$258,946. Excluding the impact of these year on year exceptional items, head
office costs increased by $908,551. Significant year on year increases in head
office costs were incurred primarily payroll ($163,410), property costs
($135,478), corporate branding and marketing ($63,059), legal fees ($219,387)
and audit and accounting ($114,023). The increase in property costs resulted
from a rent increase at the Company's head office and the increase in
professional fees reflected the cost of the Company bringing its regulatory
reporting current during the quarter ended June 30, 2000. The Company also
incurred a significant increase in consulting fees ($173,064) in the quarter
ended June 30, 2000 to assist in strategic planning and to supplement in-house
resource. Additionally, in the corresponding period in 1999 the Company recorded
a loss on foreign currency translation of $87,965.
The Company's share of profits/(losses) of its affiliates Transmedia Australia
and Transmedia Holdings, including amortization of underlying goodwill, were
$(193,803) and $(46,409) respectively for the three months ended June 30, 2000
(1999: $(72,307) and $(34,657)).
The minority interest in the Company comprises TMAP's interest in Countdown,
Porkpine, Countdown USA and DBS Direct.
Results of Operations
Nine Months ended June 30, 2000 compared to Nine Months ended June 30, 1999
The Company generated revenues of $10,332,498 (1999: $7,273,831) in the nine
months ended June 30, 2000, an increase of $3,058,667 or 42.1% over the
corresponding period in 1999. The Company's member benefit/loyalty marketing
businesses recorded a 1.8% decline in revenues as compared to the corresponding
period in 1999. Countdown, Countdown USA and Logan Leisure recorded increases of
$88,251, $677 and $169,966 respectively which were offset by a year on year
decrease in the restaurant card business $357,099 and the impact of Transmedia
France, which ceased operations in December 1998, which accounted for a $32,334
decrease in revenues year on year. DBS Direct, which was acquired in June 1999,
generated revenues of $3,162,312 in the nine months ended June 30, 2000 (1999:
$38,942).
Cost of revenues totaled $5,476,050 (1999: $4,221,834) for the nine months ended
June 30, 2000, generating a gross profit percentage of 47.0% (1999: 42.0%). The
Company's member benefit/loyalty marketing operations improved gross profit in
the nine months ended June 30, 2000 as compared to the corresponding period in
1999 from 41.8% to 49.2%. DBS Direct achieved a gross profit of 41.0%.
23
<PAGE>
Selling, general and administrative expenses totaled $12,437,905 (1999:
$5,688,240) for the nine months ended June 30, 2000, an increase of $6,749,665
over the corresponding period in 1999. Excluding the impact of DBS Direct
($4,109,339), which was acquired in June 1999, and Transmedia France ($273,904),
which ceased operations in December 1998, selling general and administrative
expenses increased by $2,914,230 in the nine months ended June 30, 2000 as
compared to the corresponding period in 1999. Selling, general and
administrative expenses of the Company's member benefits/loyalty marketing
operations increased year on year by $688,998 in the nine months ended June 30,
2000 primarily due to higher payroll costs ($493,278) and the cost of
re-branding and re-launching the Company's restaurant card business post
termination of the Transmedia License of approximately $260,000, net of lower
professional fees $126,198. General administrative expenses of the Company's
Internet services division totalled $371,451. Head Office expenses in the nine
months ended June 30, 2000 increased by $1,853,781 as compared to the
corresponding period in 1999. Head office expenses in the nine months ended June
30, 2000 included non-cash employment termination costs $959,781, investment
banker fees $304,500, amortization of goodwill arising on the acquisition of DBS
Direct of $506,151 and other employment termination costs of $300,000.
Additionally, the Company recorded a gain on termination of the Transmedia
License of $335,097 and incurred expenses of approximately $258,946 with respect
to the proposed merger with TMAP. Excluding the impact of these year on year
exceptional items, head office costs decreased by approximately $140,500. As
reported above, the Company incurred significant additional expense in the
quarter ended June 30, 2000 particularly in the areas of payroll, property and
professional fees. As a result, the Company has incurred year on year increases
in a number of expense categories in the nine months ended June 30, 2000,
primarily legal fees ($213,956), audit and accounting ($158,707) and other
professional fees ($50,819). Such year on year increases have been offset by the
impact of non-recurring costs incurred in the corresponding period in 1999,
including office relocation costs $93,280 and costs associated with the
liquidation of Countdown France $152,273. Additionally, in the corresponding
period in 1999 the Company recorded foreign exchange translation losses of
$341,038.
The Company's share of profits/(losses) of its affiliates Transmedia Australia
and Transmedia Holdings, including amortization of underlying goodwill, were
$(270,397) and $(54,350) respectively for the nine months ended June 30, 2000
(1999: $(38,264)and $(68,975)).
The minority interest in the Company comprises TMAP's interest in Countdown,
Porkpine, Countdown USA and DBS Direct.
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Nine Months Ended
-----------------
June 30, 2000 June 30, 1999
Cash used in
Operating Activities $(5,778,390) $(3,685,463)
Cash used in
Investing activities (429,055) (99,697)
Cash provided by financing
Activities 6,559,111 3,513,053
The Company recorded a net loss of $7,209,728 for the nine months ended June 30,
2000. Such loss, adjusted for non-cash items, namely depreciation and
amortization charges totaling $892,548, the Company's share of losses of
affiliates of $314,772, gain on termination of the Transmedia License
$(335,097), a release of provision for irrecoverable restaurant credits of
$14,027 and the issuance of shares in connection with the termination of
employment contracts $959,781 resulted in funds used in operating activities
totaling $5,778,390, net of working capital movements.
Net cash used in investing activities of $429,055 comprised the Company's
investment in fixed assets in the nine months ended June 30, 2000. In the
corresponding period in 1999, net cash used in investing activities
24
<PAGE>
comprised the cash element of the Company's investment in its subsidiaries
Porkpine ($25,575) and NAMA ($100,000) and proceeds from the sale of fixed
assets of $25,878.
To meet its cash requirements during the nine months ended June 30, 2000, the
Company sold in aggregate 4,531,250 shares of its Common Stock in equity private
placements, resulting in net proceeds to the Company of $3,531,250. The exercise
of Common Stock warrants by the holders resulted in net proceeds to the Company
of $73,333. Additionally, the Company received $4,229,377 from TMAP by way of
repayment of prior cash advances to TMAP and advances from TMAP to the Company
and the Company's subsidiaries. Other significant financing activities during
the nine months ended June 30, 2000 comprised the net repayment of short-term
notes payable ($1,032,195) and a credit line repayment of $242,654.
Subsequent to June 30, 2000 the Company sold 500,000 shares of its Common Stock
in an equity private placement, resulting in net proceeds to the Company of
$1,000,000. Additionally, the Company raised $1,250,000 through the private
placement of debt securities. See Note 8 to the unaudited consolidated financial
statements. Of such debt securities, the holder of a $250,000 promissory note
converted such note to equity at a conversion price of $1.75 per share,
resulting in the issuance of 142,857 shares of Common Stock in August 2000.
The Company will require further capital infusions in order to meet the ongoing
funding requirements of its operations. Based upon the Company's history of
obtaining necessary financing, management is confident that sufficient funds
will be available to the Company to operate in the foreseeable future. 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.
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the single product offered, the Transmedia dining card.
However, in recent years the Company and TMAP have worked closely to implement a
strategy to create a broader based international business. As a result the
Company currently has established business operations in Europe and the United
States and through its affiliates, has an interest in business operations in
Australia. Management believes that after completion of the proposed merger with
TMAP, the Company and TMAP will be well positioned to achieve profitability in
the medium term.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the three, six and nine months ended June 30, 2000, a situation
which is expected to continue for the foreseeable future. The business of
individual Participating Restaurants may be seasonal depending on their location
and the types of food and beverage sold. However, the Company has no basis at
this time on which to project the seasonal effects, if any, on 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 was
made in the Company's annual report on Form 10-K for the year ending September
30, 1999.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On September 29, 1999 NAMA of Texas filed a civil action against the Company,
TMAP and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of
NAMA, a business acquired by the Company and TMAP through Countdown USA in
November 1998. NAMA of Texas is claiming breach of contract pursuant to a
License and Consulting Agreement for the provision, by NAMA, of medical and
other benefit programs to NAMA of Texas. NAMA of Texas is claiming damages for
loss of business and income in the sum of $5 million, punitive damages in the
sum of $3 million, interest, attorney fees and all costs including court costs.
Management of the Company, TMAP and Countdown USA believe that the claims of
NAMA of Texas are unfounded and that they have meritorious defenses against such
claims. The Company, TMAP and Countdown USA filed their original answer on
November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal
Court. The Federal Court ordered an initial pre-trial conference for May 18,
2000. At the pre-trial conference the Judge dismissed the case against the
Company and TME with the condition that should Countdown USA ultimately lose the
case and is not capable of paying any judgment against it, then the Company and
TME could be enjoined again. As of the date hereof, the proceeding is at
deposition stage.
The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief
Executive Officer, with respect to amounts which the Company claims Mr. Guinan
owes to the Company and with respect to amounts which Mr. Guinan claims are owed
to him by the Company. Mr. Guinan's employment agreement was terminated for
cause on September 30, 1999 and the Company considers the employment agreement
to no longer be effective. Mr. Guinan's attorneys recently have challenged this
position and have also asserted claims for various advances which Mr. Guinan
asserts were made on behalf of the Company and for which he claims to be
entitled to reimbursement. No legal action has been commenced by the Company or
Mr. Guinan. At this time it cannot be determined when and if this dispute can be
resolved or what the net amount, if any, which Mr. Guinan owes to the Company or
the Company owes to Mr. Guinan.
The Company is engaged in a dispute with Carl Freyer, a former director and
consultant to the Company. Mr. Freyer claims that an agreement was reached in
December 1999 pursuant to which he, or his affiliate, was granted warrants plus
cash payments in lieu of prior compensation arrangements. The Company asserts
that there is no such valid agreement and that the only rights of Mr. Freyer, or
his affiliate, relate to the Company's obligation to submit for shareholder
approval, warrants previously granted covering 300,000 shares exercisable at
$1.00 per share. At this time no litigation has been commenced.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 2. Change in Securities and Use of Proceeds
On September 30, 1999 the Company commenced a private placement of shares of its
Common Stock 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 October 5, 1999 upon the sale of 625,000
shares of Common Stock at $.65 per share resulting in net proceeds to the
Company of $406,250. The net proceeds were applied to working capital.
On October 21, 1999 the Company commenced a private placement of shares of its
Common Stock 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 November 20, 1999 upon the sale of 3,906,250
shares of Common Stock at $.80 per share resulting in net proceeds to the
Company of $3,125,000. The net proceeds were applied to loan repayments and
working capital.
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During fiscal 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria
advanced a loan of $1,000,000 to the Company. The purpose of the loan was to
enable the Company to pay the cash element of Countdown acquisition purchase
consideration. The loan, which was bearing interest at 12% per annum and was
collateralized by a pledge of all the shares of Countdown purchased by the
Company, was originally scheduled to mature on September 27, 1997. The loan was
renewed upon maturity for an indefinite period by agreement between the Company
and Mr. Vittoria. On November 1, 1999, Mr. Vittoria agreed to convert the
principal of the loan, together with accrued interest in the sum of $308,804, to
shares of Common Stock at a price of $0.80 per share. Accordingly, the Company
issued 1,636,005 shares of Common Stock in full satisfaction of the principal of
the loan and accrued interest.
On October 25, 1999, Mr. M. Chambrello, then Chief Executive Officer of the
Company, advanced a short-term loan to the Company in the sum of $100,000. The
loan was used to meet the short term cash needs of the Company. On November 1,
1999 Mr. Chambrello agreed to convert the loan into shares of Common Stock at
$0.80 per share. Accordingly, the Company issued 125,000 shares of Common Stock
to Mr. Chambrello.
In February 2000 the Company issued 8,333 shares of Common Stock upon exercise
of a warrant, resulting in net proceeds to the Company of $8,333. The net
proceeds were applied to working capital.
In March 2000 the Company issued 50,000 shares Common Stock in part payment of
its obligations pursuant to a settlement agreement executed by the Company and
Michael R. Chambrello, former Chief Executive Officer of the Company.
In March 2000 the Company issued 65,000 shares of Common Stock upon exercise of
a warrant, resulting in net proceeds to the Company of $65,000. The net proceeds
were applied to working capital.
In May 2000 the Company issued 412,500 shares of Common Stock to Charles Taylor,
its former Chief Executive Officer, in part payment of a settlement agreement.
In July 2000 the Company sold in a private placement 500,000 shares of Common
Stock resulting in net proceeds to the Company of $1,000,000. The private
placement was conducted 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 purchaser of the shares of Common Stock received a
three-year warrant to purchase 100,000 shares of Common Stock at an exercise
price of $2.00 per share. The net proceeds were applied to working capital and
to part repayment of amounts previously advanced to the Company by TMAP.
On July 21 the Company entered into an agreement with Mr. Thomas Flatley, a
director of TMAP and a shareholder of the Company, whereby Mr. Flatley advanced
a loan of $250,000 to the Company with conversion to Common Stock privileges. On
August 4, 2000 Mr. Flatley exercised the conversion privilege at an exercise
price of $1.75 per share. Accordingly, the Company issued 142,857 shares of
Common Stock in full satisfaction of the note. The exercise price of $1.75 per
share was the market price on the date of conversion. Mr. Flatley received a
three-year warrant to purchase 30,000 shares of Common Stock at an exercise
price of $2.00 per share. Additionally, upon conversion of the note, Mr. Flatley
received a further three-year warrant to purchase 50,000 shares of Common Stock
at an exercise price of $1.75 per share. The net proceeds were used to make a
part repayment to TMAP of monies previously advanced to the Company by TMAP.
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On August 14, 2000 the Company executed in a private placement a promissory note
in the principle sum of $1,000,000. The private placement was conducted 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 purchaser
of the promissory note received a three-year warrant to purchase 100,000 shares
of Common Stock at an exercise price of $1.50 per share. The promissory note is
payable on February 14, 2001 and bears interest at a rate of 5% per annum,
payable on maturity. The promissory note grants the holder the right to convert
the note at any time through October 13, 2000 into shares of Common Stock at a
conversion price of $1.50 per share. From October 14, 2000 through December 13,
2000 the note is convertible into shares of Common Stock at a conversion price
of the lower of $1.50 or the average closing price of the Common Stock for the
five trading days pre-October 13, 2000. Finally, the conversion price in the
period December 14, 2000 through February 14, 2001, is the lower of $1.50 or the
average closing price of the Common Stock for the five trading days pre-December
13, 2000. Net proceeds were applied to working capital and to part repayment of
amounts previously advanced to the Company by TMAP.
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
None
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMEDIA EUROPE, INC.
By: /S/ Grant White
-------------------------------
Chief Executive Officer
