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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26368
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TRANSMEDIA ASIA PACIFIC, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-3760219
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
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(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange
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NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $.00001 PER SHARE
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(Title of Class)
Indicate by (X) whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes / / No / X /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of January 12, 1998 was $21,806,070 based upon the closing sale
price of a share of Common Stock on that date.
The number of shares outstanding of the Registrant's Common Stock, as of January
12, 1998 was 15,249,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Location in Form 10-K in which
Document Document is Incorporated
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Registrant's Proxy Statement Part III
relating to the 1998
Annual Meeting of Stockholders
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PART I
Item 1 - Business
Background
Transmedia Asia Pacific, Inc. ("TMAP" or "the Company") is a Delaware
corporation which was formed in March 1994 and began business operations
in Sydney, Australia in November 1994. On May 2, 1994 the Company
acquired from Conestoga Partners II Inc. ("Conestoga") the rights
Conestoga had previously acquired from Transmedia Network, Inc.
("Network") an independent company which, through its affiliate TMNI
International Inc., ("TMNI"), is a shareholder of the Company, pursuant
to a Master License Agreement ("License Agreement") dated March 21,
1994. The rights acquired were an exclusive license (the "License") to
use certain trademarks and service marks, proprietary computer software
programs and know-how of Network in establishing and operating a
discount restaurant charge card business in essentially all the
countries in Asia and the Pacific Rim including Japan, China, Hong Kong,
Taiwan, Korea, the Philippines and India (the "Licensed Territories").
As used in this report, the term "Company" includes Transmedia Asia
Pacific Inc. and its subsidiaries unless otherwise indicated.
Corporate Development
For some time, the management of both the Company and Transmedia Europe
Inc., a company which shares common directors, officers and stockholders
with the Company, has been questioning the need to maintain two separate
corporate entities. This dual structure was a direct result of the
timing difference in obtaining the original licenses for the respective
territories. By the beginning of 1997, management felt that keeping the
corporate structures distinct and separate was no longer advantageous to
shareholders and therefore announced its intention to merge the two
companies.
Management's motivation for initiating this step was driven by several
factors including, among other things, to reduce the confusion of having
two separate stock quotes for essentially the same businesses operating
in different geographical regions; to lower central overhead and to
increase operating efficiency; and to formalise the existing commonality
of management. The proposed merger is subject to approval of the
respective Boards, issuance of fairness opinions by independent
investment advisers and approval by shareholders of both companies.
Management has already announced that at such time as the companies are
merged, that the merged entity will be operated under the name MemberTek
International Inc.
Corporate Expansion
Following a review of the Company's operations, management identified
the opportunity to broaden the base of the businesses in order to
exploit the rapidly growing member benefit services industry. While the
Transmedia program provided the core business operating as an
international discount dining charge card, management has already
identified other businesses which, upon acquisition, would significantly
increase the Group's product range, and in doing so, provide a wider
base upon which to build future growth. This change of emphasis was
initiated with the identification and subsequent acquisition of
Countdown Holdings Limited.
Countdown
In April 1997, the Company acquired a 50% interest in Countdown Holdings
Limited ("Countdown"), an international provider of membership discount
services. The remaining 50% interest in Countdown was simultaneously
purchased by Transmedia Europe Inc. ("TME"), a company which shares
common directors, officers and stockholders with the Company. See
"-Countdown Business". TME effectively controls the operations of
Countdown and, as such, Countdown's operations are accounted for on the
equity method in the financial statements of the Company included
herein.
The Countdown business of the Company ("Countdown") consists of
arranging discount privileges with major suppliers of goods and services
offering lifestyle benefits to consumers, and of distributing
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access to those discount privileges to consumers through selling
memberships in the Countdown card. Countdown sells these memberships to
consumers individually, as well as through affiliation with various
groups (unions, professional organisations, etc.). These discount
privileges include household goods and supplies, clothing, and leisure
goods and services. Countdown has approximately 6,500,000 members, with
over 100,000 accepting merchants in 47 countries. Countdown also sells
vouchers to consumers. These vouchers are sold at a discount to the face
value of the voucher, typically of 5 -10%, and are redeemable by
consumers, at their face value, in connection with purchases similar to
those described above, at accepting merchants.
Nationwide Helpline Services
On December 2, 1997, a newly formed company owned equally by the Company
and TME indirectly purchased, through a wholly owned subsidiary,
Transmedia Australia Holdings Pty Limited, 51% of the business and
assets of Nationwide Helpline Services Pty Limited ("NHS"), an
Australian company which, among other things, provides benefit packages
to organizations with large customer bases such as banks and insurance
companies. See "- NHS Acquisition." The operations of NHS are
effectively controlled by the Company. At this time Transmedia Asia
Pacific also acquired an option to purchase the 49% balance of NHS's
business and assets.
NHS is Australasia's leading provider of telephone helpline and
lifestyle benefits, with a product range that includes advice lines on
legal, tax, accounting, medical and home emergency issues, as well as
the sale of travel products such as insurance, airline tickets and
holiday packages. In addition, through a subsidiary called IMAN, the
Company provides international medical case management and repatriation
services to a number of major insurance corporations. NHS has
approximately 5 million members.
NHS's services are sold primarily on a wholesale basis to a wide range
of major corporations who typically brand the services under their own
name, thereby providing additional benefits to their own customer base.
Management believes that the acquisition of NHS is another important
development in its stated strategy to broaden its range of member
benefit services.
Transmedia Business Activities
The restaurant card business of the Company is the exploitation of the
rights acquired under the License Agreement. The Company advances money
to restaurants selected by it which agree to become participating
restaurants ("Company Participating Restaurants"). The Company recovers
its advances ("Restaurant Credits") from food and beverages purchased
net of taxes and service ("Food and Beverage Credits") from Company
Participating Restaurants, by accepted cardholders ("Company
Cardholders") who complete applications to become holders of the
restaurant card ("The Restaurant Card") offered by the Company. The
Company keeps a current record of the amount of Food and Beverage
Credits outstanding at each Company Participating Restaurant. As food
and beverages are consumed by Company Cardholders at Company
Participating Restaurants by such Company Cardholders charging the
retail price of such food and beverages with The Restaurant Card, the
Food and Beverage Credits outstanding are reduced and the Restaurant
Credits outstanding are also reduced by one-half of such Food and
Beverage Credits used.
The Company Cardholder receives on each purchase a credit equal to 25%
of the Food and Beverage credits used. The Company Participating
Restaurant is paid its taxes and service by the Company from a portion
of the proceeds received by the Company from the payment by a Company
Cardholder of the amount charged on The Restaurant Card. The Company
retains the balance which reduces the Restaurant Credits by 50% of the
Food and Beverage Credit used. The Company pays a royalty of 2% of Food
and Beverage Credits used to Network and 2.5% of Food and Beverage
Credits used as sales commissions.
The Restaurant Card is a discount restaurant charge card used by a
Company Cardholder in lieu of a major credit card to charge food and
beverages purchased at a Company Participating Restaurant. The
Restaurant Card charges are transferred to the major credit card used by
the Company Cardholder as listed in the Restaurant Card application. The
full amount of the charge is listed on the major credit
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card bill along with a separate credit equal to 25% of the cost of food
and beverages at a Company Participating Restaurant (excluding taxes and
service). As at December 31, 1997, the Company had approximately 269
Company Participating Restaurants and approximately 37,300 Company
Cardholders. The Company is currently operating in Australia and New
Zealand, and plans in the future to develop the License within the
Licensed Territories directly, through subsidiaries, and through the
sale of sub-licenses and franchises to others. In connection with this
business, the Company will receive revenue from (a) the difference
between the amount of its Restaurant Credits to Company Participating
Restaurants and Food and Beverage Credits used at Company Participating
Restaurants by Company Cardholders, net of the 25% discount to Company
Cardholders, the Network royalty and sales commissions, (b) annual
membership fees and renewal fees of Company Cardholders, and (c)
sub-license and franchise fees when and if received by the Company from
future franchises and sub-licenses, net of minimum up-front payments to
Network with regard to such franchises and licenses.
The Company launched The Restaurant Card in Sydney, Australia through a
promotional campaign with the SYDNEY MORNING HERALD in November 1994. In
September 1995, the Company launched in Melbourne, Australia with THE
AGE newspaper. More recently, the Company has launched in Brisbane and
the Gold Coast, Australia. The Company is in the process of developing
additional campaigns to attract new Company Cardholders.
Network, from whose affiliate, TMNI, the License was granted and on
whose business the Company's operations are modeled, is a publicly
traded company operating in the United States both directly and through
licensees and franchisees. Under the License the Company is authorised
to engage in business within the Licensed Territories in the same manner
as Network operates in the United States, except that under the License
Agreement the Company must pay certain royalties to Network based both
on operations and the sale of license rights and must get the approval
of Network for certain changes in key executives and principal
shareholdings. Company Cardholders and Cardholders of Network and its
franchisees are able to use The Restaurant Card to purchase meals in all
territories covered by the Company, Network and its franchisees. The
Company will realise all financial benefits from meals consumed within
the Licensed Territories and no financial benefit from meals consumed
outside of the Licensed Territories.
Network was issued 590,790 shares of Common Stock of the Company, as
partial consideration for the sale of the License to the Company, and
has the right to designate one director of the Company. There is not
currently a director that has been designated by Network.
Transmedia Europe Inc., ("TME"), of which Edward J. Guinan III, Chairman
of the Board of Directors is the principal shareholder, owns an
equivalent license from TMNI covering all the countries in Europe,
Turkey and the other countries outside of Europe that were formerly part
of the Union of Soviet Socialist Republics. TME commenced operations in
the United Kingdom in January 1994 and has obtained approximately 52,000
cardholders since its launch.
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Transaction Illustration
The following is a descriptive illustration of a hypothetical
transaction by a Company Cardholder at a Company Participating
Restaurant.
The Company, through a commissioned sales representative, recruits
Restaurant A, a full service restaurant operating in Sydney, as a
Company Participating Restaurant. The Company grants Restaurant Credits
in the amount of $3,000 (Aus.) which entitles the Company to collect the
proceeds from $6,000 (Aus.) of Food and Beverage Credits charged by
Company Cardholders on The Restaurant Card at Restaurant A. John Smith,
a Company Cardholder, enjoys a meal at Restaurant A and pays the $100
(Aus.) check (consisting of $80 (Aus.) for food and beverages and $20
(Aus.) for taxes and service) with The Restaurant Card. Mr Smith
presents The Restaurant Card. Restaurant A delivers The Restaurant Card
receipt for Mr Smith's meal to the Company for processing through the
Major Credit Card Account designated by Mr Smith in The Restaurant Card
application and for payment. The Company utilizes $80 (Aus.) of
Restaurant A's Food and Beverage Credits (for which it has made
Restaurant Credits of $40 (Aus.)) and reduces the Restaurant Credits due
to it from Restaurant A by $40 (Aus.). The Company then submits a
credit to Mr Smith's Major Credit Card Account in the amount of $20
(Aus.) (representing 25% of the $80 (Aus.) of food and beverages
consumed). Upon receipt of The Restaurant Card receipt of Mr Smith of
$100 (Aus.), the Company forwards $20 (Aus.) of this amount
(representing the tax and service portion of Mr Smith's meal check) to
Restaurant A. The Company forwards $1.60 (Aus.) as a royalty to Network
(2% of the $80 (Aus.) of Food and Beverage Credits used) and keeps
$58.40 (Aus.). This compares with Restaurant Credits made by the
Company of $40 (Aus.) to Restaurant A and the $80 (Aus.) of Food and
Beverage Credits utilized in providing Mr Smith his meal. The Company
is responsible for paying the commissions of its sales representatives
which are currently 5% of Food and Beverage Credits used.
The allocation of the hypothetical $100 (Aus.) check can be summarized
as follows:
Name Amount Received Nature of Allocation
Mr Smith $20 (Aus.) 25% of food and beverage charges
(exclusive of tip and taxes
credited to his Major Credit Card
account.
Restaurant A $20 (Aus.) Payment of service and taxes.
Restaurant A -0- The Restaurant Credits due to the
Company by Restaurant A are reduced
by $40 (Aus.).
Network $1.60 (Aus.) A royalty fee of 2% of the $80
(Aus.) of Food and Beverage Credits
used is payable to Network.
The Company $58.40 (Aus) This represents a reduction of
Restaurant Credits by $40 (Aus.)
plus $18.40 (Aus.) of gross profit.
From this amount a sales
representative of the Company will
typically receive a commission of
3.75% of Food and Beverage Credits
used or in this example $3 (Aus.).
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Countdown Business
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50% of
the outstanding capital stock of Countdown Holdings Limited, a privately
owned United Kingdom company based in London, England ("Countdown").
Countdown, through its wholly-owned subsidiary, Countdown plc, is an
international provider of membership discount services, offering
lifestyle benefits and discounted purchases of merchandise and services,
to approximately 6,500,000 cardholders distributed throughout the United
Kingdom, with nearly 100,000 accepting merchants in 47 countries. The
transaction ("the Acquisition") was consummated pursuant to an
Acquisition Agreement dated as of April 3 1997 ("the Acquisition
Agreement") among the Company, C.E.C. Radbone and TME.
In payment of the purchase price, the Company issued 1,330,524 shares
(the "Radbone Shares") of its common stock, $.00001 par value per share
("Common Stock"), 277,193 options to purchase shares at $0.90 each, and
paid UK pounds 500,000 (approximate U.S. Dollar equivalent as of April
3, 1997 was $800,000) in cash. In addition, the Company granted Mr.
Radbone piggyback and demand registration rights with respect to the
Radbone Shares. In accordance with the Acquisition agreement, the
balance of the outstanding capital stock of Countdown was simultaneously
purchased by TME on terms similar to the terms of the Company's purchase.
The cash portion of the purchase price was funded by a $1,000,000 loan
from a director and stockholder of the Company. The loan was originally
scheduled to mature on September 27, 1997, bears interest at a rate of
12% per annum, and has been renewed by agreement between Edward J.
Guinan III, Chairman of the Board, and the director. The repayment
period of the loan has not been stipulated and it continues to bear
interest at 12% per annum. It is collateralised by a pledge of all the
shares purchased by the Company from Mr. Radbone. In connection with the
loan, the Company issued to the director and stockholder five-year
warrants to purchase up to 138,596 shares of Common Stock at $1.13 per
share and granted piggyback registration rights with respect to such
shares.
Contemporaneously with the Acquisition, Countdown entered into an
employment agreement with Mr. Radbone pursuant to which Mr. Radbone was
employed as Managing Director of Countdown. Upon consummation of the
acquisition, Mr Radbone was elected a director of the Company, and
Messrs. Edward J. Guinan III and Paul Harrison were elected directors of
Countdown and Countdown Plc. On January 16, 1998, Mr. C.E.C. Radbone, a
director of the Company, resigned from the Board of Directors.
Contemporaneously, his employment agreement, according to the terms of
which he had been serving as Managing Director of Countdown plc, a
subsidiary of the Company, was cancelled. Mr. Radbone held 1,200,000
shares of Common Stock of the Company and agreed to grant Edward J.
Guinan III, the Chairman of the Board of Directors, an option to
purchase these shares at a value of $1 per share. The consideration for
this option is $500,000 payable in shares of the Company.
In connection with the Acquisition, the Company and Transmedia Europe
each agreed to pay $125,000 in cash to TMNI International Incorporated
("TMNI") and both issued to TMNI a joint promissory note in the
principal amount of $500,000 with a combined liability, payable on April
2, 1998 and bearing interest at the rate of 10% per annum. The
promissory notes are convertible at the holder's option into Common
Stock of each issuer at the rate of $1.20 per share. The Company agreed
to pay such amounts in order to obtain the consent to the Countdown
acquisition, which consent was required by the terms of the master
license agreement from TMNI under which the Company operates its
discount restaurant charge card business. The transaction was described
in more detail in the form 8-K filed at the time of the transaction,
reference to which is incorporated herein.
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NHS Acquisition
On December 2, 1997, Transmedia Australia Holdings Pty Limited
("Transmedia Australia"), a newly-formed company owned equally by the
Company and Transmedia Europe Inc., indirectly through NHS Australia Pty
Limited, purchased in simultaneous transactions 51% of Nationwide
Helpline Services Pty Limited, an Australian company ("NHS"). The total
purchase price for the transaction (including a deposit of Aus.$ 345,000
= $226,974) is approximately Aus. $10,000,000 ($6,578,950), Aus.
$4,000,000 ($2,631,578) of which represents sign-on fees for certain
principals of NHS, and the balance of which represents amounts payable
to NHS in two tranches. The first tranche was paid on December 2, 1997
in the form of cash and 500,000 shares of the common stock of the
Company and its affiliate Transmedia Europe Inc. The second tranche
(Aus. $2,842,540 ($1,870,092)) is payable on January 31,1998 (which date
may be extended by up to 90 days provided that interest will accrue
during any such extension at 5% per annum). The sign on fees are
payable one half on January 31, 1998 and the balance on June 30, 1998
(subject to extension of each installment (with the exception of a
portion of the first installment) by up to 90 days provided that
interest will accrue on the extended amounts at 5% per annum).
Transmedia Australia also acquired an option to purchase the 49% balance
of NHS's business and assets for an additional Aus. $2,497,655
($1,643,194) (less potential reductions). The option is exercisable at
any time through June 30,1998 (subject to extension for up to 90 days)
provided that interest will accrue on the exercise price during any such
extension at 5% per annum. Failure to exercise this option during its
term will give the NHS principals the rights to repurchase the 51%
interest for nil consideration. NHS is a provider of benefit packages
for organizations with large customer bases such as banks and insurance
companies. For a more detailed discussion of the terms of this
transaction, reference is made to the Company's current report on Form
8-K dated December 2, 1997, which is incorporated by this reference
herein.
Employees
As of December 29, 1997, the Company employed 62 persons, none of whom
are affiliated with a union. The Company believes that its relationship
with its employees is good.
Competition
The charge card business, including the discount restaurant card
business, is highly competitive, both internationally and in Australia.
The Company competes to enrol Company Participating Restaurants and
Company Cardholders against other discount programs. Competitors
include discount programs offered by major credit card companies such as
American Express, Visa, Mastercard and Diners Club. Moreover, other
companies offer different kinds of discount marketing programs. For
example, Hilton International, an international hotel management company
and hotel owner, provides two-for-one dining offers in its restaurants.
Many of the Company's competitors have substantially greater financial,
personnel, technological, marketing, administrative and other resources
than the Company.
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The Company believes that the unique feature of The Restaurant Card is
that it can be used by Company Cardholders at Company Participating
Restaurants with virtually no restrictions, that The Restaurant Card
provides substantial savings without the need for a Company Cardholder
to present discount coupons when paying for a meal, and that Company
Participating Restaurants are provided with cash in advance of customer
charges. The Company believes that all these features contribute to the
Company's competitiveness. Although the Company is not aware of any
discount programs, restaurant financing business or discount restaurant
charge card business in any of the areas in the Licensed Territories,
there is no guarantee that others will not offer, in the future, similar
services in any of the Licensed Territories. The Company also believes
that advertising and promotion, which will require significant cash
outlays, will be necessary to maintain competitiveness. However,
competitive pressure may require significant additional cash
expenditures for advertising and promotion, the amount and timing of
which may be dictated in part by the marketing policies of competitors.
If the revenues from the Company's operations are insufficient to permit
management to match promotional campaigns of competitors, the number of
Company Cardholders and Company Participating Restaurants in the
Licensed Territory may decline, with a resulting adverse effect on the
Company's financial condition.
The Countdown membership benefit program, with over 6,500,000
cardholders in the United Kingdom and over 100,000 accepting merchants,
provides a core of business activity upon which the Company intends to
build a more diversified benefits program.
Government Regulation
The Company believes that it possesses all governmental permits or
licenses necessary to operate in Australia and the remainder of the
Licensed Territories, but has not inquired yet as to whether or not any
permits may be required in the rest of the Licensed Territories.
Important Factors Regarding Forward Looking Statements and Other Risks
Certain statements in this Report under the captions "Item 1. Business,"
"Item 7. 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. 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
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 "anticipates", "plans," "intends," 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. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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Limited Operating History, Accumulated Deficit, No Assurance of Profitability
The Company's operations are subject to all the risks inherent in
rapidly growing business enterprises, including limited capital, delays,
uncertain markets and competition. The Company began conducting business
operations in the Fall of 1994 in Sydney, Australia. The operations of
the Company have produced losses which have continued through the date
hereof. As of September 30, 1997, the Company's accumulated deficit
since inception was $7,376,641 and the Company's net loss for the fiscal
year then ended was $3,030,445. There can be no assurance that the
Company will ever achieve profitable operations. The likelihood that the
Company will succeed in the member discount business must be considered
in light of general economic conditions and the difficulties, expenses
and delays experienced. The economic conditions which exist in Australia
in particular should be considered. There can be no assurance that the
Company will succeed in its business in such an environment or that an
improving economic environment will not adversely affect such business.
Management also estimates that an amount of approximately $1,000,000
will be required in the period to April 30, 1998 to complete the funding
of Nationwide Helpline Services Pty Limited, as well as other
acquisitions currently under consideration. In the event that management
is not successful, or only partially successful in raising this sum of
$5,500,000, it may have to curtail its acquisition program, with the
possible loss of deposits or payments made on account of approximately
$1,950,000.
Whilst management accepts and acknowledges that there is no guarantee
that the plans referred to directly above will be entirely successful,
based upon management's experience of the capital markets, and their
contacts within those markets, management remains reasonably confident
that sufficient funds will become available to enable the Company to
operate for the foreseeable future. Accordingly, the financial
statements are prepared on a going concern basis and do not include any
adjustments which may be necessary if such a basis was not appropriate.
In addition, the Company's independent auditors have included an
explanatory paragraph in their Report, stating that the Company's
ability to continue to fund its losses, as well as provide capital for
the acquisition program, will depend on its ability to continue selling
equity securities and effecting the exercising of warrants.
License Obligations
The Company is required to operate its restaurant charge card business
in accordance with the requirements and specifications established by
the License Agreement. The License Agreement also establishes minimum
development requirements for procuring new Company Participating
Restaurants and renewals and new Company Cardholders and renewals. The
failure of the Company to satisfy these requirements could result in the
termination of the License. In addition, the failure to establish
operations in countries other than Australia and New Zealand, prior to
specified times may result in loss of rights granted under the License
for the Licensed Territories other than Australia. Moreover, the failure
to operate the Company's business or a sub-licensee's business
successfully in any location in the Licensed Territories will result in
the loss of the License with respect to such location.
Need for Additional Financing
The Company requires substantial additional funds to move forward with
its business plans, including completion of the acquisition of
Nationwide Helpline Services Pty Limited, and other possible
acquisitions, and in satisfaction of existing creditors and for the
provision of working capital, until such time, if ever, that the
operations of the Company are profitable. The Company has no available
lines of credit at the present time. No assurance can be given that the
Company will be successful in obtaining additional financing. Moreover,
any additional financing, including any financing obtained through the
issuance of equity, could result in substantial dilution to
shareholders. Failure to obtain additional financing will have a
material adverse effect on the Company and could force the Company to
curtail operations and/or lose rights and deposits with respect to
uncompleted acquisitions and existing licenses.
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Impact of Nasdaq Listing on Marketability of Securities
The National Association of Securities Dealers, Inc. ("NASD") has rules
which establish criteria for the initial and continued listing of
securities on Nasdaq SmallCap Market ("Nasdaq"). Under the rules which
will be supplied in February 1998 for continued listing on Nasdaq, a
company must maintain at least $2,000,000 in net tangible assets, and a
minimum bid price of $1 per share, and adhere to certain corporate
governance provisions.
During the 1997 fiscal year the Company was notified by Nasdaq that the
bid price of the Company's Common Stock had fallen below the $1 minimum
level. Within the time allowed by Nasdaq, the Company was able to meet
the necessary requirements.
While the Company's Common Stock is currently listed on Nasdaq, the
Company might not be able to maintain the standards for continued
listing in the future and the listed securities could, at such time,
become subject to delisting from Nasdaq. If the Common Stock is delisted
in the future, trading in the Common Stock could be conducted on the
NASD Bulletin Board or in the over-the-counter market in what is
commonly referred to as the "pink sheets". If this occurs, an investor
will find it more difficult to dispose of the Common Stock or to obtain
accurate quotations as to the price of the Common Stock and it could
have an adverse effect on the coverage of news concerning the Company.
In addition, if the Common Stock is not listed, the Common Stock would
be subject to a rule that imposes additional sales practice requirements
on broker-dealers who sell the Common Stock to persons other than
established customers and accredited investors (accredited investors are
generally persons having net worth in excess of $1,000,000 or an annual
income exceeding $200,000 or $300,000 together with a spouse). For
transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale, as well as
disclosing certain information concerning the risks of purchasing
low-priced securities on the market for such securities. Consequently
the delisting would adversely affect the ability of broker-dealers to
sell the Common Stock and the ability of purchasers in the Offering to
sell the Common Stock in the secondary market and would make subsequent
financing more difficult.
Restaurant Card Risk
The restaurant business is marked by a large number of business
failures, many of which occur in the first year of operation. The
Company believes that current industry financial conditions, especially
in Australia and New Zealand, may be worse than historical experience.
The Company plans to determine the viability of prospective Company
Participating restaurants in the Licensed Territories through credit
checks, business viability analysis and on-site visits. The Restaurant
Credits made to Company Participating Restaurants in the Licensed
Territories will be repaid by the Company Cardholders charging their
meals on The Restaurant Card on the basis of reducing the Restaurant
Credits at a rate of 50% of the Food and Beverage Credits used. The
Company will bear the credit risk that such Company Participating
Restaurants may fail before the Restaurant Credits are so repaid. While
the closing of any one such Company Participating restaurant would not
be likely to have a material effect on the Company's business, the
closing of Company Participating restaurants in the Licensed Territories
with substantial outstanding Restaurant Credits would have a material
adverse effect on the Company's business.
-10
<PAGE>
Market Acceptance
Although the market for charge cards in general is very mature, the
market for restaurant-specific charge cards is relatively undeveloped.
The Company's success also will depend in large part upon the Company's
ability to recruit and retain Company Participating Restaurants and
Company Cardholders. The Company began to recruit Participating
Restaurants and Company Cardholders in Australia in the Fall of 1994.
While the Company expects that it will benefit from the use of The
Restaurant Card in the Licensed Territories by Network Cardholders, the
Company's success will depend primarily upon the number of Company
Cardholders that are recruited in the Licensed Territories, and the
level of usage of The Restaurant Card in the Licensed Territories. The
Company is offering a product that is new in the marketplace in each of
the Licensed Territories and faces all the risks and uncertainties
attendant to offering such a product. There can be no assurance that the
Company will be able to procure the number of Company Cardholders,
Company Participating Restaurants and renewals thereof in the Licensed
Territories that will be required for it to fund the development and
expansion of its business or to meet its minimum development
requirements under the License. Failure to do so could result in the
termination of the License.
Competition
The charge card business, including the discount restaurant charge card
business, is highly competitive and the Company will be competing for
both restaurants and cardholders. Competitors of the Company will
include discount programs offered by major credit card companies and
other companies that offer a wide variety of discount marketing
programs. Some competitors make their discount charge cards available
for a variety of purchases, for example, travel, hotels and restaurants.
If the revenues from the Company's operations are insufficient to permit
the Company to match promotional campaigns of competitors, the number of
Company Cardholders and Company Participating Restaurants in the
Licensed Territories may decline, with a resulting material adverse
effect on the Company's financial condition. Many of the Company's
competitors have substantially greater financial, personnel,
technological, marketing, administrative and other resources than the
Company. There can be no assurance that the Company will be able to
compete successfully with these companies or that these companies will
not successfully adopt marketing and operating strategies similar to
those used to promote the business of the Company and Network.
Dependence Upon Network
The Company's Restaurant Card business is dependent upon Network for
consumer goodwill and name recognition. Any material adverse condition
suffered by Network may have a material adverse effect on the Company.
The Company's operations could be adversely affected by negative
developments or adverse publicity involving Network or its franchisees,
or sublicensees. In addition, there can be no assurance that the working
relationships that have been established between the Company and Network
would not be negatively impacted by any future changes in control of
Network. The Company is also dependent on Network for protection of
TRANSMEDIA -Registered Trademark- trademark and such other trademarks
and service marks as Network may apply for in the Licensed Territories.
Network has the right, but not the obligation, to institute action
against persons who infringe upon or misappropriate any of the licensed
marks. If Network chooses not to take any such action, the Company may
not take action.
-11-
<PAGE>
Dependence Upon Use of Charge Card Accounts
The success of the Company is dependent, in part, upon its ability to
use recognized charge cards for collecting billing charges on The
Restaurant Card in the Licensed Territories. The Company has recently
entered into a clearing agreement with Westpac Banking Corporation Pty
Limited, with respect to the processing of charges by Company
Cardholders on The Restaurant Card, allowing charges by Company
Cardholders on The Restaurant Card to be charged to a Visa -Registered
Trademark-, Mastercard -Registered Trademark- or Delta -Registered
Trademark- account of the Company Cardholder. There can be no assurance
that the Company will be able to establish the necessary relationships
with processing banks or charge card companies in other portions of the
Licensed Territories, or continue or renew the existing arrangements
with Westpac Banking Corporation Pty Limited, or any other that it may
establish. Depending on a variety of factors, the termination of the
Company's relationship with any charge card company or processing agent
could have a material effect on the Company's operations and business.
Operations Abroad
The Company's Transmedia restaurant card business, as well as the
business of Countdown and NHS are conducted abroad. As such the
Company's revenue and earnings, which are expressed in United States
Dollars, will be subject to the risks of currency exchange to the extent
of currency fluctuations between the United States Dollar and other
currencies in which the company transacts its business.
Although the Company plans to operate its business in the Licensed
Territories in a manner that is similar to Network's business in the
United States, some practices have been modified for local tax and other
considerations. In certain situations, the Company may be obligated to
pay amounts to Network in predetermined United States dollars even
though revenues will be paid to the Company in foreign currency.
Therefore, fluctuations in currency could have an adverse effect on the
Company's profit margins. The Company presently does not intend to
engage in currency swaps or other similar hedging contracts to offset
possible losses, but may consider such activities in the future. In
addition, limitations on the transfer of funds from locations in the
Licensed Territories, and unfavourable economic or political
developments in the Licensed Territories, could have an adverse effect
on the Company's operations or its ability to exploit the License.
Dependence on Management
The success of the Company will be dependent on the abilities and
efforts of Mr. Guinan, Chairman of the Board of Directors of the
Company. Any incapacity or inability of Mr. Guinan to perform such
functions would have a material adverse effect on the Company. In the
event of death or incapacity of Mr. Guinan, Network has the right to
approve his proposed replacement. There is no guarantee that Network
will approve any such replacement. The Company has no key man life
insurance on the life of Mr. Guinan. The success of the Company will
also be dependent upon its ability to hire additional managerial,
administrative, systems, sales and marketing personnel. Mr. Guinan is a
United States citizen who has the Right to Remain in the United Kingdom.
Voting Control
Mr. Guinan is the largest owner of the Company's Common Stock. Mr.
Guinan and the Company's management have the ability to control the
outcome of substantially all issues submitted to the Company's Board of
Directors or stockholders and an investor will be dependent upon the
capabilities and judgement of the Company's management. Moreover,
concentration of effective voting control could serve to perpetuate
current management and could make the Company less attractive to
potential acquirors.
-12-
<PAGE>
Guarantee of Sublicenses and Franchise Obligations.
Under the License Agreement the Company has guaranteed the payment of
all amounts owed by its sublicensees and/or franchisees to Network. In
the event that such sublicensees and/or franchisees fail to make any
payment to Network, the Company could suffer substantial losses from the
payment of such amounts to Network.
Restaurant Card Renewals
Most of The Restaurant Cards issued by the Company provide for the
waiver of the annual fee for six months. There is no assurance as to the
number of holders who will elect not to renew based upon the
requirements to pay an annual fee.
Government Regulation
The Company believes that it possesses all governmental permits or
licenses necessary to operate in Australia and New Zealand. However, it
does not possess any governmental permits or licenses for other portions
of the Licensed Territories, and has not inquired yet whether any
permits or licenses will be required. In the event permits or licenses
are necessary for the conduct of the Company's business in other
portions of the Licensed Territories, or additional licenses or permits
are required in respect of operations in Australia and New Zealand,
there is no guarantee that the Company will be able to procure them, the
failure of which could have a material adverse effect on the Company's
ability to operate or expand its operations in the Licensed Territories.
No Dividends on Common Stock
Since its inception, the Company has not paid any dividends on its
Common Stock. The Company intends to retain future earnings, if any, to
provide funds for the operation of its business and, accordingly, does
not anticipate paying any cash dividends on its Common Stock in the
reasonably foreseeable future. See "Dividend Policy".
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation law of the State of Delaware. In general, this law prohibits
a public Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the
date of the transaction in which such person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. A "business combination" is defined to include mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is defined as a person who,
together with affiliates and associates, owns (or within the prior three
years, did own) 15 per cent or more of the corporation's voting stock.
Item 2 - Properties
The Company leases office space of approximately 4,400 square feet. The
lease expires in September, 1999, at a net rental of approximately Aus.
$65,000 ($47,000) per annum. The lease is renewable by mutual consent
according to normal terms and provisions applicable in the area.
-13-
<PAGE>
Item 3 - Legal Proceedings
There are currently no legal proceedings involving the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
During the quarter ended September 30, 1997, no matters were submitted
to a vote of the security holders.
-14-
<PAGE>
PART II
Item 5--Market for Registrant's Common
Equity and Related Stockholder Matters
(a) Market Information: The Company's Common Stock $.00001 par value (the
"Common Stock") is traded on Nasdaq Small Cap Market ("Nasdaq") under
the symbol "MBTA". The following table sets forth, for the periods
indicated and as reported by Nasdaq, the high and low bid prices for
shares of the Company's Common Stock.
DATE HIGH LOW
------------------------------------------------- --------- ---------
December 31, 1995................................ 2 1/4 1 3/4
March 31, 1996................................... 2 1 3/8
June 30, 1996.................................... 2 5/8 1
September 30, 1996............................... 7/8 1/8
December 31, 1996................................ 1 1/2 1
March 31, 1997................................... 1 3/8 1/2
June 30, 1997.................................... 1 1/4 1/2
September 30, 1997............................... 1 3/8 1/2
The closing bid and ask prices as of January 7, 1998 were $1.375 and $1.4375
respectively.
(b) Holders of Common Stock: The number of stockholders on record of the
Common Stock on January 16, 1998 was 216. The Company believes that
there is a significant number of beneficial owners of its Common
Stock whose shares are held in "Street Name.".
(c) Dividends: The Company has paid no cash dividends with respect to the
Common Stock since February 9, 1993 (inception). The Company intends
to retain future earnings, if any, that may be generated from the
Company's operations to help finance the operations and expansion of
the Company and accordingly does not plan, for the foreseeable
future, to pay dividends to holders of the Common Stock. Any decision
as to the future payment of dividends will depend on the results of
operations and financial position of the Company and such other
factors as the Company's Board of Directors, in its discretion, deems
relevant.
Recent Sales of Unregistered Securities
At various times from August 24, 1997 to December 31, 1997, the
Company initiated a private placement (the "Private Placement") in
which it expected to sell an aggregate of 1,492,165 shares of Common
Stock at a purchase price of $1 per share. As of the date of filing,
no shares have been issued. For every three shares purchased, each
purchaser will receive, for no additional consideration, a warrant to
purchase one share of Common Stock at $1 per share. The warrants are
presently exercisable and expire in three years from the date of
issuance. In consideration for their agreement to purchase, on a
standby basis, a certain number of shares in the Private Placement,
certain holders of preferred stock of the Company will be granted
three-year warrants to purchase up to an aggregate of 327,656 shares
of Common Stock at an exercise price of $1 per share. The Private
Placement was made pursuant to the exemption from the registration
requirement of the Securities Act of 1933, as amended, afforded by
Section 4(2) thereof and Regulation D promulgated thereunder.
-15-
<PAGE>
Item 6--Selected Financial Data
The following table sets forth a summary of selected financial data
for each of the last three fiscal years. This information should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated
financial statements of the Company included in this Report.
Income Statement Data
<TABLE>
<CAPTION>
PERIOD MARCH
10,
(INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER
1997 1996 1995 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues....................................... $ 2,129,362 $ 1,890,476 $ 1,103,081 --
Gross profit......................................... 871,593 791,810 400,358 --
Loss from operations................................. (2,851,737) (2,027,263) (2,075,747) (377,948)
Net loss............................................. $(3,030,445) $(2,006,258) $(1,990,288) ($349,650)
Net loss per share................................... $ (0.22) $ (0.16) $ (0.17) ($ 0.03)
Balance Sheet Data
<CAPTION>
AS AT SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Restaurant credits................................... $ 301,815 $ 636,808 $ 593,418 $ 61,128
Intangible assets.................................... 1,196,943 1,746,176 1,868,855 !,841,560
Total assets......................................... 4,798,380 3,954,947 4,312,460 4,164,997
Total liabilities.................................... 2,048,227 776,350 627,816 151,920
Total equity......................................... 2,750,153 3,178,597 3,684,644 4,013,077
Other Data
Number of Participating Restaurants.................. 274 430 330 25
Number of Company Cardholders........................ 36,800 18,000 9000 --
</TABLE>
Item 7--Management's Discussion and Analysis of
-16-
<PAGE>
Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company was formed in March 1994 and began business operations in
November 1994. The Company acquired in May 1994, the rights to
exploit, as the exclusive licensee of Network, the operation of The
Restaurant Card throughout the Licensed Territories. Currently, the
Company has operations in Australia and New Zealand. The success of
the Company is dependent upon continuing to pursue an expansion
strategy based upon the acquisition of businesses in similar or
complementary fields, as well as increasing the number of Company
Cardholders and Company Participating Restaurants, as well as
obtaining increased usage of The Restaurant Card by Company
Cardholders.
Results of Operations
As a corporation domiciled in the state of Delaware, the Company is
subject to US federal as well as state income taxes. Although the
Company did not generate any revenues from operations for the year
ended September 30, 1997, the Company had taxable income for US
federal and state income tax purposes because expenses incurred prior
to the generation of revenues form the operation of a business are
capitalised for income tax purposes and amortised over a five year
period. Accordingly, the Company had taxable income for U.S. federal
tax purposes for interest income. For financial statement purposes,
the Company did not recognise any deferred tax benefit for tax loss
carry forwards or amounts of expenses capitalised for tax purposes.
Year Ended September 30, 1997
Revenues, exclusive of membership fees of $204,454 (1996: $230,961
and 1995 $27,564), for the year ended September 30, 1997 amounted to
$1,924,908 (1996: $1,659,515 and 1995 $1,075,517). Revenues represent
the retail value of food and beverages consumed by Company
Cardholders at Company Participating Restaurants, less the 25%
discount that is granted to Company Cardholders. Cost of sales is
approximately 50% of the retail value of the food and beverages
consumed by Company Cardholders and represents the recovery of the
Restaurant Credits made by the Company to the respective Company
Participating Restaurants. The gross profit of $871,593 (1996:
$791,810 and 1995 $400,358) for the year amounts to 25% of the full
retail value of the food and beverages consumed by Company
Cardholders, together with a pro rata portion of membership fees and
other income.
The Company began generating revenues from operations in November
1994, as management began recruiting Company Cardholders. Revenues
increased significantly after inception, since the Company benefited
from a promotion campaign in the Sydney Morning Herald, which also
increased the number of Company Participating Restaurants. In
addition, the September 1995 launch of the Restaurant Card in The Age
newspaper in Melbourne had a significant effect on revenues and
cardholder numbers, which was realised during the 1996 financial
year. During the year ended September 30, 1997, the Company was
successful in raising revenues and gross profits. This was as a
result of reducing the number of under performing restaurants (those
which had been nominally registered as part of the Company's base of
operations, but which did not effectively participate in the scheme),
but more by doubling the number of Company Cardholders.
-17-
<PAGE>
The Company's revenues are generated primarily from the usage of The
Restaurant Card. Accordingly, the Company has marketing programs
which are intended to increase the frequency of use of The Restaurant
Card in addition to obtaining new Company Cardholders. The Company
had approximately 36,800 Restaurant Cardholders (1996: 18,000 and
1995 9,000) and 274 Company Participating Restaurants (1996: 430 and
1995 330) at September 30, 1997. Although it is the goal of the
Company to increase its Company Cardholders and Company Participating
Restaurant base through various marketing programs, the Company
expects that the future growth of its Company Cardholder and Company
Participating Restaurant base to be more gradual as compared to the
1997 fiscal year.
Selling, general, and administrative expenses amounted to $3,666,124
(1996: $2,819,073 and 1995: 2,476,105) for the year ended September
30, 1997, consisting primarily of salaries, rents, commissions, and
other general overhead costs and includes $112,875 for the cost of
the termination agreement with one of the Company's executives, Mr
CEC Radbone, a director of the company, and $118,642 of costs
relating to the registration of the Company's Common Stock under the
Securities Act of 1933. The Company's share of losses in its
associate Countdown for the period from April 3, 1997 to September
30, 1997 was $202,905The Company earned $31,007 (1996: $21,005 and
1995 $85,459) for the 1997 fiscal year from the temporary investment
of excess cash funds and from loans to certain stockholders of which
$6,810 relates to the associate Countdown. The Company is in a net
operating loss carry forward position for income tax purposes and no
tax benefit has been recognised in the 1997 fiscal year ended
September 30, 1997
Liquidity and Capital Resources
The Company continues to require capital for both operating and
capital purposes. To date, the Company has been successful in raising
such capital, but there can be no assurance that it will continue to
be possible to raise the funds required. There is a risk that failure
to raise the capital required, with the result that the Company would
be unable to continue operations.
The Company was initially capitalised with 7,249,500 shares, after
giving retroactive effect to stock dividends. On May 26, 1994, TMAP
issued and sold 4,565,790 shares of Common Stock of which: (i)
450,000 to Conestoga for $450,000; (ii) 590,790 to Network, as
partial consideration for the purchase of the License; and (iii)
3,525,000 were sold to private investors in a private placement at an
offering price of $1 per share. Of the cash proceeds of $3,525,000,
$1,000,000 was paid to Network for further consideration (in addition
to the $250,000 paid to Network by Conestoga and reimbursed to
Conestoga by the Company) for the purchase of the License leaving a
balance, after costs, of $2,322,212 available to the Company for use
as working capital in respect of the utilization by the Company of
its rights under the License. Initially such utilization has taken
place in Australia through the Company's wholly owned subsidiary,
Transmedia Australia Pty Limited. In the future, the Company may
expand operations in other portions of the Licensed Territories
through wholly owned subsidiaries or through unaffiliated
sublicensees and franchisees.
In the future, the Company may expand operations in other portions of
the Licensed Territories through wholly-owned subsidiaries or through
unaffiliated sub-licensees and franchisees.
In April 1995, the Company completed a second private placement of
673,800 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 utilization by the Company of its rights under the
License agreement. The net cash to the Company from the second
private placement of shares in April 1995 was $1,892,656.
In July 1996, the Company issued 892,857 shares of Common Stock at a
price of $1.40 per share. The net proceeds of $1,235,000 were used to
provide working capital to existing operations.
-18-
<PAGE>
In December 1996, the Company issued 556,250 shares of Common Stock
at a price of $2 per share. The purchasers were also issued warrants
to purchase an aggregate of 185,417 shares of common stock at $2 per
share. The net proceeds of $1,097,500 were used to provide working
capital to existing operations.
In August 1997, the Company initiated a private placement in which it
expected to sell an aggregate of 1,467,165 shares of Common Stock at
a purchase price of $1 per share. For every three shares purchased,
each purchaser will receive, for no additional consideration, a
warrant to purchase one share of Common Stock at $1 per share. As of
the date of this filing, no shares have been issued. "See Item 5.
Market for Registrant's Common Equity and Related Stockholder
Matters".
The cash resources of the Company are used to provide Restaurant
Credits to Company Participating Restaurants in the Licensed
Territories, and to pay for general and administrative expenses,
including officers' compensation and compensation to independent
sales consultants for the recruitment of Company Participating
Restaurants, and Company Cardholders.
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.
On December 2, 1997, Transmedia Australia Holdings, a company owned
equally by the Company and Transmedia Europe indirectly purchased in
simultaneous transactions 51% of the business and assets of NHS. The
total purchase price for the transaction (including a deposit of Aus
$345,000 ($226,974)) was Aus $12,500,000 ($8,223,684), of which Aus
$4,000,000 represents sign-on fees payable to certain individuals of
NHS, and the balance of which represents amounts payable to NHS in
two tranches. The first tranche was paid on December 2, 1997 in the
form of cash and 500,000 shares of Common Stock of the Company and
its affiliate, Transmedia Europe Inc. The second tranche (Aus.
$2,842,540 [$1,870,092]) is payable in cash on January 31, 1998
(which date may be extended by up to 90 days provided that interest
will accrue during such extension at 5% per annum). The sign-on fees
are payable one half on January 31, 1998 and the balance on June 30,
1998 (subject to extension of each instalment, with the exception of
a portion of the first instalment, by up to 90 days provided that
interest will accrue on the extended amounts at 5% per annum.
Transmedia Australia Holdings also required an option to purchase the
49% balance of NHS's business and assets for an additional Aus
$2,497,655 ($1,643,194) (less potential reductions). The option is
exercisable at any time through June 30, 1998 (subject to extension
for up to 90 days) provided that interest will accrue on the exercise
price during any such extension at 5% per annum. Failure to exercise
the option during its term will give the NHS principals the rights to
repurchase the 51% interest for nil consideration.
In October 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 becomes the property of the vendors of the
corporation as of January 15 1998. The Letter of Intent provides that
the purchase must close on or prior to March 31, 1998 and commits the
Company to a consideration of $3,750,000 in cash, plus $500,000 in
unrestricted shares of Common Stock of TME, the value of the shares
of Common Stock being that as of the day of closing of the purchase.
-19-
<PAGE>
On January 16, 1998, Mr. C.E.C. Radbone, a director of the Company,
resigned from the Board of Directors. Contemporaneously, his
employment agreement, according to the terms of which he had been
serving as Managing Director of Countdown plc, an affiliate of the
Company, was cancelled. Mr. Radbone held 1,200,000 shares of Common
Stock of the Company and agreed to grant Edward J. Guinan III, the
Chairman of the Board of Directors, an option to purchase these
shares at a value of $1 per share. The consideration for this option
is $500,000, which was payable in cash and secured on shares of
Common Stock of the Company and its affiliate, TME.
In fiscal 1998, based upon projected promotions by the Company, it is
anticipated that additional funds will be required in order to
support a higher level of restaurant advances. This higher level will
be required in connection with the anticipated substantial increase
in fiscal 1998 in the number of Company Cardholders and Company
Participating Restaurants. Additional funds will have to be obtained
by the Company from one or more sources including bank loans or other
debt financings, equity financings, or the sale of sublicenses or
franchises. While there can be no assurance of any such sources of
funds or the terms upon which they can be obtained, the Company is
confident that sufficient funds will be available to meet its
anticipated business expansion needs in fiscal 1998, based upon
management's knowledge of the capital markets and their contacts
within those markets.
Acquisitions
Effective April 3, 1997, the Company acquired 50% ownership in
Countdown Holdings Ltd. and subsidiaries, a United Kingdom
corporation offering discounted merchandise purchases and other
benefits to approximately 6,500,000 cardholders. These cardholders
are distributed throughout the United Kingdom, with nearly 100,000
accepting merchants in 47 countries. The consideration paid for this
acquisition was $4,750,000 split equally between the Company and its
affiliate TME. Of this $4,750,000, $400,000 was paid as a deposit,
$1,600,000 was paid in cash, with the balance of $2,750,000 paid in
shares of common stock and options to purchase common stock from the
Company and Transmedia Europe Inc, in approximately equal values. Of
the total consideration of $4,750,000, some $6,000,000 is goodwill.
An individual who is a member of the board of directors of the
Company advanced the Company sufficient funds to complete the cash
portion of this transaction.
Operating losses in Countdown for the year ended September 30, 1997
total $ 419,431.
Inflation and Seasonality
The Company does not believe that its operations will be influenced
by inflation in the foreseeable future. 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.
Effect of Year 2000
The Company is aware that it must evaluate the effect of the year
2000 on its internal operating and accounting software and other
systems and make an assessment as to the significance of cost to the
Company of becoming year 2000 compliant.
The Company has not yet completed its evaluation of the potential
impact, but management expects to complete this in the near future.
-20-
<PAGE>
New U.S. accounting pronouncements not yet implemented
In December 1996, the FASB issued SFAS No. 128 "Earnings Per Share",
which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 requires that all prior period
earnings per share data be restated to conform to this statement. The
Company will adopt SFAS No. 128 for the year ended September 30,
1998. The adoption of this standard is not expected to have a
material effect on the Company's earnings per share
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which established standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by, or 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 be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
SFAS No. 130, effective for all fiscal years beginning after December
15, 1997, requires comparative information for earlier years to be
restated and early adoption is permitted. The Company intends to
adopt SFAS No. 130 effective October 1, 1998. Results of operations
and financial position will be unaffected by implementation of this
standard.
-21-
<PAGE>
Item 8- Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Auditors...................... F1--F2
Consolidated Balance Sheets......................... F3--F4
September 30, 1996 and 1997
Consolidated Statement of Operations................ F5
for the year ended
September 30, 1997, 1996 and 1995
Consolidated Statement of Stockholders Equity....... F6
for the year ended September 30, 1997
Consolidated Statement of Cash Flows ............... F7
for the year ended September 30, 1997
Notes to the Consolidated Financial Statements...... F8--F17
</TABLE>
-22-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Transmedia Asia Pacific, Inc.
We have audited the accompanying consolidated balance sheets of
Transmedia Asia Pacific, Inc.and subsidiaries as of September 30, 1997 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Transmedia Asia Pacific, Inc. and subsidiaries as of September 30, 1997,
and the results of their operations and their cash flows for the year ended
September 30, 1997, in conformity with generally accepted accounting
principles in the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has experienced losses during
the year ended September 30, 1997, both from operations and from
restructuring. It has funded this through sales of equity securities and
exercises of warrants, and its ability to continue as a going concern is
dependent on the Company's ability to continue to effect such sales of equity
and exercises of warrants. Should the Company be unable to continue to effect
such sales of equity and exercises of warrants or obtain other sources of
funding, this would raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustment which might result from this uncertainty.
The comparative figures have been audited by another accounting firm.
January 23, 1998
BDO Stoy Hayward
London, England
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Transmedia Asia Pacific, Inc.
We have audited the accompanying consolidated balance sheets of
Transmedia Asia Pacific, Inc. and subsidiaries as of September 30, 1996 and
1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Transmedia Asia Pacific, Inc. and subsidiaries as of September 30, 1996
and 1995, and the results of their operations and cash flows for each of the
years in the three-year period ended September 30, 1996, in conformity with
generally accepted accounting principles in the United States.
December 20, 1996 KPMG
London
England
F-2
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER 30,
30, 1997 1996
------------ -------------
<S> <C> <C>
Assets
Current assets
Cash (including temporary cash investments of $nil at September 30, 1997 and
$1,564,741 at September 30, 1996).................................................. $ 13,104 $ 1,171,305
Restaurant credits net of allowance for irrecoverable credits of $114,610 at
September 30, 1997 and of $119,762 nil at September 30, 1996 (note 1 (c)).......... 301,815 636,808
Trade accounts receivable............................................................ 56,563 66,211
Amounts due from related parties (note 4)............................................ 322,533 48,857
Other current assets................................................................. 18,784 142,127
------------ -------------
Total current assets................................................................. 712,799 2,065,308
Long Term assets
Investment in affiliates (note 3).................................................... 2,651,442 --
Property and equipment, net of accumulated depreciation $106,260 at September 30,
1997 and $77,615 at September 30, 1996 (note 6).................................... 94,250 143,463
Intangible assets, net of accumulated amortization of $507,270 at September 30, 1997
and $108,086 at September 30, 1996 (note 5)........................................ 1,196,943 1,596,176
Other assets (note 9)................................................................ 142,946 150,000
------------ -------------
Total assets......................................................................... $ 4,798,380 $ 3,954,947
------------ -------------
------------ -------------
</TABLE>
See accompanying summary of accounting policies and notes to the
consolidated financial statements.
F-3
<PAGE>
Transmedia Asia Pacific, Inc.
Consolidated Balance Sheets (Continued)
September September
30, 30,
1997 1996
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft................................. $ -- $ 40,051
Trade accounts payable......................... 267,232 253,432
Deferred membership fee income................. 104,375 139,215
Accrued liabilities (note 8)................... 330,908 250,352
Royalties Payable
Deferred Advances
Amount due to related parties (note 4)......... 1,345,712 93,300
---------- -----------
Total current liabilities...................... $2,048,227 $ 776,350
---------- -----------
Stockholders' Equity
Stockholders' equity
Preferred stock, $.01 par value per share
Authorised 5,000,000 shares; none issued.
Common stock, $.00001 par value per share
Authorised 95,000,000 shares;
13,918,697 issued and outstanding shares
at September 30, 1997 and 13,362,447
shares at September 30, 1996................... 153 134
Additional paid in capital..................... 9,962,922 7,470,749
Cumulative foreign currency translation
adjustment..................................... 163,719 53,910
Accumulated deficit............................ (7,376,641) (4,346,196)
---------- -----------
Total stockholders' equity..................... $2,750,153 $3,178,597
---------- -----------
Total liabilities and stockholders' equity....... $4,798,380 $3,954,947
---------- -----------
---------- -----------
See accompanying summary of accounting policies and notes to the
consolidated financial statements.
F-4
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER SEPTEMBER
1997 30, 1996 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues (note 1 (g))................................................ $ 1,924,908 $ 1,659,515 $ 1,075,517
Membership fees...................................................... 204,454 230,961 27,564
Total revenues and fees.............................................. 2,129,362 1,890,476 1103081
Cost of sales........................................................ (1,257,769) (1,098,666) (702,723)
------------- ------------- -------------
Gross profit......................................................... 871,593 791,810 400,358
Selling, general and administrative expenses......................... (3,723,330) (2,819,073) (2,476,105)
------------- ------------- -------------
Loss from operations................................................. (2,851,737) (2,027,263) (2,075,747)
Associated company................................................... (209,715) -- --
Interest income...................................................... 31,007 21,005 85,459
------------- ------------- -------------
Loss before income tax............................................... (3,030,445) (2,006,258) (1,990,288)
Income taxes (notes 1(f) and 13)..................................... -- -- --
------------- ------------- -------------
Net loss............................................................. $(3,030,445) $ (2,006,258) $ (1,990,288)
------------- ------------- -------------
------------- ------------- -------------
Loss per common and common equivalent share.......................... $ (0.22) $ (0.16) $ (0.17)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common and common equivalent shares
outstanding........................................................ $13,802,812 $ 12,618,400 $ 12,082,691
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements
F-5
<PAGE>
TRANSMEDIA ASIA PACIFIC INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL CURRENCY
NUMBER OF COMMON PAID-IN TRANSLATION ACCUMULATED UNEARNED
COMMON SHARES STOCK CAPITAL ADJUSTMENT DEFICIT COMPENSATION TOTAL
-------------- ----------- ------------- ------------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1994......... 11,815,790 $ 118 $ 4,363,109 ($500) ($349,650) $ -- $ 4,013,077
Issuance of
common
stock........ 673,800 7 2,021,393 -- -- (300,000) 1,721,400
Issue costs.... -- -- (128,744) -- -- -- (128,744)
Net loss....... -- -- -- -- (1,990,288) -- (1,990,288)
Effect of
foreign
currency
translation.. -- -- -- 1,449 -- -- 1,449
Treasury
stock........ (20,000) -- (20,000) -- -- -- (20,000)
Compensation
expense...... -- -- -- -- -- 87,750 87,750
---------- --------- ----------- ---------- ------------- ---------- -----------
Balance,
September 30,
1995......... 12,469,590 $ 125 $ 6,235,758 $949 $(2,339,938) $ (212,250) $ 3,684,644
Issuance of
common
stock........ 892,857 9 1,249,991 -- -- -- 1,250,000
Issue costs.... ----- -- (15,000) -- -- -- (15,000)
---------- --------- ----------- ---------- ------------- ---------- -----------
Net loss....... -- -- -- -- (2,006,258) -- (2,006,258)
Effect of
foreign
currency
translation.. -- -- -- 52,961 -- -- 52,961
Compensation
expense...... -- -- -- -- -- 212,250 212,250
Balance,
September 30,
1996......... 13,362,447 $ 134 $ 7,470,749 $ 53,910 ($4,346,196) $ -- $ 3,178,597
Issuance of
common
stock........ 556,250 18 2,335,313 -- -- -- 2,335,331
Issue costs.... -- -- (15,000) -- -- -- (15,000)
Net loss....... -- -- -- -- (3,030,445) -- (3,030,445)
Effect of
foreign
currency
translation.. -- -- -- 110,100 -- -- 110,100
Option re
Countdown.... -- -- 171,860 -- -- -- 171,860
---------- --------- ----------- ---------- ------------- ---------- -----------
Balance,
September 30,
1997......... 13,918,697 $ 152 $ 9,962,922 $ 164,010 ($7,376,641) $ -- $ 2750,443
---------- --------- ----------- ---------- ------------- ---------- -----------
---------- --------- ----------- ---------- ------------- ---------- -----------
</TABLE>
F-6
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
Notes to the Consolidated Financial Statements
TRANSMEDIA ASIA PACIFIC, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
- -Net loss........................................................... $(3,030,445) $ (2,006,258) $(1,990,288)
Adjustment to reconcile net loss to net cash used in operating
activities:
- -Depreciation....................................................... 38,195 35,539 31,479
- -Amortization of licence............................................ 399,191 122,720 122,720
- -Provision for irrecoverable restaurant credits..................... (5,152) 79,344 40,418
- -Amortisation of deferred compensation.............................. 000,000 212,250 87,750
- -Write off of Hawaii option......................................... 150,000 -- --
Changes in assets and liabilities:
- -Trade accounts payable............................................. 13,800 131,837 116,918
- -Accrued liabilities................................................ 80,557 (5,021) 128,198
- -Restaurant credits................................................. 340,145 (98,997) (572,707)
- -Prepaid expenses and other current assets.......................... (9,956) (60,299) (138,873)
- -Deferred membership fees........................................... (34,840) 5,066 128,990
------------- ------------- -------------
Net cash used in operating activities............................... (1,855,599) (1,583,819) (2,045,395)
Cash flows from investing activities:
- -Due from/(to) related parties...................................... 978,726 663,930 (424,437)
- -Purchase of property and equipment................................. -- (29,861) (49,599)
- -Extension of Hawaii option......................................... -- -- (150,000)
- -Interest acquired in affiliate..................................... (2,854,347) -- --
- -Proceeds on disposal of fixed assets............................... 4,045 -- --
------------- ------------- -------------
Net cash provided by/(used in) investing activities................. (1,668,671) 634,069 (624,036)
Cash flows from financing activities:
- - Net proceeds received from issuance of common stock............... 2,492,192 1,235,000 1,592,656
- -Bank overdraft..................................................... (40,051) (86,097) 126,148
- -Purchase of treasury stock......................................... -- -- (20,000)
------------- ------------- -------------
Net cash provided by financing activities........................... 2,452,141 1,148,903 1,698,804
Effects of foreign currency translation............................. 116,824 31,054 (85)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................ (1,158,201) 230,207 (970,712)
Cash and temporary cash investments at beginning of period.......... 1,171,305 941,098 1,911,810
------------- ------------- -------------
Cash and temporary cash investments at end of period................ $ 13,104 $ 1,171,305 $ 941,098
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Supplemental disclosures of cash flow information:
No amounts of cash were paid for interest or income taxes for each of the
periods presented
F-7
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business and summary of significant accounting policies
(a) Description of business
Transmedia Asia Pacific, Inc. ("the Company" and "TMAP") was
incorporated in Delaware in March 1994, and commenced operations in
November 1994.
The Company's main business activity and that of its subsidiary is
to make 'cash advances' to restaurants for food and beverage
credits from certain participating restaurants which are then
recovered as Transmedia cardholders utilize their restaurant charge
cards (see Note 1 (c)), presently through its wholly owned
subsidiary Transmedia Australia Pty Limited. The Company is also
active in the area of customer discounts on merchandise purchases,
through its investment in Countdown plc, acquired in April 1997.
The Company has been granted a license, (the 'Transmedia License')
by TMNI, an affiliate of Transmedia Network Inc., a corporation
which is incorporated in the United States of America. The Licence
is to operate a specialized restaurant charge card business in
Australia and New Zealand with limited rights to sublicence the
Asia Pacific Region. 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 Chairman and a Director of the Company (see note 4).
In August 1994 the Company registered an initial public offer of
its common stock with the Securities Exchange Commission and the
Company's Common Stock traded on the NASDAQ small capital market.
The Company was initially capitalised with 7,249,500 shares. On May
26, 1994, TMAP issued and sold shares of common stock: (i) 450,000
to Conestoga for $450,000; (ii) 590,790 to Network, as partial
consideration for the purchase of the License; and (iii) 3,525,000
to investors in a private placement at an offering price of $1 per
share. Of the cash proceeds from the private placement of
$3,525,000, $1,000,000 was paid to Network for further
consideration (in addition to the $250,000 paid to Network by
Conestoga and reimbursed to Conestoga by the Company) for the
purchase of the License, leaving a balance, after costs, of
$2,322,212 available to the Company for use as working capital in
respect of the utilization by the Company of its rights under the
License. Initially such utilization has taken place in Australia
through the Company's wholly owned subsidiary, Transmedia Australia
Pty Limited. In the future, the Company may expand operations in
other portions of the Licensed Territories through wholly owned
subsidiaries or through unaffiliated sublicensees and franchisees.
In April 1995, the Company completed a second private placement of
673,800 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 utilization by the Company of its rights under the
License. The net cash to the Company from the second private
placement of shares in April 1995 was $1,892,656.
In July 1996, the Company issued 892,857 shares of Common Stock at
a price of $1.40 per share. The net proceeds of $1,235,000 were
used to provide working capital to existing operations.
F-8
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Description of business and summary of significant accounting policies
(continued)
(a) Description of business (continued)
In December 1996, the Company issued 556,250 shares of Common Stock
at a price of $2 per share. The net proceeds of $1,097,500 were
used to provide working capital to existing operations.
In August 1997, the Company initiated a private placement in which
it is expected to sell an aggregate of 1,467,165 shares of Common
Stock at a purchase price of $1 per share. For every three shares
purchased, each purchaser will receive, for no additional
consideration, a warrant to purchase one share of Common Stock at
$1 per share. As of the date of this filing, no shares have been
issued. "See Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters".
The Company, through its subsidiary company Countdown Holdings
Limited ("Countdown"), operates as a discount buying organization.
Countdown negotiates discount privileges with large retailers and
sells membership cards to customers, who may then take advantage of
these facilities. Countdown also offers a voucher discount service,
where discounts negotiated with suppliers are available to
Countdown members who purchase these discount vouchers.
As of September 30, 1997, Transmedia Asia Pacific, Inc. has the
following subsidiaries all of which were 100% owned:
<TABLE>
<CAPTION>
Name Country of Incorporation
- ------------------------------------ --------------------------
<S> <C>
Transmedia Australia Pty Limited Australia
Transmedia New Zealand Ltd New Zealand
</TABLE>
In addition, the Company has a 50% ownership in Countdown Holdings
Ltd., ("Countdown"), which is incorporated in the United Kingdom.
The accompanying consolidated financial statements present the
results of operations of the Company for the period from October 1,
1996, to September 30, 1997. The Company commenced operations in
November 1994.
(b) Principles of consolidation
The consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
As a result of the acquisition of 50% of Countdown on April 3,
1997. The Company's interest in Countdown's operations is accounted
for using the equity method while the acquisition has been
accounted for using the purchase method of accounting.
F-9
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 are 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.
The amount of 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 to 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) Intangible assets
Intangible assets consist entirely of the cost of the Transmedia
License and represents the consideration paid to Network in both
cash and the fair value of Company shares for the Transmedia
License to operate in the licensed territories using the systems,
procedures and 'know how' of the Transmedia business.
The license cost is being amortised on a straight line basis over
its estimated useful life of 15 years from the commencement of
operations in November 1994.
The Company evaluates the carrying value of its investment in
license costs for impairment based on an estimate of future
undiscounted cash flows that are expected to be generated and are
directly attributable to the Transmedia License. If the sum of
those estimated 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 the carrying value of the License costs at September 30,
1997 represents future undiscounted cash flows that are expected to
be generated and are directly attributable to the Transmedia
licence.
(e) Property and equipment
Property and equipment are stated at cost. Depreciation on property
and equipment is calculated using the straight line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures 5 years
Office equipment 4-5 years
Computer equipment 3-4 years
</TABLE>
F-10
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) Income taxes
The Company recognises 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 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 recognised 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 realised.
(g) Revenue recognition
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 are deferred and recognised as revenue in equal monthly
instalments over the periods benefited.
(h) Unearned compensation
The Company has recorded unearned compensation for shares of
restricted common stock issues in exchange for certain consultancy
and financial advisory services. The restricted shares and the
unearned compensation have been recorded at the fair value of the
shares at the date at which they were issued. Compensation expense
is recorded on a periodic basis as the restriction on such shares
expires.
(i) Cardholder bonuses
The Company operates a number of cardholder "Bonuses" programs
whereby the cardholder receives a bonus of food and beverage,
credited to their account. The bonus is utilised as the cardholder
uses The Restaurant Card and is processed as an additional saving
to the standard 20% or 25% saving offered by the Company. The bonus
is accrued by the Company when the bonus is granted to the
Cardholder.
(j) Loss per common share
Loss per common share is computed by dividing net loss by the
weighted average number of common stock outstanding. Common stock
equivalents have not been included because they are considered
anti-dilutive.
F-11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(k) Foreign currencies
The reporting currency of the Company is the United States dollar.
For consolidation purposes, the assets and liabilities of overseas
subsidiary undertakings are translated at the closing exchange
rates. Consolidated statements of income of such undertakings are
consolidated at the average rates of exchange during the period.
Exchange differences arising on these translations are taken
directly to 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. In the year to September 30, 1997 the Company
recorded an exchange loss of $176,575 (1996 a loss of $221,038).
(l) Temporary cash investments
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.
(m) Advertising costs
THE COMPANY EXPENSES ADVERTISING COSTS AS INCURRED. Advertising
costs for the years ended September 30 1997 and 1996 were $nil and
$13,370 respectively. The Company has used direct response
advertising in the past and may use such advertising in the future.
However, the Company did not have costs related to direct response
advertising campaigns during the years ended September 30, 1997 and
1996 that should be capitalised.
(n) Use of estimates
In preparing the consolidated financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the consolidated financial statements
and revenues and expenses during the reported period. Actual
results could differ from these estimates.
(o) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, restaurant credits and amounts due from/to related
parties (see Note 4). The carrying value of these financial
instruments approximates the fair value because of the relatively
short-term maturity of the instruments.
In addition, the Company holds a financial instrument in the form
of an option to acquire Nationwide Helpline Services Pty Limited
("NHS"). Management does not believe it is practicable to estimate
the fair value of this financial instrument, because although the 6
month option had expired prior to year end (as described in Note
9), the Company continued negotiations, and eventually indirectly
acquired a 51% interest in NHS on December 2, 1997 together with
Transmedia Europe Inc. (See Note 16).
(p) Recent U.S. accounting pronouncements not yet implemented
In December 1996, the FASB issued SFAS No. 128 "Earnings Per
Share", which is effective
F-12
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for both interim and annual periods ending after December 15, 1997.
SFAS No. 128 requires that all prior period earnings per share data
be restated to conform to this statement. The Company will adopt
SFAS No. 128 for the year ended September 30, 1998. The adoption of
this standard is not expected to have a material effect on the
Company's earnings per share
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which established standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by, or 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 be reported in a
financial statement that is displayed with the same prominence as
other financial statements.
SFAS No. 130, effective for all fiscal years beginning after
December 15, 1997, requires comparative information for earlier
years to be restated and early adoption is permitted. The Company
intends to adopt SFAS No. 130 effective October 1, 1998. Results of
operations and financial position will be unaffected by
implementation of this standard.
2. Going Concern
The financial statements record a loss for the year ended September
30, 1997 of $3,030,445, which, when taken with the previous year's
results, record an accumulated deficit of $7,376,641 as at
September 30, 1997.
The Company has been able to fund this deficit, and the cost of its
acquisition and restructuring of Countdown Holdings Limited,
principally by the sale of equity securities and a loan from a
director and stockholder of the Company during the year. Whilst the
Company is taking steps to reduce the level of operating losses,
the Company has required, and will continue to require, additional
funds from the sale of equities in order to fund these deficits.
The Company is also dependent on being able to raise additional
funds in order to complete the funding of the acquisition of
Nationwide Helpline Services Pty Limited (see Note 16) and other
acquisitions being contemplated. Management estimates that an
amount of $6,500,000 will be required in the short-term, being
prior to April 30, 1998. Of this amount, approximately $1,000,000
will be required to provide working capital to operations, while
the balance of $5,500,000 is required to complete the acquisition
program currently being pursued. In the event that management is
not successful, or only partially successful in raising this
additional finance, the acquisition program may have to be
curtailed with the possible loss of deposits or payments made on
account of approximately $1,850,000.
Whilst management accepts and acknowledges that there is no
guarantee that the plans referred to directly above will be
entirely successful, based upon management's knowledge of the
capital markets and their contacts within those markets, management
remains reasonably confident that sufficient funds will become
available to enable the Company to operate for the foreseeable
future. Accordingly, the financial statements are prepared on a
going concern basis and do not include any adjustments which may be
necessary if such a basis was not appropriate.
F-13
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Investment in affiliated company
The Investment in Countdown Holdings Ltd. consists of the following
(see note 11 for discussion on the acquisition).
The Company's interest in Countdown's operations is accounted for
using the equity method.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Cost of investment................................... $ 2,682,487
Add: cost of option.................................. 171,680
-------------
2,854,347
Share of losses...................................... (202,905)
Amounts due from affiliate........................... 64,000
-------------
$ 2,715,442
-------------
-------------
</TABLE>
4. Related Party Transactions
On March 10, 1994, Edward J. Guinan III purchased 5,562,500 shares
of common stock in the Company. Edward J. Guinan III, the Chairman
of the Board, Chief Executive officer and Director of the Company,
is also the President, Secretary, Treasurer and a Director of
Conestoga. Mr Guinan owns approximately 73% of the outstanding
common stock of Conestoga.
Conestoga assigned the Transmedia License to the Company on May 2,
1994 for the sum of $250,000, being equal to the amount of the
non-refundable advance payment previously made by Conestoga to
Network under the License Agreement.
On May 2, 1994, Conestoga and the Company completed the
Conestoga/Company Offering of 375 units, with each unit consisting
of 1,067 shares of Conestoga common stock and 4,500 shares of the
Company's common stock, at a price of $1,200 per unit. Of the
$450,000 raised in the Offering, $449,831 was paid for shares of
Conestoga common stock and $168.75 was paid for shares of the
Company's Common Stock. The purchasers in the Conestoga/Company
Offering included Mr Paul Harrison and Mr Eugene A. Cernan, each of
whom purchased 41.67 units, or 133.33 shares of Conestoga common
stock and 187,500 shares of common stock of the Company for a
purchase price of $50,000. Mr Cernan is a Director of Conestoga, as
well as a Shareholder and former Director and former Officer of
Transmedia Europe, Inc. and Conestoga Partners, Inc., an entity
controlled by Mr Guinan whose sole asset consists of shares of
Transmedia Europe, Inc.
F-14
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company entered into a license agreement with Transmedia
Europe, Inc., holder of the European license, pursuant to which the
Company has the right to use certain computer software in
connection with the operation of the Company's business. Under the
license agreement, the Company has paid Transmedia Europe, Inc. an
initial license fee of $50,000, and is obliged to an annual
maintenance and support fee of 7,500 pound (UK), or $12,000 using
an approximation of the exchange rate at September 30, 1995 of
$1.60 to 1 pound (UK).
During the year ended September 30, 1996, the company was charged a
corporate management fee of $156,313 by Transmedia Europe, Inc. in
respect of the Company's share of the head office expenses,
comprising salaries, rent and other associated office costs. In
addition, Transmedia Europe, Inc. has paid travel, accommodation
and other costs totalling $60,742, during the year ended September
30, 1995 ($2,467 during the period from inception to September 30,
1994), which have been charged to the Company.
During the year ended September 30, 1996, the Company was charged a
corporate management fee of $240,267 from Transmedia Europe, Inc.
in respect of the Company's share of the head office expenses,
comprising salaries, rent and other associated office and
professional costs. In addition, Transmedia Europe, Inc. has paid
travel, accommodation and other costs totalling $122,526, during
the year ended September 30, 1996 ($60,742 during the year ended
September 30, 1995), which have been charged to the Company.
During the year ended September 30, 1997, the Company was charged a
corporate management fee of $556,789 from Transmedia Europe, Inc.
in respect of the Group's share of the head office expenses,
comprising salaries, rent and other associated office and
professional costs. In addition, Transmedia Europe, Inc. has paid
travel, accommodation and other costs totalling $122,997, during
the year ended September 30, 1997 ($122,526 in the year to
September 30, 1996), which have been charged to the Company..
4. Related Party Transactions (continued)
The net amounts due from/(to) related parties consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER
SEPTEMBER 30, 30,
1997 1996
------------- -----------
<S> <C> <C>
Conestoga Partners, Inc................... $ 26,260 $ 26,260
Transmedia Europe, Inc.................... 190,124 (93,300)
P. Harrison............................... 42,149 22,597
J.V. Vittoria............................. (1,061,479)
TMNI International Inc ("TMNI")........... (284,233)
------------- -----------
$(1,087,179) $ (44,443)
------------- -----------
------------- -----------
</TABLE>
The above loans to related parties are unsecured, non-interest
bearing, and repayable on demand. The loan received from J.V.
Vittoria is secured on the Company's share of Countdown Holdings
Limited, bears interest at a rate of 12% per annum, and is
repayable on 60 days notice with an expiration date extended for an
indefinite period of time.
The Company issued a joint promissory note together with TME in the
principal amount of $500,000 for which the liability has been split
between the two companies equally. The promissory
F-15
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
notes are payable on April 2, 1998, bear interest at the rate of
10% per annum, and are to be convertible at the holder's option
into Common Stock of the issuer at the rate of $1.20 per share.
Information regarding the activity with respect to the amounts due
from/(to) related parties is as follows:
<TABLE>
<CAPTION>
TRANSMEDIA
CONESTOGA EUROPE,
E. GUINAN III PARTNERS INC. P HARRISON
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1995......... $ 43,891 155,169 416,280 3,937
Additions............................. 159,978 -- 1,193,520 18,450
Amounts collected..................... -- -- (362,793) --
Amounts collected..................... (203,869) (128,909) (1,340,307) --
Foreign currency movement............. -- -- -- 210
------------- ---------- ----------- -----------
Balance at September 30, 1996......... -- 26,260 -93,300 22,597
Additions............................. -- -- 1,240,000 19,552
Amounts charged....................... -- -- 1,078,512 --
Amounts collected..................... -- -- (65,244) --
Foreign currency movement............. -- -- -- --
------------- ---------- ----------- -----------
Balance at September 30, 1997......... $ -- $ 26,260 $ 190,124 $ 42,149
------------- ---------- ----------- -----------
------------- ---------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
J.V.
VITTORIA TMNI
----------- ----------
<S> <C> <C>
Balance at September 30, 1996.............. $ -- $ --
Loan received.............................. (1,000,000) --
Promissory Note............................ -- (250,000)
Amounts collected.......................... (61,479) (34,233)
----------- ----------
Balance at September 30, 1997.............. $ 1,061,479 $ 284,233
----------- ----------
----------- ----------
</TABLE>
F-16
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Intangible Assets
Intangible assets consist of:
<TABLE>
<CAPTION>
FORMATION TRANSMEDIA HAWAII
EXPENSES LICENCE OPTION TOTAL
----------- ----------- ----------------- ----------
<S> <C> <C> <C> <C>
Acquisition cost.............. 770 1,840,790 150,000 1,991,560
Amortization as at
September 30, 1996.......... -- (245,440) -- (245,440)
Foreign currency.............. 56 -- -- 56
----------- ----------- ----------------- ----------
Balance at September 30,
1996........................ 826 1,595,350 150,000 1,746,176
Amortization charge for the
year........................ (26) (122,720) -- (122,746)
Foreign currency.............. (42) -- -- (42)
----------- ----------- ----------------- ----------
Write off during the
year........................ (276,445) (150,000) (426,445)
----------- ----------- ----------------- ----------
Balance at September 30, 1997... $ 758 $1,196,185 $ -- 1,196,943
----------- ----------- ----------------- ----------
</TABLE>
The cost of the acquisition of the Transmedia License of $1,840,790
is based upon a cash payment of $1,000,000, 250,000 shares of
common stock issued to Conestoga as reimbursement for a cash down
payment of $250,000 made by Conestoga to Network, and the issue of
590,790 shares of common stock at a value of $1 per share which was
determined on the basis of the issue of stock at that time.
During the year $276,445 has been written off the carrying value of
the license in recognition of a diminution in the future cash flows
to be derived from the Transmedia License.
The Hawaii Option, an option to license the sole Transmedia
Franchise in the State of Hawaii, expired during the year, as the
Company decided not to open in that State and was thus written off
during the year.
F-17
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FURNITURE
AND OFFICE COMPUTER
FITTINGS EQUIPMENT EQUIPMENT TOTAL
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cost
At September 30, 1995............................................ $ 77,325 $ 46,756 $ 57,750 $ 181,831
Addittions..................................................... 5,115 1,480 23,266 29,861
Foreign currency............................................... 4,125 2,494 2,769 9,387
----------- ----------- ----------- ----------
At September 30, 1996............................................ 86,564 50,730 83,785 221,079
Addittions..................................................... -- -- -- --
Disposals...................................................... (1,820) (5,674) (2,603) (10,097)
Foreign currency............................................... (4,014) (2,352) (3,615 (9,980)
----------- ----------- ----------- ----------
At September 30, 1997............................................ 80,730 42,703 77,568 201,001
----------- ----------- ----------- ----------
Accumulated depreciation
At September 30,1995............................................. 16,517 8,127 15,412 40,056
Charge for the year............................................ 9,337 6,277 19,925 35,539
Foreign currency............................................... 880 433 708 2,021
----------- ----------- ----------- ----------
At September 30, 1996............................................ 26,734 14,837 36,045 77,616
Disposal....................................................... (364) (5,168) (520) (6,052)
Charge for the year............................................ 9,804 9,639 18,752 38,195
Foreign currency............................................... (1,257) (705) (1,535) (3,498)
----------- ----------- ----------- ----------
At September 30, 1997............................................ 34,917 18,602 52,741 106,260
----------- ----------- ----------- ----------
Net book value
At September 30, 1997............................................ $ 45,813 $ 24,101 $ 24,826 $ 94,741
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
At September 30, 1996............................................ $ 59,830 $ 35,893 $ 47,740 $ 143,463
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
8. Allowance for Irrecoverable Restaurant Credits
Changes in the Company's allowance for irrecoverable restaurant
credits were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Balance at the beginning of the period................................................. $ 119,762 $ 40,418
Additions/(Adjustments)--charged to costs and expenses................................. (5,152) 79,344
------------- -------------
Balance at end of period............................................................... $ 114,610 $ 119,762
------------- -------------
------------- -------------
</TABLE>
F-18
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Payroll taxes and holiday pay....................................................... $ 109,300 $ 83,987
Income taxes payable................................................................ 6,300 6,300
Cardholder bonuses.................................................................. -- 19,259
Tips and tax........................................................................ 3,214 1,082
Food and beverage provision......................................................... -- 40,874
Professional fees................................................................... 149,200 54,800
Royalties payable................................................................... -- 9,926
Other............................................................................... 19,540 34,124
Withholding taxes................................................................... 43,354 --
------------- -------------
$ 330,908 $ 250,352
------------- -------------
------------- -------------
</TABLE>
10. Other Asset
The other asset consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ ------------
<S> <C> <C>
Interest in option to acquire:....................................................... $ 142,946 $
------------ ------------
------------ ------------
National Helpline Services Pty Limited
</TABLE>
In October 1996 the Company made an investment of $134,741,
subsequently increasing to $142,946 for ongoing legal costs, to
acquire a renewable 6 month option to acquire 50% of the share
capital of National Helpline Services PTY Limited ("NHS"). Transmedia
Europe Inc., acquired an option on identical terms to the Company,
over the remaining 50% share capital of NHS. Although the 6 month
option had expired prior September 30, 1997, the Company continued
negotiations, and eventually indirectly acquired an interest in NHS
on December 2, 1997, together with Transmedia Europe Inc. (See Note
16).
F-19
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Stock Options and Warrants
Under the Company's 1994 stock option and rights plan (the 'Plan'),
the Company may grant stock options and stock appreciation rights to
persons who are now or who during the term of the Plan become key
employees (including those who are also directors) and to independent
sales agents. Stock options granted under the Plan may either be
incentive stock options or non-qualified stock options for US federal
income tax purposes. The Plan provides that the stock option
committee of the board of directors may grant stock options or stock
appreciation rights with respect of a maximum of 250,000 shares of
common stock at an exercise price not less than the fair market value
at the date of grant for qualified and non-qualified stock options.
In addition, the Company issued options for 40,000 shares of Common
Stock in 1996 (of which 10,000 were cancelled in 1997) and 10,000 in
1997 under the Company's 1996 Stock Option Plan for Outside
Directors. The plan provides that the Stock Option Committee of the
board of Directors may grant stock options with respect to a maximum
of 300,000 shares of Common Stock. The options have a five year term.
Mr Paul Harrison, President of the Company, has been granted options
to purchase 800,000 common shares at $1 per share. These options are
outside the Company's 1994 stock option and rights plan.
In addition, in prior years the Company has also issued warrants to
purchase 497,619 shares of common stock at an exercise price ranging
from $1.40 to $1.50 per share. The warrants have a three to five year
term ending through July 2000.
In April 1997, the Company granted an option to purchase up to
277,193 shares of Common Stock at a purchase price of $0.90 per share
to the owner of Countdown as part of the consideration given for the
50% purchase of Countdown (as described in Note 1). In addition, the
Company issued warrants to purchase 138,596 shares of Common Stock at
an exercise price of $1.13 per share, with an expiration of April
2002. The Company estimated the fair value of these options and
warrants using the Black Scholes valuation method with the same
assumptions as described previously with the exception of a risk free
interest rate of 6.7%.
F-20
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Stock Options and Warrants (Continued)
Stock option and warrant activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE WARRANTS
NUMBER OF EXERCISE NUMBER EXERCISE
SHARES PRICE OF SHARES PRICE
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1994...................................... $ 800,000 $ 1.00 $ -- $ --
Granted.......................................................... -- -- 200,000 1.50
Exercised........................................................ -- -- -- --
------------ ----------- ---------- -----
Balance at September 30, 1995...................................... 800,000 1.00 200,000 1.50
Granted.......................................................... 40,000 1.78 297,619 1.40
Exercised........................................................ -- -- 100,000 2.50
Granted.......................................................... -- -- -- --
------------ ----------- ---------- -----
Balance at September 30, 1995...................................... 840,000 1.04 597,619 1.62
Granted.......................................................... 277,193 0.90 138,596 1.13
Granted.......................................................... 10,000 1.00 185,417 2.00
Exercised........................................................ -- -- -- --
Cancelled........................................................ (10,000) (1.78) -- --
------------ ----------- ---------- -----
Balance at September 30, 1995...................................... $ 1,117,193 $ 1.00 $ 921,632 $ 1.62
------------ ----------- ---------- -----
------------ ----------- ---------- -----
</TABLE>
The Company applies APB Opinion No.25 in accounting for its stock
options and warrants and, accordingly, no compensation cost has been
recognised for its stock options and warrants in the financial
statements. Had the Company determined compensation cost based upon
the fair value at the grant date for its stock options and warrants
under SFAS No.123, the Company's net losses would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net Loss - As reported.............................................................. $ (3,030,445) $ (2,006,258)
- Pro forma.................................................................. $ (3,044,470) (2,018,298)
Loss per share - As reported........................................................ $ (0.22) $ (0.16)
- Pro forma............................................................. $ (0.22) $ (0.16)
</TABLE>
In arriving at such pro-forma amounts the Company estimates the fair
value of each stock option on the grant date by using the Black
Scholes Valuation Method with the following weighted average
assumptions used for grants in fiscal 1997, 1996, and 1995
respectively: no dividends paid for all years; expected volatility of
40%; a risk free interest rate of 5.2% and an expected life being the
remaining term of the option. The per share weighted fair value of
the stock options granted in 1997, 1996 and 1995 were $0.74, $0.33,
and $0.55 respectively.
Pro forma net loss reflects only options granted in 1997 and 1996.
The full impact of calculating compensation cost for stock options
under SFAS No.123 is reflected in the pro forma net loss amounts.
F-21
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Acquisition of Countdown
On April 3, 1997, the Company purchased from Mr. C.E.C. Radbone 50%
of the outstanding capital stock of Countdown Holdings Limited.
Countdown Holdings Limited, through its wholly owned operating
subsidiary, Countdown plc, is an international provider of membership
discount services. The balance of the outstanding capital stock was
simultaneously purchased by Transmedia Europe Inc ("TME") on terms
similar to the Company's purchase.
In payment of the purchase price, the Company issued 1,330,524 shares
of its Common Stock, $0.00001 par value per share ("Common Stock")
and paid pounds (UK) 500,000 (approximate US$ equivalent as of April
3, 1997 was $800,000) in cash. In addition, the Company granted Mr.
Radbone a five year option to purchase up to 277,193 shares of Common
Stock at a purchase price of $0.90 per share.
The cash portion of the purchase price was funded by a $1,000,000
loan from a director and stockholder of the Company. The Loan matured
on September 27, 1997, bears interest at a rate of 12% per annum, and
has been renewed by agreement between Edward J. Guinan III, Chairman
of the Board, and the director. The expiration date has been extended
for an indefinite period of time and is repayable on notice of 60
days and the loan continues to bear interest at 12% per annum. The
loan is collateralised by a pledge of all the shares purchased by the
Company from Mr. Radbone. In connection with the loan, the Company
issued to the director and stockholder five-year warrants to purchase
up to 138,596 shares of Common Stock at $1.13 per share.
In connection with the acquisition, the Company and TME each agreed
to pay $125,000 in cash to TMNI International Incorporated ("TMNI")
and each agreed to issue TMNI a joint promissory note in the
principal amount of $500,000. The liability has been split between
the two companies equally, and is payable on April 2, 1998 and
bearing interest at the rate of 10% per annum. The promissory notes
are to be convertible at the holder's option into an equal number of
shares of Common Stock of each issuer at the rate of $1.20 per share.
The Company agreed to pay such amounts in order to obtain the consent
to the Countdown acquisition, which consent was required by the terms
of the master license agreement from TMNI under which the Company
operates its discount restaurant card business. For a more detailed
discussion of the terms of this transaction, reference is made to the
Company's current report on form 8-K dated December 2, 1997, which is
incorporated by this reference herein.
13. Leases
The Company leases certain office space under lease agreements.
Future minimum lease payments under non-cancellable operating leases
as of September 30, 1997, are as follows:
<TABLE>
<S> <C>
Year ending September 30 1998...................................................... $ 48,100
---------
---------
</TABLE>
The amount charged to the consolidated statement of operations for
rent expense in the year ended September 30,1997 was $42,465 (1996:
$44,641)
F-22
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Income Taxes
Income taxes reflected in the accompanying statements of operations
differed from the amounts computed by applying the US federal tax rate of 34%
to loss before taxes as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Computed 'expected' tax benefit... $ (707,000) $ (682,000) $ (677,000)
State taxes....................... $ 8,000 --
Change in valuation allowance
for deferred tax assets......... 683,000 646,000 580,000
Effect of graduated tax rates..... -- --
Other............................. 24,000 28,000 97,000
------------- ------------- --------------
------------- ------------- --------------
Income tax expense $ -- $ -- $
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carry
forwards........................ $ 1,999,000 $ 1,306,000 $ 648,000
Pre operating costs capitalised
for tax purposes................ 27,000 37,000 49,000
-- -- --
Total............................. 2,026,000 1,343,000 697,000
Less valuation allowance.......... (2,026,000) (1,343,000) (697,000)
------------- ------------- --------------
Net deferred tax assets........... $ -- $ -- $ --
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The US Federal net operating loss carry forward at September 30, 1997 of
approximately $3.5 million will begin to expire in the year 2010. The foreign
net operating loss carry forward of approximately $2.7 million may be carried
forward indefinitely.
15. Commitments
Each quarter the company must pay to Network in cash for any part of the
licensed territories developed by the Company or any affiliate of the Company
a royalty equal to 2% of gross sales. 'Gross sales' are the gross reduction
during the quarter in Food and Beverage Credits. The Company will also pay
Network 2% of the gross sales resulting from any other services that Network
in the future may provide to cardholders or participating restaurants.
Royalties charged to income for pursuant to this agreement amounted $93,893
for the year ended September 30, 1997. ($42,596 in 1996).
In order to maintain full rights under the Transmedia License (1) no person
or group of persons, without prior permission of Network, may acquire beneficial
ownership of 30% or more of the Company; (2) Edward J Guinan III is required to
maintain beneficial ownership
F-23
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Income Taxes (continued)
of no less than the lower of 20% of common stock, or 15% of the common stock
(as long as the three other largest stockholders beneficially own no more
than 15% in the aggregate); (3) the Company must commence operations (a) in
Australia and/or New Zealand within 4 months after May 26, 1994 closing date
under the Transmedia License (the 'Closing Date'); (b) in another country
within 3 years after the closing date; and (c) in a second other country
within the earlier of 2 years after the first country or five years from the
closing date; (4) the Company must procure in Australia and/or New Zealand
(a) 100 participating restaurants within the first 12 months or 250
participating restaurants within the first 24 months of the full rights under
the Transmedia License; (b) 2,000 cardholders within the first 12 months or
5,000 cardholders within the first 24 months of the Transmedia License
(including those receiving cards without the payment of the initial fee) and
(c) participating restaurant renewals at the rate of 70% per year. As at
September 30, 1997 the Company has complied, in all material respects, with
all the covenants contained in the License Agreement.
The Company also has other obligations under the Transmedia License
respecting business practices, use of Network software programs, marketing,
training, confidentiality and standard of performance, among others, the
material breach of any of which may result in the termination of the full
rights under the Transmedia License.
The Company is committed to making further payments in relation to the
acquisition of N.H.S. These consist of payments due on January 31, 1998 to
certain principals as sign on fees amounting to Aus$750,000 ($47,000) and the
second tranche for the business and assets of Aus$2,842,540 ($2,075,000).
Payment of the second tranche may be extended by up to 90 days provided that
interest will accrue during any such extension at 5% per annum. The balance
of the payments due to certain principals as sign on fees amounting to
Aus$750,000 ($547,000) is due on June 30, 1998 subject to an extension of 90
days provided that interest will accrue during any such extension at 5% per
annum. The option to acquire the 49% balance of NHS's business and assets for
Aus$2,497,655 ($2,150,000) is exercisable at any time through June 30, 1998
subject to an extension of 90 days provided that interest will accrue during
any such extension at 5% per annum. Failure to exercise this option during
its term will give the NHS principals the rights to repurchase the 51%
interest for nil consideration.
Effective January 16, 1998, the Company concluded an employment contract
with the Chairman of the Board, Edward J. Guinan III, providing for a salary
of pounds UK 100,000 ($165,000) per annum, for a period of three years,
together with options.
16. Business and Credit Concentrations
Most of the Group's customers are located in Australia or New Zealand. No
single customer accounted for more than 10% of the Company's service revenues
in the three year period ended September 30, 1997 No single restaurant's
credit was greater than 10% of the company's total restaurant credit balance
at September 30, 1997, and no single merchant under the Countdown discount
purchase program accounted for greater than 10% of the Countdown volume of
business.
17. Subsequent Events
The Company has made a significant capital commitment for the completion of
the purchase of 51% on an indirect basis, of Nationwide Helpline Services Pty
Limited ("NHS") in
F-24
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. Subsequent Events (continued)
Australia. This commitment consists of a total commitment of Aus. $10,000,000
($6,578,950), of which Aus. $4,000,000 ($2,631,578) represents sign-on fees
payable to certain individuals of NHS, and the balance of which represents
amounts payable to NHS in two tranches. The first tranche was paid on
December 2, 1997 in cash and shares of Common Stock of the Company and its
affiliate, Transmedia Europe, Inc., while the second tranche is payable in
cash only. The Company also, jointly with its affiliate Transmedia Europe
Inc., acquired an option to purchase the 49% balance of NHS's business and
assets for an additional Aus. $2,497,655. ($1,643,194)
In October 1997, the Company signed a Letter of Intent to purchase 50% of
the shares of Common Stock of a privately held corporation 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 lodged as a deposit. The deposit is non refundable and may be forfeited
in the event the transaction does not take place prior to March 31, 1998. The
letter of Intent subject to satisfactory due diligence, contemplates a March
31, 1998 closing and 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. This
letter of Intent contemplates that Transmedia Asia Pacific will purchase the
balance of the Company's common stock on similar terms.
On January 16 1998, Mr. C.E.C. Radbone, a director of the Company,
resigned from the Board of Directors. Contemporaneously, his employment
agreement, according to the terms of which he had been serving as Managing
Director of Countdown plc, a subsidiary of the Company, was cancelled. Mr.
Radbone held 1,200,000 shares of Common Stock of the Company and agreed to
grant Edward J. Guinan III, the Chairman of the Board of Directors, an option
to purchase these shares at a value of $1 per share. The consideration for
this option is $500,000.
F-25
<PAGE>
Item 9--Changes and Disagreements with Accountants
on Accounting and Financial Disclosures
Not Applicable
Item 10--Directors and Executive Officers of the Registrant
Information called for by Item 10 will be set forth under the heading
"Election of Directors" in the Company's definitive Proxy Statement for
its annual meeting of shareholders (the "Proxy Statement"), to be filed
on or before January 28, 1998, and is incorporated herein by this reference.
Item 11--Executive Compensation
Information called for by Item 11 will be set forth under the heading
"Executive Compensation" in the Proxy Statement, and is incorporated
herein by this reference.
Item 12--Security Ownership of Certain Beneficial Owners and Management
Information called for by Item 12 will be set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by this reference.
Item 13--Certain Relationships and Related Transactions
Information called for by Item 13 will be set forth under the heading
"Certain Relationships and Related Transactions" in the Proxy Statement,
to be filed on or before January 28, 1998, which is incorporated herein by
this reference.
F-26
<PAGE>
PART IV
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are being filed as part of this Report.
(a)(1) Financial Statements:
Transmedia Asia Pacific, Inc.
See "Index to Financial Statement" contained in Part II, Item 8
(a)(2) Financial Statement Schedule:
All schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the
Notes thereto.
(a)(3) Exhibits:
10.1 (m) Master License Agreement amendment, dated December 6, 1996,
by and between Network, the Company and Transmedia Europe, Inc.
(b) Appointment of BDO Stoy Hayward independent auditors
(c) Exhibits:
See paragraph (a) (3) above for items filed as exhibits to this Form
10-K as required by item 601 of Regulation S-K.
(d) Financial Statement Schedules:
See paragraphs (a) (1) and (a) (2) above for financial statement
schedules and supplemental financial statements filed as part of
this Form 10-K.
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized
TRANSMEDIA ASIA PACIFIC, INC.
(Registrant)
Date: January 22, 1998 /S/ Edward J. Guinan III
----------------------------------------------
Name: Edward J. Guinan III
Title: Chairman, Chief Executive Officer and
Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated.
Date: January 22, 1998 /S/ Edward J. Guinan III
----------------------------------------------
Name: Edward J. Guinan III
Title: Chairman, Chief Executive Officer
and Director
Date: January 22, 1998 /S/ Paul L. Harrison
----------------------------------------------
Name: Paul L. Harrison
Title: Secretary and Director
Date: January 22, 1998 /S/ Carl Freyer
----------------------------------------------
Name: Carl Freyer
Title: Director
Date: January 22, 1998 /S/ Joseph Vittoria
----------------------------------------------
Name: Joseph Vittoria
Title: Director
----------------------------------------------
Item 10--Directors and Executive Officers of the Registrant
Information called for by Item 10 will be set forth under the heading
"Election of Directors" in the Company's 1998 definitive Proxy Statement, to be
completed prior to January 28, 1998, which is
F-28
<PAGE>
incorporated herein by this reference.
Item 11--Executive Compensation
Information called for by Item 11 will be set forth under the heading
"Executive Compensation" in the Company's 1998 definitive Proxy Statement,
to be completed prior to January 28, 1998, which is incorporated herein by
this reference.
Item 12--Security Ownership of Certain Beneficial Owners and Management
Information called for by Item 12 will be set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1998 definitive Proxy Statement, to be completed prior to
January 28, 1998, which is incorporated herein by this reference.
Item 13--Certain Relationships and Related Transactions
Information called for by Item 13 will be set forth under the heading
"Certain Relationships and Related Transactions" in the Company's 1998
definitive Proxy Statement, to be completed prior to January 28, 1998,
which is incorporated herein by this reference.
PART IV
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K
F-29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSMEDIA ASIA PACIFIC INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 13,104
<SECURITIES> 0
<RECEIVABLES> 358,378
<ALLOWANCES> (114,610)
<INVENTORY> 0
<CURRENT-ASSETS> 712,799
<PP&E> 94,250
<DEPRECIATION> 106,260
<TOTAL-ASSETS> 4,798,380
<CURRENT-LIABILITIES> 2,048,227
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 4,798,227
<TOTAL-LIABILITY-AND-EQUITY> 4,798,380
<SALES> 1,924,908
<TOTAL-REVENUES> 2,129,362
<CGS> (1,257,769)
<TOTAL-COSTS> (3,723,330)
<OTHER-EXPENSES> (209,715)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (31,007)
<INCOME-PRETAX> (3,030,445)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,030,445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,030,445)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
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