FORM 10-K/A
AMENDMENT NO. 4
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|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
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO___________
COMMISSION FILE NO. 0-26368
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)
Registrant's telephone number, including area code: U.K. 011-44-171-930-0706
Securities registered pursuant to Section 12 (b) of the Act:
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 (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |_| No |X|
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 2, 1998 was $10,258,482 based upon the closing sale price
of a share of Common Stock on The National Association of Securities Dealers
Automated Quotation ("NASDAQ") Small Cap Market System.
Number of shares outstanding of the Registrant's Common Stock, as of February
27, 1998 was 16,596,095.
Documents Incorporated by Reference: None.
The purpose of this Amendment is to amend the 10-K for the fiscal year ended
September 30, 1997 in its entirety.
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PART I
Unless otherwise indicated, the information set forth in "Item 1
Business," "Item 2 - Properties," "Item 3 - Legal Proceedings," "Item 5
Market for Registrant's Common Equity," "Item 10 - Directors and Executive
Officers of the Registrant," "Item 11 - Executive Compensation," "Item 12
- Security Ownership of Certain Beneficial Owners and Management" and
"Item 13 - Certain Relationships and Related Transactions" is as of March
13, 1998. Updated information with respect to these items can be found in
the Company's 10-K for the fiscal year ended September 30, 1998 which is
being filed with the Securities and Exchange Commission simultaneously
with the filing of this Amendment No. 4.
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 substantially 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.
In April 1997 and December 1997, the Company acquired interests in
Countdown Holdings Limited (`Countdown') and Nationwide Helpline Services
Pty Limited (`NHS'), respectively. See "-Countdown", "- Nationwide
Helpline Services", "- Countdown Acquisition" and "- NHS Acquisition".
Corporate Development
For some time, the management of both the Company and Transmedia Europe
Inc., ("TME") a company which shares common directors, officers and
stockholders with the Company, have 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 reduce central overhead and to increase
operating efficiency; and to formalize the existing commonality of
management. The proposed merger is subject to the approval of the
respective Boards, issuance of fairness opinions by independent investment
advisers and the 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."
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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 identified other businesses which, upon
acquisition, would significantly increase the Company'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 and NHS.
Countdown
In April 1997, the Company acquired a 50% interest in Countdown, an
international provider of membership discount services. The remaining 50%
interest in Countdown was simultaneously purchased by TME. 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 was established in 1970. Its primary business
operations are located in the United Kingdom. Additionally, Countdown has
appointed licensees who operate in 14 countries around the world. The
Countdown business is primarily a membership based business which arranges
discounts with major suppliers of goods and services for its members.
Countdown has approximately 6.5 million members and over 100,000
participating merchants in 47 countries.
Countdown markets membership on a retail and wholesale basis. Retail
marketing involves selling membership to individuals. Memberships sold on
this basis represent a small portion of total membership. Members pay an
annual membership fee, currently $49, which entitles them to a Countdown
card valid for one year. Members present their Countdown card at the point
of sale when making purchases from participating merchants. Presentation
of the Countdown card entitles the cardholder to a discount, at the time
of purchase, of between 5 and 50% off the merchant's normal selling price.
When members receive their Countdown card they also receive a directory of
participating merchants. Directories are prepared on a geographical basis
thereby enabling Countdown to supply a directory of participating
merchants to cardholders specific to the geographical area in which the
cardholder lives.
Wholesale membership marketing involves the sale of membership packages to
corporations, professional organizations, trade unions, etc. In the case
of wholesale marketing the group or organization purchases membership for
its own members or employees. Such members or employees receive a
Countdown card and a directory for use as in the case of individual
membership described above. The annual fee charged on a wholesale basis is
typically 5% or less of the individual annual membership fee.
Countdown has over a number of years attracted participating merchants
numbering over 100,000 worldwide. Participating merchants have been
recruited from over 45 different retail categories including clothing,
household goods and leisure goods and services. Countdown does not pay any
fee or royalty to participating merchants nor do such merchants pay any
fee or royalty to Countdown. Countdown benefits from merchant
participation by being able to offer a wider range of discount
opportunities to its members. The merchant benefits from listing in the
directory which encourages cardholders to shop at the participating
merchant. Additionally, in each geographical location the
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Company contracts with only one merchant per product or service category
and therefore participating merchants do not compete for Countdown
cardholders in the same geographic area.
Countdown also operates a voucher system with participating merchants and
others. This segment of the business involves Countdown purchasing
vouchers from major retailers which can be used to pay for goods and
services purchased at such major retailers outlets. Countdown sells such
vouchers to its members. Countdown members can use the vouchers at face
value to make purchases from the issuing retailer. These vouchers are
typically sold by Countdown to its members at a discount to face value of
approximately 5-10%.
On December 23, 1997. Countdown entered an agreement with AirTours
Holidays Limited ("AirTours"). AirTours is a tour operator operating
within the United Kingdom providing vacation destinations throughout the
world. Pursuant to the agreement, Countdown agreed to provide certain
benefit packages to AirTours customers at the place of vacation. The
benefit packages included a Countdown card covering certain restaurants
and stores in the vacation area. The agreement is for an initial term of
three years.
Nationwide Helpline Services
On December 2, 1997, Transmedia Australia Holdings Pty Limited
(`Transmedia Australia'), a newly formed company owned equally by the
Company and TME, purchased 51% of the shares of a company which acquired
all of the 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. The operations of NHS will be effectively controlled by the
Company and, as such, are anticipated to be consolidated within the
Company's financial statements in future periods. Transmedia Australia
also acquired an option to purchase the balance of 49% of the entity which
acquired the assets of NHS. If this option is not exercised, it could
result in the loss of the whole investment to date. See "NHS Acquisition".
NHS is a provider of telephone helpline and member 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 five million members.
NHS's services are sold primarily on a wholesale basis to a wide range of
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 its interest in 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.
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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 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
September 30, 1997, the Company had approximately 274 Company
Participating Restaurants and approximately 36,800 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.
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 authorized 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 realize 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.
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
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Republics. TME commenced operations in the United Kingdom in January 1994
and has obtained approximately 52,000 cardholders since its launch.
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.).
Countdown Acquisition
On April 3, 1997, the Company purchased from Mr.. C.E.C. Radbone 50% of
the outstanding capital
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stock of Countdown Holdings Limited, a privately owned United Kingdom
company based in London, England. Countdown, through its wholly-owned
subsidiary, Countdown plc, is an international provider of membership
discount services, offering member benefits and discounted purchases of
merchandise and services, to approximately 6,500,000 cardholders
distributed worldwide, with over 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"), options to purchase 277,193 shares of Common Stock at
$0.90 per share, 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 the Company 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
consideration for the loan, the Company granted 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
resigned from the Board of Directors. Contemporaneously, his employment
agreement, pursuant to which he had been serving as Managing Director, was
terminated. Mr. Radbone holds 1,330,524 shares of Common Stock of the
Company and options to purchase 277,193 shares of Common Stock of the
Company at $0.90 per share, and agreed to grant Edward J. Guinan III, the
Chairman of the Board of Directors, an option to purchase these shares and
options at a purchase price of $1 per share. Under this agreement, Mr.
Guinan pledged $250,000 in value of shares of the Common Stock owned by
him (together with $250,000 in value of Transmedia Europe, Inc. Common
Stock owned by him), which will be transferred to Mr. Radbone if the
option is not exercised and paid by January 15, 1999.
In connection with the Acquisition, the Company and TME each agreed to pay
$125,000 in cash to TMNI and the Company and TME jointly issued to TMNI a
promissory note in the principal amount of $500,000, payable on April 2,
1998 and bearing interest at the rate of 10% per annum. The promissory
note is convertible at the holder's option into $250,000 in value 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
Acquisition, which consent was required by the terms of the License.
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NHS Acquisition
On December 2, 1997, Transmedia Australia, purchased 51% of the shares of
common stock of a company which acquired all of the assets of NHS. The
total purchase price for the transaction (including a deposit of Aus.
$345,000 = $252,000) is approximately Aus. $12,500,000 ($9,125,000), Aus.
$4,000,000 ($2,940,000) 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, 250,000 shares of the common stock of the Company and
250,000 shares of the common stock of TME. The second tranche (Aus.
$2,842,540 ($2,073,000)) was 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 were payable 50% 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). The Company has given notice that
payment of the second tranche due January 31, 1998 is being extended by
the permitted 90 days and, at the request of the principals, the payment
of the portion of the sign on fees due on January 31, 1998 has been
delayed pending their instructions. Transmedia Australia also acquired an
option to purchase the 49% balance of the shares of common stock of NHS
Australia Pty Limited for an additional Aus. $2,497,655 ($1,823,000) (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 would give the NHS
principals the rights to repurchase Transmedia Australia's 51% interest
for no consideration. NHS is a provider of benefit packages for
organizations with large customer bases such as banks and insurance
companies.
Intellectual Property
The Company operates its restaurant card business pursuant to the License
acquired through the License Agreement with TMNI. Although the License
Agreement grants the Company the right to use certain proprietary software
and systems, the Company found it necessary to develop its own systems and
practices for local taxation and other considerations. Accordingly, the
Company does not rely on the License Agreement for the conduct its day to
day operations. However, TRANSMEDIA(R) is a registered trademark and
therefore the Company relies on the rights it acquired under the License
Agreement to use such trademark and such other trademarks and service
marks as Network may apply for in the Licensed Territories. The Company is
also dependent on Network for protection of TRANSMEDIA(R) 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.
Countdown(R) is a registered trademark of the Company's affiliate,
Countdown Holdings Limited. Countdown has been established for over 28
years and management believes that the business of Countdown is, to some
extent, dependent on the consumer goodwill and recognition attaching to
the Countdown name.
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
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The "membership based" benefits business is highly competitive. The
Company competes with a number of other operators, both internationally
and in Australia. The Company's competitors range from small private
companies to major corporations who collectively offer a full range of
"membership based" benefit programs. Such benefit programs include
discount shopping, hotel accommodation, travel, dining, and leisure
activities. Additionally, the Company competes with other telephone
helpline service operators and an array of reward programs such as "air
miles".
In its Restaurant Card business the Company competes against other
restaurant discount programs. Competitors include programs offered by
major credit card companies such as American Express, Visa, Mastercard and
Diners Club. Additionally, other companies offer different kinds of
discount programs. For example, Hilton International, an international
hotel owner and hotel management company, provides two-for-one dining
offers in its restaurants. The Company is not aware of any restaurant
discount charge card business similar to that of the Company in the
Licensed Territories at this time. The absence of a similar restaurant
discount charge card is the principal method used to compete for business.
However, there can be no assurance given that no new entrants will enter
the market in the future.
NHS competes with other helpline service providers and membership based
benefit providers. NHS also competes with its product and service
providers who promote their businesses independently of their arrangements
with NHS. The principal methods used by NHS to compete effectively are
price, quality of service and range of products and services offered.
The Company's travel business competes with travel agents and other
operators in the hotel and travel industries, including retail travel
agents, airlines and hotel groups. The Teletravel business competes on
price and convenience as compared to retail travel agents where the
consumer must visit the travel agents premises.
The Company's affiliate, Countdown, competes directly with a full range of
discount shopping programs offered by a number of other operators. The
Company believes that the Countdown program, with over 100,000
participating merchants in 47 countries, is broader based than the
programs offered by its competitors. Management believes that the size of
its merchant base, as well as the international spread of such merchants,
gives Countdown an advantage over its competitors. Such merchant based and
program pricing are the principle methods used by Countdown to retain
existing business and secure new business opportunities over its
competitors.
The Company is not aware of any dominant operators in its business
segments and geographical markets. However, many of the Company's
competitors have substantially greater financial, personnel,
technological, marketing, administrative and other resources than the
Company.
Government Regulation
The Company believes that it possesses all governmental permits or
licenses necessary to operate its restaurant discount business in
Australia and New Zealand, but has not inquired yet as to whether or not
any permits may be required in the rest of the Licensed Territories.
The Company believes that it possesses all governmental permits or
licenses necessary to operate its other businesses.
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Important Factors Regarding Forward Looking Statements and Other Risks
Certain statements in this Annual Report on Form 10-K/A 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 Annual Report, statements that are not statements of current or
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "anticipate", "plan," "intend," and
similar expressions are intended to identify such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Except
as required by law, the Company undertakes no obligation to 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.
Limited Operating History, Accumulated Deficit, No Assurance of
Profitability
The Company's operations are subject to all the risks inherent in growing
business enterprises, including limited capital, delays, uncertain markets
and competition. The Company began conducting business operations will
respect to the restaurant charge card business in the Fall of 1994 in
Sydney, Australia. The operations of the Company have produced losses for
the 1995, 1996 and 1997 fiscal years 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.
Explanatory Paragraph in Auditor's Report
The Company's independent auditors have included an explanatory paragraph
in their report as of, and for the year ended September 30, 1997, stating
that the Company's ability to continue as a going concern is dependent on
its ability to continue selling equity securities and effecting the
exercise of warrants. See "Consolidated Financial Statements."
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
9
<PAGE>
any location in the Licensed Territories will result in the loss of the
License with respect to such location. The Company has received an
extension of time for establishing new operations whereby the Company is
required to establish another operation in a country other than Australia
and New Zealand by September 1998 and in another by September, 2000.
Need for Additional Financing
The Company requires substantial additional funds to fund its business
plans, including completion of the acquisition of NHS, and other possible
acquisitions, and to satisfy existing creditors and to provide working
capital. Management estimates that an amount of $8,250,000 will be
required in the short term to complete the contemplated acquisitions of
which $3,500,000 is required to complete the funding of NHS, and
$4,750,000 to fund other planned acquisitions. A further amount of
$1,000,000 is estimated to be required as working capital to fund the
Company's deficit in the period to April 30, 1998.
The Company has no available lines of credit at the present time. In the
event that management is not successful or only partially successful in
raising the necessary funds it will have to curtail its acquisition
program, with the possible loss of deposits or payments on account of
approximately $1,375,000.
No assurance can be given that the Company will be successful in obtaining
additional financing. Failure to obtain the necessary financing within the
necessary time frame will have a significant adverse effect on the Company
and its results of operations. Moreover, any additional financing,
including any financing obtained through the issuance of equity, could
result in substantial dilution to shareholders.
Management of Growth
Execution and implementation of the Company's plan of operation will
require significant growth. The Company's current plans for growth will
place a significant strain on the Company's financial, managerial and
other resources. The Company's ability to manage its growth effectively
will require it to continue to improve its operational, financial and
management information systems and to attract, motivate and train key
employees. If the Company's executives are unable to manage growth
effectively, the Company's business, operating and financial condition
would be materially and adversely affected.
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 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 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
10
<PAGE>
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 shareholders to sell the Common
Stock 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.
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.
Although 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.
11
<PAGE>
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.
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(R), Mastercard(R) or Delta(R) 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 parts 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.
Foreign Operations
The Company's restaurant card business, as well as the businesses of
Countdown and NHS, are conducted outside of the United States. 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 restaurant card 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 does not currently 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 unfavorable 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.
12
<PAGE>
Dependence on Management
The success of the Company will be dependent in part on the abilities and
efforts of Mr. Guinan, Chairman of the Board of Directors of the Company
and Mr. Harrison, a director of the Company. Any incapacity or inability
of Mr. Guinan and Mr. Harrison 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 lives of Mr.
Guinan or Mr. Harrison. 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.
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 parts 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".
13
<PAGE>
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% or more of the corporation's voting stock.
Item 2 - Properties
The Company leases office space of approximately 4,400 square feet in
Sydney, Australia. The lease expires in September, 1999, at a net rental
of approximately Aus. $65,000 ($47,000) per annum.
NHS leases office space of approximately 3,500 square feet at an annual
rental of approximately Aus.$130,000 ($94,000) per annum. The lease which
expires in June 1998 is renewable for a further four years by mutual
consent according to normal terms and provisions applicable in the area.
The Company shares office space at 11 St James's Square, London, England
which is leased to its affiliate TME. In the year ended September 30, 1997
the Company reimbursed TME in the amount of $38,039 for its share of the
rental cost.
Item 3 - Legal Proceedings
There are currently no material 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 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 Common Stock.
Quarter ended 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 of Common Stock as of January 30,
1998 were $1.375 and $1.4375, respectively.
(b) Holders of Common Stock: The number of stockholders on record of the
Common Stock on February 13, 1998 was 228. 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 sold in a private placement (the "Private Placement") an
aggregate of 1,347,095 shares of Common Stock at a purchase price of
$1 per share. For every three shares purchased, each purchaser
received, 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. 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 and for the period from inception to
September 30, 1994. 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.
In December 1997 the Company acquired an interest in NHS, whose results
are not reflected herein but whose results will be consolidated in fiscal
1998 using the purchase method of accounting.
Income Statement Data
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period March 10, 1994
September 30, September September (inception) to
1997 30, 1996 30, 1995 September 30,1994
---- -------- -------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 1,924,908 $ 1,659,515 $ 1,075,517 $ --
Membership fees 204,504 230,961 27,564 --
Gross Profit 871,593 791,810 400,358 --
Loss from operation (2,851,737) (2,027,263) (2,075,747) (377,498)
Share of losses of (209,715) -- -- --
associated company
Net loss $(3,030,455) $(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 $ 61,129
Intangible assets 1,196,943 1,746,176 1,868,855 1,841,560
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 274 430 330 25
Participating
Restaurants
Number of Company 36,800 18,000 9,000 --
Cardholders
</TABLE>
16
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
This Annual Report on Form 10-K/A and the documents incorporated herein by
reference contain "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those
described below and those presented elsewhere by management from time to
time. When used in this Annual Report, statements that are not statements
of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate,"
"plan," "intend," "believe," "estimate" and similar expressions are
intended to identify such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Except as required by law, the
Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise.
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and the notes thereof, the related disclosures and the selected
financial data, and is qualified in its entirety by reference thereto.
The nature of the Company's restaurant card business is such that there is
a lead time before profitable operations can be achieved. The success of
the Company is dependent upon increasing the number of Company Cardholders
and Company Participating Restaurants, as well as obtaining increased
usage of The Restaurant Card by Company Cardholders. The Company's
marketing partners have been predominantly large size organizations, with
lengthy internal procedures. Consequently preparing campaigns for launch
and the resulting anticipated growth in the number of Company Cardholders
has been considerably slower than was initially anticipated. This is
demonstrated in the financial results for the years ended September 30,
1997, 1996 and 1995.
The Company's ability to grow has been restricted by the single product
offered by the Transmedia dining program. During fiscal 1997 the Company
and its affiliate TME jointly obtained the permission of TMNI to expand
its business base by jointly paying $250,000 in cash and issuing a joint
promissory note for $500,000 to TMNI. In April 1997 the Company and TME
each purchased 50% of Countdown, an international provider of membership
based discount programs and in December 1997 acquired an interest in NHS,
a provider of telephone helpline and other member benefits in Australia.
These acquisitions provide the Company with core business activities which
are complementary to the Company's existing business and upon which the
Company can build a more diversified benefits program. Subject to
obtaining significant additional capital, further acquisitions are planned
in fiscal 1998 which should add to the Company's cardholder/ membership
base and expand the product range offered.
The Company's anticipates that its short term capital needs will continue
to be met from the proceeds of equity financings. There can be no
assurance that the Company will continue to be successful in completing
any such financings or that the terms of any such financing will be
favorable to the Company. As evidenced by the Company's recent
acquisitions of Countdown and NHS, the Company's strategy to achieve
profitability is to focus more on the member benefit business rather
17
<PAGE>
than the restaurant discount card business. There can be no assurance that
the Company's strategy will be successful or as to when, if at all, the
Company will achieve profitability.
The results of Countdown are reflected in these statements from April 3,
1997 (the date of acquisition) using the equity method of accounting. The
results of NHS are not reflected herein but will be consolidated in fiscal
1998 from December 2, 1997 (the date of acquisition), using the purchase
method of accounting and will as a result affect the comparability of
prior periods.
In February 1997 the Company entered into an Agreement and Plan of
Reorganization to merge the Company and its affiliate Transmedia Europe,
Inc. under the name "Membertek International, Inc." The acquisition of NHS
caused the Company to postpone the merger, however management is committed
to merging the companies in fiscal 1998.
Results of Operations
The Company began generating revenues from operations in November 1994 as
management began recruiting Company Cardholders. Revenues increased
significantly on a monthly basis from November 1994 to May 1995 as the
Company increased its base of Company Cardholders as a result of the
Sydney Morning Herald promotion and also increased the number of Company
Participating Restaurants. 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.
Year Ended September 30, 1997
The Company generated revenues of $1,924,908 (1996: $1,659,515 and 1995:
$1,075,517) for the year ended September 30, 1997, an increase of 16% over
the previous year. The Company increased the number of Company Cardholders
from 18,000 at September 30, 1996 to 36,800 at September 30, 1997. The
increase was largely the result of a promotion launched in September 1996
with Westpac Banking Corp. and a new marketing initiative in December 1996
with an Australian company, FAI Insurance. The arrangement with FAI
Insurance provides for the Company to issue Restaurant Cards free of
charge to FAI Insurance customers. Such customers would not receive an
immediate cash benefit in respect of their 25% discount on food and
beverage purchased at Participating Restaurants. Instead their discount is
accumulated in a trust account which can be used in part payment of their
subsequent years insurance premiums payable to FAI Insurance. The
agreement with FAI Insurance gives the Company the right to cancel
Restaurant Cards issued to FAI Insurance customers in the event that they
do not maintain minimum spend levels using their Restaurant Card. The only
obligation of the Company is to issue Restaurant Cards free of charge to
FAI Insurance customers subject to their achieving the minimum spend
levels referred to above.
Membership fees of $204,454 (1996: $230,961 and 1995: $27,564) for the
year ended September 30, 1997 show a reduction of 11% over the previous
year. The decrease is a result of an accounting adjustment to the deferred
membership fees in the first quarter and the effect of the free membership
card. The "accounting adjustment" in the first quarter reduced revenues by
$15,584. The adjustment was necessary to correct an accounting error in
the calculation of deferred membership fees as of December 31, 1996. It is
the Company's policy to account for membership fee revenue over the period
of membership, usually one year. An error in the calculation of deferred
membership fee income was discovered subsequent to finalization of the
unaudited financial statements for the quarter ended December 31, 1996.
The error was corrected in the quarter ended March 31, 1997. Previous
periods were not adjusted because the amount involved was not considered
material.
18
<PAGE>
Cost of sales amounted to $1,257,769 (1996: $1,098,666 and 1995: $702,723)
for the year ended September 30, 1997, an increase of 15% over the
previous year. The variance to the 16% increase in revenues is primarily
attributable to the 20% discount associated with the free membership card.
Cost of sales are approximately 50% of the gross food and beverage value
consumed by Company Cardholders and represents the recovery of the
advances (`Restaurant Advances') made by the Company to the respective
Company Participating Restaurants.
Selling, general, and administrative expenses, consisting primarily of
salaries, rents, commissions, and other general overhead costs amounted to
$3,723,330 (1996: $2,819,073 and 1995: 2,476,105) for the year ended
September 30, 1997, an increase of 32% over the previous year. The
increase is primarily due to professional fees of $118,642 for work on the
proposed merger with TME, $276,472 write down of the License to fair value
and $112,875 of costs relating to the termination agreement with Mr.
C.E.C. Radbone, a former director of the Company. In addition, the Company
incurred $242,012 of unrealized foreign exchange losses arising out of the
translation of the inter-company balance between the Company and
Transmedia Australia as of September 30, 1997 and a $150,000 write off of
the Hawaii option. But for these additional expenses, the Company would
have reported a small decrease for the year in selling, general and
administrative expenses.
The Company's share of losses relating to Countdown's operations for the
period from April 3, 1997 to September 30, 1997 was $202,905. The 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.
In October 1997 Countdown recruited two managers to establish a Countdown
Direct Marketing division in the UK, to primarily sell membership directly
to the public through a network of commissioned agents. Their initiative
involves the Company in the periodic recruitment and training of agents
with plans to have a network of approximately 200 agents within the first
year of operation. The initial draft of agents completed their training in
February 1998 and it is too early to determine if the initiative will be
successful.
The acquisition of Countdown provides management with the opportunity to
realize cost savings and achieve economies of scale. In June 1997 the
Transmedia UK operations relocated to Countdown's premises and the Company
is seeking to sub-let a floor of the offices it shares with TME at 11 St
James's Square, London vacated by the relocation. Management is currently
reviewing means of sharing resources and out-sourcing functions and
expects to be able to achieve significant savings in fiscal 1998
The Company remains in a net operating loss carry forward position for
income tax purposes and no tax benefit has been recognized for the year
ended September 30, 1997.
Year Ended September 30, 1996
The Company generated revenues of $1,659,515 (1995: $1,075,517) in the
year ended September 30, 1996, an increase of 54% over the previous year.
The increase in revenues can be principally attributed to the September
1995 launch in Melbourne with The Age newspaper. The Company has been well
received by the Melbourne restaurant community, having attracted a number
of award winning restaurants as Company Participating Restaurants. This
success has subsequently been repeated in Brisbane, with approximately 50%
of the Company Participating Restaurants receiving awards in the
Queensland State Premier's 1996 annual tourist awards. The Company
increased its number of Cardholders from 9,000 to 18,000 at September 30,
1995 and September 30, 1996 respectively, largely as a result of the
10,000 Company Cardholders produced by the Westpac
19
<PAGE>
Banking Corp. promotion since August 1996. The Company increased its
number of Participating Restaurants from 330 to 430 at September 30, 1995
and at September 30, 1996 respectively. Membership fees for the year ended
September 30, 1996 of $230,961 are significantly greater than the $27,564
reported for 1995 and are as a result of the Company billing Company
Cardholders for the first time following the typically waived membership
period. In August 1996 the Company introduced the `Free card' option for
membership whereby cardholders can opt for membership at no annual fee but
with a reduced discount benefit of 20%, as compared to the standard
discount of 25%. The Free card was launched at the same time as the
Westpac Banking Corp. promotion.
Cost of sales amounted to $1,098,666 (an increase of 54% over 1995) for
the year ended September 30, 1996 and is in line with the 54% increase in
revenues. Cost of sales are approximately 50% of the gross food and
beverage value consumed by Company Cardholders and represents the recovery
of the restaurant credits made by the Company to the respective Company
Participating Restaurants. The relationship between revenues, net of
discount, and cost of sales will change in future as cardholders opt for
the 20% `Free card' discount.
Selling, general and administrative expenses, consisting primarily of the
costs of operations, for the year ended September 30, 1996 amounted to
$2,819,073 representing an increase of 14% over 1995, which compares
favorably when compared to the 54% increase in revenues. During the year
significant savings have been achieved in printing costs.
The Company earned $21,005 for the fiscal year from the temporary
investment of excess cash funds. The Company remains in a net operating
loss carry forward position for income tax purposes and no tax benefit has
been recognized for the year ended September 30, 1996.
Year Ended September 30, 1995
Revenues, exclusive of membership fees of $27,564 for the year ended
September 30, 1995 amounted to $1,075,517. Revenues represent the retail
value of food and beverage 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 beverage 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
$400,358 for the year amounts to 25% of the full retail value of the food
and beverage consumed by the Company Cardholders, together with a pro rata
portion of membership fees and other income. The Company acquired 9,000
Cardholders during the year ended September 30, 1995. The Company
increased its number of Company Participating Restaurants from 25 to 330
at September 30, 1994 and at September 30, 1995. Selling, general and
administrative expenses amounted to $2,476,105 for the year ended
September 30, 1995 representing the costs of the first full year's
operation and the costs relating to the registration of the Company's
Common Stock under the Securities Act of 1933.
The Company earned $85,459 and $34,148 for the year ended September 30,
1995 and, the period ended September 30, 1994, respectively, from the
temporary investment of excess cash funds. The Company was in a net
operating loss carry forward position for income tax purposes however no
tax benefit was recognized in the 1995 fiscal year.
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as
indicated:
20
<PAGE>
Twelve Months Ended
-------------------
September 30, 1997 September 30, 1996
------------------ ------------------
Cash provided by/(used in)
Operating Activities $ (2,126,864) $ (919,889)
Cash provided by/(used in)
Investment Activities $ (1,205,610) $ (29,861)
Cash provided by financing
Activities $ 2,057,449 $ 1,148,903
During fiscal 1997 there were net cash outflows from operating activities
of $2,126,864. This resulted from the Company's net loss in the period.
During fiscal 1997, the Company relied on the net proceeds of an equity
private placement to meet its working capital requirements and other
operating needs. The proceeds of the equity private placement were needed
to supplement cash generated by revenues from membership fees, usage of
the Restaurant Card and reduced advances to Participating Restaurants.
Net cash used in investing activities of $1,205,610 comprised the cash
element of the Company's investment in Countdown of $1,209,655, net of the
proceeds of sale of fixed assets of $4,045. The Company invested
$2,682,487 in fiscal 1997 to acquire its interest in Countdown. The total
consideration was paid by the issuance of 1,330,524 shares of the
Company's Common Stock, the execution of a $250,000 loan note and a cash
payment of $1,459,655. The cash element of the consideration was funded by
a $1 million loan from a director of the Company and part of the net
proceeds of an equity private placement.
To meet its cash requirements, the Company in December 1996 sold in an
equity private placement 556,250 shares of common stock at a price of $2
per share. The subscribers received warrants to purchase an aggregate of
185,417 shares of Common Stock at an exercise price of $2 per share. In
August 1997 the Company commenced a further equity private placement. The
placement was terminated in December 1997 upon the sale of 1,347,095
shares of Common Stock at $1 per share and generated net proceeds of
$1,347,095. For every three shares sold, the subscriber received, for no
additional consideration, a warrant to purchase one share of the Company's
Common Stock at an exercise price of $1 per share.
The Company requires substantial additional cash to fund its business
plans, including completion of the acquisition of NHS, and other
contemplated acquisitions. In addition, the Company requires cash to pay
existing creditors and to provide working capital. Management estimates
that an amount of $8,250,000 will be required in the short term to
complete the contemplated acquisitions of which $3,500,000 is required to
complete the acquisition of NHS, $4,750,000 to fund other planned
acquisitions. A further amount of $1,000,000 is estimated to be required
as working capital to fund the Company's deficit in the period to April
30, 1998.
The Company's acquisition program includes the following:
1. On December 2, 1997, Transmedia Australia, a company owned equally by
the Company and TME indirectly purchased 51% of the business and assets of
NHS. The total purchase price for the transaction (including a deposit of
Aus $345,000 ($252,000)) was Aus $12,500,000 ($9,125,000), of which Aus
$4,000,000 ($2,940,000) represents sign-on fees payable to 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 Common Stock of the Company and
21
<PAGE>
500,000 shares of Common Stock of its affiliate, TME. The second tranche
Aus. $2,842,540 ($2,073,000) 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 were 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). The Company has given notice that
payment of the second tranche due January 31, 1998 is being extended by
the permitted 90 days and, at the request of the principals, the payment
of the portion of the sign on fees due on January 31, 1998 has been
delayed pending their instructions. Transmedia Australia also acquired an
option to purchase the 49% balance of NHS's business and assets for an
additional Aus $2,497,655 ($1,823,000) (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 no consideration.
2. On October 17, 1997 the Company signed a letter of intent to purchase
50% of the shares of common stock of a privately held corporation engaged
in a complementary field of business. The letter of intent provides for a
purchase price of $3,750,000 in cash plus $500,000 in unrestricted shares
of common stock of the Company, the value of the shares of Common Stock
being that as of the day of closing of the purchase. A cash deposit of
$50,000 was advanced on signing the letter of intent and 200,000 shares of
the Common Stock of the Company, held by Edward J. Guinan III, Chairman of
the Board of Directors, were delivered to the sellers as a further
deposit. If the closing does not occur on or prior to March 31, 1998, the
deposit is subject to forfeiture to the seller.
3. On December 23, 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. The letter of intent provides for a
purchase price of pounds UK 500,000 (approximately $800,000) in cash with
an option to take up to pounds UK 200,000 (approximately $320,000) of the
purchase price in 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. 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. If the closing does not occur on or prior to March 31, 1998, the
deposit is subject to forfeiture to the seller.
4. On January 9, 1998, the Company entered into an agreement in principle
to purchase 85% of the common stock of Network America Inc., of Dallas,
Texas. The consideration payable comprises a cash deposit of $50,000,
redemption by the Company on January 19, 1998 of an outstanding Promissory
Note in an amount of $103,000 held by an unrelated third party, an
undertaking by the Company to pay $250,000 in cash on March 31, 1998 and
an undertaking by the Company to advance $1,000,000 for working capital in
eighteen subsequent equal monthly installments of $55,555 each.
The Company has no available lines of credit at the present time. In the
event that management is not successful or only partially successful in
raising the necessary funds it will have to curtail its acquisition
program, with the possible loss of deposits or payments on account of
approximately $1,375,000.
No assurance can be given that the Company will be successful in obtaining
additional financing. In addition, no assurance can be given that if the
Company is successful in raising such additional financing that
profitability will be achieved in the future. Failure to obtain the
necessary financing within the necessary time frame will have a
significant adverse effect on the Company and its results
22
<PAGE>
of operations. Moreover, any additional financing, including any financing
obtained through the issuance of equity, could result in substantial
dilution to shareholders.
The Company's independent auditors report on the Company's financial
statements included in Item 8 states that "......the Company has
experienced losses during the year ended September 30, 1997, both from
operations and from restructuring and has a working capital deficit that
raises substantial doubt about its ability to continue as a going concern.
The Company has funded operations 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.
Historically the Company's ability to grow and generate cash from
operations has been restricted by the single product offered by the
Transmedia dining program. During fiscal 1997 the Company and its
affiliate TME jointly obtained the permission of TMNI to expand its
business base by jointly paying $250,000 in cash and issuing a joint
promissory note in the amount of $500,000 to TMNI. In April 1997 the
Company and TME each purchased 50% of Countdown, an international provider
of membership based discount programs and in December 1997 jointly
acquired an interest in NHS, a provider of telephone helpline and other
member benefits in Australia. These acquisitions provide the Company with
core business activities which are complementary to the Company's existing
business and upon which the Company intends to build a more diversified
benefits program. Management believes that such a diversified benefits
program will enable the Company to achieve profitability in the medium
term.
Acquisition of Countdown
In connection with the acquisition of the Company's interest in Countdown
in April 1997, the Company borrowed $1,000,000 from a director, with
interest at 12% per annum. In addition, the Company and TME jointly issued
promissory notes to TMNI in the principal amount of $500,000, at 10% per
annum. See Item 1- Business, "Countdown Acquisition".
As Countdown is deemed to be under the control of TME, the results of
Countdown have been included in these statements on an equity accounting
basis. Included in the carrying value for Investment in Affiliates of
$2,850,000 (see Note 3 to the financial statements) is $3,100,000 relating
to goodwill on acquisition caused by the net liability position of
Countdown at the date of acquisition.
On January 16, 1998, Mr. C.E.C. Radbone 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 was
cancelled. Mr. Radbone holds 1,330,524 shares of Common Stock of the
Company and options to purchase 277,193 shares of Common Stock of the
Company at $0.90 per share, and agreed to grant Edward J. Guinan III, the
Chairman of the Board of Directors, an option to purchase these shares and
options at a purchase price of $1 per share. Under the option, Mr. Guinan
pledged $250,000 in value of shares of the Company's Common Stock owned by
him (together with $250,000 in value of Transmedia Europe, Inc. Common
Stock owned by him), which will be transferred to Mr. Radbone if the
option is not exercised and paid by January 15, 1999.
23
<PAGE>
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 has developed a plan to address the possible exposure related
to the impact on its computer systems of the Year 2000. Key operating,
financial and information systems have been assessed and plans have been
developed to address systems modifications required by December 31, 1999.
Management estimates of the likely cost of system modifications is
currently $100,000.
In fiscal 1998 the Company established a Year 2000 group to evaluate the
potential exposure of the Company's computer systems and computer reliant
systems to Year 2000 issues. The working group completed its evaluation
and has developed a plan to ensure that all of the Company's systems will
be fully compliant by December 31, 1999.
The core business system used in the Company's restaurant card business is
not Year 2000 compliant and could fail to operate into the next millennium
without corrective action. The system was scheduled for re-write in any
event, with completion planned for the fourth quarter of 1999. Interim
measures have been fully tested and will be implemented during the first
quarter of 1999 as a precautionary measure. In other areas of the
Company's operations systems are Year 2000 compliant. Breakaway is fully
compliant, as are the telephone systems used by NHS. Non core business
applications such as word processing and management information reporting
systems require some minor modification. Computer hardware has been
substantially upgraded to appropriate processors. The systems of the
Company's affiliate, Countdown, have also been evaluated. Countdown
systems require some modification and upgrading which is scheduled for
completion in the first quarter of 1999.
The Company is in communication with others with whom it does business,
including but not limited to, financial institutions and key customers to
determine their Year 2000 compliance readiness and the extent to which the
Company is vulnerable to any third party Year 2000 issues. In particular
the Company has not yet received confirmations from a number of banking
institutions. There can be no assurance that the systems of third parties,
on which the Company's systems rely, will be timely converted or that a
failure to convert or a conversion that is incompatible with the Company's
systems would not have a material adverse effect on the Company.
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.
24
<PAGE>
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.
25
<PAGE>
Item 7A - Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
Item 8 - Financial Statements Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Auditors F-1 - F-2
Consolidated Balance Sheets
September 30, 1996 and 1997 F-3 - F-4
Consolidated Statement of Operations
for the year ended
September 30, 1997, 1996 and 1995 F-5
Consolidated Statement of Stockholders Equity
for the year ended September 30, 1997. F-6
Consolidated Statement of Cash Flows
for the year ended September 30, 1997 F-7
Notes to the Consolidated Financial Statements. F-8 - F-27
26
<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 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the two years ended September 30, 1997. We have also audited the
financial statements schedule listed in the accompanying index. These
consolidated financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule 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
1996, and the results of their operations and their cash flows for the two years
ended September 30, 1997, in conformity with generally accepted accounting
principles in the United States. Also, in our opinion, the schedule presents
fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and schedule have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the Company has experienced
losses during the year ended September 30, 1997, both from operations and from
restructuring and has a working capital deficit that raises substantial doubt
about its ability to continue as a going concern. The Company has funded
operations 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. Management's
plans in regard to these matters are described in Note 3. The consolidated
financial statements and schedule do not include any adjustment which might
result from this uncertainty.
January 19, 1999
BDO Stoy Hayward
London, England
F-1
<PAGE>
Report of Independent Public Accountants
The Board of Directors and Stockholders
Transmedia Asia Pacific, Inc.
We have audited the accompanying consolidated balance sheet of Transmedia Asia
Pacific, Inc. and subsidiary as of September 30, 1995 and the related
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year ended September 30, 1995, and for the period from March 10,
1994 (inception) through September 30, 1994. 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. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material mis-statement. 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 subsidiary as of September 30, 1995, and the
results of their operations and cash flows for the year ended September 30, 1995
and for the period from March 10, 1994 (inception) through September 30, 1994 in
conformity with generally accepted accounting principles in the United States.
Arthur Andersen
Sydney
Australia
December 20, 1995
F-2
<PAGE>
Transmedia Asia Pacific, Inc.
Consolidated Balance Sheets
September 30, September 30,
ASSETS 1997 1996
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 at September 30, 1996
(note 1 (c)) 301,815 636,808
Trade accounts receivable 56,563 66,211
Amounts due from related parties (note 5) 258,533 48,857
Other current assets 18,784 142,127
---------- ----------
Total current assets 648,799 2,065,308
Long Term assets
Investment in affiliates (note 4) 2,715,442 --
Property and equipment, net of accumulated
depreciation $106,260 at September 30, 1997 and
$77,616 at September 30, 1996 (note 7) 94,250 143,463
Intangible assets, net of accumulated amortization
of $794,631 at September 30, 1997 and $245,440 at
September 30, 1996 (note 6) 1,196,943 1,746,176
Other assets (note 9) 142,946 --
---------- ----------
Total assets $4,798,380 $3,954,947
========== ==========
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 5) 1,345,712 93,300
----------- -----------
Total current liabilities $ 2,048,227 $ 776,350
----------- -----------
Stockholders' equity
Stockholders' equity
Preferred stock, $.01 par value per share
Authorized 5,000,000 shares; none issued -- --
Common stock, $.00001 par value per share
Authorized 95,000,000 shares;
15,249,221 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 September September
30, 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 1,103,081
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)
Share of losses of associated company (202,905) -- --
Interest income 24,197 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 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>
- ----------------------------------------------------------------------------------------------------------------------------
Number of Common Additional Cumulative Accumulated
common shares stock paid-in capital currency translation deficit
adjustment
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 11,815,790 $ 118 $ 4,363,109 $ (500) $ (349,650)
Issuance of common stock 673,800 7 2,021,393 -- --
Issue costs -- -- (128,744) -- --
Net loss -- -- -- -- (1,990,288)
Effect of foreign currency
translation -- -- -- 1,449 --
Treasury stock (20,000) -- (20,000) -- --
Compensation expense -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1995 12,469,590 $ 125 $ 6,235,758 $ 949 $ (2,339,938)
Issuance of common stock 892,857 9 1,249,991 -- --
Issue costs -- -- (15,000) -- --
Net loss -- -- -- -- (2,006,258)
Effect of foreign currency
translation -- -- -- 52,961 --
Compensation expense -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 13,362,447 $ 134 $ 7,470,749 $ 53,910 $ (4,346,196)
Issuance of common stock 556,250 6 1,112,494 -- --
Issue costs -- -- (15,000) -- --
Issuance of common stock relating to
Acquisition of Countdown 1,330,524 13 1,222,819 --
Net Loss (3,030,445)
Effect of foreign currency
translation -- -- -- 109,809 --
Option re Countdown -- -- 171,860 -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 15,249,221 $ 153 $ 9,962,922 $ 163,719 $ (7,376,641)
============ ============ ============ ============ ============
</TABLE>
- -------------------------------------------------------------------
Unearned Total
compensation
Balance, September 30, 1994 $ -- $ 4,013,077
Issuance of common stock (300,000) 1,721,400
Issue costs -- (128,744)
Net loss -- (1,990,288)
Effect of foreign currency
translation -- 1,449
Treasury stock -- (20,000)
Compensation expense 87,750 87,750
------------ ------------
Balance, September 30, 1995 $ (212,250) $ 3,684,644
Issuance of common stock -- 1,250,000
Issue costs -- (15,000)
Net loss -- (2,006,258)
Effect of foreign currency
translation -- 52,961
Compensation expense 212,250 212,250
------------ ------------
Balance, September 30, 1996 $ -- $ 3,178,597
Issuance of common stock -- 1,112,500
Issue costs -- (15,000)
Issuance of common stock relating to
Acquisition of Countdown
Net Loss (3,030,445)
Effect of foreign currency
translation -- 109,809
Option re Countdown -- 171,860
------------ ------------
Balance, September 30, 1997 $ -- $ 2,750,153
============ ============
-------------------------------
F-6
<PAGE>
Transmedia Asia Pacific, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, 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 license 122,720 122,720 122,720
- - Write down of license to fair value 276,472 -- --
- - Provision for irrevocable restaurant credits (5,152) 79,344 40,418
- - Amortization of deferred compensation -- 212,250 87,750
- - Write off of Hawaii option 150,000 -- --
- - Share of loss of Affiliates 202,905 -- --
Changes in assets and liabilities:
- - Trade accounts payable 13,800 131,837 116,918
- - Accrued liabilities 80,556 (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
- - Due from/(to) related parties (271,264) 663,930 (424,437)
----------- ----------- -----------
Net cash used in operating activities (2,126,864) (919,889) (2,469,832)
Cash flows from investing activities:
- - Purchase of property and equipment -- (29,861) (49,599)
- - Extension of Hawaii option -- -- (150,000)
- - Investment in Countdown (1,209,655) -- --
- - Proceeds on disposal of fixed assets 4,045 -- --
----------- ----------- -----------
Net cash used in investing activities (1,205,610) (29,861) (199,599)
Cash flows from financing activities:
- - Net proceeds received from issuance
of common stock 1,097,500 1,235,000 1,592,656
- - Loans from related parties re Countdown
Acquisition 1,000,000 -- --
- - Bank credit line (40,051) (86,097) 126,148
- - Purchase of treasury stock -- -- (20,000)
----------- ----------- -----------
Net cash provided by financing activities 2,057,449 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>
Supplemental disclosures of cash flow information
No amounts of cash were paid for interest or income taxes for each of the
periods presented
Supplemental Schedule of Non-Cash Investing
And Financing Activities
In April 1997 the Company issued 1,330,524 shares of its common stock as part
payment of its investment in Countdown Holdings Limited ("Countdown"). The
Company paid a total of $2,682,487 for its investment in Countdown made up as
follows:
Cash payment $1,209,655
Issuance of 1,330,524 shares
of common stock 1,222,832
Loan Note in favor of
TMNI 250,000
----------
Total $2,682,487
==========
F-8
<PAGE>
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 wholly owned
subsidiaries Transmedia Australia Pty Limited and Transmedia Australasia
Pty Limited 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 subsidiaries. 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 License is to operate a
specialized restaurant charge card business in Australia and New Zealand
with limited rights to sublicense 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 5).
The Company, through its associated 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:
Name Country of Incorporation
Transmedia Australia Pty Limited Australia
Transmedia Australasia Pty Ltd New Zealand
In addition, the Company has a 50% ownership in Countdown Holdings Ltd.,
("Countdown"), which is incorporated in the United Kingdom.
In August 1994 the Company registered an initial public offering of its
common stock with the Securities and Exchange Commission and the Company's
Common Stock traded on the NASDAQ small capital market.
The Company was initially capitalized 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
F-9
<PAGE>
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.
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 sold
an aggregate of 1,347,095 shares of Common Stock at a purchase price of $1
per share, of which $576,335 was received in October 1997, $895,760 was
received in November 1997 and $25,000 in December 1997. The shares were
issued in February 1998. For every three shares purchased, each purchaser
received, for no additional consideration, a warrant to purchase one share
of Common Stock at $1 per share. As of the date of this filing, the shares
have been issued but the registration statement has yet to be filed. "See
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters".
(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.
(c) Restaurant credits
Restaurant credits represent the total advances made to participating
restaurants in exchange
F-10
<PAGE>
for credits less the amount by which these credits are recouped by the
Company as a result of Company cardholders utilizing 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 utilized by cardholders.
The amount of funds advanced to participating restaurants are generally
unsecured and are recoverable as cardholders utilize 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 amortized 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 is not less than the fair value as determined using discounted
cash flows.
(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:
Furniture and fixtures 5 years
Office equipment 4-5 years
Computer equipment 3-4 years
(f) Income taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Accordingly, deferred tax liabilities
and assets are determined based on the difference between financial
statement and tax basis of assets and liabilities using enacted rates in
effect
F-11
<PAGE>
for the year in which the differences are expected to reverse. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
A valuation allowance is established to reduce the deferred tax assets
when management determines it is more likely than not that the related tax
benefits will not be realized.
(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 recognized as revenue in equal monthly installments 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
In fiscal 1995 and 1996 the Company operated a Restaurant Cardholder
promotion to increase usage of the Restaurant Card and to recruit new
cardholders. The promotion involved the granting of bonus food and
beverage credits. The bonus food and beverage credits were utilized as the
Cardholder used the Restaurant Card and were processed as an additional
saving to the standard 20% or 25% discount obtained by using the
Restaurant Card. The bonus was accrued by the Company when the bonus was
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.
(k) Foreign currencies
The reporting currency of the Company is the United States dollar. The
Company's functional currencies are the Australian dollar and the UK pound
sterling. The Australian dollar is the functional currency of the
Company's restaurant card business because it is the primary currency of
the environment in which the business operates as an autonomous unit. All
cash generated and expended by the restaurant card business is in
Australian dollars. For the same reasons the functional currency of the
Company's interest in Countdown is the UK pound sterling because that
business is located, and primarily operates in, the United Kingdom.
For consolidation purposes, the assets and liabilities of overseas
subsidiary undertakings are
F-12
<PAGE>
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) Cash equivalents
For purposes of the statements of cash flows, the Company considers all
investments with an original maturity of three months or less to be a cash
equivalent.
(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 capitalized.
(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 5). 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 TME (See Note 16).
(p) Recent U.S. accounting pronouncements not yet implemented
F-13
<PAGE>
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.
2. Auditors
Effective September 26, 1997, the Company's former auditors, KPMG,
resigned as the Company's auditors and the Board of Directors, with the
approval of the Audit Committee, retained BDO Stoy Hayward as its
independent public accountants. The Company confirmed in its Form 8-K
filing, as amended by Amendment No.2 filed October 27, 1997, and KPMG
confirmed in its letter to the office of the Chief Accountant dated
October 16, 1997, which letter was included in said filing, that during
the period KPMG was retained, there were no disagreements with the former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure with respect to the
financial statements for the fiscal year ended September 30, 1996 or up
through the time of replacement which, if not resolved to the former
auditors satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their report. During
such fiscal years, no accountant's report prepared by KPMG contained an
adverse opinion or disclaimer of opinion or was qualified or modified as
to uncertainty, audit scope or accounting principles.
Without the authorization of KPMG, the Company included an unsigned report
of KPMG (dated December 20, 1996) in the Company's Annual Report on Form
10-K for the year ended September 30, 1997, filed with the Securities and
Exchange Commission on January 23, 1998 (the "1997 10-K"). Prior to that
time, the last filing with the SEC which contained a report by KPMG which
was included with their consent was the annual report on Form 10-K for the
year ended September 30, 1996. By letter dated February 13, 1998, KPMG
informed the Company that it would not agree to file a consent to the
inclusion of its prior audit reports in the Form 10-K filing of the
Company for the year ended September 30, 1997. Consequently, since a
manually signed consent has not been received by the Company, the audit
report of KPMG has not been included in this filing but the financial
statements covered by the prior audit report have been included. The
Company believes that there is no basis for the action of KPMG in light of
the foregoing and is considering what appropriate action must be taken to
resolve this situation.
F-14
<PAGE>
The position of KPMG as stated in the letter of February 13, 1998, was as
follows:
"Based on an evaluation of circumstances and recent events we have
decided that we are not willing to accept an assignment to consider
whether we would re-sign our audit report as of September 30, 1996
and for the year then ended for inclusion in the Form 10-K filing of
Transmedia Asia Pacific, Inc. for the year ended September 30,
1997".
The financial statements for the fiscal year ended September 30, 1996 have
been re-audited by BDO Stoy Hayward.
It should be noted that the Form 10-K for 1997 was inadvertently filed on
January 23, 1998 prior to receipt of all necessary auditor consents. This
Form 10K/A amends said filing in its entirety. All necessary consents have
now been obtained by the Company.
3. Going Concern
The consolidated financial statements record a loss for the year ended
September 30, 1997 of $3,030,445, which, when taken with the previous
years' results, record an accumulated deficit of $7,376,641 as at
September 30, 1997. The Company has also recorded losses since the balance
sheet date.
The Company has been able to fund this deficit, the cost of its
acquisition and restructuring of Countdown Holdings Limited, and its
acquisition of the business of Nationwide Helpline Services Pty Limited
(Note 16), principally by the sale of equity securities, a loan from a
director and stockholder of the Company during the year and the issuance
of loan notes after the year end.
Management has taken steps to reduce the amount of cash used by
operations, including reducing staffing levels, however, the Company's
operations may not provide sufficient internally generated cash flows to
meet its projected requirements in the short-term. Accordingly, the
Company is likely to require further capital infusions in order to meet
its loan repayment commitments and the ongoing funding requirements of its
operations. Based upon the Company's history of obtaining necessary
financing, management remains confident that sufficient funds will be
available to the Company to operate in the foreseeable future and meet its
loan repayment obligations. However there can be no assurance given that
the Company will be able to obtain such funding. In addition there can be
no assurance as to the acceptability of the terms of any future financing.
4. Investment in affiliated company
The Investment in Countdown 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.
At September 30, 1996 $ --
Cost of investment 2,682,487
Add: Cost of option 171,860
-----------
2,854,347
Share of losses (202,905)
Amounts due from affiliates 64,000
-----------
At September 30, 1997 $ 2,715,442
===========
F-15
<PAGE>
5. 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.
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, 1995, 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 totaling $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 totaling $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
F-16
<PAGE>
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 totaling $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.
The amounts due from related parties consist of the following:
September 30, September 30,
1997 1996
Conestoga $ 26,260 $ 26,260
Transmedia Europe, Inc. 190,124 --
P. Harrison 42,149 22,597
-------- --------
$258,533 $ 48,857
-------- --------
The amounts due to related parties consist of the following:
September 30, September 30,
1997 1996
J.V. Vittoria $1,061,479 $ --
TMNI 284,233 --
Transmedia Europe, Inc. -- 93,300
---------- ----------
$1,345,712 $ 93,300
---------- ----------
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 note is payable on April
2, 1998, bears interest at the rate of 10% per annum, and is convertible
at the holder's option into Common Stock of each 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:
F-17
<PAGE>
<TABLE>
<CAPTION>
E. Guinan III Conestoga Transmedia P Harrison
Partners Europe, Inc.
<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 -- -- 121,936 --
Foreign currency movement -- -- -- --
----------- ----------- ----------- -----------
Balance at September 30, 1997 $ -- $ 26,260 $ 190,124 $ 42,149
=========== =========== =========== ===========
</TABLE>
J.V. Vittoria TMNI
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)
=========== ===========
6. Intangible Assets
Intangible assets consist of:
<TABLE>
<CAPTION>
Formation Transmedia Hawaii Total
Expenses License Option
<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. This write down
F-18
<PAGE>
represents the difference between the carrying amount and the fair value
of the License, as determined using discounted cash flows attributable to
the 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.
7. Property and Equipment
Property and equipment consist of the following:
Furniture Office Computer
and fittings equipment equipment Total
Cost
At September 30, 1995 $ 77,325 $ 46,756 $ 57,750 $ 181,831
Additions 5,115 1,480 23,266 29,861
Foreign currency 4,124 2,494 2,769 9,387
--------- --------- --------- ---------
At September 30, 1996 86,564 50,730 83,785 221,079
Additions -- -- -- --
Disposals (1,820) (5,674) (2,603) (10,097)
Foreign currency (4,505) (2,353) (3,614) (10,472)
--------- --------- --------- ---------
At September 30, 1997 80,239 42,703 77,568 200,510
--------- --------- --------- ---------
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) (706) (1,536) (3,499)
--------- --------- --------- ---------
At September 30, 1997 34,917 18,602 52,741 106,260
--------- --------- --------- ---------
Net book value
At September 30, 1997 $ 45,322 $ 24,101 $ 24,827 $ 94,250
========= ========= ========= =========
At September 30, 1996 $ 59,830 $ 35,893 $ 47,740 $ 143,463
========= ========= ========= =========
F-19
<PAGE>
8. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, September 30,
1997 1996
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
-------- --------
9. Other Assets
Other assets consist of the following:
September 30 September 30
1997 1996
Interest in option to acquire:
National Helpline Services Pty Limited $142,946 $ --
======== =======
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).
10. 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.
F-20
<PAGE>
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 following weighted average assumptions:
no dividends paid for all years; expected volatility of 40%; a risk free
interest rate of 6.7%; and an expected life being the remaining term of
the option.
Stock option and warrant activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Options Weighted
Number Average Warrants
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 recognized
for its stock options and
F-21
<PAGE>
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:
1997 1996
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)
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.
11. 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.
F-22
<PAGE>
In connection with the acquisition, the Company and TME each agreed to pay
$125,000 in cash to TMNI International Incorporated ("TMNI") and the
Company and TME issued 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 note is 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.
12. Leases
The Company leases certain office space under lease agreements.
Future minimum lease payments under non-cancelable operating leases as of
September 30, 1997, are as follows:
Year ending September 30, 1998 $ 48,100
========
Year ending September 30, 1999 $180,299
Year ending September 30, 2000 210,122
Year ending September 30, 2001 276,017
Year ending September 30, 2002 276,017
Thereafter 276,017
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-23
<PAGE>
13. Income taxes
Income taxes reflected in the accompanying consolidated 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 1995
<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>
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 1,999,000 $ 1,306,000 $ 648,000
Pre operating costs capitalized 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.
14. 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 is
also required to 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, pursuant to this
agreement amounted to $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 the prior permission of Network, may
acquire beneficial ownership of 30%
F-24
<PAGE>
or more of the Company; (2) Edward J Guinan III is required to maintain
beneficial ownership 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 is
required to commence operations (a) in Australia and/or New Zealand within
4 months after May 26, 1994 under the Transmedia License (the `Closing
Date'); (b) in another country within 3 years after the Closing Date; (c)
in a second other country within the earlier of 2 years after the first
country or five years from the Closing Date; and (d) the Company has
received an extension of time for establishing new operations whereby the
Company is required to establish another operation in a country other than
Australia and New Zealand by September 1998 and a further additional
country by September 2000; (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, jointly with its affiliate TME, is committed to making
further payments in relation to the acquisition of NHS. These consist of
payments due on January 31, 1998 to certain principals as sign-on fees
amounting to Aus.$2,000,000 ( $1,460,000) and the second tranche for 51%
of the shares of common stock of NHS for Aus.$2,842,540 ($2,075,000).
Payment of the second tranche and Aus. $1,250,000 ($912,500) of the
sign-on fee due to the principals, may be extended by up to 90 days
provided that interest will accrue during any such extension at 5% per
annum. The Company has given notice that payment of the second tranche and
Aus. $1,250,000 ($912,500) of the sign-on fee due to the principals, due
January 31, 1998 is being extended by the permitted 90 days and, at the
request of the principals, the payment of the proportion of the sign on
fees due on January 31, 1998 has been delayed pending their instructions.
The balance of the payments due to certain principals as sign-on fees
amounting to Aus.$2,000,000 ($1,460,000) 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
the shares of common stock of NHS for Aus.$2,497,655 ($1,823,000) 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.
15. 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
F-25
<PAGE>
under the Countdown discount purchase program accounted for greater than
10% of the Countdown volume of business.
16. Subsequent Events
On November 17, 1998 the Company acquired the remaining 49% of NHS (Refer Note 7
"Acquisitions" for further details).
On May 22, 1998, the Company acquired 100% of the issued share capital of
Breakaway Travel Club Pty Limited ("Breakaway"). The total consideration paid
was Aus$375,000 (approximately $230,000) plus acquisition costs of $16,000. Such
consideration was paid equally by the Company and TME in cash.
On May 14, 1998 the Company and TME purchased 100% of the outstanding common
stock of Porkpine Limited ("Porkpine"). The consideration paid totaled 1,060,000
pounds sterling ($1,749,000 approximately) subject to an adjustment to equal net
assets as at May 14, 1998.
F-26
<PAGE>
Item 9 - Changes and Disagreements with Accountants on Accounting and Financial
Disclosures
Effective September 26, 1997, the Company's former auditors, KPMG,
resigned as the Company's auditors and the Board of Directors, with the
approval of the Audit Committee, retained BDO Stoy Hayward as its
independent public accountants. The Company confirmed in its Form 8-K
filing, as amended by Amendment No.2 filed October 27, 1997, and KPMG
confirmed in its letter to the office of the Chief Accountant dated
October 16, 1997, which letter was included in said filing, that during
the period KPMG was retained, there were no disagreements with the former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure with respect to the
financial statements for the fiscal year ended September 30, 1996 or up
through the time of replacement which, if not resolved to the former
auditors satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their report. During
such fiscal years, no accountant's report prepared by KPMG contained an
adverse opinion or disclaimer of opinion or was qualified or modified as
to uncertainty, audit scope or accounting principles.
Without the authorization of KPMG, the Company included an unsigned report
of KPMG (dated December 20, 1996) in the Company's Annual Report on Form
10-K for the year ended September 30, 1997, filed with the Securities and
Exchange Commission on January 23, 1998 (the "1997 10-K"). Prior to that
time, the last filing with the SEC which contained a report by KPMG which
was included with their consent was the annual report on Form 10-K for the
fiscal year ended September 30, 1996. By letter dated February 13, 1998,
KPMG informed the Company that it would not agree to file a consent to the
inclusion of its prior audit reports in the Form 10-K filing of the
Company for the year ended September 30, 1997.
The position of KPMG as stated in the letter of February 13, 1998, was as
follows:
"Based on an evaluation of circumstances and recent events we have
decided that we are not willing to accept an assignment to consider
whether we would re-sign our audit report as of September 30, 1996
and for the year then ended for inclusion in the Form 10-K filing of
Transmedia Asia Pacific, Inc. for the year ended September 30,
1997".
The financial statements for the fiscal year ended September 30, 1996 have
been re-audited by BDO Stoy Hayward and their report is included in this
Annual Report.
It should be noted that the Form 10-K for 1997 was inadvertently filed on
January 23, 1998 prior to receipt of all necessary auditor consents. This
Form 10K/A amends said filing in its entirety. All necessary consents have
now been obtained by the Company.
Item 10 - Directors and Executive Officers of the Registrant
(a) Table of Directors and Executive Officers.
The table below sets forth the names and ages for all of the directors and
executive officers of the Company as of March 13, 1998. The term of each
director expires at the next annual meeting of stockholders and upon his
successor being duly elected and qualified.
27
<PAGE>
Name Age Position
- --------------------------------------------------------------------------------
Edward J. Guinan III 51 Chairman and Chief Executive Officer
Paul L. Harrison 37 President and Secretary, Director
Carl Freyer 58 Director
Ellis Varejes 46 Director
Joseph V. Vittoria 63 Director
David S. Vaillancourt 51 Chief Financial Officer
(b) Family Relationships
There are no family relationships among any of the directors or executive
officers of the Company.
(c) Experience of Directors and Executive Officers for the Past Five Years.
Edward J. Guinan III has been the Chairman of the Company, Chief Executive
Officer and a director of the Company since its inception. Mr. Guinan has been
the Chairman, Chief Executive Officer and director of Transmedia Australia since
its inception. Mr. Guinan began his career on Wall Street when he purchased a
seat on the New York Mercantile Exchange. He traded on the floor for his own
account until 1979, when he became a broker for the firm of Moseley Hallgarten
Estabrook and Weeden, where he eventually became manager of their New York
office. From 1982 through 1984, he was employed by Cowen and Company in New
York. In 1984, Mr. Guinan established his own broker-dealer firm, Guinan and
Company. From 1990 through 1991, Mr. Guinan was a broker at the head of the
corporate finance department at Ernst and Company, a member of the New York
Stock Exchange. During 1992, Mr. Guinan was head of the corporate finance
department at First Hanover Securities, Inc., a New York broker-dealer. Since
February 1993, Mr. Guinan has served as President, Chief Executive Officer and
director of the Company, as well as its affiliate company, Transmedia Europe
Inc. ("Transmedia Europe"). Since May 1995, Mr. Guinan has served as President,
Chief Executive Officer, Chief Financial Officer and the sole director of
International Advance, Inc. ("Advance"). Since November, 1995, Mr. Guinan has
been a director of Transmedia La Carte Restaurant SA ("Transmedia France"), of
which Transmedia Europe has a 50.1% equity interest. Mr. Guinan presently
devotes substantially all of such time as is necessary to the affairs of the
Company.
Paul L. Harrison is presently President, Secretary and a director of the
Company, and was a director and President of Transmedia Australia from May 1994
until June 1997. Mr. Harrison is also Secretary and a director of Transmedia
Europe. In 1993, Mr. Harrison acted as a consultant to Transmedia Europe in
connection with the commencement of business operations and initial financing
thereof. From 1989 until 1994, Mr. Harrison was Vice-President - European
Equities of Salomon Brothers, London, with responsibility for coordinating and
marketing the sales of various derivatives and other equity securities to
European based institutional clients. Mr. Harrison held that position from 1989
onwards. From 1988 through 1989, Mr. Harrison was Main Board Director of
County/NatWest, Wood Mackenzie, the investment banking arm of NatWest Bank NA in
the United Kingdom, with responsibility for developing business strategy and
managing a team of securities brokers. For two years prior thereto, Mr. Harrison
was an Assistant Director of Hill Samuel Merchant Bank and Executive
Vice-President of Wood Mackenzie Inc., with responsibilities to manage and
develop the United States brokerage operations of this United Kingdom firm.
Joseph V. Vittoria has been a director of the Company since inception. From
September 1987 to
28
<PAGE>
January 1997, Mr. Vittoria was the Chairman and Chief Executive Officer of Avis
Inc., and was a senior executive at Avis since 1982. Mr. Vittoria is a director
of UAL Corporation. He holds a BS in civil engineering from Yale University and
an MBA from Columbia University. Mr. Vittoria also holds an honorary Doctor of
Laws degree from Molloy College. Mr. Vittoria is also a director of Transmedia
Europe.
Carl H. Freyer has been a director of the Company since 1996. Mr. Freyer is the
President of Freyer Corporation, a financial consulting firm. He has been a
director of G-Tech Corporation, Computer Investors Group Inc. and two banks. Mr.
Freyer holds a BS in electrical engineering from Tufts University and an MBA
from Harvard University.
Ellis Varejes has been a director of the Company since 1997. He is the corporate
services partner of Abbott Tout, Solicitors, in Sydney, Australia. Mr. Varejes
practices principally in the area of corporate and business transactions, both
nationally and internationally. He has significant experience in mergers and
acquisitions and corporate finance, as well as in banking and taxation law. He
is a graduate in Commerce and in Laws from the University of Witwatersrand,
South Africa.
David S. Vaillancourt has been Chief Financial Officer of the Company since
1997. Mr. Vaillancourt is also Chief Financial Officer of Transmedia Europe.
Prior to joining the Company, Mr. Vaillancourt spent three years as Senior Vice
President and Chief Administrative Officer of an international human resource
company, based in Toronto - with overall responsibility for domestic and
international finance and administration. Prior to this, Mr. Vaillancourt spent
seven years in corporate finance and venture capital consulting, when he
operated his own company working in North and Central America, Western Europe,
the Middle East and Australasia/Pacific. He has also served as Vice President
Finance for a subsidiary of Olympia and York Inc., as well as Chief Financial
Officer International, for Carlson Companies, Inc., in Minneapolis and Chicago.
He is a member of the Chartered Institute of Management Accountants, London.
(d) Involvement in Certain Legal Proceedings
None.
(e) Compliance with Section 16 (a) of the Securities Exchange Act of 1934.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company by each person who, at any time during the fiscal year
ended September 30, 1997, was a director, executive officer or beneficial owner
of more than 10% of the Company's Common Stock with respect to the fiscal year
ended September 30, 1997 and Forms 5 and amendments thereto furnished to the
Company by such persons with respect to such fiscal year, and any written
representations from such persons that no other reports were required for such
persons, the Company believes, except as described below, that during and with
respect to the fiscal year ended September 30, 1997, all filing requirements
under Section 16(a) of the 1934 Act, applicable to its directors, executive
officers and the beneficial owners of more than 10% of the Company's Common
Stock were complied with.
In January 1998, Mr. Vittoria filed Forms 4 reflecting transactions during
the months of October and November 1997. Also in January 1998, Mr. Vittoria
filed a Form 5 with respect to the fiscal year ended September 30, 1997 which
form was due on November 14, 1997. To the best of the Company's knowledge Mr.
Vittoria is now current in his filings.
29
<PAGE>
Mr. Guinan is not current with respect to his filing obligations under
Section 16(a) of the 1934 Act. Mr. Guinan last filed a Form 4 in July, 1996 and
is in the process of bringing his filings up to date.
Item 11 - Executive Compensation
Summary Compensation Table
The following Summary Compensation Table sets forth the total compensation
(including salary, bonus and all other forms of annual and long-term
compensation) paid to or accrued by the Company during the fiscal years
1997, 1996 and 1995 for the Chief Executive Officer and the current
executive officers of the Company who earned over $100,000 during the
Company's last fiscal year (the "Named Executives").
Mr. Guinan is the Chairman and Chief Executive Officer and Mr. Harrison is
the President and Secretary of the Company. During fiscal year 1997, no
officer of the Company, other than Mr. Guinan and Mr. Harrison, earned
more than $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ ------
All other
Name and Principal Position Year Salary Options/SAR's compensation
--------------------------- ---- ------ ------------- ------------
<S> <C> <C> <C> <C>
Edward J. Guinan III 1997 $162,000(1) 0 38,472
Chairman and Chief 1996 158,000(2) 0 22,925(3)
Executive Officer 1995 160,000(4) 0 0
Paul L. Harrison 1997 $137,700(1) 0 0
President 1996 126,400(2) 0 0
1995 128,000(4) 0 0
</TABLE>
(1) Based upon an exchange rate of(pound)1 to $1.621.
(2) Based upon an exchange rate of(pound)1 to $1.536.
(3) Represents reimbursement of travel and entertainment expenses.
(4) Based upon an exchange rate of (pound)1 to $1.60.
Option/SAR Grants During Fiscal 1997
No option grants were made by the Company during the fiscal year
ended September 30, 1997 to any of the Named Executives.
Year End Option Values Table
The following table sets forth information at September 30, 1997,
concerning exercisable and non exercisable options held by the Named
Executives. During fiscal 1997, none of the Named Executives exercised any
options. The table also includes the value of "in-the-money" options which
represents the spread between the exercise price of the existing stock
options and the price of the
30
<PAGE>
Common Stock on September 30, 1997 which was $1 3/8.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Fiscal Options at fiscal
Acquired Value Year-End(#) Year-End($)
on Exercise Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable(U)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward J. Guinan 0 0 0/0 0/0
Paul L. Harrison 0 0 800,000/0 0/0
</TABLE>
Employment Agreements
Mr. Guinan and Mr. Harrison have each entered into employment
agreements ("Employment Agreements") with the Company, effective May 26,
1994 ("Effective Date"). The Employment Agreements provide for an initial
term of three years, with one year renewals thereafter unless terminated
by either party and for restrictions on confidentiality and
non-competition during the term and for a period of two years thereafter.
Mr Guinan's contract provides for a salary of $100,000 per annum and
participation in executive benefit programs and Mr. Harrison's provides
for a salary of (pound)80,000. Mr. Harrison's original contract also
provided for the issuance of non-transferable options to purchase 800,000
shares of Common Stock at $1 per share vesting 50% on May 9, 1995 and the
balance on May 9, 1996, and participation in executive benefit programs.
Mr. Guinan and Mr. Harrison may be discharged for cause including failure
or refusal to perform their respective duties, dishonesty, conviction of a
felony or fraud, failure adequately to perform their services, engagement
in acts detrimental to the Company, material breach of their respective
Employment Agreements, disability or death. Mr. Guinan is also employed by
Transmedia Europe and Advance. Mr. Guinan is required to devote sufficient
time to the business of the Company in his discretion. On March 2, 1998,
Mr. Guinan entered into a new three year employment agreement
substantially similar to the prior employment agreement except for (i)
reducing his salary to (pound)50,000 per annum (50% of his previous
salary) and (ii) providing for the granting of 2,500,000 options, subject
to stockholder approval.
Stock Option Plans
Effective May 2, 1994, the Company adopted the 1994 Stock Option Plan
("the 1994 Plan"). The purpose of the 1994 Plan is to attract and retain
personnel of the highest caliber and provide increased incentives for
officers, and employees to promote the well-being of the Company.
The 1994 Plan authorizes the granting of incentive stock options or
non-qualified stock options of Common Stock, subject to adjustment in the
event of stock splits, stock dividends, recapitalizations, mergers,
reorganizations, exchanges of shares and other similar changes affecting
the issued Common Stock. Unless sooner terminated, the 1994 Plan expires
on April 1 2004. Officers, employees and other independent contractors who
perform services for the Company or any of its subsidiaries are eligible
to receive options. The 1994 Plan is administered by the Board of
Directors (or a committee appointed by it), which determines the persons
to whom awards will be granted, the number of awards to be granted and the
specific terms of each grant, subject to the provisions of the
31
<PAGE>
1994 Plan. Under the 1994 Plan, no option may be granted having an
exercise price which is less than the fair market value of the Common
Stock on the date of grant.
Effective May 25, 1994 in connection with the Employment Agreement of Paul
Harrison, the Company granted non-transferable options to purchase 800,000
shares of Common Stock at $1 per share, all of which are vested.
In January 1996, the Company's Board of Directors approved, and on April
25, 1996 the Company's stockholders approved, the 1995 Outside Directors
Stock Option Plan (the "Outside Directors Plan"). The purpose of the
Outside Directors Plan is to attract and retain the services of
experienced and knowledgeable independent directors. The Outside Directors
Plan provides for automatic granting to each non-employee director of the
Company on each January 1, commencing January 1, 1996, of stock option for
10,000 shares of Common Stock, and that Mr. Vittoria and another
non-employee director who subsequently resigned each would receive
thereunder options covering 20,000 shares with respect to prior services
on the Board. The maximum number of shares of Common Stock which may be
issued under the Outside Directors Plan is 300,000, which amount is
subject to adjustment in the event of stock splits, stock dividends,
recapitalizations, mergers, reorganizations, exchanges of shares and other
similar changes affecting the Company's issued Common Stock. Each option
issued under the Outside Directors Plan will be exercisable by the
optionee for a period of five years from the date of the grant. Unless
sooner terminated, the Outside Directors Plan expires on January 11, 2006.
The Outside Directors Plan is administered by the Company's employee
directors. Options granted under the Outside Directors Plan will have an
exercise price equal to the fair market value of the Common Stock on the
last date preceding the date of grant. As of January 30, 1998, 40,000
options have been granted under the Outside Directors Plan.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as to the number of shares of
Common Stock beneficially owned as of January 30, 1998 by (i) each
beneficial owner of more than five percent of the outstanding Common
Stock, (ii) each current Named Executive and director and (iii) all
current executive officers and directors of the Company as a group. All
shares are owned both of record and beneficially unless otherwise
indicated. Unless otherwise indicated, the address of each beneficial
owner is c/o Transmedia Asia Pacific, Inc. 11 St. James's Square, London
SW1Y 4LB, England.
Number and Percentage of Shares of Common Stock Owned
-----------------------------------------------------
Name and Address Shares Owned Percentage Owned
- ---------------- ------------ ----------------
FAI Overseas Investment Pty
77 Pacific Highway
Sydney, Australia 2059 3,058,799(2)(8) 16.6%
Edward J. Guinan III 5,695,550(3)(4) 31.0%
Paul L. Harrison 987,500(5) 5.4%
Joseph V. Vittoria 1,496,969(6)(7)(9) 8.1%
All directors and officers as a group
32
<PAGE>
(four persons as a group) 8,180,019(2) to (9) 46.1%
--------------------------------------------------------------------------
(1) Based on 16,596,095 shares of Common Stock outstanding on February
27, 1998.
(2) Includes 297,619 shares of Common Stock issuable upon exercise of
warrants.
(3) Includes the 450,000 shares of Common Stock owned by Conestoga
Partners II Inc. ("Conestoga") which Mr. Guinan may be deemed to
beneficially own. Mr. Guinan is a director and the President and
Chief Executive Officer of Conestoga and owns 75% of the outstanding
capital stock thereof.
(4) Includes 800,000 shares of Common Stock placed in trusts set up for
Mr. Guinan's children and certain other shares for which Mr. Guinan
disclaims beneficial ownership and 158,050 shares of Common Stock
owed by International Advance, Inc. ("Advance") which Mr. Guinan may
be deemed to beneficially own. Mr. Guinan is a director, President,
Chief Executive Officer and the controlling stockholder of Advance.
Does not include 93,750 shares of Common Stock owned by Edward J.
Guinan Jr., Mr. Guinan's father, of which Mr. Guinan disclaims
beneficial ownership.
(5) Includes 800,000 shares of Common Stock issuable on exercise of
options. Does not include 226,858 shares of Common Stock owned by
Conestoga, of which Mr. Harrison is a director and minority
shareholder, of which he disclaims beneficial ownership.
(6) Includes 40,000 shares of Common Stock issuable upon exercise of
options.
(7) Includes 138,596 shares of Common Stock issuable upon exercise of
warrants issued in connection with the acquisition of the Company's
interest in Countdown.
(8) Includes 335,723 shares of Common Stock issuable upon exercise of
share warrants issued in connection with the August 1997 private
placement.
(9) Includes 167,893, shares of Common Stock issuable upon exercise of
share warrants issued in connection with the August 1997 private
placement.
Item 13 - Certain Relationships and Related Transactions
In April 1997, the Company entered into an agreement with Mr. Joseph
Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria
advanced the sum of $1,000,000 as a loan to the Company for the cash
portion of the purchase of Countdown Holdings Limited ("Countdown"). The
loan was originally scheduled to mature on September 27, 1997, bears
interest at 12% per annum, and is collateralised by a pledge of all the
shares in Countdown purchased by the Company from Mr. C.E.C. Radbone, the
former owner. The loan was renewed, upon maturity, by agreement between
the Company, and Mr. Joseph V. Vittoria.
During fiscal 1997, the Company received a net payment of $1,240,000 from
Transmedia Europe in repayment of temporary funding. In fiscal 1997,
management expenses of $892,566 were charged from Transmedia Europe on
behalf of the Company. The $254,134 balance as of September 30, 1997 due
to Transmedia Europe from the Company is non-interest bearing and is
repayable on demand. Messrs. Guinan, Vittoria, Harrison and Freyer are
also directors of Transmedia Europe. See "Directors and Executive Officers
of Registrant." In April 1997 and December 1997, the Company and
Transmedia Europe engaged in two significant acquisitions. See "Item 1.
Business - Countdown Business and - NHS Acquisition." In January 1998, a
letter of intent was signed on behalf of the Company and Transmedia Europe
to acquire another company. In connection therewith, Mr. Edward Guinan
tendered shares of Common Stock of the Company and Transmedia Europe held
personally by him towards the deposit.
Mr. Joseph V. Vittoria, a director and shareholder of the Company, and FAI
Overseas Investment Pty Ltd., a principal shareholder of the Company,
purchased respectively 181,355 and 362,600 shares of Common Stock of the
Company (and 60,445 and 120,866 warrants respectively) in the Company's
Private Placement which was completed in December 1997. In addition, Mr.
Vittoria and FAI Overseas Investments Pty Ltd were granted 107,248 and
214,857 warrants respectively in exchange for their agreement to purchase
on a standby basis a portion of the shares in the Private Placement.
33
<PAGE>
In November of 1997, the Company, jointly with Transmedia Europe, signed a
letter of intent to purchase a company in the United States engaged in
certain discount programs. In connection with the acquisition which is
scheduled to close in September 1998, 200,000 shares of the Company's
common stock owned by Mr. Guinan have been transferred to the sellers as a
non-refundable deposit. On closing, the Company will reimburse Mr. Guinan
for such issuance by the issuance of the same number of shares to Mr.
Guinan that were tendered as a deposit.
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 Schedules:
I. Consolidated Financial Statements for significant associate
Countdown Holdings Limited
II. Schedule of Qualifying Accounts
(a)(3) Exhibits:
(i) Agreement dated December 23, 1997 between Airtours Holidays
Limited and Countdown
(b) Reports on Form 8-K.
None.
34
<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 15, 1999 /s/ Edward J. Guinan III
--------------------------------------------
Edward J. Guinan III
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 15, 1999 /s/ Edward J. Guinan III
---------------------------------------------
Edward J. Guinan III
Chairman, Chief Executive Officer and
Director
(Principal Executive Officer)
Date: January 15, 1999 /s/ Paul L. Harrison
---------------------------------------------
Paul L. Harrison
President, Acting Chief Financial Officer
and Director
(Principal Accounting Officer)
Date: January 15, 1999 /s/ Carl Freyer
---------------------------------------------
Carl Freyer
Director
Date: January 15, 1999 /s/ Joseph Vittoria
---------------------------------------------
Joseph Vittoria
Director
<PAGE>
Schedule 1
COUNTDOWN HOLDINGS LIMITED
Report of the auditors
- --------------------------------------------------------------------------------
To the shareholders of Countdown Holdings Limited
We have audited the accompanying consolidated balance sheet of Countdown
Holdings Limited and subsidiaries as of 30 September 1997 and consolidated
profit and loss account for the year ended 30 September 1997 and month
ended 30 September 1996.
Respective responsibilities of directors and auditors
The company's directors are responsible for the preparation of the
financial statements. It is our responsibility to form an independent
opinion, based on our audit, on those statements and to report our opinion
to you.
Basis of opinion
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom which are substantially similar to and do
not differ in any material respect from auditing standards generally
accepted in the United States of America. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in
the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the financial
statements.
Fundamental uncertainty
In forming our opinion, we have considered the adequacy of the disclosures
made in note 1 to the financial statements concerning the uncertainty
about the continuing support of the company's bankers and the ability of
the major shareholders Transmedia Europe Inc and Transmedia Asia Pacific
Inc to continue to provide financial support. Our opinion is not qualified
in this respect.
Opinion
In our opinion the financial statements give a true and fair view of the
state of affairs of the company and its subsidiaries as at 30 September
1997 and of its result for the year ended 30 September 1997 and month
ended 30 September 1996 in conformity with generally accepted accounting
principles.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
13 February 1998
1
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Consolidated profit and loss account for the period ended 30 September 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As restated
Year ended Month ended Year ended
Note 30 September 1997 30 September 1996 31 August 1996
(pound) (pound) (pound)
<S> <C> <C> <C> <C>
Turnover 4,734,863 394,572 4,949,539
Cost of sales 2,960,839 246,737 2,988,184
---------- ---------- ----------
Gross profit 1,774,024 147,835 1,961,355
Net operating expenses 2,376,732 198,061 2,171,398
---------- ---------- ----------
Operating loss (602,708) (50,226) (210,043)
Share of affiliates loss -- -- (21,500)
Interest receivable -- 157
Interest payable and similar charges 53,232 4,436 27,311
---------- ---------- ----------
Loss on ordinary activities before taxation 2 (655,940) (54,662) (258,697)
Tax on loss on ordinary activities 3 8,408 -- 26,738
---------- ---------- ----------
Loss for the period 14 (647,532) (54,662) (231,959)
========== ========== ==========
</TABLE>
All amounts relate to continuing activities.
All recognized gains and losses are included in the profit and loss account.
The loss for the period represents the movement in shareholders' funds.
The notes on pages 6 to 14 form part of these financial statements.
2
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Consolidated balance sheet at 30 September 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As restated
Note 30 September 1997 31 August 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets 4 284,138 300,355
Tangible assets 5 311,378 512,341
----------- ----------
595,516 812,696
Current assets
Stocks 6 129,950 138,175
Debtors 7 403,518 538,396
Cash at bank and in hand 26,663 71,443
---------- ----------
560,131 748,014
Creditors: amounts falling due
within one year 8 1,719,602 1,365,927
---------- ----------
Net current liabilities (1,159,471) (617,913)
----------- ----------
Total assets less current liabilities (563,955) 194,783
Creditors: amounts falling due
after more than one year 9 (26,691) (83,235)
----------- ----------
(590,646) 111,548
=========== ==========
Capital and reserves
Called up share capital 13 500,000 500,000
Profit and loss account (1,090,646) (388,452)
----------- ----------
Shareholders' funds - equity 14 (590,646) 111,548
=========== ==========
</TABLE>
The financial statements were approved by the Board on 13 February 1998
P Harrison
Director
The notes on pages 6 to 14 form part of these financial statements.
3
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Statement of cash flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As restated
Year ended Month ended Year ended
30 September 1997 30 September 1996 31 August 1996
(pound) (pound) (pound)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss (647,532) (54,662) (231,959)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization charges 290,494 24,208 100,231
Income taxes receivable 28,763 -- (28,763)
Profit on sale of plant and equipment (11,447) -- (15,056)
Net changes in operating assets and liabilities:
Increase in payables 215,004 -- 44,859
Decrease in receivables 106,115 -- 40,707
Decrease in inventories 8,225 -- 67,320
Other, net -- -- 3,180
-------- -------- --------
Net cash used by operating activities (10,378) (30,454) (19,481)
-------- -------- --------
Cash flows from investing activities
Additions to plant and equipment (59,954) -- (37,246)
Proceeds from disposition of plant and equipment 15,096 -- 20,832
Net cash paid for affiliate company -- -- (21,500)
Net cash received on acquisition of subsidiary -- -- 90,492
-------- -------- --------
Net cash (used in)/provided by investing
activities (44,858) -- 52,578
-------- -------- --------
Cash flows from financing activities
Finance lease repayments (19,703) -- (21,272)
-------- -------- --------
Net cash used by financing activities (19,703) -- (21,272)
-------- -------- --------
Net (decrease)/increase in cash and cash
equivalents (74,939) (30,454) 11,825
Cash and cash equivalents at beginning of year (337,981) (307,527) (319,352)
-------- -------- --------
Cash and cash equivalents at end of year (412,920) (337,981) (307,527)
======== ======== ========
Supplemented disclosure of cash flow
information:
Interest paid during the year 48,091 4,007 23,632
Income taxes (received)/paid during the year (37,171) -- 2,631
======== ======== ========
</TABLE>
The notes on pages 6 to 14 form part of these financial statements.
4
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30
September 1997
- --------------------------------------------------------------------------------
1. Accounting policies
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following principal accounting policies have been applied:
Basis of accounting - going concern
The group sustained a net loss for the period as well as for the two
preceding years, and as a consequence, net assets have been
depleted. Furthermore, the group had net current liabilities at the
balance sheet date and has incurred losses subsequently.
During the period the company was acquired by Transmedia Europe,
Inc. and Transmedia Asia Pacific, Inc.
The financial statements have been prepared on the going concern
basis which assumes that the company will continue in operational
existence for the foreseeable future.
The validity of this assumption depends upon the financial support
of Transmedia Europe, Inc. and Transmedia Asia Pacific, Inc., the
continued support of the company's bankers and a return to
profitable trading.
The nature and stage of development of Transmedia Europe Inc.'s
operations are such that there will be the need for significant
additional funding requirements over the next twelve months.
Transmedia Europe, Inc. and its related company, Transmedia Asia
Pacific, Inc. are immediately seeking to raise $1.0m and require an
additional amount of approximately $8.25m to fund planned and
potential acquisitions.
Transmedia Europe, Inc. has indicated that it is confident that
Transmedia Europe, Inc. and Transmedia Asia Pacific, Inc. will be
able to raise the funds necessary to continue the group's operations
for the foreseeable future and, subject to it being able to raise
adequate additional funding, it is its intention to provide
continuing financial support to the company. However, inherently,
there can be no certainty in relation to the raising of future
finance.
On the basis of the cash flow information and the assurances
received from the directors of the company's parent company, the
directors consider that the company and group will be provided with
sufficient funds available to it to enable it to operate for the
foreseeable future.
The financial statements do not include any adjustments that would
result if the parent company is unable to raise additional funds.
Turnover
Turnover represents the invoiced value of goods and services
supplied, and membership fees.
Membership fees are recognized as revenue in equal monthly
installments over the membership period.
5
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30
September 1997 (Continued)
- --------------------------------------------------------------------------------
1. Accounting policies (Continued)
Subscription income - change in accounting policy
The receipts basis of accounting was amended during the year ended
September 30, 1997 to a deferred basis to align the accounting
policy with that of the parent. Refer to note 14 for the impact of
this change on prior periods.
Long-lived assets
Long-lived assets, such as property, plant and equipment and
intangibles, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may
not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists,
the related assets will be written down to fair value. An impairment
write-down of (pound)206,220 was recorded for the year ended 30
September 1997 (month ended 30 September 1996 - (pound)Nil; year
ended 31 August 1996 - (pound)Nil).
Depreciation
Depreciation is provided to write off the cost, less estimated
residual values, of all fixed assets, except freehold land and some
freehold buildings, evenly over their expected useful lives. It is
calculated at the following rates:
Freehold property - 2% on cost
Plant and equipment - 25% on written down value
Leasehold property - over the life of the lease
Stocks
Stocks are valued at the lower of cost and net realizable value.
Deferred taxation
Provision is made for timing differences between the treatment of
certain items for taxation and accounting purposes, to the extent
that it is more likely than not that a liability or asset will be
realized.
Leased assets
Where assets are financed by leasing agreements that give rights
approximating to ownership ('finance leases'), the assets are
treated as if they had been purchased outright. The amount
capitalized is the present value of the minimum lease payments
payable during the lease term. The corresponding leasing commitments
are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account.
Lease payments are analyzed between capital and interest components
so that the interest element of the payment is charged to the profit
and loss account over the period of the lease and represents a
constant proportion of the balance of capital repayments
outstanding. The capital part reduces the amounts payable to the
lessor. All other leases are treated as operating leases. Their
annual rentals are charged to the profit and loss account on a
straight-line basis over the term of the lease.
6
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30 September
1997 (Continued)
- --------------------------------------------------------------------------------
1. Accounting policies (Continued)
Pension costs
Contributions to the company's defined contribution pension scheme
are charged to the profit and loss account in the year in which they
become payable.
Goodwill
Goodwill arising on consolidation is shown in the balance sheet
under intangible assets and is amortized on a straight line basis
over its expected economic life of 20 years.
Investments
Fixed asset investments are stated at cost less provision for any
permanent diminution in value.
Basis of consolidation
The group financial statements consolidate the financial statements
of the company and all its subsidiaries made up to 30 September 1997
using the acquisition method of accounting.
Foreign currencies
Assets and liabilities expressed in foreign currencies are
translated into sterling at the rate of exchange ruling at the
balance sheet date. Transactions in foreign currencies are
translated into sterling at the rate of exchange ruling at the date
of the transaction. Exchange differences are taken into account in
arriving at the operating profit.
2. Loss before taxation
<TABLE>
<CAPTION>
As restated
Year ended Month ended Year ended
30 September 1997 30 September 1996 31 August 1996
(pound) (pound) (pound)
<S> <C> <C> <C>
The operating loss is stated after
charging/(crediting):
Amortization of goodwill 14,970 1,247 6,995
Depreciation of tangible assets: Owned 266,044 22,171 77,492
Leased 9,480 790 15,744
Auditors' remuneration: Audit fee 21,630 1,802 19,660
Non-audit fee 5,144 429 33,745
(Profit) on disposal of fixed assets (11,447) -- (15,056)
======== ======== ========
</TABLE>
7
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30 September
1997 (Continued)
- --------------------------------------------------------------------------------
3. Taxation
<TABLE>
<CAPTION>
As restated
Year ended Month ended Year ended
30 September 1997 30 September 1996 31 August 1996
(pound) (pound) (pound)
<S> <C> <C> <C>
The tax credit/(charge) on loss on ordinary
activities for the period was as follows:
Corporation tax at 33%
(1996 - 25% and 33%) 2,087 -- 26,759
Overseas taxation 6,321 -- (21)
------- ------- -------
8,408 -- 26,738
======= ======= =======
</TABLE>
Tax losses carried forward at 30 September 1997 amounted to (pound)477,658
(1996 - (pound)91,047). A full valuation provision has been made against
deferred tax assets related to these tax losses due to uncertainties
regarding the realization of the related tax benefits in future years.
4. Intangible fixed assets
Goodwill on
consolidation
(pound)
Group
Cost
At 1 September 1996 and at 30 September 1997 324,350
-------
Amortization
At 1 September 1996 23,995
Charge for period 16,217
-------
At 30 September 1997 40,212
-------
Net book value
At 30 September 1997 284,138
=======
At 31 August 1996 300,355
=======
8
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30
September 1997 (Continued)
- ----------------------------------------------------------------------------
5. Tangible fixed assets
<TABLE>
<CAPTION>
Short
Freehold leasehold Plant and
buildings property equipment Total
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Group
Cost
At 1 September 1996 257,612 46,406 926,589 1,230,607
Additions -- -- 101,171 101,171
Disposals -- -- (40,339) (40,339)
---------- ---------- ---------- ----------
At 30 September 1997 257,612 46,406 987,421 1,291,439
---------- ---------- ---------- ----------
Depreciation
At 1 September 1996 38,573 3,275 676,418 718,266
On disposals -- -- (36,690) (36,690)
Charge for the period 69,039 43,131 186,315 298,485
---------- ---------- ---------- ----------
At 30 September 1997 107,612 46,406 826,043 980,061
---------- ---------- ---------- ----------
Net book value
At 30 September 1997 - Owned 150,000 -- 125,843 275,843
- Leased -- -- 35,535 35,535
---------- ---------- ---------- ----------
150,000 -- 161,378 311,378
========== ========== ========== ==========
At 31 August 1996 - Owned 219,039 43,131 201,587 463,757
- Leased -- -- 48,584 48,584
---------- ---------- ---------- ----------
219,039 43,131 250,171 512,341
========== ========== ========== ==========
</TABLE>
9
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30
September 1997 (Continued)
- --------------------------------------------------------------------------------
6. Stocks
30 September 1997 31 August 1996
(pound) (pound)
Group
Cards and books 77,563 75,596
Store discount vouchers 52,387 62,579
------- -------
129,950 138,175
======= =======
7. Debtors
Trade debtors 284,174 350,581
Other debtors 40,867 56,318
Amount due from associated undertaking -- 952
Taxation recoverable -- 28,763
Prepayments and accrued income 78,477 101,782
------- -------
403,518 538,396
======= =======
The amounts above fall due for payment in less than one year.
8. Creditors: amounts falling due within one year
Bank loan and overdrafts (note 10) 439,583 378,970
Trade creditors 707,752 356,883
Amounts owed to subsidiary undertakings -- --
Amounts owed to associated companies 28,181 --
Obligations under finance leases and
hire purchase agreements (note 11) 22,761 19,703
Social security and PAYE 34,116 95,296
Other creditors and accruals 487,209 515,075
--------- ---------
1,719,602 1,365,927
========= =========
10
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30 September
1997 (Continued)
- --------------------------------------------------------------------------------
9. Creditors: amounts falling due after more than one year
30 September 1997 31 August 1996
(pound) (pound)
Obligations under finance leases
and hire purchase agreements (note 11) 26,691 8,235
Other creditor - 75,000
-------- --------
26,691 83,235
======== ========
10. Bank loans and overdrafts
The aggregate amount of bank loans and overdrafts is as follows:
Falling due within one year:
Bank overdraft 340,265 269,902
Bank loan 99,318 109,068
-------- --------
439,583 378,970
======== ========
The bank loan is secured by a fixed charge over the freehold property. The
bank overdraft is secured by a fixed charge over the book debts and a
floating charge on the other assets of the group.
11. Obligations under finance leases
30 September 1997 31 August 1996
(pound) (pound)
The finance lease payments are as follows:
Under one year 27,570 21,788
In the second to fifth year inclusive 28,982 8,537
------- -------
56,552 30,325
Less: Amount representing future finance
charges (7,100) (2,387)
------- -------
49,452 27,938
======= =======
11
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30 September
1997 (Continued)
- --------------------------------------------------------------------------------
12. Leases
The group leases contain office space under lease agreements.
Future minimum lease payments under non-cancelable operating leases as of
30 September 1997 were:
(pound)
Year ending 30 September 1998 5,320
1999 5,320
2000 5,320
2001 5,320
2002 5,320
Thereafter 100,000
=======
13. Called up share capital
<TABLE>
<CAPTION>
30 September 1997 31 August 1996
(pound) (pound)
<S> <C> <C>
Authorized, issued, called up and fully paid
500,000 Ordinary shares of (pound)1 each 500,000 500,000
======= ========
14. Reconciliation of shareholders' funds (pound)
Shareholders funds
As previously reported at 1 September 1995 457,247
Prior year adjustment (see below) (113,740)
--------
As restated at 1 September 1995 343,507
Loss for the year ended 31 August 1996 (restated) (231,959)
--------
Balance at 31 August 1996 111,548
Loss for the month ended 30 September 1996 (restated) (54,662)
--------
Balance at 30 September 1996 56,886
Loss for the year ended 30 September 1997 (647,532)
--------
Balance at 30 September 1997 (590,646)
========
</TABLE>
As stated in note 1 one of the company's subsidiaries, Countdown Plc,
changed its accounting treatment of subscription income from recognition
on a receipts basis to a deferred basis.
12
<PAGE>
COUNTDOWN HOLDINGS LIMITED
Notes forming part of the financial statements for the period ended 30 September
1997 (Continued)
- --------------------------------------------------------------------------------
15. Related party transactions
A subsidiary company has acquired a twenty year lease in respect of a
property from The Countdown plc Self-administered Scheme. The director, Mr
C E C Radbone, is the only member of this pension scheme. The current rent
is (pound)100,000 per annum.
16. Pension commitments
The group operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company. The cost of the
contributions to the scheme are charged to the profit and loss account in
the year in which they fall due. There were no amounts due at the balance
sheet date (1996 - Nil).
17. Ultimate holding company
On 3 April 1997, the entire share capital of Countdown Holdings Limited
was acquired in an equal share by Transmedia Europe, Inc. and Transmedia
Asia Pacific, Inc., companies incorporated in the USA.
Due to the control exerted over Countdown Holdings Limited, by Transmedia
Europe, Inc. Countdown Holdings Limited is treated as a subsidiary of that
company. Therefore Transmedia Europe, Inc. is the parent of the largest
and the smallest groups of which the company is a member.
A copy of each of the holding companies accounts is available from the
Companies' registered office.
Countdown Holdings Limited
Report and Financial Statements
Period ended
30 September 1997
13
<PAGE>
Schedule II
Transmedia Asia Pacific, Inc.
Schedule II
Valuation and Qualifying Accounts
For the Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions Deductions Balance at
(describe) End of Period
Balance at Charged to Acquisition
Beginning of Costs and of
Description Period Expenses Subsidiaries
Allowance for Irrecoverable
Restaurant Credits
<S> <C> <C> <C> <C> <C>
1995 40,418 0 0 0 40,418
1996 40,418 79,344 0 0 119,762
1997 119,762 0 0 (5,152)(1) 114,610
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Note 1. Release of Provision no longer required
EXHIBIT 10.1
THIS AGREEMENT is made the 23rd day of December 1997
BETWEEN:
1. COUNTDOWN PLC of Countdown House, Hurlington Business Park, Sullivan Road,
London SW6 3DU (Registered Company Number 986149) ("Countdown"); and
2. AIRTOURS HOLIDAYS LIMITED of Holcombe Road, Helmshore, Rossendale,
Lancashire BB4 4NB (Registered Company Number 695530) ("Airtours").
WHEREAS:
A. Airtours is a tour operator primarily operating from within the United
Kingdom providing holiday and travel destinations throughout the world
B. Countdown operates a discount scheme through retailers and merchants
internationally in Europe, North America, Asia and Australia.
C. Airtours seeks to establish and maintain a customer loyalty benefits
program.
D. Countdown agrees to assist and provide contents for inclusion in benefit
packs upon the terms set out in this Agreement.
NOW IT IS HEREBY AGREED
1. DEFINITION
1.1 In this Agreement, unless the context otherwise requires the
following which will have the following meanings;
"Airtours Brand" Airtours logo/trademark a sample of
which appears in Schedule 4 Part 1
together with the Airtours name
"Benefits Packs" destination benefit packs and welcome
home benefits packs distributed to
Airtours customers by or at the
direction of Airtours as part of the
Loyalty Program comprising the Contents
together with such other material as
Airtours shall determine (not being the
subject of this Agreement);
"Commencement Date" the date of this Agreement;
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"Contents" comprises the following:
(i) one Discount Card;
(ii) a card carried being 1/3 A4 on
150gm cartridge with die-cuts and
bearing the Design comprising 4
colors on one side, nothing on the
reverse and being numbered to
match the Discount Card;
(iii) in the case of those resort
destinations as are listed in
Schedule 2 Part 1, a Resort
Destination Guide;
(iv) one UK Guide;
(v) where requested by Airtours a UK
Regional Guide;
(vi) C5 size envelope overprinted in 4
colors;
"Customer Service Line" a dedicated telephone service line
operating between the hours of 8:30 a.m.
to 7:00 p.. Monday to Friday and 9:00
a.m. to 4:00 p.m. on Saturdays excluding
Bank or other statutory holidays to be
staffed by Countdown's employees, agents
or contractors for the purposes of
answering inquiries from Airtours
customers relating to the provision of
the Services and the operation of the
Discount Scheme;
"Countdown Brand" the Countdown and combined IDC
logo/trademark a sample of which appears
in Schedule 4 Part 2 together with the
Countdown and IDC name
"Design" Such design or designs as agreed between
Airtours and Countdown to be applied to
such of the Discount Card, Resort
Destination Guide, the Guide and C5
envelope and applied by way of an
adhesive label to the UK Regional Guide
pursuant to the term of this Agreement.
"Design Milestone" the timetable agreed between the parties
for the preparation and signing off by
Airtours of the Design as set out in
Schedule 5;
"Discount Card" a plastic card (approximately 85mm by
53mm) in size bearing the Design
comprising four colors on the face and
one color on the reverse side together
with a space of signature, date and
being sequentially numbered, for use in
accordance with the terms of the
Discount Program as may be varied form
time to time, and being valid for that
purpose for a period of 12 months
commencing with the date it is first
used.
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"Discount Program" a discount program operated by Countdown
enabling holders of the Discount Card to
receive a reduction in the cost of goods
or services (whether by way of voucher,
offers or any other discount) at point
of sale from retailers and other
merchants being members of the program
subject to presentation of the Discount
Card and compliance with the other terms
and conditions of the program from time
to time.
"Loyalty Program" the customer loyalty benefits program
designed by Airtours comprising the
distributions of Benefit Packs and the
creation of a customer data base.
"Resort Destination Guide" a guide to retailers and merchants being
members of the Discount Program located
within a particular area or resort as
set out in the resort destinations
listed in Schedule 2 Part 1 as may be
amended by agreement. Where pursuant to
this Agreement Countdown supplies in
excess of 3,000 copies of a Resort
Destination Guide relating to a specific
resort each individual copy of such
Resort Destination Guide shall have the
Design applied comprising two colors.
"Retail Price Index" the General Index of Retail Prices
published in the United Kingdom by the
Central Statistical Office, or such
other index as shall replace it;
"Services" provision by Countdown to Airtours in
accordance with the terms hereof of the
Contents and the Customer Service Line;
"UK Guide" a 24 page guide in the Design comprising
four colors to retailers and other
merchants being members of the Discount
Program located within the United
Kingdom;
"UK Regional Guide" a guide to retailers and other merchants
being members of the Discount Program
located within specified regions of
United Kingdom as set out in Schedule 2
Part 2 and as may be amended by
Countdown from time to time. Each copy
of the UK Regional Guide will have the
Design applied by way of an adhesive
label.
"Working Days" Monday to Friday inclusive save for any
bank or other statutory holiday.
1.2 Any reference to the singular includes the plural, to one sex includes
both sexes and the neuter and visa versa;
1.3 the headings in this Agreement are for convenience only and shall not
effect its interpretation.
2. OBJECTIVES
2.1 In consideration of the Price and the Services and the terms and
conditions of this Agreement Countdown agrees to provide to Airtours
the Services, and Airtours agrees to pay the Price.
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3. TERM OF THIS AGREEMENT
3.1 This Agreement shall commence on the Commencement Date and shall
continue for an initial period of three years and thereafter from
year to year subject to the provisions for termination contained
herein.
4. PRICE AND MINIMUM GUARANTEED VOLUME
4.1 The Price for the Services shall be the sum of _____ per Contents or
such increased or reduced sum as herein provided for (the "Price").
4.2 Countdown shall have the right with effect from each anniversary of
the Commencement Date to increase the Price by
(i) not more than the percentage movement of the Retain Price
Index; and
(ii) such further sum being not greater than one third of the
percentage movement (in excess of 5%) of the cost of paper,
print and plastic above the Retail Price Index;
during the twelve month period ending six months before the date of each
anniversary of this Agreement. Countdown shall notify Airtours in writing
of the new Price payable within 30 days of its calculation.
4.3 Airtours agrees to purchase from Countdown in each year of this
Agreement a minimum of:
(i) _______ copies of the Resort Destination Guide in such number
of copies as appear opposite each resort destination set out
in Schedule 2 Part 1 as may be varied by agreement prior to
delivery; and
(ii) _______ Contents not including the Resort Destination Guide
or such greater number as Airtours and Countdown shall in writing agree
from time to time ("the Minimum Guaranteed Volume").
4.4 The annual price payable by Airtours to Countdown in return for the
Services shall be calculated on the basis of the Minimum Guaranteed
Volume multiplied by the Price together with VAT or such other tax
as may be payable in respect thereof (the "Annual Price").
4.5 The parties may agree a reduction in the Price subject to the volume
of Contents being ordered by Airtours from Countdown exceeding
100,000 above the Minimum Guaranteed Volume.
4.6 The Price and any other sum payable pursuant to this Agreement is
stated exclusive of insurance handling storage and delivery and any
applicable value added or any other sales tax, for all of which
Airtours is additionally liable.
5. EXCLUSIVITY
5.1 For so long as this Agreement shall continue Countdown agrees to
notify Airtours of Countdowns intention to provide anywhere within
the United Kingdom any services to competitors of Airtours listed in
Schedule 3 Part 1 provided that nothing herein shall prevent
Countdown from selling:
5.1.1 the Services or any services which are the same as the Loyalty
Program otherwise than to competitors of Airtours selling
holidays to the United Kingdom; or
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5.1.2 services which are not the same as the Loyalty Program to any
individual company or other customer of Countdown (existing or
otherwise) regardless of whether they are competitors of
Airtours.
5.2 Countdown agrees not to provide within the United Kingdom services
which are the same as the Loyalty Program to any competitor of
Airtours listed in Schedule 3 Part 1.
6. OBLIGATIONS OF AIRTOURS
6.1 In accordance with the Design Milestones set out in Schedule 4
Airtours shall agree and provide on an agreed disk format to
Countdown the Designs;
6.2 Where Countdown has before the Commencement Date submitted to
Airtours for content approval any draft Resort Destination Guide, UK
or UK Regional Guide Airtours agrees to give such approval on or
before Monday, 5 January 1998;
6.3 Airtours will pay to Countdown:
6.3.1 a sum equivalent to ___ of the Annual Price (calculated in
accordance with paragraph 4 above) upon the Commencement Date
and upon each anniversary of the Commencement Date for so long
as this Agreement shall continue;
6.3.2 a further sum equivalent to ___ of such Annual Price upon
delivery upon delivery of the Contents (or the first
installment thereof) or if earlier upon receipt of
notification of readiness to deliver;
6.3.3 the balance of the Annual Price by way of three equal monthly
payments commencing one calendar month after delivery of the
Contents (or the first installment thereof) or if earlier
receipt of notification of readiness to delivery;
6.3.4 by way of reimbursement to Countdown such costs as may be
incurred by Countdown in handling, storage, insurance or
delivery of the Content or any part within 30 days of
notification by Countdown that such costs have been incurred.
6.4 Countdown reserves the right to charge interest at a rate of ___
above the base lending rate of Barclays Bank Plc from time to time
on any sum due but unpaid (both after as well as before any
judgment) from the date due until the date of actual payment.
6.5 Airtours shall make such arrangement as it considers appropriate for
the insertion of the Contents into Benefit Packs.
6.6 Airtours shall issue the Discount Card to such of its customers as
it shall in its discretion determine upon the terms and conditions
of the Discount Program as set out in Schedule 1, as may be varied
by Countdown from time to time, without derogating from adding to or
in any way altering such terms and conditions or their effect and in
so doing (but not for any other purpose) Airtours shall act as agent
for Countdown.
7. OBLIGATIONS OF COUNTDOWN
7.1 Countdown shall:
7.1.1 apply the Design to each copy of the UK Guide, the Discount
Card and the card carrier and envelope.
7.1.2 apply by way of an adhesive label the Design to the UK
Regional Guide.
7.1.3 where Countdown supplies in excess of _____ copies of a Resort
Destination Guide relating to a specific resort apply the
Design to each individual copy of such Resort
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Destination Guide. No Design shall be applied where less than
3,000 copies of such Resort Destination Guides are supplied.
7.2 Provided that Airtours shall have complied with the Design
Milestones Countdown will use all reasonable endeavors to make
available for delivery to Airtours
7.2.1 the Minimum Guaranteed Volume of the Contents (save for the UK
Regional Guide and the Resort Destination Guides) together
with such number of Resort Destination Guide as set out in
Schedule 2 Part 1 on or before the 20 February in each year.
7.2.2 such number of the UK Regional Guides as Airtours may in
writing request (being not more than the Minimum Guaranteed
Volume) within 15 Working Days of receipt of such request.
7.3 Delivery shall be made to such address as Airtours shall in writing
notify to Countdown from time to time (but at Airtours cost). In
default of any delivery address delivery is deemed to take place at
Countdown's premises.
7.4 Countdown and Airtours agree that nothing in this Agreement shall
require Countdown to deliver or to make the Contents available for
delivery to Airtours otherwise than in batches of the Discount Card,
the Resort Destination Guide, the UK Guide, the UK Regional Guide,
the card carrier or the envelopes as appropriate without any
requirement whatsoever on the part of Countdown to collate or
otherwise change such batches in any way which might assist in the
preparation of the Discount Packs by or at the direction of
Airtours.
7.5 Countdown shall use all reasonable endeavors to make available to
Airtours within 30 Working Days of receipt of order such additional
copies of the Contents (over and above the Minimum Guaranteed
Volume) as Airtours shall request subject to a minimum order of
______ Contents. The Price for such additional copies of the
Contents shall be paid in full within 30 days of delivery or if
earlier notification of readiness to deliver.
7.6 Where delivery is refused by Airtours or at the request of Airtours
is suspended, delayed r made by installments and Countdown gives to
Airtours notification of readiness to deliver the contract shall be
treated as fulfilled for the purpose of payment; and
7.6.1 if the Contents are in Countdown's possession it may place the
Contents into storage at such premises and in such conditions
that shall be appropriate having regard to the time of year,
the cost of storage and the manner of packaging;
7.6.2 from the date of sending the notification to Airtours
(i) the risk of accidental loss of or damage to the Contents
is on Airtours; and
(ii) the duty to pay the Price arises in accordance with
Clause 6.3 above.
7.7 Where Countdown places the Contents into store under clause 7.6
above;
7.7.1 if Airtours requests Countdown shall; and
7.7.2 in any event Countdown may arrange insurance covering any and
all of the major perils endorsing Countdown's own interest.
7.8 Airtours shall pay for the cost of storage and insurance under
Clause 7.6 and 7.7 above at such rate as shall be notified by
Countdown from time to time. Payment for storage or insurance will
be made in full within 30 days of such notification.
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8. CUSTOMER SERVICE LINE
8.1 Countdown agrees to provide the Customer Service Line and deal with
inquiries promptly and efficiently;
8.2 Countdown shall not be required to respond or reply to any
inquiries, complaints or other comments received in the course of
its providing the Customer Service Line relating otherwise than to
the Contents and the Discount Program. In particular Countdown shall
not be required to respond to any inquiries, questions or otherwise
relating to any services provided by Airtours.
8.3 Airtours agrees to train such of Countdown's employees, agents or
contractors as may be necessary and from time to time for the
purposes of the Customer Service Line.
9. MONEY BACK GUARANTEE
9.1 Countdown agrees for the duration of this Agreement to operate the
money back guarantee in accordance with the terms of the Discount
Program a copy of which appears in Schedule 1 and which terms are
hereby incorporated into this Agreement as though Airtours were
Countdown's customer. Nothing in this Clause shall entitle Airtours
to pay any money to any of its customers on behalf of Countdown.
10. RESERVATION OF TITLE
10.1 Risk in the Contents pass to Airtours upon delivery in accordance
with Clause 7;
10.2 Even through risk in the Contents has passed property in the
Contents shall not pass until Countdown is paid for the Contents and
no other amounts are outstanding from Airtours in respect of other
Contents or services or the Services supplied by Countdown.
10.3 If the Contents (or any of them) are destroyed by an insured risk
prior to the same being paid for by Airtours then Airtours shall
receive the proceeds of the insurance as trustee for Countdown;
10.4 In the event of the sale of the Contents (or any of them) by
Airtours, Airtours shall hold the proceeds of such sale on trust for
Countdown in a separate bank account opened by Airtours for this
purpose. Countdown may trace all such proceeds of sale received by
Airtours to any Bank or other account maintained by Airtours.
11. COPYRIGHT AND LICENSE
11.1 Copyright in Airtours Brand and the Design shall at all times remain
vested in Airtours;
11.2 Copyright in Countdown's Brand shall at all times remain vested in
Countdown.
11.3 Subject to Clause 11.4 for the duration of this Agreement:
11.3.1 Airtours hereby grants to Countdown a non-exclusive license
(free from the payment of fees or royalties) to use and
reproduce Airtours Brand and the Design in connection with
the manufacture distribution or marketing of the Benefit
Packs and the Discount Program; and
11.3.2 Countdown hereby grants to Airtours a non-exclusive license
(free from the payment of fees or royalties) to use and
reproduce the Countdown Brand in connection with the
distribution or marketing of the Benefits Packs and the
Loyalty Program;
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11.3.3 Provided that:
11.3.3.1 in the case of Airtours the Countdown Brand will not
be affixed to any goods without the prior approval
of Countdown; and
11.3.3.2 in the case of Countdown neither the Airtours
Brand nor the Design will be affixed to any goods
other than the Contents without the prior approval
of Airtours.
11.4 The text and content of any press release or other communication or
advertisement to be published or to appear in any media or otherwise
distributed or made available to any third party which concerns the
Loyalty Program and
11.4.1 in the case of any such release by Airtours includes the
Countdown Brand; or
11.4.2 in the case of any such release by Countdown includes the
Airtours Brand or the Design:
shall require the prior approval of each of the parties, such
approval not to be unreasonably withheld or delayed.
11.5 Where required by the other, Airtours or Countdown will join with
that other in applying for registration as a registered user of any
intellectual property in the Airtours Brand, the Design or Countdown
Brand or any part as appropriate.
12. CONFIDENTIALITY
12.1 Save as provided in Clause 12.2 Countdown and Airtours agree on
behalf of themselves and their respective employees to keep
confidential all information received from and belonging to the
other concerning the corporate plans, management systems, finances,
maturing new business opportunities and agreements and information
regarding individual existing and potential customers of and
suppliers to one of the parties and their respective business
operations and requirements. Following receipt of such information
the receiving party and its respective employees shall:
12.1.1 hold such information in confidence and not disclose the same
to any third party without the others prior written consent;
or
12.1.2 use such confidential information for any purpose other than
in pursuance of this Agreement; and
12.1.3 return to the disclosing party upon written demand all such
information received including any copies thereof (in
whatever format they may appear);
save that the obligations of confidence, non-disclosure and limited use
shall not apply to any information which the receiving party can
demonstrate was at the time of its disclosure in the public domain or
thereafter becomes available to the public through no fault of the
receiving party, or as may be required by law;
13. TERMINATION
13.1 Either party may bring this Agreement to and end by giving at least
six months notice in writing of such termination to the other
effective upon an anniversary of the Commencement Date provided that
no such notice of termination may be given by either party to take
effect before the third anniversary of the Commencement Date;
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13.2 Either party may be notice in writing to the other terminate this
Agreement forthwith upon the occurrence of any of the following:
13.2.1 if the other party commits a material breach of any of the
terms of this Agreement which if capable of remedy is not
remedied within 30 days of being required to do so by written
notice identifying the breach and steps which must be take to
remedy it;
13.2.2 an encumbrance takes possession or a receiver is appointed
over any of the property or assets of that other party;
13.2.3 that other party makes any voluntary arrangement with its
creditors or becomes subject to an administration order;
13.2.4 that other party goes into liquidation (except for the
purposes of an amalgamation, reconstruction or other
reorganization and in such manner that the company resulting
from the reorganization effectively agrees to be bound by or
to assume the obligations imposed on the other party under
this Agreement); or
13.2.5 that other party ceases, or threatens to cease, to carry on
business.
13.3 Termination of this Agreement pursuant to this Clause shall be
without prejudice to any other rights or remedies a party may be
entitled to hereunder or at law and shall not affect any accrued
rights or liabilities of either party.
14. WARRANTIES AND LIABILITIES
14.1 Subject to the conditions set out below Countdown warrants with
Airtours that the Contents will correspond with their description at
the time of delivery.
14.2 The above warranty is given by Countdown subject to the following
conditions:
14.2.1 Countdown shall be under no liability under the above
warranty in respect of any defect, error or omission in the
Contents (or any part) arising from any drawing, design or
specification supplied by or on behalf of Airtours or by
reason of any delay in supplying the same or in respect of
any breach of copyright or other intellectual property rights
in the same belonging to any third party.
14.2.2 Countdown shall be under no liability under the above
warranty in respect of the Discount Program or the Contents
(or any part) arising from willful damage or negligence.
14.2.3 Countdown shall be under no liability under the above
warranty (or any other warranty, condition or guarantee) if
the total price for the Contents has not been paid by the due
date for payment or if Airtours is otherwise in breach of any
part of this Agreement;
14.3 Subject as expressly provided in this Agreement all warranties,
conditions or other terms implied by statute or common law are
excluded to the fullest extent permitted by law.
14.4 Any claim by Airtours which is based on any defect error or omission
in the quality or condition of the Contents or their failure to
correspond with their description shall (whether or not delivery is
refused by Airtours) be notified to Countdown within 28 days from
the date of delivery or (where the defect or failure was not
apparent on reasonable inspection) within a reasonable time after
discovery of the defect or failure. If delivery is not refused and
Airtours does not notify Countdown accordingly, Airtours shall not
be entitled to reject the Contents
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and Airtours shall be bound to pay the Price as if the Contents had
been delivered in accordance with this Agreement.
14.5 Where any valid claim in respect of any of the Contents which is
based on any defect in the quality or condition of the Contents or
their failure to meet with their description is notified to the
Countdown in accordance with this Agreement, Countdown shall be
entitled to replace the Contents (or the part in question) free of
charge or, at Countdown's sole discretion, refund to Airtours the
Price of the Contents (or a proportionate part of the price), but
Countdown shall have no further liability to Airtours.
14.6 Except in respect of death or personal injury caused by Countdown's
negligence, Countdown shall not be liable to Airtours by reason of
any representation (unless fraudulent), or any implied warranty,
condition or other term, or any duty at common law, or under the
express terms of this Agreement, for any indirect, special or
consequential loss or damage (whether for loss of profit or
otherwise and whether caused by the negligence of Countdown, its
employees or agents or otherwise) which arise out of or in
connection with the supply of the Service or the Contents or their
use of resale by Airtours.
14.7 Airtours warrants that it owns all copyright and any other
intellectual property rights in the Design and hereby agrees to and
indemnifies Countdown from and against all claims demands and
actions howsoever arising in relation to the Design.
14.8 Countdown warrants that the provision of the Services will not be
affected by any changes to its IT systems caused by the advent of
the Year 2000, save that such warrant does not apply or extent to
the IT systems of any of Countdown's suppliers, contractors, agents
or other third parties.
14.9 14.9.1 If Airtours has any claim made against it against which it is
indemnified by Countdown it will within 28 days notify
Countdown in writing giving such details as are available,
and Countdown agrees that Airtours may take such steps as may
be necessary to defend or settle such claim provided that
Airtours shall consult with Countdown on the terms of such
defense and may not settle any claim without the prior
consent of Countdown (such consent not to be unreasonably
withheld or delayed).
14.9.2 Countdown shall afford such reasonable assistance to Airtours
as may be necessary in responding to or defending any such
claim.
14.9.3 If any claim for which Countdown is liable to indemnify
Airtours becomes the subject of litigation or arbitration
Countdown may if it so decides take over the conduct of such
litigation or arbitration in the name or Airtours and
Airtours will provide Countdown with all reasonable
assistance necessary in dealing with such claims.
14.9.4 Any consultation or assistant on the part of Countdown
pursuant to this clause shall be given entirely without
prejudice and without admission of any liability on any
account whatsoever on the part of Countdown in respect of any
claim or in relation to the existence or terms of any
indemnity or otherwise.
15. FORCE MAJEURE
15.1 Neither party shall be liable to the other if performance of any of
its obligations hereunder is prevented, hindered, or delayed by the
occurrence of circumstances beyond its control including but not
limited to acts of God, strikes or any other industrial action
whether actual or threatened, war, civil commotions, acts of
government or restrictions imposed by government which effect the
operation of the arrangements reached between the parties under this
Agreement. Following the occurrence of any such event the party
effected thereby shall forthwith notify the
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other party of such occurrence and such party shall use reasonable
endeavors to overcome or minimize the adverse effect thereof and
shall inform the other party of what steps that it is taking so to
do.
16. ARBITRATION
16.1 Any dispute arising out of or in connection with this Agreement
shall be referred to the arbitration of a single arbitrator
appointed by agreement between the parties or in default of an
agreement nominated on the application of either party by the
President for the time being of the Law Society of England and
Wales. Such arbitrator shall act as expert and his costs shall be
apportioned as the arbitrator in his discretion shall determine.
17. NOTICES
17.1 Any notice to be given under this Agreement shall be in writing and
sent to the recipient at the address set out herein (or such other
address as may be provided for that purpose) either by hand or by
first class pre-paid post or facsimile and shall be deemed delivered
48 ours after posting if sent by post, on delivery if delivered by
hand and on completion of transmission if sent by facsimile.
18. GOVERNING LAW
18.1 This Agreement shall be governed by the laws of England and Wales
and shall be subject to the exclusive jurisdiction of the Courts of
England and Wales.
19. GENERAL
19.1 Nothing in this Agreement shall create, or be deemed to create a
partnership or save as expressly provided the relationship of
principal and agent between the parties.
19.2 This Agreement constitutes the entire agreement and understanding of
the parties and supersedes all prior written as oral representations
agreements or understanding between them relating to the subject
matter of this Agreement.
19.3 If any term, conditions or provision of this Agreement shall be held
by any Court or other authority of competent jurisdiction to be
illegal void or unenforceable under any applicable law to any extent
such term. condition or provision shall be deemed to be severed from
the remaining terms and conditions of this Agreement which shall
continue in force and be valid and enforceable to the fullest extent
permitted by law.
19.4 A failure by either party hereto to exercise or enforce any rights
conferred upon it by this Agreement shall not be deemed to be a
waiver of such rights or operate so as to bar the exercise or
enforcement thereof at any subsequent time or times.
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20. RESTRICTIONS
20.1 Any restriction contained in this Agreement by virtue of which this
Agreement is subject to registration under the Restrictive Trade
Practices Act 1976 shall come into effect on the day following the
day in which particulars of this Agreement have been furnished to
the Office of Fair Trading (or on such late date as may be
permitted). Airtours shall furnish the required particulars within 3
months of the date of this Agreement.
SIGNED for and on behalf of
COUNTDOWN PLC
By: /s/ David Vaillancourt
------------------------------
SIGNED for and on behalf of
AIRTOURS HOLIDAYS LIMITED
By: /S/ R.J. Carrick
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