UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 ------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________to________________________ Commission file number 0-24404 TRANSMEDIA EUROPE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-3701141 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND --------------------------------------------------- (Address of principal executive offices) (zip code) U.K. 011-44-171-930-0706 --------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes |_| No |X| 35,844,931 Shares, $.00001 par value, as of July 31, 2000 (Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date) TRANSMEDIA EUROPE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET --------------------------------------------------------------------------------

~~March~~June 3130, September 30, 2000 1999 (Unaudited) (Audited) ----------- ------------- Assets Current assets Cash and cash equivalents $ ~~682~~619,~~361~~731 $ 340,511 Trade accounts receivable ~~734~~753,~~827~~442 441,869 Restaurant credits (net of allowance for irrecoverable credits of $27 22,~~066~~422 as of ~~March~~June 3130, 2000 and $ 36,449 as of September 30, 1999) ~~638~~590,~~432~~843 705,996 Amounts due from related parties ~~(Note 7) 346~~341,~~564~~841 1,095,783 Inventory 5,198,208 36,462 Other current assets ~~404~~112,~~676~~283 ~~419~~382,~~108~~646 Prepaid fees 406,000 406,000 ----------- ----------- Total current assets 38,~~212~~022,~~860~~348 3,409,267 ----------- ----------- Non current assets Investment in affiliated ~~company~~companies ~~(Note~~-- ~~5) 26,924~~ 21,269 Office furniture and equipment, (net of accumulated depreciation of $~~894~~ 634,~~437~~904 as of ~~March~~June 3130, 2000 and $988,807 as of September 30, 1999) ~~541~~736,~~282~~184 430,792 Goodwill, (net of accumulated amortization of $1,~~656~~899,~~252~~221 as of ~~March~~June 3130, 2000 and $ 1,170,311 as of September 30, 1999) ~~(Note 6)~~ 9,~~547~~304,~~628~~659 10,033,569 Intangible and other assets, (net of accumulated amortization and impairment write-down of $~~830~~40,~~719~~000 as of ~~March~~June 3130, 2000 and $ 763,362 as of September 30, 1999) ~~(Note 6) 370~~360,000 1,257,922 Other assets ~~332~~458,~~063~~552 320,753 Prepaid fees ~~203~~101,~~000~~500 406,000 ----------- ----------- Total non-current assets 1110,~~020~~960,~~897~~895 12,470,305 ----------- ----------- TOTAL ASSETS $1418,~~233~~983,~~757~~243 $15,879,572 =========== ===========

See accompanying notes 2 TRANSMEDIA EUROPE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) --------------------------------------------------------------------------------

~~Three~~June ~~months Three months Six months Six months ended ended ended ended March 31~~30, ~~March~~September 3130, ~~March 31, March 31,~~ 2000 1999 ~~2000~~(Unaudited) ~~1999~~(Audited) ------------ ------------ -~~-----------~~ ~~------------~~Liabilities ~~Revenues~~Current liabilities Bank lines of credit $ 3206,~~375,713~~488 $ 449,142 Trade accounts payable 2,~~339~~899,~~862~~975 ~~$ 6~~1,~~485~~511,~~875~~409 $Deferred 5income 4,~~060~~797,~~301~~940 ~~Cost~~1,029,550 ofAccrued ~~revenues~~liabilities (1,807,373 2,~~015~~088,~~573)~~184 (Amount due to related parties 3,649,450 1,~~359~~138,~~603)~~872 Notes payable (3Note 4) 2,~~628~~100,~~629)~~230 (3,~~073~~132,~~315)~~425 ------------ ------------ Total current liabilities 15,461,456 9,349,582 Non-current liabilities : Amount due to related party -- 1,302,137 Other non-current liabilities 19,455 41,514 ------------ ------------ ~~Gross~~Total ~~profit~~liabilities 115,~~360~~480,~~140~~911 ~~980~~10,~~259 2~~693,~~857,246~~233 ~~1,986,986 Selling, general and administrative expenses (3,357,166) (2,324,304) (6,311,267) (4,014,612)~~ ------------ ------------ Minority interest -- 389,864 ------------ ------------ ~~Loss~~Stockholders' ~~from~~equity ~~operations~~6 (1~~,997,026) (1,344,045) (3,454,021) (~~/2~~,027,626)~~ ~~Share~~% ofConvertible ~~profits/(losses)~~preferred stock, ~~including~~$0.01 ~~amortization~~par ofvalue ~~goodwill~~per onshare, ~~investment~~5,000,000 ofshares ~~affiliated companies 79~~authorized,~~900~~ 31590,~~684~~857 ~~(84,535)~~issued ~~(275)~~and ~~Interest~~outstanding ~~expense~~shares ~~(12,647)~~as ~~(187,034)~~of ~~(24,396)~~June ~~(323~~30,~~549)~~ ~~Interest~~2000 ~~income~~and --September 630,~~353~~ 41999 5,~~146~~909 65,~~353~~909 ~~------------~~Common ~~------------~~stock, ~~------------~~$0.00001 ~~------------~~par ~~Loss~~value ~~before~~per ~~income~~share ~~taxes~~authorized (195,~~929~~000,~~773)~~000 ~~(1,493,042)~~shares; (335,~~558~~344,~~806)~~931 (2issued and outstanding as of June 30,~~345,097)~~ ~~Income~~2000 ~~taxes~~and --28,516,843 --as --of --September ~~------------~~30, ~~------------~~1999) ~~------------~~352 ~~------------~~285 ~~Loss~~Additional ~~after~~paid ~~income~~in ~~taxes~~capital (134,~~929~~920,~~773)~~601 (128,~~493~~947,~~042)~~501 ~~(3,558,806)~~Treasury stock (2196,~~345,097)~~995 ~~Minority~~shares ~~Interest~~at ~~388,810~~cost) (16517,~~427~~112) ~~815,122~~ (~~103~~517,~~464~~112) ~~Preferred~~Cumulative ~~stock~~foreign ~~dividend~~currency ~~(33~~translation adjustment 97,~~605)~~666 ~~(33~~155,~~605)~~248 Accumulated deficit (6731,~~210~~005,084) (6723,~~210~~795,356) ------------ ------------ Total stockholders' equity 3,502,332 4,796,475 ------------ ------------ ~~Net~~TOTAL ~~loss~~LIABILITIES $AND ~~(1,574,568)~~STOCKHOLDERS' $EQUITY ~~(1,543,074)~~ $ (218,~~810~~983,~~894)~~243 $ (215,~~515~~879,~~771)~~572 ============ ============ ~~============ ============ Loss per common share $ (0.05) $ (0.08) $ (0.08) $ (0.12) Weighted average number of common shares outstanding 34,856,683 20,519,121 33,718,693 20,162,010~~

See accompanying notes 3 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS --------------------------------------------------------------------------------

Three months Three months ~~Six~~Nine months ~~Six~~Nine months ended ended ended ended ~~March~~June 3130, ~~March~~June 3130, ~~March~~June 3130, ~~March~~June 3130, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ~~Net~~Revenues ~~loss~~$ 3,846,623 $ 2,213,530 $ 10,332,498 $ 7,273,831 Cost of revenues (1,~~574~~847,~~568~~421) $(1,~~543~~148,~~074~~519) $(5,476,050) (4,221,834) ------------ ------------ ------------ ------------ Gross profit 1,999,202 1,065,011 4,856,448 3,051,997 Selling, general and administrative expenses (6,456,735) (1,673,628) (12,437,905) (5,688,240) ------------ ------------ ------------ ------------ Loss from operations (4,457,533) (608,617) (7,581,457) (2,~~810~~636,~~894~~243) $Share of profits/(losses), including amortization of goodwill on investment, of affiliated companies (240,212) (106,964) (324,747) (107,239) Interest expense (5,562) (162,447) (24,958) (485,996) Interest income 2,~~515~~981 1,~~771~~172 7,127 7,525 ------------ ------------ ------------ ------------ Loss before income taxes (4,700,326) ~~Other~~(876,856) ~~comprehensive~~(7,924,035) (3,221,953) Income taxes -- (1,049) -- (1,049) ------------ ------------ ------------ ------------ Loss after income taxes (~~loss~~4,700,326) ~~Foreign~~(877,905) ~~currency~~(7,924,035) ~~translation~~(3,223,002) ~~adjustment~~Minority 14interest -- 103,~~489~~464 ~~159~~815,~~527~~122 84-- Preferred stock dividend (33,~~157~~605) 73(33,~~288~~605) (100,815) (100,815) ------------ ------------ ------------ ------------ ~~Comprehensive~~Net loss $ (14,~~560~~733,~~079~~931) $ (1808,~~383,547~~046) $ (27,~~726~~209,~~737~~728) $ (23,~~442~~323,~~483~~817) ============ ============ ============ ============ Loss per common share $ (0.13) $ (0.03) $ (0.22) $ (0.16) Weighted average number of common shares outstanding 35,207,431 22,154,619 33,059,937 20,608,318

See accompanying notes 4 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS) --------------------------------------------------------------------------------

~~Six~~Three months ~~ended~~Three ~~Six~~ months ~~ended~~Nine ~~March~~months ~~31,~~Nine ~~2000~~months ~~March~~ended ~~31,~~ended ~~1999~~ended ~~--------------~~ended ~~--------------~~June ~~Cash flows from Operating Activities: - Net loss $(2~~30,~~810,894)~~ ~~$(2,515,771)~~June ~~Adjustment to reconcile net loss to net cash used in operating activities - Depreciation of property and equipment 86~~30,~~632~~ ~~18,495~~June ~~- Amortization: Goodwill 485~~30,~~940~~ ~~146,839~~June ~~- Amortization: Affiliates 6~~30,~~650~~ ~~12,670~~2000 -1999 ~~Amortization:~~2000 ~~Intangibles~~1999 ~~67,357 65,700~~ - ~~Provision for irrecoverable restaurant credits (9,383) (245,614)~~ - ~~Share of profits/losses of affiliates 77,885 (12,395)~~ - ~~Minority interests (1,054) (103,464)~~ - ~~Termination of employment contract 109,000~~ -- ~~Changes in assets and liabilities:~~ - ~~Trade accounts payable (422,331) 98,438~~ - ~~Accrued liabilities (581,527) (367,253)~~ - ~~Restaurant credits 76,947 616,280~~ - ~~Prepaid expense and other current assets 14,432 112,202~~ - ~~Trade accounts receivable (292,958) 185,919~~ - ~~Deferred income 388,096 (178,409)~~ - ~~Accrued sign~~-~~on fees~~ -- ~~(296,500)~~ - ~~Other assets (11,310) (142,611)~~ - ~~Non~~-~~current liabilities (323,180) 7,394~~ - ~~Accrued interest 41,021 49,228~~ - ~~Prepaid fees 203,000~~ -- ----------- ----------- Net ~~cash~~loss ~~used in operating activities~~ $(24,~~895~~733,~~677~~931) ~~(2,548,852)~~$ ~~----------- ----------- Cash flows from investing activities: - Purchase of NAMA --~~ (~~100~~808,~~000~~046) ~~- Purchase of Porkpine --~~ $(257,~~575) - Purchase of property and equipment (197~~209,~~122~~728) $(53,~~547) ----------- ----------- Net cash used in investing activities (197~~323,~~122~~817) ~~(131,122)~~Other ~~-----------~~comprehensive ~~-----------~~income ~~Cash flows from financing activities: - Net proceeds received from issuance of common stock 3,539,583 1,507,000 - Due from/~~(toloss) ~~related~~Foreign ~~parties~~currency ~~754,287~~translation ~~1,765,908~~adjustment ~~- Repayment of notes payable~~ (~~636~~141,~~985~~739) ~~(950~~183,~~000)~~439 ~~- Repayment of Line Credit~~ (~~392~~57,~~583~~582) ~~(214~~404,~~943)~~343 - ~~Loan note from related party 100,000~~ -- --------~~---~~ ----------- ~~Net cash provided by financing activities 3,364,302 2,107,965~~ ----------- ----------- ~~Effect~~Comprehensive ofloss ~~foreign currency on cash 70~~$(4,~~347 230~~875,~~044 ----------- ----------- Net increase/(decrease~~670) in$ ~~cash and cash equivalents 341,850~~ (~~341~~624,~~965~~607) ~~Cash and cash equivalents at beginning of period 340~~$(7,~~511 747~~267,~~913~~310) ~~----------- ----------- Cash and cash equivalents at end of period~~ $ ~~682~~(2,~~361~~919,474) $=========== ~~405,948~~=========== =========== ===========

5 TRANSMEDIA EUROPE INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS --------------------------------------------------------------------------------

~~March~~Nine ~~31,~~months ~~September~~ended Nine months ended June 30, 2000 June 30, 1999 ~~Transmedia~~----------------- ~~Australia~~----------------- ~~Holdings~~Cash ~~Cost~~flows offrom ~~investment~~Operating $Activities: ~~253~~- Net loss $(7,~~349~~209,728) $(3,323,817) ~~253~~Adjustment to reconcile net loss to net cash used in operating activities - Depreciation of property and equipment 123,~~349~~663 27,451 - Amortization: Goodwill 728,910 249,601 - Amortization: Affiliates 9,975 19,004 - Amortization: Intangibles 30,000 99,388 - Provision for irrecoverable restaurant credits (14,027) (43,401) - Share of profits/losses of affiliates 314,772 88,235 - ~~From~~Termination ~~date~~of employment contract 959,781 -- - Gain on termination of ~~acquisition~~TM tolicence ~~September~~(335,097) -- Changes in assets and liabilities: - Trade accounts payable 1,388,566 (716,322) - Accrued liabilities (280,811) (622,044) - Restaurant credits 129,180 434,600 - Prepaid expense and other current assets -- 30,655 ~~1999~~- Trade accounts receivable (~~249~~311,~~800~~573) 180,663 - Deferred income 3,768,390 264,232 - Accrued sign-on fees -- (~~249~~296,~~800~~500) - ~~Six~~Other ~~months~~assets ~~ended~~270,363 ~~March~~(95,391) 31- Non-current liabilities (324,196) ~~2000~~7,310 - Accrued interest (7131,~~904~~513) 47,335 - Prepaid fees 304,500 -- - ~~Amortization~~Other ofnon-current ~~goodwill~~assets on(137,799) ~~investment~~-- - Inventory (215,~~835~~161,746) (1736,~~145~~462) ----------- ----------- Net cash used in operating activities (905,~~190~~778,390) (133,~~596~~685,463) ~~Amount~~----------- ~~due~~----------- toCash ~~the~~flows ~~Company~~from 90investing activities: - Purchase of NAMA -- (100,~~190~~000) - Purchase of Porkpine -- (25,575) - Purchase of property and equipment (429,055) 25,878 ----------- ----------- $Net cash used in investing activities (429,055) (99,697) ----------- $----------- ~~13,596~~Cash ~~=========~~flows ~~=========~~from ~~Transmedia~~financing ~~Australia~~activities: ~~Travel~~- ~~Holdings~~Net ~~Cost~~proceeds received from issuance of ~~investment~~common $stock ~~126~~3,~~748~~604,583 $3,757,000 - Due from related parties 4,229,377 1,126,~~748~~319 ~~Share~~- Repayment of ~~losses~~notes -payable ~~From~~(1,032,195) ~~date~~(1,432,459) of- ~~acquisition~~Repayment toof ~~September~~bank ~~30,~~line ~~1999~~of credit (86242,~~556~~654) (86312,~~556~~807) - ~~Six~~Loan ~~months~~note ~~ended~~from ~~March~~related 31party -- -- - DBS Direct - Capital contribution by TMAP -- 375,000 ~~2000~~----------- (5----------- Net cash provided by financing activities 6,~~981)~~559,111 3,513,053 ----------- ----------- ~~Amortization~~Effect of ~~goodwill~~foreign currency on ~~investment~~cash (772,~~287~~446) (593,~~327~~940) ----------- ----------- $Net 26increase/(decrease)increase in cash and cash equivalents 279,~~924~~220 $(366,047) 34Cash and cash equivalents at beginning of period 340,~~865~~511 ~~=========~~747,913 ~~=========~~Cash ~~Total~~acquired ~~investment~~with inacquisitions ~~Affiliated~~-- ~~Companies~~2,728 ----------- ----------- Cash and cash equivalents at end of period $ 26619,~~924~~731 $ 21384,~~269~~594 =========== ===========

See accompanying notes 6 TRANSMEDIA EUROPE INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) -------------------------------------------------------------------------------- Interest and income tax cash payments during the periods presented were as follows: Nine months ended Nine months ended June 30, 2000 June 30, 1999 ------------- ------------- Interest $ 23,054 $ 138,057 SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES: (i) In December 1998 the Company issued 600,000 shares of Common Stock to acquire the interests of minority shareholders in Transmedia France. (ii) In November 1999 the Company issued 1,636,005 shares of Common Stock to J. Vittoria, a former director and chairman of the board, in full satisfaction of a loan note, together with accrued interest, totaling $1,308,804. (iii) In November 1999 the Company issued 125,000 shares of Common Stock to M. Chambrello, former Chief Executive Officer, in full satisfaction of a loan of $100,000. (iv) In March 2000 the Company issued 50,000 shares of Common Stock to its former Chief Executive Officer in part payment of a settlement agreement. (v) In May 2000 the Company issued 412,500 shares of Common Stock to Charles Taylor, its former Chief Operating Officer in part payment of a settlement agreement. 7 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 1 - The Company Transmedia Europe, Inc. ("TME" or "the Company") is a global provider of membership-based consumer and business services through its subsidiaries and affiliates. These services are primarily marketed to major corporations providing specifically designed loyalty programs to assist in customer acquisition, activation and retention. The Company's various member-benefit programs are currently offered in 28 countries and globally via the Internet. The Company estimates that it currently has over 9 million members participating in its various loyalty programs. The business of the Company comprises four segments: 1. The design and supply of a range of loyalty marketing and member benefit programs to corporations and affinity groups. Additionally, the Company provides member benefit packages to individuals on an international scale, 2. E-commerce and Internet services, 3. Direct marketing through DBS Direct, and 4. Travel services, through its affiliates. History The Company was incorporated under the laws of the State of Delaware in February 1993. On May 19, 1993 the Company acquired, pursuant to a Master License Agreement ("License Agreement") dated December 14, 1992, as amended April 12, and August 11, 1993 an exclusive license (the "License") to use certain trademarks and service marks, proprietary computer software programs and know-how of Transmedia Network, Inc. ("Network") to establish and operate a discount restaurant charge card business in clearly defined geographical areas. On April 7, 2000 the Company and Network executed a termination agreement ("Termination Agreement") pursuant to which the Company agreed to cancel the License Agreement in return for forgiveness of indebtedness (see "Recent Developments" below). The Company commenced operations as a discount restaurant charge card business in the United Kingdom in January 1994 and in France in March 1996. The Company has worked closely with Transmedia Asia Pacific, Inc. ("TMAP") for a number of years. TMAP acquired a similar license to that of the Company to operate a discount restaurant charge card business in Asia and other Pacific Rim countries. TMAP commenced operations in Sydney, Australia in November 1994. TMAP also executed a termination agreement with Network on April 7, 2000. Through 1996 the Company operated solely as a discount restaurant charge card business in the United Kingdom through its wholly owned subsidiary Transmedia UK PLC. In late 1996 management identified the need to expand the Company's operations to become a broader based "member benefits" provider, believing that the Company needed a range of benefits to offer its corporate clients and individual members, in addition to discount dining. Such benefits included discount shopping, travel, hotel accommodation and telephone helpline services. TMAP made a similar strategic decision. As a result the Company and TMAP jointly acquired in April 1997 Countdown Holdings Limited ("Countdown"), an international provider of membership based discount shopping and services. 8 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 1 - The Company (continued) In December 1997 the Company and TMAP acquired control of NHS Australia Pty Limited ("NHS"), through Transmedia Australia Holdings Pty Limited ("Transmedia Australia"). NHS acquired the business operations of Nationwide Helpline Services Pty Limited ("Nationwide"). NHS is a provider of telephone helpline services covering advice on legal, tax, accounting, medical and home emergency. In addition, NHS offers travel related products such as airline tickets, vacation packages, insurance and provides international medical case management and repatriation services to a number of insurance companies. On May 14, 1998 the Company and TMAP jointly acquired Porkpine Limited ("Porkpine"). Porkpine, a company incorporated in Ireland, trades as Logan Leisure, a business which produces and sells discount shopping and service directories in Ireland. On May 22, 1998 the Company and TMAP jointly acquired, through Transmedia Australia Travel Holdings Pty Limited ("Transmedia Holdings") Breakaway Travel Club Pty Limited ("Breakaway"). Breakaway is a licensed travel agent specializing in discount packaged vacations for individuals employed in the travel industry in Australia. In July 1998 the Company and TMAP jointly established Countdown USA, Inc. ("Countdown USA") to offer member benefits in the United States and in November 1998 Countdown USA acquired the membership base and certain assets of National Association of Mature Americans, Inc., a provider primarily of discounted mail order and retail pharmacy products. On November 17, 1998, Transmedia Australia acquired the balance of 49% of the shares of common stock of NHS. In November 1998 Countdown launched an Internet shopping web-site, Countdown-Arcade. Finally, on June 15, 1999 the Company and TMAP jointly acquired DSS Direct Connect, L.L.C. ("DBS Direct") a marketer and full-service installer of DirecTV. Recent Developments In light of the close collaboration between the Company and TMAP since incorporation and, more particularly, in view of their joint ownership of Countdown, DBS Direct, Countdown USA, Logan Leisure, NHS, and Breakaway Travel, management of the Company and TMAP assessed the rationale for a merger of the two entities. Management believed that keeping the two companies distinct and separate is not appropriate or advantageous to shareholders and therefore on December 28, 1999 they executed a definitive merger agreement ("Merger Agreement"). Under the terms of the Merger Agreement, TMAP will issue one share of its common stock for each share of Common Stock of the Company. The merger, which is expected to be completed by December 31, 2000, is subject to a number of conditions, including shareholder approval. The Company and TMAP each established independent committees to determine the fairness of the proposed transaction from a financial point of view. 9 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 1 - The Company (continued) On April 7, 2000 the Company and Network executed the Termination Agreement pursuant to which the Company agreed to cancel the License Agreement in return for forgiveness of a promissory note in default in the sum of $250,000 together with accrued interest of approximately $73,000, forgiveness of a non-interest bearing promissory note in default in the sum of $750,000 and forgiveness of past due royalty payments under the License Agreement in the sum of approximately $83,000. Net of the carrying value of the License the Company recorded a gain of approximately $335,000 on termination of the License. The Termination Agreement provided for a transition period through June 30, 2000 during which period the Company transfered its restaurant cardholder and participating restaurant bases to a new discount-dining product bearing the name Taste Card. The Company believes that termination of the License Agreement is in the best interests of the Company because the License Agreement was no longer fundamental to the success of the Company's restaurant card business. The restaurant card business is now an integral part of the Company's member benefit/loyalty marketing operations and therefore is expected to operate more favorably under the "Taste Card" brand developed by the Company. Further, the Company developed its own software and systems and therefore the Company received no benefit from the systems and software provided under the License Agreement for the conduct of its day-to-day operations. The Company realized a material financial benefit from the Termination Agreement. As of June 30, 2000, Transmedia Europe, Inc., had the following equity interests in its direct subsidiaries and affiliates: Name Country of Incorporation % Owned Subsidiaries: Transmedia UK plc United Kingdom 100 Countdown Holdings Limited United Kingdom 50 Porkpine Limited Channel Islands 50 Countdown USA, Inc. United States 50 DSS Direct Connect, LLC United States 50 Affiliates: Transmedia Australia Holdings Pty Ltd Australia 50 Transmedia Australia Travel Holdings Pty Ltd Australia 50 All references herein to "Company" and "TME" include Transmedia Europe, Inc. and its subsidiaries unless otherwise indicated. Although the Company has significant influence over the operating and financial decisions of its affiliates, the Company does not have effective control over their operations and therefore they are accounted for under the equity method. 10 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 2 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, the statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2000, the results of operations for the three and nine months ended June 30, 2000 and 1999 and the changes in cash flows for the nine months ended June 30, 2000 and 1999. The results of operations for the three and nine months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. The September 30, 1999 balance sheet has been derived from the audited consolidated financial statements as of that date included in the Company's annual report on Form 10-K. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K. Note 3 - Significant accounting policies (a) Principles of consolidation The consolidated unaudited financial statements include the financial statements of the Company and its subsidiaries and affiliates, including 50% held subsidiaries where effective control is exercised by the Company over the financial and operational decisions of the subsidiary. All significant inter-company transactions have been eliminated on consolidation. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. (b) Restaurant credits Restaurant credits represent the total advances made to participating restaurants in exchange for food and beverage credits, less the amount by which these food and beverage credits are recouped by the Company as a result of cardholders utilizing their cards at participating restaurants. The amount by which such food and beverage credits are recouped amounts to approximately 50% of the retail value of food and beverage consumed by cardholders. The Company reviews recoverability of restaurant credits and establishes an allowance for restaurant credits to restaurants that have ceased operations or whose credits may not be utilized by cardholders. The amount of funds advanced to participating restaurants are generally unsecured and are recoverable as cardholders use their restaurant charge card at such restaurants. In certain cases the Company may request a personal guarantee from the owner of a restaurant as surety for advances made. Generally no other forms of collateral or security are obtained from restaurant owners. 11 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 3 - Significant accounting policies (continued) (c) Long-lived assets Long-lived assets, such as office furniture and equipment, goodwill and other intangibles, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. (d) Intangible assets excluding goodwill Other intangible assets consist primarily of the cost of the Transmedia License paid to Network in cash plus the fair value of shares of Common Stock granted in exchange for the Transmedia License to operate in the licensed territories using the systems, procedures and 'know how' of the Transmedia business. The license cost was being amortized on a straight-line basis over its estimated useful life of 15 years from the commencement of operations in December 1993 until terminated in April 2000. (e) Office furniture and equipment Office furniture and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of between three and five years. (f) Goodwill The excess of cost of investments over the fair value of net assets acquired which is not otherwise allocated is determined to be goodwill and is amortized on a straight-line basis over a period of ten or fifteen years. (g) Income taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce the deferred tax assets when management determines it is more likely than not that the related tax benefits will not be realized. (h) Cash equivalents For purposes of the statements of cash flows, the Company considers all investments with an original maturity of three months or less to be a cash equivalent. (i) Inventory Inventories are valued at the lower of cost or market, which approximates the first in, first out method. 12 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 3 - Significant accounting policies (continued) (j) Financial instruments Financial instruments held by the Company include cash and cash equivalents, notes payable, restaurant credits and amounts due from/to related parties and approximated fair value as of June 30, 2000 and September 30, 1999 due to either short maturity or terms similar to those available to similar companies in the open market. (k) Revenue recognition Revenues and fees comprise: i) The retail value of food and beverages purchased from participating restaurants by the Company's Transmedia cardholders (less the cardholders' 20% or 25% discount) and cardholders' membership fees. ii) Countdown cardholders' membership fees and Countdown voucher sales. iii) Countdown license fees from licenses. iv) Porkpine cardholders' membership fees and voucher sales. v) Countdown USA membership fees. vi) DBS Direct revenue from the sale of DirecTV equipment and installation charges and subscriber activation commissions. Transmedia card membership fees are recognized as revenue in equal monthly installments over the membership period. All other components of revenue, including other membership fees and Countdown license fees are non-refundable and recognized as revenue when the related services have been performed. (l) Foreign currencies The reporting currency of the Company is the United States dollar. The functional currencies of the Company's operating subsidiaries and affiliates are UK pound sterling, United States dollar, Irish punt and the Australian dollar. The UK pound sterling (Countdown and Transmedia UK), United States dollar (Countdown USA and DBS Direct) and Irish punt (Porkpine) are the functional currencies of the Company's member benefits/loyalty marketing businesses because it is the primary currency of the environments in which the businesses operate as autonomous units. All cash generated and expended by these businesses is in those currencies. For the same reasons the functional currency of the company's interests in Transmedia Australia and Breakaway is the Australian dollar because those businesses are located, and primarily operate in Australia. 13 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 3 - Significant accounting policies (continued) (l) Foreign currencies (continued) For consolidation purposes, the assets and liabilities of overseas subsidiaries are translated at the closing exchange rates. Consolidated statements of income of such subsidiaries are consolidated at the average rates of exchange during the period. Exchange differences arising on the translation of subsidiaries' financial statements are recorded in the cumulative foreign currency translation adjustment account as a component of stockholders' equity. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the consolidated statement of operations. The average exchange rates during the three and nine months ended June 30, 2000 and 1999 and the exchange rates in effect at June 30, 2000 and September 30, 1999 were as follows:

~~Three~~UK ~~months~~Pound ~~Three~~Australian ~~months~~Irish ~~Six~~Sterling ~~months Six months ended ended ended ended March 31, March 31, March 31, March 31, 2000 1999 2000 1999 ----------- ----------- ----------- -----------~~ (a(pound)) ~~Statement~~Dollar ofPunt ~~operations~~Average ~~Revenues~~exchange rates: ~~Member~~3 ~~benefits/loyalty~~months ~~programs~~ended $June 230,~~488,851~~ $2000 ~~2,339,862~~1.5310 $0.5895 ~~4,957,471 $ 5,060,301 Direct marketing 886,862 --~~ 1~~,528,404~~.1850 ~~-- ----------- ----------- ----------- ----------- Revenue for reportable segments and consolidated revenues~~ 3~~,375,713~~ ~~2,339,862~~months ~~6,485,875~~ended ~~5,060,301~~June ~~=========== =========== =========== =========== Operating loss: Member benefits/loyalty programs 103~~30,~~110~~ ~~(45,812)~~1999 ~~272,673~~1.6067 ~~(115,392)~~0.6539 ~~Direct marketing (~~1~~,178,555)~~.3415 --9 ~~(2,034,227)~~months --ended ~~Corporate~~June ~~overhead (921~~30,~~581)~~ ~~(1,298,233)~~2000 (1~~,692,467)~~.5683 ~~(1,912,234)~~0.6094 ~~----------- ----------- ----------- ----------- Total operating loss for reportable segments (~~1~~,997,026)~~.2184 ~~(1,344,045) (3,454,021) (2,027,626) ----------- ----------- ----------- ----------- Share of affiliate profits/(losses): Member benefits/loyalty programs 45,122~~ 9~~,354~~ ~~(76,594)~~months ~~55,436~~ended ~~Travel~~June ~~services 34~~30,~~778~~ ~~22,330~~1999 ~~(7,941)~~1.6455 ~~(55,711)~~0.6374 ~~-----------~~1.4213 ~~-----------~~Closing ~~-----------~~exchange ~~-----------~~rate: ~~Total~~June ~~share of affiliate profits/ (losses) 79~~30,~~900~~ ~~31,684~~2000 ~~(84,535)~~1.5131 ~~(275)~~0.5981 ~~-----------~~1.2123 ~~-----------~~September ~~----------- ----------- Net interest expense (12~~30,~~647)~~ ~~(180,681)~~1999 ~~(20,250) (317,196) ----------- ----------- ----------- ----------- Loss before taxation and minority interests (~~1~~,929,773)~~.6463 ~~(1,493,042)~~0.6528 ~~(3,558,806) (2,345,097) =========== =========== =========== ===========~~1.3513

(m) Comprehensive income The Company adopted Statement of Financial Accounting Standard ("SFAS") No.130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income (loss), its components and accumulated balances. Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No.130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements. The only item of comprehensive income (loss) is foreign currency translation adjustments. 14 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 3 - Significant accounting policies (continued) (n) Recent accounting pronouncements not yet implemented In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities", which establishes standards for accounting for the various derivative instruments commonly used in hedging activities. This standard is now effective for fiscal years beginning after June 15, 2000. While management is still reviewing the statement, it believes the adoption of this statement will not have a material effect on the Company's consolidated financial position, results of operations or cash flows, and any effect will generally be limited to the form and content of its disclosures. Note 4 - Notes Payable On July 2, 1998 the Company engaged in a private placement of debt securities. The placement was made pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The placement consisted of a $3,125,000 face amount, 8% promissory note ("Note") payable on January 3, 1999 and resulted in net proceeds to the Company of $2,926,588 after deduction of arrangement fees. The note was secured by a pledge of 2 million shares of the common stock of TMAP ("Security Shares") held by Edward J. Guinan III, then Chairman of the Board and Chief Executive Office of the Company. The Company failed to pay the note on the due date. The Company was in discussions with the noteholder through September 1999 to agree extensions of time to repay the Note. Through September 1999 the Company made repayments totaling $1,050,000. In November 1999 the noteholder commenced sales of the Security Shares realizing net proceeds of $2,100,230. As of the date hereof the Company has repaid the balance of the note in full together with accrued interest. The Company is currently in dispute with Mr. Guinan with respect to amounts which the Company claims Mr. Guinan owes to the Company and with respect to amounts which Mr. Guinan claims are owed to him by the Company. See Part II - Other Information, Item 1 - Legal Proceedings. As of the date hereof the Company is in negotiation with Mr. Guinan to resolve the dispute. The Company may be required to arrange replacement of the Security Shares sold by the noteholder. Note 5 - Stockholders' Equity During fiscal 1997, the Company entered into an agreement with Mr. Joseph Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria advanced a loan of $1,000,000 to the Company. The purpose of the loan was to enable the Company to pay the cash element of Countdown acquisition purchase consideration. The loan, which was bearing interest at 12% per annum and was collateralized by a pledge of all the shares of Countdown purchased by the Company, was originally scheduled to mature on September 27, 1997. The loan was renewed upon maturity for an indefinite period by agreement between the Company and Mr. Vittoria. On November 1, 1999, Mr. Vittoria agreed to convert the principal of the loan, together with accrued interest in the sum of $308,804, to shares of common stock at a price of $0.80 per share. Accordingly Mr. Vittoria received 1,636,005 shares of common stock in full satisfaction of the principal of the loan and accrued interest. On October 25, 1999, Mr. M. Chambrello advanced a short-term loan to the Company in the sum of $100,000. The loan was used to meet the short term cash needs of the Company. On November 1, 1999 Mr. Chambrello agreed to convert the loan into shares of common stock at $0.80 per share. Accordingly, 125,000 shares of common stock were issued to Mr. Chambrello. 15 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 5 - Stockholders' Equity (continued) On September 30, 1999 the Company commenced a private placement of shares of its Common Stock pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The placement closed on October 5, 1999 upon the sale of 625,000 shares of Common Stock at $.65 per share resulting in net proceeds to the Company of $406,250. On October 21, 1999 the Company commenced a private placement of shares of its common stock, par value $.00001 per share ("Common Stock") pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The placement closed on November 20, 1999 upon the sale of 3,906,250 shares of Common Stock at $.80 per share resulting in net proceeds to the Company of $3,125,000. The net proceeds were applied to working capital. In November 1999 the Company issued 1,636,005 shares of Common Stock to J. Vittoria in full satisfaction of a loan note, together with accrued interest, totaling $1,308,804 and 125,000 shares of Common Stock to M. Chambrello in full satisfaction of a loan note of $100,000. In February 2000 the Company issued 8,333 shares of Common Stock upon exercise of a warrant, resulting in net proceeds to the Company of $8,333. In March 2000 the Company issued 50,000 shares Common Stock in part payment of its obligations pursuant to a settlement agreement executed by the Company and Michael R. Chambrello, former Chief Executive Officer of the Company. In March 2000 the Company issued 65,000 shares of Common Stock upon exercise of a warrant, resulting in net proceeds to the Company of $65,000. In May 2000 the Company issued 412,500 shares of Common Stock to Charles Taylor, its former Chief Operating Officer, in part payment of a settlement agreement. See Note 8 - Subsequent Events. 16 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 6 - Loss per common share The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" in fiscal 1998. SFAS 128 requires restatement of prior periods. Assumed exercise of warrants is not included in the calculation of diluted loss per share since the effect would be anti-dilutive. Accordingly, basic and diluted loss per share do not differ for any period presented. The following table summarizes securities that were outstanding at June 30, 2000 and 1999 but not included in the calculation of diluted loss per share because such shares are anti-dilutive. June 30, June 30, 2000 1999 Stock options and warrants 12,935,093 4,436,343 Note 7 - Industry and geographic area segments The Company, its subsidiaries and affiliates are engaged in four lines of business: member benefits/loyalty programs, travel services, direct marketing and e-commerce, with the latter being insignificant in the three and nine months ended June 30, 2000 and 1999. Operations of the Company's subsidiaries are conducted in Europe and the United States. The following is a summary of the Company's operations by business segment and by geographical segment. The accounting policies of the segments are the same as those described in Note 3 - Significant accounting policies. 17 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 7 - Industry and geographic area segments (continued)

Three months Three months ~~Six~~Nine months ~~Six~~Nine months ended ended ended ended ~~March~~June 3130, ~~March~~June 3130, ~~March~~June 3130, ~~March~~June 3130, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ~~Geographic~~(a) ~~region~~Statement of operations Revenues: ~~Europe~~Member benefits/loyalty programs $ 2,~~488~~146,~~851~~868 $ 2,~~279~~174,~~755~~598 4$ 7,~~908~~104,~~703~~339 4$ 7,~~983~~234,~~038~~889 ~~United~~Direct ~~States~~marketing of1,633,908 ~~America~~38,932 ~~886~~3,~~862~~162,312 6038,~~107~~942 1Internet services 65,~~577,172~~847 77-- 65,~~263~~847 -- ------------ ------------ ------------ ------------ $Revenue for reportable segments and consolidated revenues 3,~~375~~846,~~713~~623 $ 2,~~339~~213,~~862~~530 ~~$ 6~~10,~~485~~332,~~875~~498 ~~$ 5~~7,~~060~~273,~~301~~831 ============ ============ ============ ============ ~~Net~~Operating loss: ~~before~~Member ~~taxation,~~benefits/loyalty ~~minority~~programs ~~interests~~(639,467) ~~and~~117,870 ~~dividends~~(366,794) ~~Europe 638~~(108,~~630~~808) Direct marketing (1,~~320~~393,~~459~~818) ~~395~~(82,~~826~~331) (13,~~583~~428,~~950~~045) ~~United~~(82,331) ~~States~~Internet ofservices ~~America~~(305,604) (305,604) Corporate overhead (2,~~648~~118,~~303~~644) (~~204~~644,~~267~~156) (3,~~878~~481,~~097~~014) (~~760~~2,~~872~~445,104) ~~Australia~~------------ 79------------ ------------ ------------ Total operating loss for reportable segments (4,~~900~~457,533) 31(608,~~684~~617) (847,~~535~~581,457) (~~275~~2,636,243) ------------ ------------ ------------ ------------ $Share of affiliate profits/(1losses): Member benefits/loyalty programs (193,~~929~~803) (81,~~773~~844) $(1270,~~493~~397) (26,~~042~~408) $Travel services (346,~~558~~409) (25,~~806~~120) $(54,350) (80,831) ------------ ------------ ------------ ------------ Total share of affiliate profits/ (losses) (240,212) (106,964) (324,747) (107,239) ------------ ------------ ------------ ------------ Net interest expense (2,~~345~~581) (161,~~097~~275) (17,831) (478,471) ------------ ------------ ------------ ------------ Loss before taxation and minority interests (4,700,326) (876,856) (7,924,035) (3,221,953) ============ ============ ============ ============ AsGeographic ofregion AsRevenues ofEurope ~~March~~2,121,268 312,112,313 ~~September~~7,029,971 307,095,351 ~~2000~~United ~~1999~~States of America 1,725,355 101,217 3,302,527 178,480 ------------ ----------- ~~Long~~-~~lived~~ ~~assets Europe 3,691,797 3,940,570 United States of America 7,302,176 8,508,466 Australia 26,924 21,269~~ ------------ ------------ $11 3,~~020~~846,~~897~~623 $12 2,~~470~~213,~~305~~530 $ 10,332,498 $ 7,273,831 ============ ============ ~~(b)~~============ ~~Total~~============ ~~assets~~Net ~~Member~~loss ~~benefits/loyalty~~before ~~programs~~taxation, 7minority interests and dividends Europe 1,~~622~~151,~~636~~974 7(667,~~682~~381) (2,~~655~~726,123) ~~Travel~~(2,841,658) ~~services~~United 6States of America (5,~~584~~612,~~197~~088) 8(102,~~175~~511) (4,~~648~~873,165) ~~Investment~~(273,056) inAustralia ~~affiliates~~(240,212) 26(106,~~924~~964) 21(324,~~269~~747) (107,239) ------------ ------------ ~~Total~~------------ ~~assets~~------------ $14 (4,~~233~~700,~~757~~326) $15 (876,~~879~~856) $ (7,~~572~~924,035) $ (3,221,953) ============ ============ ============ ============

18 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 7 - Industry and geographic area segments (continued) As of As of June 30, September 30, 2000 1999 ----------- ------------- Long-lived assets Europe 3,657,183 3,940,570 United States of America 7,303,712 8,508,466 Australia -- 21,269 ----------- ----------- $10,960,895 $12,470,305 =========== =========== (b) Total assets Member benefits/loyalty programs 13,043,647 7,682,655 Direct marketing 5,909,614 8,175,648 Internet services 29,982 -- Investment in affiliates -- 21,269 ----------- ----------- Total assets $18,983,243 $15,879,572 =========== =========== Note 8 - Subsequent Events (i) Stockholders' Equity In July 2000 the Company sold in a private placement 500,000 shares of Common Stock resulting in net proceeds to the Company of $1,000,000. The private placement was conducted pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. The purchaser of the shares of Common Stock received a three-year warrant to purchase 100,000 shares of Common Stock at an exercise price of $2.00 per share. The net proceeds were applied to working capital and to part repayment of amounts previously advanced to the Company by TMAP. On July 21 the Company entered into an agreement with Mr. Thomas Flatley, a director of TMAP and a shareholder of the Company, whereby Mr. Flatley advanced a loan of $250,000 to the Company with conversion to common stock privileges. On August 4 2000 Mr. Flatley exercised the conversion privilege at an exercise price of $1.75 per share. Accordingly, the Company issued 142,857 shares of Common Stock in full satisfaction of the note. The exercise price of $1.75 per share was the market price on the date of conversion. Mr. Flatley received a three-year warrant to purchase 30,000 shares of Common Stock at an exercise price of $2.00 per share. Additionally, upon conversion of the note, Mr. Flatley received a further three-year warrant to purchase 50,000 shares of Common Stock at an exercise price of $1.75 per share. The net proceeds were used to make a part repayment to TMAP of monies previously advanced to the Company by TMAP. 19 TRANSMEDIA EUROPE, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Note 8 - Subsequent Events (continued) (ii) Notes Payable On August 14, 2000 the Company executed in a private placement a promissory note in the principle sum of $1,000,000. The private placement was conducted pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. The purchaser of the promissory note received a three-year warrant to purchase 100,000 shares of Common Stock at an exercise price of $1.50 per share. The promissory note is payable on February 14, 2001 and bears interest at a rate of 5% per annum, payable on maturity. The promissory note grants the holder the right to convert the note at any time through October 13, 2000 into shares of Common Stock at a conversion price of $1.50 per share. From October 14, 2000 through December 13, 2000 the note is convertible into shares of Common Stock at a conversion price of the lower of $1.50 or the average closing price of the Common Stock for the five trading days pre-October 13, 2000. Finally, the conversion price in the period December 14, 2000 through February 14, 2001, is the lower of $1.50 or the average closing price of the Common Stock for the five trading days pre-December 13, 2000. Net proceeds were applied to working capital and to part repayment of amounts previously advanced to the Company by TMAP. 20 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q and the documents incorporated herein contain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those described below and those presented elsewhere by management from time to time. When used in this Quarterly Report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "anticipate", "plan," "intend," "believe", "estimate" and similar expressions are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, the Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto. General Historically, the business of the Company was the design and supply of a range of member-benefit programs to corporations, affinity groups and individuals. In 1996 the Company and TMAP decided to work closely to implement a strategy to create a broader based international member benefits/loyalty marketing business. As a result the Company currently has established business operations in Europe, the United States and elsewhere through Countdown, Countdown USA, DBS Direct and Logan Leisure. Additionally, through its affiliates Transmedia Australia and Transmedia Holdings, it has an interest in businesses in Australia. In light of the close collaboration between the Company and TMAP in recent years and, more particularly, in view of the joint ownership of Countdown, Countdown USA, DBS Direct, NHS, Logan Leisure and Breakaway Travel, management of the Company and TMAP have executed a Merger Agreement, subject to shareholder approval. Post completion of the merger the Company aims to become a leading global provider of customized loyalty programs and services to corporations worldwide, providing superior "business-to-consumer" solutions for businesses. The Company's objective is to package online commerce and Internet content with traditional offline commerce into a web-based and real world affinity solution for corporations and associations. For members, online offerings will include Internet access (free in some jurisdictions), a customized multi-media portal, targeted e-commerce and global directory services. The Company's (including its affiliates) offline content is currently available in 28 countries and includes a wide range of products and services such as discount shopping, discount dining, travel and telephone helpline services. The future success of the Company is primarily dependent upon its ability to implement its strategy to leverage its existing assets to develop and expand its Internet activities and generate additional revenues from its member and merchant bases. The business of the Company comprises four segments: 1. The design and supply of a range of loyalty marketing and member benefit programs to corporations and affinity groups. Additionally, the Company provides member benefit packages to individuals on an international scale, 2. E-commerce and Internet services, 3. Direct marketing through DBS Direct, and 4. Travel services. 21 In its member benefits/loyalty marketing, the Company has recently focused its sales effort as a loyalty and affinity marketing service to corporate clients. Management will continue to build the Company's membership base and broaden the range of member-benefit programs offered. Management is actively recruiting senior executives to strengthen the management team to facilitate such development and expansion. The Company will continue to look for new opportunities within the member benefits/loyalty marketing industry and may expand its operations through further acquisitions. Management believes there is significant opportunity for the Company in its e-commerce and Internet services business. Such opportunity includes revenue generation, not only through the Countdown-Arcade shopping web site, but also by providing Internet services to its merchant base, corporate clients and Countdown licensees. The Company will continue to develop and expand its e-commerce and Internet services activities primarily through strategic alliances. In the United States the Company intends to aggressively develop its Countdown USA and DBS Direct businesses through cross marketing and strategic partnerships. The Company is actively recruiting senior executives to be based in the United States to support the development and expansion of Countdown USA and DBS Direct. This strengthening of the Company's United States based management team will also help to facilitate the expansion of its e-commerce and other Internet services in the United States marketplace. Results of Operations On April 7, 2000 the Company and Network executed the Termination Agreement pursuant to which the Company agreed to cancel the License in return for forgiveness of debt, accrued interest and past due royalty payments under the License, a total of approximately $1,156,000. Net of the carrying value of the License, the Company recorded a gain on termination in the quarter ended June 30 2000 of approximately $335,000. Upon termination of the license, the Company launched a new dining product, the Taste Card. The taste card program currently operates in a similar manner to the restaurant charge card program it replaced. However, the Company intends to expand the scope and appeal of the program. The Taste Card program incorporates a transactional card with a complete restaurant listing online through a new website, www.tastecard.com. The addition of the web-based system provides several advantages including: o superior customer service, with the ability for members to access and track savings at any time; o inexpensive promotion of Taste Card program online through affiliate programs with existing retailers; o improved restaurant promotion to a broader audience; o superior customer profiling; o incremental advertising and e-commerce revenue; and o reduced mailing costs. Additional interactivity and content will be added to the program over the coming months, including online reservations, wireless applications and reviews. Three Months ended June 30, 2000 compared to Three Months ended June 30, 1999 The Company generated revenues of $3,846,623 (1999: $2,213,530) in the three months ended June 30, 2000, an increase of $1,633,093 or 73.8% over the corresponding period in 1999. The Company's member benefit/loyalty marketing businesses recorded a 1.3% decline in revenues over the corresponding period in 1999. Countdown and Logan Leisure recorded increases of $43,510 and $77,969 respectively which were offset by year on year decreases in the restaurant card business ($131,930) and Countdown USA ($17,269). The decline in revenues in the UK restaurant card business was in part due to the business not being promoted in the period pre-termination of the Transmedia License. Such decreases were off-set by revenue increases at DBS Direct ($1,594,966) which was acquired in June 1999 and Internet services $65,847 (1999: $0). 22 Cost of revenues totaled $1,847,421 (1999: $1,148,519) for the three months ended June 30, 2000, generating a gross profit percentage of 52.0% (1999: 48.1%). The increase in gross profit percentage reflects a strong margin performance at DBS Direct in particular. The Company's member benefits/loyalty marketing operations improved gross profit in the three months ended June 30, 2000 to 50.6% as compared to 48.7% in the corresponding period in 1999. Selling, general and administrative expenses totaled $6,456,735 (1999: $1,673,628) for the three months ended June 30, 2000, an increase of $4,783,107 over the corresponding period in 1999. Excluding the impact of DBS Direct ($1,625,563), which was acquired in June 1999, selling general and administrative expenses increased by $3,157,544 in the three months ended June 30, 2000 as compared to the corresponding period in 1999. Selling, general and administrative expenses of the Company's member benefit/loyalty marketing operations increased by $582,695 in the quarter ended June 30, 2000 primarily due to higher payroll costs ($307,078) and the cost of re-branding and re-launching the Company's restaurant card business post termination of the Transmedia License of approximately $260,000. General administrative expenses of the Company's Internet services division totalled $371,451. Head office expenses increased by $2,203,398 as compared to the corresponding period in 1999. Head office expenses in the quarter ended June 30, 2000 included a gain of $335,097 on termination of the Transmedia License, employment termination costs of $1,100,781, investment banker fees in the sum of $101,500 and amortization of goodwill arising on the acquisition of DBS Direct of $168,717 and costs associated with the proposed merger of the Company and TMAP of approximately $258,946. Excluding the impact of these year on year exceptional items, head office costs increased by $908,551. Significant year on year increases in head office costs were incurred primarily payroll ($163,410), property costs ($135,478), corporate branding and marketing ($63,059), legal fees ($219,387) and audit and accounting ($114,023). The increase in property costs resulted from a rent increase at the Company's head office and the increase in professional fees reflected the cost of the Company bringing its regulatory reporting current during the quarter ended June 30, 2000. The Company also incurred a significant increase in consulting fees ($173,064) in the quarter ended June 30, 2000 to assist in strategic planning and to supplement in-house resource. Additionally, in the corresponding period in 1999 the Company recorded a loss on foreign currency translation of $87,965. The Company's share of profits/(losses) of its affiliates Transmedia Australia and Transmedia Holdings, including amortization of underlying goodwill, were $(193,803) and $(46,409) respectively for the three months ended June 30, 2000 (1999: $(72,307) and $(34,657)). The minority interest in the Company comprises TMAP's interest in Countdown, Porkpine, Countdown USA and DBS Direct. Results of Operations Nine Months ended June 30, 2000 compared to Nine Months ended June 30, 1999 The Company generated revenues of $10,332,498 (1999: $7,273,831) in the nine months ended June 30, 2000, an increase of $3,058,667 or 42.1% over the corresponding period in 1999. The Company's member benefit/loyalty marketing businesses recorded a 1.8% decline in revenues as compared to the corresponding period in 1999. Countdown, Countdown USA and Logan Leisure recorded increases of $88,251, $677 and $169,966 respectively which were offset by a year on year decrease in the restaurant card business $357,099 and the impact of Transmedia France, which ceased operations in December 1998, which accounted for a $32,334 decrease in revenues year on year. DBS Direct, which was acquired in June 1999, generated revenues of $3,162,312 in the nine months ended June 30, 2000 (1999: $38,942). Cost of revenues totaled $5,476,050 (1999: $4,221,834) for the nine months ended June 30, 2000, generating a gross profit percentage of 47.0% (1999: 42.0%). The Company's member benefit/loyalty marketing operations improved gross profit in the nine months ended June 30, 2000 as compared to the corresponding period in 1999 from 41.8% to 49.2%. DBS Direct achieved a gross profit of 41.0%. 23 Selling, general and administrative expenses totaled $12,437,905 (1999: $5,688,240) for the nine months ended June 30, 2000, an increase of $6,749,665 over the corresponding period in 1999. Excluding the impact of DBS Direct ($4,109,339), which was acquired in June 1999, and Transmedia France ($273,904), which ceased operations in December 1998, selling general and administrative expenses increased by $2,914,230 in the nine months ended June 30, 2000 as compared to the corresponding period in 1999. Selling, general and administrative expenses of the Company's member benefits/loyalty marketing operations increased year on year by $688,998 in the nine months ended June 30, 2000 primarily due to higher payroll costs ($493,278) and the cost of re-branding and re-launching the Company's restaurant card business post termination of the Transmedia License of approximately $260,000, net of lower professional fees $126,198. General administrative expenses of the Company's Internet services division totalled $371,451. Head Office expenses in the nine months ended June 30, 2000 increased by $1,853,781 as compared to the corresponding period in 1999. Head office expenses in the nine months ended June 30, 2000 included non-cash employment termination costs $959,781, investment banker fees $304,500, amortization of goodwill arising on the acquisition of DBS Direct of $506,151 and other employment termination costs of $300,000. Additionally, the Company recorded a gain on termination of the Transmedia License of $335,097 and incurred expenses of approximately $258,946 with respect to the proposed merger with TMAP. Excluding the impact of these year on year exceptional items, head office costs decreased by approximately $140,500. As reported above, the Company incurred significant additional expense in the quarter ended June 30, 2000 particularly in the areas of payroll, property and professional fees. As a result, the Company has incurred year on year increases in a number of expense categories in the nine months ended June 30, 2000, primarily legal fees ($213,956), audit and accounting ($158,707) and other professional fees ($50,819). Such year on year increases have been offset by the impact of non-recurring costs incurred in the corresponding period in 1999, including office relocation costs $93,280 and costs associated with the liquidation of Countdown France $152,273. Additionally, in the corresponding period in 1999 the Company recorded foreign exchange translation losses of $341,038. The Company's share of profits/(losses) of its affiliates Transmedia Australia and Transmedia Holdings, including amortization of underlying goodwill, were $(270,397) and $(54,350) respectively for the nine months ended June 30, 2000 (1999: $(38,264)and $(68,975)). The minority interest in the Company comprises TMAP's interest in Countdown, Porkpine, Countdown USA and DBS Direct. Liquidity and Capital Resources The following chart represents the net funds provided by or used in operating, financing and investment activities for each period as indicated: Nine Months Ended ----------------- June 30, 2000 June 30, 1999 Cash used in Operating Activities $(5,778,390) $(3,685,463) Cash used in Investing activities (429,055) (99,697) Cash provided by financing Activities 6,559,111 3,513,053 The Company recorded a net loss of $7,209,728 for the nine months ended June 30, 2000. Such loss, adjusted for non-cash items, namely depreciation and amortization charges totaling $892,548, the Company's share of losses of affiliates of $314,772, gain on termination of the Transmedia License $(335,097), a release of provision for irrecoverable restaurant credits of $14,027 and the issuance of shares in connection with the termination of employment contracts $959,781 resulted in funds used in operating activities totaling $5,778,390, net of working capital movements. Net cash used in investing activities of $429,055 comprised the Company's investment in fixed assets in the nine months ended June 30, 2000. In the corresponding period in 1999, net cash used in investing activities 24 comprised the cash element of the Company's investment in its subsidiaries Porkpine ($25,575) and NAMA ($100,000) and proceeds from the sale of fixed assets of $25,878. To meet its cash requirements during the nine months ended June 30, 2000, the Company sold in aggregate 4,531,250 shares of its Common Stock in equity private placements, resulting in net proceeds to the Company of $3,531,250. The exercise of Common Stock warrants by the holders resulted in net proceeds to the Company of $73,333. Additionally, the Company received $4,229,377 from TMAP by way of repayment of prior cash advances to TMAP and advances from TMAP to the Company and the Company's subsidiaries. Other significant financing activities during the nine months ended June 30, 2000 comprised the net repayment of short-term notes payable ($1,032,195) and a credit line repayment of $242,654. Subsequent to June 30, 2000 the Company sold 500,000 shares of its Common Stock in an equity private placement, resulting in net proceeds to the Company of $1,000,000. Additionally, the Company raised $1,250,000 through the private placement of debt securities. See Note 8 to the unaudited consolidated financial statements. Of such debt securities, the holder of a $250,000 promissory note converted such note to equity at a conversion price of $1.75 per share, resulting in the issuance of 142,857 shares of Common Stock in August 2000. The Company will require further capital infusions in order to meet the ongoing funding requirements of its operations. Based upon the Company's history of obtaining necessary financing, management is confident that sufficient funds will be available to the Company to operate in the foreseeable future. However, there can be no assurance given that the Company will be able to obtain such funding. In addition, there can be no assurance as to the acceptability of the terms of any future financing. Historically, the Company's ability to grow and generate cash from operations has been restricted by the single product offered, the Transmedia dining card. However, in recent years the Company and TMAP have worked closely to implement a strategy to create a broader based international business. As a result the Company currently has established business operations in Europe and the United States and through its affiliates, has an interest in business operations in Australia. Management believes that after completion of the proposed merger with TMAP, the Company and TMAP will be well positioned to achieve profitability in the medium term. Inflation and Seasonality The Company does not believe that its operations have been materially influenced by inflation in the three, six and nine months ended June 30, 2000, a situation which is expected to continue for the foreseeable future. The business of individual Participating Restaurants may be seasonal depending on their location and the types of food and beverage sold. However, the Company has no basis at this time on which to project the seasonal effects, if any, on its business as a whole. Year 2000 disclosure issues The Company has considered the guidance of the Statement of the Commission regarding disclosure of Year 2000 issues for public companies (Release No. 33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues was made in the Company's annual report on Form 10-K for the year ending September 30, 1999. 25 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings From time to time, the Company and its subsidiaries are subject to legal proceedings and claims in the ordinary course of business. On September 29, 1999 NAMA of Texas filed a civil action against the Company, TMAP and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of NAMA, a business acquired by the Company and TMAP through Countdown USA in November 1998. NAMA of Texas is claiming breach of contract pursuant to a License and Consulting Agreement for the provision, by NAMA, of medical and other benefit programs to NAMA of Texas. NAMA of Texas is claiming damages for loss of business and income in the sum of $5 million, punitive damages in the sum of $3 million, interest, attorney fees and all costs including court costs. Management of the Company, TMAP and Countdown USA believe that the claims of NAMA of Texas are unfounded and that they have meritorious defenses against such claims. The Company, TMAP and Countdown USA filed their original answer on November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal Court. The Federal Court ordered an initial pre-trial conference for May 18, 2000. At the pre-trial conference the Judge dismissed the case against the Company and TME with the condition that should Countdown USA ultimately lose the case and is not capable of paying any judgment against it, then the Company and TME could be enjoined again. As of the date hereof, the proceeding is at deposition stage. The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief Executive Officer, with respect to amounts which the Company claims Mr. Guinan owes to the Company and with respect to amounts which Mr. Guinan claims are owed to him by the Company. Mr. Guinan's employment agreement was terminated for cause on September 30, 1999 and the Company considers the employment agreement to no longer be effective. Mr. Guinan's attorneys recently have challenged this position and have also asserted claims for various advances which Mr. Guinan asserts were made on behalf of the Company and for which he claims to be entitled to reimbursement. No legal action has been commenced by the Company or Mr. Guinan. At this time it cannot be determined when and if this dispute can be resolved or what the net amount, if any, which Mr. Guinan owes to the Company or the Company owes to Mr. Guinan. The Company is engaged in a dispute with Carl Freyer, a former director and consultant to the Company. Mr. Freyer claims that an agreement was reached in December 1999 pursuant to which he, or his affiliate, was granted warrants plus cash payments in lieu of prior compensation arrangements. The Company asserts that there is no such valid agreement and that the only rights of Mr. Freyer, or his affiliate, relate to the Company's obligation to submit for shareholder approval, warrants previously granted covering 300,000 shares exercisable at $1.00 per share. At this time no litigation has been commenced. Except as disclosed above, the Company is not aware of any material pending legal proceedings or claims against the Company or any of its subsidiaries. ITEM 2. Change in Securities and Use of Proceeds On September 30, 1999 the Company commenced a private placement of shares of its Common Stock pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The placement closed on October 5, 1999 upon the sale of 625,000 shares of Common Stock at $.65 per share resulting in net proceeds to the Company of $406,250. The net proceeds were applied to working capital. On October 21, 1999 the Company commenced a private placement of shares of its Common Stock pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The placement closed on November 20, 1999 upon the sale of 3,906,250 shares of Common Stock at $.80 per share resulting in net proceeds to the Company of $3,125,000. The net proceeds were applied to loan repayments and working capital. 26 During fiscal 1997, the Company entered into an agreement with Mr. Joseph Vittoria, a director and shareholder of the Company, whereby Mr. Vittoria advanced a loan of $1,000,000 to the Company. The purpose of the loan was to enable the Company to pay the cash element of Countdown acquisition purchase consideration. The loan, which was bearing interest at 12% per annum and was collateralized by a pledge of all the shares of Countdown purchased by the Company, was originally scheduled to mature on September 27, 1997. The loan was renewed upon maturity for an indefinite period by agreement between the Company and Mr. Vittoria. On November 1, 1999, Mr. Vittoria agreed to convert the principal of the loan, together with accrued interest in the sum of $308,804, to shares of Common Stock at a price of $0.80 per share. Accordingly, the Company issued 1,636,005 shares of Common Stock in full satisfaction of the principal of the loan and accrued interest. On October 25, 1999, Mr. M. Chambrello, then Chief Executive Officer of the Company, advanced a short-term loan to the Company in the sum of $100,000. The loan was used to meet the short term cash needs of the Company. On November 1, 1999 Mr. Chambrello agreed to convert the loan into shares of Common Stock at $0.80 per share. Accordingly, the Company issued 125,000 shares of Common Stock to Mr. Chambrello. In February 2000 the Company issued 8,333 shares of Common Stock upon exercise of a warrant, resulting in net proceeds to the Company of $8,333. The net proceeds were applied to working capital. In March 2000 the Company issued 50,000 shares Common Stock in part payment of its obligations pursuant to a settlement agreement executed by the Company and Michael R. Chambrello, former Chief Executive Officer of the Company. In March 2000 the Company issued 65,000 shares of Common Stock upon exercise of a warrant, resulting in net proceeds to the Company of $65,000. The net proceeds were applied to working capital. In May 2000 the Company issued 412,500 shares of Common Stock to Charles Taylor, its former Chief Executive Officer, in part payment of a settlement agreement. In July 2000 the Company sold in a private placement 500,000 shares of Common Stock resulting in net proceeds to the Company of $1,000,000. The private placement was conducted pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended and regulation D promulgated thereunder. The purchaser of the shares of Common Stock received a three-year warrant to purchase 100,000 shares of Common Stock at an exercise price of $2.00 per share. The net proceeds were applied to working capital and to part repayment of amounts previously advanced to the Company by TMAP. On July 21 the Company entered into an agreement with Mr. Thomas Flatley, a director of TMAP and a shareholder of the Company, whereby Mr. Flatley advanced a loan of $250,000 to the Company with conversion to Common Stock privileges. On August 4, 2000 Mr. Flatley exercised the conversion privilege at an exercise price of $1.75 per share. Accordingly, the Company issued 142,857 shares of Common Stock in full satisfaction of the note. The exercise price of $1.75 per share was the market price on the date of conversion. Mr. Flatley received a three-year warrant to purchase 30,000 shares of Common Stock at an exercise price of $2.00 per share. Additionally, upon conversion of the note, Mr. Flatley received a further three-year warrant to purchase 50,000 shares of Common Stock at an exercise price of $1.75 per share. The net proceeds were used to make a part repayment to TMAP of monies previously advanced to the Company by TMAP. 27 On August 14, 2000 the Company executed in a private placement a promissory note in the principle sum of $1,000,000. The private placement was conducted pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. The purchaser of the promissory note received a three-year warrant to purchase 100,000 shares of Common Stock at an exercise price of $1.50 per share. The promissory note is payable on February 14, 2001 and bears interest at a rate of 5% per annum, payable on maturity. The promissory note grants the holder the right to convert the note at any time through October 13, 2000 into shares of Common Stock at a conversion price of $1.50 per share. From October 14, 2000 through December 13, 2000 the note is convertible into shares of Common Stock at a conversion price of the lower of $1.50 or the average closing price of the Common Stock for the five trading days pre-October 13, 2000. Finally, the conversion price in the period December 14, 2000 through February 14, 2001, is the lower of $1.50 or the average closing price of the Common Stock for the five trading days pre-December 13, 2000. Net proceeds were applied to working capital and to part repayment of amounts previously advanced to the Company by TMAP. ITEM 6. Exhibits and Reports on Forms 8-K (A) Exhibits filed herewith: None (B) Forms 8-K filed during quarter None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSMEDIA EUROPE, INC. By: /S/ Grant White ------------------------------- Chief Executive Officer

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