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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 period ended March 31, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: ________
TICKETMASTER ONLINE - CITYSEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4546874
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
790 E. Colorado Boulevard, Suite 200, Pasadena, CA 91101
________________________
(Address of principal executive offices)
Telephone Number (626) 405-0050
(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 X No ______
-----
As of March 31, 1999 there were 9,238,109 shares of the Registrant's Class B
Common Stock outstanding.
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TICKETMASTER ONLINE - CITYSEARCH, INC.
FORM 10-Q
INDEX
Page
No.
----
PART I - FINANCIAL INFORMATION.......................................... 3
Item 1. Financial Statements (unaudited)............................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 11
PART II - OTHER INFORMATION............................................. 13
Item 1. Legal Proceedings............................................ 13
Item 6. Exhibits and Reports on Form 8-K............................. 13
SIGNATURES........................................................... 14
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1999 1998
----------- -------------
Current assets: (unaudited) (see note 1)
<S> <C> <C>
Cash and cash equivalents.................................................. $ 99,284 $106,910
Accounts receivable (net of allowance for doubtful accounts of $175 and $58 1,160 1,249
respectively)..........................................................
Related party receivable................................................... 278 813
Due from licensees......................................................... 2,647 1,440
Prepaid expenses........................................................... 1,109 777
-------- --------
Total current assets................................................... 104,478 111,189
Computers, software, equipment and leasehold improvements, net................ 6,140 5,893
Goodwill and other intangibles, net........................................... 315,798 299,643
-------- --------
Total assets........................................................... $426,416 $416,725
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 2,479 $ 2,734
Accrued expenses........................................................... 3,992 4,551
Deferred revenue........................................................... 1,643 1,882
Related party payable...................................................... 1,020 --
Current portion of capital lease obligations............................... 1,169 1,331
-------- --------
Total current liabilities.............................................. 10,303 10,498
Other long-term liabilities................................................... 1,828 1,557
Capital lease obligations, net of current portion............................. 940 1,082
Stockholders' equity:
Class A Common Stock, $0.01 par value:
Authorized shares --100,000,000 at March 31, 1999
Issued and outstanding--63,291,653 and 63,156,226 at December 31, 1998
and March 31, 1999, respectively...................................... 632 633
Class B Common Stock--$0.01 par value;
Authorized shares--250,000,000 at March 31, 1999
Issued and outstanding--8,167,000 and 9,238,109 at December 31, 1998
and March 31, 1999, respectively...................................... 92 82
Class C Common Stock--$0.01 par value:
Authorized shares--2,883,506 at March 31, 1999
Issued and outstanding--none........................................... -- --
Additional paid-in capital................................................. 446,398 418,918
Accumulated deficit........................................................ (33,777) (16,045)
-------- --------
Total stockholders' equity............................................. 413,345 403,588
-------- --------
Total liabilities and stockholders' equity.......................... $426,416 $416,725
See accompanying notes.
</TABLE>
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
-------- -------
<S> <C> <C>
Revenues: (unaudited)
Ticketing operations....................................................... $ 9,386 $ 2,237
Sponsorship and advertising................................................ 1,032 917
City guide and related..................................................... 5,553 --
-------- -------
Total revenues......................................................... 15,971 3,154
Operating costs and expenses
Ticketing operations....................................................... 6,851 1,377
City guide and related..................................................... 4,607 --
Sales and marketing........................................................ 6,200 225
Research and development................................................... 1,933 --
General and administrative................................................. 3,287 515
Amortization of goodwill................................................... 11,976 --
-------- -------
Total costs and expenses............................................... 34,854 2,117
-------- -------
Income (loss) from operations................................................. (18,883) 1,037
Interest income (expense) net................................................. 1,200 --
-------- -------
Income (loss) before income taxes............................................. (17,683) 1,037
Income tax provision.......................................................... 57 452
-------- -------
Net income (loss)............................................................. $(17,740) $ 585
======== =======
Basic and diluted net income (loss) per share................................. $ (0.25) $ 0.02
======== =======
Shares used to compute basic and diluted net income (loss) per
share........................................................................ 71,555 37,238
</TABLE>
See accompanying notes.
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
-------- -----
Operating activities (unaudited)
<S> <C> <C>
Net income (loss) $(17,740) $ 585
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization.......................................... 12,854 39
Changes in operating assets and liabilities:
Accounts receivable................................................. 89 (79)
Related party receivable............................................ 536 --
Due from licensees.................................................. (1,207) --
Prepaid expenses.................................................... (276) 63
Accounts payable.................................................... (1,083) (5)
Accrued expenses.................................................... (419) 57
Related party payable............................................... 1,020 --
Deferred revenue.................................................... 33 2
-------- -----
Net cash provided by (used in) operating activities............. (6,193) 662
Investing activities
Capital expenditures.......................................................... (1,013) (25)
-------- -----
Net cash used in investing activities........................... (1,013) (25)
Financing activities
Net distributions to Ticketmaster Corp..................................... -- (637)
Net proceeds from exercise of options and warrants......................... 296 --
Costs of initial public offering........................................... (336) --
Payments on capital leases................................................. (393) --
-------- -----
Net cash provided by (used in) financing activities................. (433) (637)
-------- -----
Net cash acquired in CityAuction Merger....................................... 13 --
-------- -----
Net increase (decrease) in cash and cash equivalents.......................... (7,626) --
Cash and cash equivalents at beginning of period.............................. 106,910 --
-------- -----
Cash and cash equivalents at end of period.................................... $ 99,284 $ --
======== =====
Supplemental statement of cash flow information:
Noncash investing and financing information:
Acquisition of CityAuction, Inc.
Fair value of assets acquired (including cash and cash equivalents $ 28,223
of $13 and goodwill)..............................................
Less:
Fair value of liabilities assumed................................. 1,023
Issuance of Class B Common Stock.................................. 27,200
--------
Cash paid..................................................... $ --
========
</TABLE>
See accompanying notes.
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Ticketmaster Online-CitySearch, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 -- The Company and Summary of Significant Accounting Policies
Description of Business
Ticketmaster Online-CitySearch, Inc. (the "Company") has combined
CitySearch and Ticketmaster Online to create a leading provider of local city
guides, local advertising and live event ticketing on the Internet. The Company
is integrating its local CitySearch city guides with its Ticketmaster Online
live events ticketing and merchandise distribution capabilities to offer online
ticketing, merchandise, electronic coupons and other transactions to a broader
audience of consumers.
Basis of Presentation
Prior to the Merger (as defined below), Ticketmaster Multimedia Holdings,
Inc. (the predecessor company) ("Ticketmaster Online") was a wholly owned
subsidiary of Ticketmaster Corporation ("Ticketmaster Corp."). Ticketmaster
Corp. is a wholly owned subsidiary of Ticketmaster Group, Inc. ("Ticketmaster
Group"), which is a wholly owned subsidiary of USA Networks, Inc. ("USAi").
In July 1997, USAi acquired a controlling interest in Ticketmaster Group
through the issuance of shares of USAi common stock (the "Ticketmaster
Acquisition"). In June 1998, USAi completed its acquisition of Ticketmaster
Group in a tax-free merger (collectively with the Ticketmaster Acquisition, the
"Ticketmaster Transaction"), pursuant to which each outstanding share of
Ticketmaster Group common stock not owned by USAi was exchanged for 1.126 shares
of USAi common stock. A portion of the Ticketmaster Group acquisition cost has
been allocated to the assets acquired and liabilities assumed of Ticketmaster
Online based on the fair value of the respective portion of Ticketmaster Online
acquired in the Ticketmaster Transaction.
On September 28, 1998, pursuant to an Amended and Restated Agreement and
Plan of Reorganization dated as of August 12, 1998 (the "Merger Agreement"), by
and among CitySearch, Inc. ("CitySearch"), USAi, Ticketmaster Group,
Ticketmaster Online and Tiberius, Inc., a wholly-owned subsidiary of CitySearch,
Tiberius was merged with and into Ticketmaster Online, with Ticketmaster Online
continuing as the surviving corporation and as a wholly-owned subsidiary of
CitySearch (the "Merger"). In connection with the Merger Agreement, all issued
and outstanding shares of Ticketmaster Online's Common Stock held by
Ticketmaster Corp. were converted into an aggregate of 37,238,000 shares of
CitySearch Common Stock and such shares were subsequently reclassified as Class
A Common Stock of the Company. The Merger was accounted for using the "reverse
purchase" method of accounting, pursuant to which Ticketmaster Online was
treated as the acquiring entity for accounting purposes, and the assets acquired
and liabilities assumed of CitySearch were recorded at their respective fair
values. The accompanying financial statements prior to the Merger reflect the
financial position, results of operations and cash flows of Ticketmaster Online.
The accompanying financial statements, subsequent to the Merger, include the
assets and liabilities of CitySearch and the results of operations of CitySearch
from September 29, 1998.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial
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statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
Pro Forma Financial Data (Unaudited)
The following unaudited pro forma information presents a summary of results
of the Company assuming the Merger, the Ticketmaster Transaction and the tender
offer by USAi to purchase shares of Common Stock from CitySearch stockholders in
connection with the Merger had occurred as of January 1, 1998, with pro forma
adjustments to give effect to amortization of goodwill, certain other
adjustments to conform to the terms of the License and Services Agreement dated
August 12, 1998 by and among Ticketmaster Corp., Ticketmaster Online and USAi
(the "Ticketmaster License Agreement"), and the related income tax effects. The
pro forma information also gives effect to the Company's change in year end from
January 31, to December 31. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been had
the transactions been effective on January 1, 1998.
Three Months Ended
March 31, 1998
-------------------
(in thousands)
Revenues........................................ $ 6,245
Net loss........................................ $(18,974)
Net loss per share.............................. $ (.31)
Basic and Diluted Earnings (Loss) per Share
Basic earnings (loss) per share are determined by dividing the net earnings
or (loss) by the weighted average shares of Common Stock outstanding during the
period. Diluted earnings (loss) per share are determined by dividing the net
earnings or (loss) by the weighted average shares of Common Stock outstanding
plus the dilutive effects of stock options, warrants and other convertible
securities. Basic and diluted earnings (loss) per share are the same for the
three months ended March 31, 1999 because the effects of outstanding stock
options are antidilutive. Basic and dilutive earnings (loss) per share are the
same for the three months ended March 31, 1998 because there were no dilutive
securities outstanding during those periods.
The number of shares used in computing basic and diluted earnings (loss)
per share for the three months ended March 31, 1998 represent the number of
shares of CitySearch Common Stock exchanged in the Merger.
Reclassifications
Certain reclassifications have been made to the prior year's balances to conform
to the current year presentation.
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Note 2 -- Business Combinations
Acquisition of CityAuction, Inc.
On March 29, 1999, the Company completed the acquisition of CityAuction,
Inc. ("CityAuction"), a person-to-person online auction community. In
connection with the acquisition, the Company issued an aggregate of
approximately 800,000 shares of its Class B Common Stock for all the outstanding
capital stock of CityAuction, Inc. representing an aggregate purchase price of
$27.2 million. The acquisition was accounted for using the purchase method of
accounting which resulted in $28.2 million of goodwill that will be amortized
over 5 years. The results of operations of CityAuction are included in the
accompanying statement of operations from the date of acquisition.
Merger with Lycos
On February 8, 1999, USAi and USANi LLC, Lycos, Inc. ("Lycos"), the
Company, USA Interactive, Inc. ("Newco") and two wholly-owned subsidiaries of
Newco entered into agreements relating to the combination of Lycos, the Company
and certain of USAi's assets in an entity to be controlled by USAi. On May 12,
1999, the parties jointly announced that they had agreed by mutual consent to
terminate these agreements. The agreement terminating the transaction requires
Lycos to pay $25.5 million to USAi and $9.5 million to the Company if prior to
July 15, 1999, Lycos enters into an agreement with respect to or under certain
circumstances, becomes subject to, certain acquisition proposals. In addition,
subject to certain exceptions, USAi and the Company each has agreed that until
July 15, 1999 it will not acquire Lycos stock or make any proposals to acquire
Lycos.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the related Notes thereto
included elsewhere in this report. This discussion contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those set forth
below and elsewhere in this report.
Overview
The Company has combined CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. The Company is integrating its local CitySearch city
guides with its Ticketmaster Online live events ticketing and merchandise
distribution capabilities to offer online ticketing, merchandise, electronic
coupons and other transactions to a broader audience of consumers. CitySearch
was founded in September 1995 and Ticketmaster Online launched its online
ticketing services in November 1996 as a wholly-owned subsidiary of Ticketmaster
Corp. On September 28, 1998, pursuant to the Merger, a wholly-owned subsidiary
of CitySearch merged into Ticketmaster Online, with Ticketmaster Online
continuing as the surviving corporation and as a wholly-owned subsidiary of
CitySearch. The Merger was accounted for using the "reverse purchase" method of
accounting pursuant to which Ticketmaster Online was treated as the acquiring
entity for accounting purposes.
Operating Losses
The Company incurred a net loss of $17.7 million for the three months ended
March 31, 1999 and, earned net income of $585,000 for the three months ended
March 31, 1998. At March 31, 1999, the Company had an accumulated deficit of
$33.8 million.
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Results of Operations
Ticketing Operations Revenues. Ticketing operations revenues were $9.4
million and $2.2 million for the three months ended March 31, 1999 and 1998,
respectively. The increase is primarily attributable to a significant increase
in the number of tickets sold (from 433,000 to 1,615,000 to tickets), and a
10.6% increase in average convenience charge revenue per ticket.
Sponsorship and advertising revenues. Sponsorship and advertising
revenues were $1.0 million and $900,000 for the three months ended March 31,
1999 and 1998, respectively. The increase was primarily attributable to an
increase in sponsorship and promotion activity with strategic marketing
partners.
City Guide and Related Revenue. City guide and related revenues were $5.6
million for the three months ended March 31, 1999 representing the CitySearch
city guide and related revenue of the CitySearch business acquired.
Ticketing Operations Expenses. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, Web site design and
layout, service and network infrastructure maintenance and data communications.
Ticketing operations expenses were $6.9 million and $1.4 million for the three
months ended March 31, 1999 and 1998, respectively. Ticketing operations
expenses are primarily variable in nature and have increased during the periods
presented in conjunction with the increase in ticketing operations revenue and
will continue to increase in future periods to the extent ticketing operations
revenues increase during such periods. In addition, the Company expects that
ticketing operations expenses will increase as a percentage of ticketing
revenues as a result of expenses associated with the Ticketmaster License
Agreement.
City Guide and Related Expenses. City guide and related expenses consist
primarily of the expenses associated with the design, layout, photography,
customer service and editorial resources used in the production and maintenance
of business Web sites and editorial content, network infrastructure maintenance
and the costs of consulting services in partner-led markets. City guide and
related expenses are expensed as incurred. City guide and related expenses are
primarily variable in nature and will continue to increase in future periods to
the extent city guide and related sales increase and to the extent new cities
are added to the network during such periods.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of costs related to the compensation of sales and marketing personnel,
advertising and travel. Sales and marketing expenses were $6.2 million and
$225,000 for the three months ended March 31, 1999 and 1998, respectively. The
increase for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998 is due primarily to the sales and marketing costs of
CitySearch for the three months March 31, 1999 amounting to $5.8 million and
increased salary related costs and operating support costs associated with the
growth in sales and marketing activities. The Company expects that sales and
marketing expenses will increase in absolute dollars and as a percentage of
revenue as new cities are added to the network.
Research and Development Expenses. Research and development expenses
include the costs to develop, test and upgrade the Company's online service and
the enterprise management systems. These costs consist primarily of salaries
for product development personnel, contract labor expense, consulting fees,
software licenses, hardware costs and recruiting fees. Research and development
expenses were $1.9 million for the three months ended March 31, 1999 which
represents primarily the research and development cost of CitySearch. The
Company believes that timely deployment of new and enhanced products and
technology is critical to attaining its strategic objectives and to remaining
competitive. Accordingly, the Company intends to continue recruiting and hiring
experienced research and development personnel and making other investments in
research and development. As such, the Company expects that research and
development
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expenditures will increase in absolute dollars in future periods. The Company
has expensed research and development costs as incurred.
General and Administrative Expenses. General and administrative expenses
consist primarily of administrative and executive personnel costs. General and
administrative expenses were $3.3 million and $515,000 for the three months
ended March 31, 1999 and 1998, respectively. The substantial increase for the
three month period ended March 31, 1999 was due primarily to general and
administrative expenses of CitySearch amounting to $2.4 million. The Company
expects that general and administrative expenses will increase in absolute
dollars.
Interest Income, Net. Net interest income consists primarily of interest
earned on the Company's cash and cash equivalents, less interest expense on
capital lease obligations. The Company had net interest income of $1.2 million
for the three months ended March 31, 1999. The Company invests its cash
balances in short-term investment grade, interest-bearing securities.
Income Taxes. The provision for income taxes was $57,000 and $452,000 for
the three months ended March 31, 1999 and 1998, respectively. The Company's
effective tax rate differs from the statutory federal income tax rate, primarily
as a result of state income taxes and operating losses not benefited. The
Company expects that any taxable income for 1998 and 1999 will be offset by the
expected future net operating losses of CitySearch, resulting in a nominal tax
provision. However, net operating loss carryforwards of CitySearch existing at
the Merger date will not be available to further offset taxable income of the
Company.
Liquidity and Capital Resources
Net cash used in operating activities was $6.2 million for the three months
ended March 31, 1999 and net cash provided by operating activities was $662,000
for the three months ended March 31, 1998.
Net cash used in investing activities was $1.0 million and $25,000 for the
three months ended March 31, 1999 and March 31, 1998, respectively. Net cash
used in investing activities in these periods consisted primarily of capital
expenditures for computers, software, equipment and leasehold improvements. Net
cash used in financing activities was $433,000 and $637,000 for the three months
ended March 31, 1999 and 1998, respectively.
At March 31, 1999, the Company's cash and cash equivalents were $99.3
million. Existing cash and cash equivalents are expected to be sufficient to
meet working capital and capital expenditures requirements for at least the next
12 months. Thereafter, the Company may be required to raise additional funds.
No assurance can be given that the Company will not be required to raise
additional financing prior to such time. If additional funds are raised through
the issuance of equity securities, stockholders of the Company may experience
significant dilution. Furthermore, there can be no assurance that additional
financing will be available when needed or that if available, such financing
will include terms favorable to the Company or its stockholders. If such
financing is not available when required or is not available on acceptable
terms, the Company may be unable to develop or enhance its products and
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Year 2000
The widespread use of computer programs that rely on two-digit dates to
perform computation and decision-making functions may cause computer systems,
including systems and software used by the Company and its Web services, to
malfunction prior to or in the Year 2000 and lead to significant business
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delays and disruptions in the Company's business and operations in the United
States and internationally. The Company has developed a plan to minimize the
impact of this Year 2000 problem. Pursuant to such plan, the Company has
established a Year 2000 Committee consisting of senior managers from relevant
functional areas. The Year 2000 Committee has reviewed all areas of the
Company's business and operations that may be affected and has assigned
responsibility for each area to individuals knowledgeable about their respective
areas. The Year 2000 Committee has made these individuals responsible for the
initial assessment of risk and initial estimate of hardware cost, software cost
and time required to achieve compliance. The Company concluded its initial
assessment in the fourth quarter of 1998 and is commencing implementation of
remediation necessary to achieve compliance. Remediation will continue in 1999.
The Company estimates that the dollar cost of Year 2000 compliance is
approximately $200,000. However, the Company has not yet completed its
comprehensive assessment of remediation costs and actual costs could materially
differ.
Several systems provided by third parties are required for the operation of
the Company's services, any of which may contain software code that is not Year
2000 compliant. These systems include server software used to operate the
Company's network servers, software controlling routers, switches and other
components of the Company's data network, disk management software used to
control the Company's data disk arrays, firewall, security, monitoring and back-
up software used by the Company, as well as desktop PC applications software. In
most cases, the Company employs widely available software applications and other
products from leading third party vendors, and expects that such vendors will
provide any required upgrades or modifications in a timely fashion. However, any
failure of third party suppliers to provide Year 2000 compliant versions of the
products used by the Company could result in a temporary disruption of the
Company's services or otherwise disrupt the Company's operations. In addition,
the Company's partners may operate their city guide sites in proximity to other
applications that may not be Year 2000 compliant. While the Company intends to
assign an individual to coordinate each partner's compliance efforts to ensure
uninterrupted operations, the Company has limited ability to influence decisions
by its partners. Non-compliant systems that adjoin partners' city guide
applications could result in interruption or disruption of the city guide
service, which in turn could reduce royalties or other amounts due to the
Company. There can be no assurance that the Company, its third party suppliers
or its partners will be Year 2000 compliant at the end of the millennium.
Failure to achieve compliance could result in complete failure or
inaccessibility of the Company's or its partners' services, and could adversely
affect the Company's business, financial condition and results of operations.
Year 2000 compliance problems could also undermine the general
infrastructure necessary to support the Company's operations. For instance, the
Company depends on third party Internet service providers for connectivity to
the Internet. Any interruption of service from the Company's Internet service
providers could result in a temporary interruption of the Company's services.
Moreover, the effects of Year 2000 compliance deficiencies on the integrity and
stability of the Internet are difficult to predict. A significant disruption in
the ability of businesses and consumers to reliably access the Internet or
portions of it would have an adverse effect on demand for the Company's services
and adversely impact the Company's business, financial condition and results of
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company has not used
derivative financial instruments in its investment portfolio. The Company
invests its excess cash in debt instruments of the U.S. Government and its
agencies, and in high-quality corporate issuers and, by policy, limits the
amount of credit exposure to any one issuer. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
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Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its wholly-owned subsidiary, CityAuction, Inc., have been
named as defendants in a lawsuit brought by Snap!, LLC ("Snap"). Snap alleges
that CityAuction breached its promotional agreement with Snap by failing to make
a payment for $125,000, failing to give Snap notice before being acquired by the
Company, failing to provide Snap the opportunity to negotiate an alternative
transaction, refusing to provide financial information to Snap, and that
CityAuction breached its obligations under a Warrant Purchase Agreement. Snap
further alleges that the Company intentionally interfered with Snap's
contractual relationship with CityAuction by inducing CityAuction to breach the
promotional agreement and Warrant Purchase Agreement. Snap's complaint seeks
specific performance, and actual, consequential and punitive damages from the
defendants. The action is pending in San Francisco Superior Court. Snap's
attempts to seek injunctive relief were unsuccessful. The Company's motion to
strike certain portions of the complaint was denied, and the defendants' answer
is not yet due. Discovery has recently commenced.
Item 2. Changes in Securities and Use of Proceeds
(c) Sales of Unregistered Securities
In March 1999, the Company issued an aggregate of 121,797 shares of Class B
Common Stock at $34 per share as part of the consideration for the CityAuction
acquisition. The shares were issued to the following shareholders of
CityAuction: Charter Ventures III, LLC, GCA Investments '98 and John
Montgomery. The issuance of these securities was deemed to be exempt from
registration under the Securities Act of 1933 (the "Securities Act") in reliance
on Section 4(2) of the Securities Act, or Regulation D promugated thereunder, as
transactions by an issuer not involving a public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
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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.
Dated: May 17, 1999 TICKETMASTER ONLINE - CITYSEARCH, INC.
By: /s/ Charles Conn
--------------------------------
Charles Conn
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bradley Ramberg
--------------------------------
Bradley Ramberg
Chief Financial Officer and Vice President,
Finance and Administration
and Secretary
(Principal Financial and Accounting Officer)
-14-
<PAGE>
INDEX TO EXHIBITS
Exhibits
--------
27.1 Financial Data Schedule
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 99,284
<SECURITIES> 0
<RECEIVABLES> 1,335
<ALLOWANCES> 175
<INVENTORY> 0
<CURRENT-ASSETS> 104,478
<PP&E> 12,576
<DEPRECIATION> (6,436)
<TOTAL-ASSETS> 426,416
<CURRENT-LIABILITIES> 10,303
<BONDS> 0
0
0
<COMMON> 724
<OTHER-SE> 412,621
<TOTAL-LIABILITY-AND-EQUITY> 426,416
<SALES> 15,971
<TOTAL-REVENUES> 15,971
<CGS> 11,458
<TOTAL-COSTS> 34,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,200)
<INCOME-PRETAX> (17,683)
<INCOME-TAX> 57
<INCOME-CONTINUING> (17,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,740)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
