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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER
0-22582
TBA ENTERTAINMENT CORPORATION
(Name of Small Business Issuer in its Charter)
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<S> <C>
DELAWARE 62-1535897
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
402 HERITAGE PLANTATION WAY
HICKORY VALLEY, TENNESSEE 38042
(Address of principal executive offices) (Zip Code)
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ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 764-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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 .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
The aggregate market value of the voting stock held by non-affiliates
of the registrant (based on the closing sale price of such stock as reported on
March 31, 1998 on the Nasdaq National Market of the National Association of
Securities Dealers, Inc.) was approximately $28,000,000.
As of March 31, 1998, 7,994,778 shares of the registrant's Common
Stock were outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement, to be filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934 in connection
with the registrant's 1998 annual meeting of stockholders, have been
incorporated by reference in Part III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
TBA Entertainment Corporation (the "Company") is a diversified
entertainment company. The Company currently produces live entertainment for
corporate meetings and special events ("Corporate Entertainment"), develops and
produces integrated music marketing programs for corporate clients
("Entertainment Marketing"), manages entertainers ("Artist Management") and
owns and operates concert amphitheaters ("Amphitheater Operation"), produces
and promotes concerts ("Concert Production") and manages merchandising for
concerts and sporting events ("Event Merchandising"). The Company also owns and
operates a resort.
The Company's strategy is to (i) grow its operations through strategic
acquisitions of businesses and assets in the entertainment industry, (ii)
integrate the acquired businesses and assets into its existing operations,
(iii) divest those assets that are less profitable and (iv) re-invest the
capital received from such dispositions to grow the Company's more profitable
core entertainment operations, either through additional acquisitions or
internal capital expenditures.
The Company currently conducts its entertainment operations through
a wholly owned subsidiary, Avalon Entertainment Group, Inc. ("AEG"), which the
Company acquired in April 1997, and through a group of affiliated entities in
which the Company owns a 51% interest (collectively, "Avalon West Coast" or
"AWC"), which the Company acquired in July 1997.
In 1997, AEG produced approximately 150 Corporate Entertainment events
for corporate clients, including events for Lucent Technologies, Northern
Telecom, State Farm, Microsoft and Toyota. AEG provides Entertainment Marketing
services through Warner/Avalon, a joint venture with Warner Custom Music Corp.,
a subsidiary of Time Warner, Inc. In 1997, Warner/Avalon produced approximately
70 Entertainment Marketing events, including the Blockbuster RockFest and the
Fruit of the Loom CountryFest events in June 1997, which together were attended
by over 400,000 people.
AWC consists of Irvine Meadows Amphitheatre, a California general
partnership ("IMA Partners"), and a group of affiliated entertainment companies
and entities that include New Avalon, Inc. (d/b/a Avalon Attractions) ("Avalon
Attractions"), Eric/Chandler Ltd., Inc. ("ECL"), Eric Chandler Merchandising,
Inc. ("ECM"), TBA Media, Inc. ("TBA Media"), Camarillo Amphitheater Managing
Partners ("CAMP") and West Coast Amphitheater Corp. ("WCAC"). Among other
things, AWC owns Irvine Meadows Amphitheatre (the "IMA") in Irvine, California,
and manages the operations of the Glen Helen (Blockbuster) Pavilion (the
"GHP") in Devore, California. Pursuant to the Company's strategy, the Company
has determined to sell its 51% interest in AWC (other than ECM) and is currently
engaged in preliminary negotiations regarding the potential disposition of such
interest. No definitive agreement has been signed with respect to any such
disposition and no assurance can be given that any definitive agreement will be
signed with respect to any such transaction. The Company believes that the
disposition of its 51% interest in AWC would be material to the Company's
operations and financial condition.
The Company also owns and operates the Village at Breckenridge Resort
(the "Breckenridge Resort"), a year-round destination resort located at the
base of Breckenridge Mountain, the second most popular ski area in the United
States. The Breckenridge Resort, which the Company acquired in April 1996,
consists of two hotels, eight restaurants and taverns and 120,000 square feet
of commercial and meeting space and banquet facilities. The Breckenridge Resort
also manages 330 condominium units and single family homes in Breckenridge,
making it the largest property manager in the Town of Breckenridge. Consistent
with the Company's strategy, management has determined to sell the Breckenridge
Resort. The Company is engaged in preliminary negotiations regarding the
potential disposition of the Breckenridge Resort. No definitive agreement has
been signed with respect to any such disposition and no assurance can be given
that any definitive agreement will be signed with respect to any such
transaction. The Company believes that the disposition of the Breckenridge
Resort would be material to the Company's operations and financial condition.
As part of the Company's strategy, the Company is continually
evaluating potential new acquisitions and opportunities to employ its capital.
In connection with this strategy, in the event that the Company sells the
Breckenridge Resort and its 51% interest in AWC's Amphitheater Operation and
Concert Production businesses, the Company plans to use the proceeds from such
transactions to expand the Company's core entertainment operations.
ENTERTAINMENT OPERATIONS
The Company currently provides a wide array of entertainment services,
including Corporate Entertainment, Entertainment Marketing, Artist Management,
Amphitheater Operation, Concert Production and Event Merchandising.
The Company's Entertainment Marketing, Corporate Entertainment and
Artist Management operations are currently conducted through Avalon
Entertainment Group, Inc.
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Entertainment Marketing. Warner/Avalon, AEG's joint venture with Warner
Custom Music Corp., was formed in 1995 to create, develop and execute highly
integrated and innovative music marketing programs for corporate clients.
Management believes that among the strengths of this joint venture are
Warner/Avalon's ability to draw on the significant resources of Time Warner,
Inc., one of the world's largest entertainment companies, and AEG's production
and executional capabilities.
Warner/Avalon develops and manages music marketing programs from start
to finish, including developing program strategies and designs, and providing
program implementation and evaluation. Warner/Avalon designs and develops each
marketing program with the client to meet the client's particular marketing
needs and strategies and typically includes one or more of the following
components:
- A multi-city concert tour by one or more artists
- A single day multi-artist music extravaganza
- Television/radio programming of the music extravaganza
- Distribution of promotional merchandise
- Promotional appearances by artists at marketing events
- Sponsorship support through displays, side attractions and
vendors
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Warner/Avalon's Entertainment Marketing business is characterized by a
relatively small number of accounts with high revenues per account. As a
result, the loss or addition of any one account could have a material affect on
Warner/Avalon's revenues. Because contracts for Warner/Avalon's marketing
programs are typically signed six months to one year before the program takes
place, management believes that, to a reasonable degree, it can forecast and
take appropriate action for changes in its client portfolio. When possible,
Warner/Avalon seeks to enter into multi-year contracts with its clients.
Warner/Avalon establishes the price of each Entertainment Marketing program by
determining its cost to produce the program and adding a profit margin. Once a
price is established for a project, subsequent changes in the cost of the
project directly impact Warner/Avalon's gross profit on the project. Management
believes that Warner/Avalon's experience in managing large, complex
Entertainment Marketing programs allows it to effectively predict and manage
cost fluctuations.
Warner/Avalon seeks to develop music marketing programs that appeal to
highly-focused demographic segments. Management believes that national consumer
product companies are well-suited to use Entertainment Marketing as a tool and
seeks to target these industry participants as potential customers.
Warner/Avalon has produced Entertainment Marketing programs for clients that
include Fruit of the Loom, Blockbuster Entertainment and Crown Royal. In 1998,
Warner/Avalon has contracted with additional sponsors, including the National
Basketball Association, The Goodwill Games and Red Lobster restaurants to
develop Entertainment Marketing programs.
The Company continually works with clients to tailor programs to the
exact specifications of the client. Over time, management believes existing
clients will expand their programs, including increasing the size of
existing components of programs, such as the number of cities included on a
concert tour, and by adding new components to programs, such as television and
radio specials.
Corporate Entertainment. AEG's Corporate Entertainment division
specializes in booking and producing live entertainment for conventions,
corporate meetings and special events. AEG provides turn-key services, including
planning, scheduling, staging and managing Corporate Entertainment events from
start to finish. In 1997, AEG produced approximately 150 shows by artists such
as Tony Bennett, Bill Cosby, Natalie Cole, Donna Summer and Jay Leno for clients
including Lucent Technologies, Northern Telecom, State Farm, Microsoft and
Toyota.
Management believes that the Corporate Entertainment business
complements AEG's Entertainment Marketing operations. The Corporate
Entertainment business is characterized by a larger number of shows produced at
lower revenues per show than the Entertainment Marketing business. Accordingly,
the Corporate Entertainment business serves as a source of more predictable
revenues from events occurring on a more regular basis.
AEG works with its clients to create and develop Corporate
Entertainment events. AEG's access to information regarding the cost of talent
allows its clients to obtain the best artists within their budgets. AEG charges
its clients a fixed fee based on its costs of producing the event, which
includes the artist's fee and the cost of staging the event (such as lighting,
sound, staffing and other costs), to which AEG adds a profit margin. Once a
contract has been executed with a client, AEG's only variable cost is its cost
of staging the event. Accordingly, AEG seeks to control its event profitability
by tightly managing its staging expenses.
Management believes the Corporate Entertainment business has
historically been served by hotels and convention centers ("Convention Venues")
who have used their ability to stage entertainment events as a strategic
advantage in attracting convention customers. In such role, Convention Venues
must plan and produce the entertainment events they host. One of AEG's
strategies is to market its services to Convention Venues to provide
entertainment events for corporate gatherings.
AEG enjoys a strong reputation as a developer and producer of
Corporate Entertainment events in the United States. AEG believes its
reputation positions it to overcome the concerns of Convention Venues who
cannot risk displeasing clients, by either failing to organize Corporate
Entertainment events or organizing poor Corporate Entertainment events, and
therefore are reluctant to give control of the planning of the events to third
parties. AEG is seeking to expand its marketing coverage. Because management
believes a local presence is important in marketing its services to many
Convention Venues, as well as directly to corporations, AEG intends to extend
its base of sales offices, which currently consists of offices in Nashville and
San Diego, into new cities, including Phoenix and New York.
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Artist Management. AEG currently manages four artists, one of whom
is an established country music performer. AEG believes that its familiarity
with all facets of the entertainment industry enables it to help artists create
and capitalize on opportunities and avoid mishaps that can hinder a promising
career. With its expertise in producing concerts and Corporate Entertainment
events and its relationships with venue managers, outside concert promoters,
broadcasting executives and other industry professionals, management believes
that AEG is uniquely positioned to offer services which can significantly
enhance the careers of its clients.
The Company's Amphitheater Operation, Concert Production and Event
Merchandising operations are currently conducted through Avalon West Coast. The
Company has determined to dispose of its 51% interest in Avalon West Coast
(other than Eric Chandler Merchandising, Inc.) and is currently engaged in
preliminary negotiations regarding the potential disposition of such interest.
No definitive agreement has been signed with respect to any such disposition and
no assurance can be given that any definitive agreement will be signed with
respect to any such transaction.
Amphitheater Operation. IMA Partners owns the IMA, a 15,000-seat
outdoor amphitheater located in Irvine, California. IMA Partners generates
revenues from ticket sales and its share of the sales of ancillary items. In
April 1997, IMA Partners and Pavilion Partners formed Western Amphitheater
Partners ("WAP"). Pavilion Partners owns and operates the GHP, a 65,000-seat
amphitheater located near San Bernardino, California. Under the terms of the
joint venture agreement, WAP operates the IMA and the GHP.
Concert Production. Avalon Attractions is a leading concert producer
and promoter in Southern California. Avalon Attractions generates revenues
through ticket sales and its share of the sale of ancillary items, including
food and beverages, merchandising, parking, service charges and facility fees.
Event Merchandising. ECM and ECL are primarily engaged in merchandising
and sponsor procurement. ECM provides merchandising activities, focusing
primarily on serving large-scale entertainment and sporting events and was the
event merchandiser for the 1997 CountryFest and RockFest events. ECL procures
sponsorships for corporate clients. Over the last ten years, ECL has obtained
sponsorships from Anheuser-Busch, Coke, American Airlines, Coors, Miller Beer,
7-Up and Taco Bell.
In connection with the Company's potential sale of its 51% interest in
AWC's Amphitheater Operation and Concert Production businesses, the Company is
evaluating opportunities to use the proceeds of such transaction to expand its
core entertainment operations.
THE VILLAGE AT BRECKENRIDGE RESORT
The Company currently owns and operates the Village at Breckenridge
Resort, which includes the Village Hotel, the Breckenridge Mountain Lodge and
eight restaurants and taverns in Breckenridge, Colorado. The Company is engaged
in preliminary negotiations regarding the potential sale of the Breckenridge
Resort and, consistent with the Company's strategy, is evaluating the
redeployment of the capital received from such disposition to grow the Company's
more profitable core entertainment operations. No definitive agreement has been
signed with respect to any such disposition and no assurance can be given that
any definitive agreement will be signed with respect to any such transaction.
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General. The Breckenridge Resort is situated on approximately 14 acres
between the base of the Breckenridge Mountain ski area and historic Main Street
at the south end of the Town of Breckenridge. Breckenridge Mountain, located
approximately 85 miles west of Denver, Colorado, is North America's second most
popular ski area as measured in skier days (a skier day is defined as one skier
accessing the mountain for one day). Breckenridge Mountain is adjacent to the
Town of Breckenridge, Colorado, a restored 140 year old mining town. The Town of
Breckenridge has significant apres-ski activities which have made it an
attractive destination to national and international destination guests. The
Breckenridge Resort consists of the 60-room Village Hotel, the 71-room
Breckenridge Mountain Lodge, eight restaurants and taverns and 120,000 square
feet of commercial and meeting space and banquet facilities. The Company also
manages approximately 190 condominium units located in the Breckenridge Resort
complex and approximately 140 additional single family homes and residential
condominium units in Breckenridge. The 60 rooms in the Village Hotel and 190 of
the residential units managed by the Company are operated as Wyndham Resort
units pursuant to a ten-year franchise agreement (the "Wyndham Franchise
Agreement") with Wyndham Hotel Company, Ltd. Pursuant to the Wyndham Franchise
Agreement, the Breckenridge Resort pays a monthly royalty fee and certain
marketing and reservation fees and group commissions for group business booked
through a Wyndham national sales office.
The Breckenridge Resort's amenities include a health club, two
swimming pools, eleven hot tubs, a billiards room and video arcade and access
to the Breckenridge Ski School, backstage theater, day-care center and
children's programs. The Breckenridge Resort also features a full service
recreation center. Breckenridge Resort guests can arrange a wide variety of
moderate to high adventure activities through the recreation center, including
golf, white water rafting, Jeep tours, gold panning and nature walks in the
summer and skiing, ice skating, sleigh riding, snow mobiling and dog sledding
in the winter.
The Breckenridge Resort's full service travel agency, A Travel
Company, offers guests and visitors to the Breckenridge Resort a unique
opportunity to experience one-stop shopping for their lodging, transportation
and entertainment needs. The Breckenridge Resort's travel specialists can
arrange discount airfares, airport transfers, car rentals, lift tickets, ski
lessons, equipment rental and concierge services for a variety of activities.
This full-service reservation department uses state-of-the-art equipment to
handle an average of 900 calls per day in the winter.
Lodging. The Company owns and operates the Village Hotel and the
Breckenridge Mountain Lodge. In addition, the Company manages approximately
330 condominium and single family homes located in the Breckenridge Resort and
in the Town of Breckenridge. As a result, the Breckenridge Resort offers guests
a wide variety of lodging accommodations. Breckenridge Resort guests can
choose from standard hotel rooms to condominium units with fully-equipped
kitchens to luxury homes. The Breckenridge Resort's lodging and property
management operations combine to make the Company the largest property manager
of hotels, condominiums and houses in The Town of Breckenridge.
The Village Hotel is located at the base of Lift Nine, one of
Breckenridge Mountain's primary access points for skiers, and includes 60 guest
rooms (50 standard and 10 family rooms) and was built in 1984 and renovated in
1995. The Breckenridge Mountain Lodge, located on Main Street across from the
Village Hotel (approximately 1/4 mile from the base of Lift Nine), includes 71
standard rooms and was built in 1965 and renovated in 1995.
Of the 330 units managed by the Breckenridge Resort, approximately
190 are condominium units located in the Breckenridge Resort complex and
approximately 140 are single family homes and residential condominium units in
the Town of Breckenridge. The Company pays the owners of the condominium units
and single family homes a fee in return for use of their units.
Food and Beverage. The Breckenridge Resort operates six restaurants
and two taverns as well as banquet services. The Breckenridge Resort's
restaurants offer a wide variety of dining experiences, from the Village Pasta
Company, offering Italian cuisine and award-winning pizza, to the Breckenridge
Cattle Company, offering steaks, seafood and prime rib. Throughout the ski
season, guests and visitors to the Breckenridge Resort can also enjoy live
entertainment in many of the Breckenridge Resort's dining establishments.
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Commercial Operations. The Breckenridge Resort owns approximately
87,000 square feet of commercial space, offering guests and visitors a wide
variety of shopping options in 34 establishments, including restaurants,
specialty retail shops, apparel shops, ski and/or mountain bike rental shops
and the Breckenridge Mountain skier services operations. The Breckenridge
Resort's location at the base of Breckenridge Mountain has allowed it to
maintain commercial occupancy rates averaging 95% since 1994. The leases
relating to these tenants are typically for three- to ten-year terms with
annual rental rates varying from $15 to $30 per square foot. In certain cases,
the leases provide for additional compensation to the Breckenridge Resort based
on a percentage of gross sales. The leases typically provide for renewal terms
of one to five years.
The Breckenridge Resort has 18 meeting rooms with approximately
33,000 square feet of meeting space and a full range of convention services,
including state-of-the-art audio/visual equipment, a fully-equipped business
center and extensive banquet facilities. Prior to December 1994, the
Breckenridge Resort was managed primarily as a winter resort. Accordingly, the
Breckenridge Resort was not generally considered as an alternative to meeting
planners for group business. Beginning in December 1994, the Breckenridge
Resort's current management began to reposition the Breckenridge Resort as a
year-round destination resort, focusing on individual and family travelers and
group ski business in the winter months and corporate groups in the spring,
summer and fall months. As part of this repositioning, management enhanced the
services of A Travel Company, improved the food and beverage offerings at the
Breckenridge Resort, created more entertainment events, invested approximately
$3.0 million in capital improvements and increased the number of living units
under management.
The Breckenridge Resort utilizes a number of sources for its group
bookings, including reservations obtained through Wyndham national sales
offices and the Breckenridge Resort's on-site group sales department, which
focuses on target customers, including local and national associations,
corporations, government groups, recreational groups and educational
organizations. The Breckenridge Resort's sales department utilizes a variety of
sales strategies to attract corporate and group guests, including direct sales,
promotions, advertising, direct mail, data base marketing and telemarketing
targeted to major domestic and international markets. Since 1994, the
Breckenridge Resort's marketing budget has more than tripled, with the increase
being spent primarily on more sales personnel, better promotional activities,
additional advertising and sophisticated call programs, all of which utilize a
state-of-the-art automated sales management system, which was installed in 1995
and 1996. As a result of the Breckenridge Resort's enhanced marketing
activities, the Breckenridge Resort increased group room nights from
approximately 13,000 in 1995 to approximately 32,700 in 1997.
Entertainment/Programming Marketing. In 1997, the Company held a
variety of live entertainment events at the Breckenridge Resort, including
Genuine Jazz in July, Mountain Fest Music Festival, Fourth of July Great
American Music Festival, Labor Day Blues Festival, A Breckenridge Christmas and
Breckenridge International Film Festival.
Real Estate. The Breckenridge Resort owns approximately five acres of
developable real estate zoned for residential or commercial construction.
COMPETITION
The Company's operations compete with virtually all other forms of
entertainment and resort activities. In addition to the competitive factors
outlined below for each of the Company's businesses, the success of the
Company's entertainment operations is dependent upon certain factors beyond the
Company's control, including economic conditions, amounts of available leisure
time, transportation costs, public taste and weather conditions. The
Entertainment Marketing business is competitive, with AEG's competition coming
primarily from five or six privately-held companies. The Corporate Entertainment
business is also competitive, with AEG's competition coming primarily from four
privately-held companies and one publicly-held company and smaller regional
companies and hotels. Competition in the artist management area is extremely
fragmented. AEG also competes with in-house marketing and communications staffs
of many clients and potential clients. There can be no assurance that, as AEG's
industry continues to evolve, additional competitors with greater resources than
AEG will not enter the industry (or particular segments of the industry) or that
AEG's clients will not choose to service more of their needs internally.
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AWC's Amphitheater Operation, Concert Production and Merchandising
business is also highly competitive, with AWC's competition coming from
numerous concert promoters, merchandisers and entertainment venues in Southern
California. The resort business is also highly competitive. The Breckenridge
Resort competes with other resort facilities and food and beverage operations
in Breckenridge, Colorado and Summit County which have greater financial and
other resources than the Breckenridge Resort. Some of the Breckenridge Resort's
competitors have been in operation for longer periods than the Breckenridge
Resort and have greater marketing, personnel and other resources than the
Breckenridge Resort. The success of the Breckenridge Resort is dependent on a
variety of factors, including the ability of the managers of the Breckenridge
Resort to attract visitors to the Breckenridge Resort on a year-round basis.
TRADEMARKS
AEG has not obtained trademarks relating to its name or logo. AEG
believes that the name and logo have significant value and are important to
AEG's marketing. There can be no assurance, however, that the name or logo used
do not or will not violate the proprietary rights of others, that the name or
logo will be upheld if challenged, or that AEG will not be prevented from using
the name or logo, any of which could have a material adverse effect on the
operations of the Company's Entertainment Division. The Company has licensed
from its founder, Thomas J. Weaver III, the exclusive right to use and
eventually acquire for nominal consideration the trademark NASHVILLE COUNTRY
CLUB and the related logo design. On July 11, 1995, the U.S. Patent and
Trademark Office issued a Certificate of Registration for the trademark. The
trademark registration is valid for ten years and may be renewed for an
unlimited number of ten-year periods provided that the Company continues to use
the trademark. There can be no assurance, however, that the trademark does not
or will not violate the proprietary rights of others, that any registration of
the trademark or the Company's use thereof will be upheld if challenged, or
that the Company will not be prevented from using the trademark.
REGULATION AND LICENSES
The Company is subject to federal, state and local laws affecting its
business, including various health, sanitation and safety standards. AEG's and
AWC's entertainment operations are subject to state and local government
regulation, including regulations relating to live music performances. Each live
concert performance must comply with regulations adopted by federal agencies
and with licensing and other regulations enforced by state and local health,
sanitation, safety, fire and other departments. Difficulties or failures in
obtaining the required licenses or approvals can delay and sometimes prevent
the promotion of live concerts. The failure to receive or retain, or delay in
obtaining, a license to serve alcohol and beer in a particular location could
adversely affect the Company's operations in that location and impair the
Company's ability to obtain licenses elsewhere. Restaurants in most states,
including Colorado, are subject to "dram shop" laws and legislation which
impose liability on licensed alcoholic beverage servers for injuries or damages
caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. While the
Company maintains liquor liability insurance as part of its existing
comprehensive general liability insurance, which management believes is
adequate to protect against such liability, there can be no assurance that it
will not be subject to a judgment in excess of such insurance coverage or that
it will be able to continue to maintain such insurance coverage at reasonable
costs. The imposition of a judgment substantially in excess of the Company's
insurance coverage would have a material adverse effect on the Company. The
failure or inability of the Company to maintain insurance coverage could
materially and adversely affect the Company. The Americans with Disabilities
Act (the "ADA") prohibits discrimination on the basis of disability in public
accommodations and employment. The Company will be required to take into
account the requirements of the ADA in connection with the construction and
operation of its physical facilities to comply with the provisions of the ADA.
EMPLOYEES
As of December 31, 1997, the Company had approximately 425 full-time
and part-time employees. As of December 31, 1997, AWC had 32 full-time and
part-time employees. It is the Company's intention to manage its growth
consistent with its ability to attract and retain qualified employees to manage
its operations. The Company believes that its relationship with its employees
is good.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in Hickory Valley,
Tennessee in a building owned by a limited partnership, the general partner of
which is a corporation owned by Thomas J. Weaver III and Frank A. McKinnie
Weaver, Sr., an officer and director of the Company, and of which they also are
limited partners. The limited partnership does not charge the Company rent for
its executive offices.
AEG maintains leased office space in Nashville, Tennessee and San
Diego, California. AEG's Nashville lease expires in October 2002 and currently
provides for a monthly rental payment of approximately $13,800. The San Diego
office's lease agreement expires in August 1998. The San Diego lease currently
provides for a rent of approximately $1,800 per month. The Company is currently
negotiating a new lease for expanded office space in San Diego.
The Breckenridge Resort consists of the 60-room Village Hotel and the
71-room Breckenridge Mountain Lodge. The Breckenridge Resort's other primary
facilities consist of six restaurants and two taverns including The Village Pub,
a 150-seat restaurant, the Village Pasta Company, a 131-seat restaurant,
Breckenridge Cattle Company, a 134-seat restaurant, Breckenridge Mountain Lodge,
a 126-seat restaurant and bar, Cafe Breckenridge, an 80-seat restaurant, J.T.
Pounders, a 110-seat bar, and the Maggie, a 500-seat cafeteria and bar.
In addition to the hotels and restaurants described above, the Company
owns certain commercial space used in connection with the Breckenridge Resort.
The commercial space consists of approximately 33,000 rentable square feet of
meeting and conference space and 87,000 rentable square feet of retail shopping
space. To serve conventions, the commercial space has one ballroom with
approximately 6,700 square feet. The Breckenridge Resort also includes two
swimming pools, thirty-four commercial establishments and a pond known as the
"Maggie Pond."
The Company currently leases real property in Nashville, Tennessee
pursuant to a lease agreement that expires in September 2013. The lease
agreement contains an option to purchase the property at a purchase price of
$733,000. The property was used as the site of a restaurant owned by the Company
until the Company ceased operating the restaurant in November 1997. The Company
is evaluating the future use or disposition of this facility. The current
monthly lease payments are approximately $9,750.
AWC currently operates from leased office space in Encino, California.
The Encino office's lease agreement expires in June 2002 and currently provides
for a rent of $13,800 per month. IMA Partners also has entered into a ground
lease related to the IMA which expires in February 2017. The ground lease for
the amphitheater provides for lease payments of $58,300 per month as minimum
rent plus, to the extent they exceed the minimum rent, the greater of (i) five
percent (5%) of gross sales from amphitheater operations (including ticket
sales, parking, and food, beverage and merchandise sales, or (ii) twenty-five
percent (25%) of net cash flow from all amphitheater operations before debt
service or rent. The amphitheater lease provides for the exclusive use of
approximately 27.7 acres and the shared use of a common area of approximately
46.0 acres with a water theme amusement park.
-8-
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Company's
shareholders during the fourth quarter of the fiscal year ended December 31,
1997.
-9-
<PAGE> 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Common Stock is quoted on the Nasdaq National Market
under the symbol TBAE. On March 31, 1998, the last reported sale price of the
Common Stock was $4.25 per share. The following table sets forth the range of
high and low sales prices of the Common Stock during each quarterly period
within the two most recent years, as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ -------
<S> <C> <C>
1997
First Quarter $6 $3 3/8
Second Quarter 5 7/8 4 1/8
Third Quarter 5 7/8 3 3/8
Fourth Quarter 4 3/4 3 1/8
1996
First Quarter $6 1/2 $5
Second Quarter 8 1/4 4 33/64
Third Quarter 6 3/8 4
Fourth Quarter 5 7/8 3 3/8
</TABLE>
(b) The approximate number of holders of record of Common Stock on
March 31, 1998 was 102.
(c) The Company has not paid or declared cash distributions or
dividends and does not intend to pay cash dividends on the Common Stock in the
foreseeable future. The Company currently intends to retain all earnings to
finance the development and expansion of its operations. The declaration of
cash dividends in the future will be determined by the Board of Directors based
upon the Company's earnings, financial condition, capital requirements and
other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the historical
consolidated financial statements and notes thereto included in Item 7.
GENERAL
The following discussion summarizes the Company's financial condition,
changes in financial condition and results of operations for the years ended
December 31, 1997 and 1996 and sets forth a summary of the Company's future
prospects.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
The Company is a diversified entertainment company which currently operates in
the resort and entertainment industries. The Company's resort operations
include the Breckenridge Resort, which the Company acquired in April 1996, and a
restaurant in Nashville, Tennessee which the Company opened in November 1994 and
closed in November 1997 (the "Nashville Restaurant"). The revenues of the
Breckenridge Resort are derived from room rentals, food and beverage sales,
commercial leasing, travel services, entertainment events and ancillary
departments at the Breckenridge Resort. The entertainment operations include
Avalon Entertainment Group, Inc. which the Company acquired in April 1997. The
Company's entertainment revenues are derived primarily from the production of
Corporate Entertainment events and Event Merchandising. AEG also is a 50% joint
venture partner in Warner/Avalon, which provides Entertainment Marketing
programs.
To enhance comparability, the following discussion of the results of operations
of the Company is presented on a pro forma basis to reflect the acquisitions of
the Breckenridge Resort (acquired in April 1996) and AEG (acquired in April
1997) as though such transactions had occurred as of January 1, 1996 for
consolidated statements of operations purposes. The pro forma results are not
necessarily indicative of the combined results that would have occurred had the
acquisitions of the Breckenridge Resort and AEG actually occurred as of January
1, 1996.
In July 1997, the Company acquired a 51% interest in Avalon West Coast. The
Company is currently negotiating the sale of its 51% interest in AWC (other than
ECM), which sale is expected to occur in the second quarter of 1998.
Accordingly, the operating results of these businesses have been reclassified
and reported as discontinued operations. The pro forma results of operations
presented below do not include any pro forma adjustments for the results of
operations of AWC before the July 31, 1997 acquisition date of AWC.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1996 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues
Resort $20,724,000 $23,792,000
Entertainment 5,570,000 8,360,000
--------- ---------
Total revenues 26,294,000 32,152,000
---------- ----------
Departmental Expenses
Resort 19,191,000 20,731,000
Entertainment 5,409,000 7,914,000
Corporate Expenses 347,000 599,000
Depreciation and amortization 1,106,000 1,153,000
---------- ----------
Total operating expenses 26,053,000 30,397,000
---------- ----------
Income from operations 241,000 1,755,000
Equity in income of Joint Venture 452,000 110,000
Interest expense, net (2,005,000) (1,883,000)
----------- -----------
Loss from continuing operations (1,312,000) (18,000)
Income from discontinued operations,
net of income taxes of $352,000 -- 362,000
----------- -----------
Net (loss) income $(1,312,000) $ 344,000
============ ===========
</TABLE>
-10-
<PAGE> 12
Seasonality
The Breckenridge Resort's operations are subject to significant seasonal
variations with substantially all of the Breckenridge Resort's operating
profits generated in the first quarter and in the month of December, which
periods correspond to the winter ski season. Generally, the Breckenridge
Resort reports a loss for the spring, summer and fall periods. In addition,
the operations of the Breckenridge Resort may fluctuate significantly due to a
number of factors, including weather. Such fluctuations may materially affect
the Company's revenues and profitability.
Comparison of Years ended December 31, 1997 and 1996
Total revenues increased $5,858,000, or 22%, to $32,152,000 for the year ended
December 31, 1997 from $26,294,000 for the year ended December 31, 1996.
Resort revenues increased $3,068,000, or 15%, to $23,792,000 for the year ended
December 31, 1997 from $20,724,000 for the year ended December 31, 1996, due
primarily to an increase in rooms and other revenues at the Breckenridge Resort.
The rooms revenue increase of $1,777,000 is attributable to an 11% increase in
the number of occupied room nights and a 4% increase in average daily rate for
the year ended December 31, 1997 compared to the year ended December 31, 1996.
The increase in the number of occupied room nights is primarily attributable to
the continued aggressive marketing of the Breckenridge Resort as a year-round
destination resort. The increase in other revenues of $1,319,000, or 31%, is due
primarily to revenue growth of the Breckenridge Resort's travel company, as the
Company sought to provide travel and recreation services to more visitors to the
Breckenridge Resort.
Entertainment revenues increased $2,790,000, or 50%, to $8,360,000 for the year
ended December 31, 1997 from $5,570,000 for the year ended December 31, 1996.
The increase resulted primarily from the production of 30 additional Corporate
Entertainment events, to 149 events produced in the year ended December 31,
1997 compared to 119 events produced in the year ended December 31, 1996 and an
increase in the average revenue per event, to $54,000 in 1997 compared to
$45,000 for 1996.
Total operating expenses increased $4,344,000, or 17%, to $30,397,000 for the
year ended December 31, 1997 from $26,053,000 for the year ended December 31,
1996.
Resort operating expenses increased $1,540,000, or 8%, to $20,731,000 for the
year ended December 31, 1997 from $19,191,000 for the year ended December 31,
1996. Resort operating expenses, as a percent of Resort revenues, decreased to
87% for the year ended December 31, 1997 from 93% for the year ended December
31, 1996. The decrease was primarily due to the Breckenridge Resort's ability
to leverage staffing levels in revenue and overhead departments, thereby
providing the ability to increase revenues without corresponding increases in
operating costs.
Entertainment operating expenses increased $2,505,000, or 46%, to $7,914,000 for
the year ended December 31, 1997 from $5,409,000 for the year ended December 31,
1996. Direct costs of producing Corporate Entertainment events increased
$2,191,000, or 56%, to $6,085,000 for the year ended December 31, 1997 from
$3,894,000 for the year ended December 31, 1996. The increase in direct costs
was due to the increase in the number and size of events produced. Direct costs,
as a percentage of revenues increased to 76% for the 1997 period from 73% for
the 1996 period. The increase was primarily due to the production of several
large Corporate Entertainment events at lower profit margins for the year ended
December 31, 1997. Other entertainment operating expenses increased $314,000
for the year ended December 31, 1997 compared to the year ended December 31,
1996 primarily due to salary and related expense increases associated with the
increased number of Corporate Entertainment events.
Corporate expenses increased from $347,000 for the year ended December 31, 1996
to $599,000 for the year ended December 31, 1997, primarily as a result of
increased compensation expense associated with the addition of a Chief Financial
Officer for the year ended December 31, 1997 and the payment of the Chief
Executive Officer's salary in 1997, which had been waived in the second and
third quarters of 1996.
Depreciation and amortization increased $47,000, or 4%, to $1,153,000 for the
year ended December 31, 1997 from $1,106,000 for the year ended December 31,
1996. The increase results primarily from depreciation of additional property
and equipment purchased by the Breckenridge Resort.
Equity income from AEG's 50% joint venture interest in Warner/Avalon decreased
$342,000, or 76%, to $110,000 for the year ended December 31, 1997 from $452,000
for the year ended December 31, 1996. Revenues for Warner/Avalon increased
$1,196,000, or 12%, to $10,832,000 for the year ended December 31, 1997 from
$9,636,000 for the year ended December 31, 1996. The increase results primarily
from the production of one additional large single day Entertainment Marketing
event in 1997 representing $3,119,000 of revenues, which was partially offset by
a $1,450,000 decrease in revenues due to the loss of an Entertainment Marketing
tour in 1997. Direct costs of producing entertainment marketing programs
increased $969,000, or 13%, to $8,646,000 for the year ended December 31, 1997
from $7,677,000 for the year ended December 31, 1996. Direct costs, as a
percentage of revenues, remained relatively constant between periods. Other
general and administrative expenses for Warner/Avalon increased $145,000 for the
year ended December 31, 1997 compared to the year ended December 31, 1996
primarily due to an increase in staffing levels associated with the increased
business activity of Warner/Avalon. In 1997, Warner/Avalon also entered into
various agreements to develop a live, sponsored music tour for each of the
years, 1997, 1998 and 1999. During 1997 the tour incurred operating losses of
$666,000 which significantly reduced Warner/Avalon's net income for 1997. As of
March 1998, a line-up of artists satisfactory to the tour sponsor was not
available. Accordingly, the tour sponsor terminated its agreement with
Warner/Avalon which resulted in the cancellation of the tour program in 1998 and
1999.
Net interest expense decreased $122,000, or 6%, to $1,883,000 for the year
ended December 31, 1997 from $2,005,000 for the year ended December 31, 1996,
due primarily to principal payments made on the Breckenridge Resort's long-term
debt which decreased the average outstanding debt balance, offset by $2,600,000
of increased borrowings in connection with the acquisition of AEG.
Net loss from continuing operations decreased $1,294,000, to a net loss of
$18,000 for the year ended December 31, 1997 from a net loss of $1,312,000 for
the year ended December 31, 1996 due to the reasons described above.
Discontinued Operations
Subsequent to year end, the Company decided to discontinue operations in the
Concert Production and Amphitheater Operation businesses, which were a part of
AWC. As a result, in the first quarter of 1998 the Company began negotiations to
sell its 51% interest in these businesses. The group of individuals that own the
remaining 49% of AWC entered into simultaneous negotiations to sell their
interest in these businesses. In accordance with generally accepted accounting
principles, the operations of these businesses have been classified as
discontinued operations in the consolidated financial statements. Operating
results, net short-term liabilities, net long-term assets and other information
for discontinued operations appear in the note to financial statements captioned
"Avalon West Coast Acquisition and Disposition" on pages 25-27 of this Annual
Report on Form 10-KSB.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of $3,369,000
and a working capital deficit of $3,302,000, excluding the net working capital
deficit of discontinued operations of $872,000 and including $2,106,000 of
short-term notes payable and current maturities of long-term debt. Cash flow
from continuing operations was minimal in 1996, reflecting a net loss of
$3,127,000, offset primarily by non-cash depreciation and amortization expense
and a net increase in accounts payable and accrued expenses. The magnitude of
the 1996 net loss was due in part to the timing of the acquisition of the
Breckenridge Resort, which occurred after the historically profitable winter ski
season. The Breckenridge Resort, acquired in April 1996, contributed $2,518,000
of the consolidated net loss of the Company in 1996. Cash flow from continuing
operations was $949,000 in 1997, primarily resulting from an improvement in
profits from continuing operations to $41,000 in 1997 and non-cash depreciation
and amortization expense. The improvement in profits in 1997 is due in part to
a full year of operations of the Breckenridge Resort and the profits provided by
AEG, which was acquired in April 1997.
The Company has pursued an aggressive growth strategy since its formation in
1993. Historically, the Company has relied on external sources of funds,
including offerings of its common stock and bank borrowings to finance its
growth strategies. Prior to April 1996, the Company's primary source of
liquidity was the net proceeds from the Company's initial public offering in
February 1994 of $2,275,000 and the net proceeds from a private placement of
debt in December 1995 and January 1996 of an aggregate of $300,000.
In April 1996, the Company acquired the Breckenridge Resort. To fund this
acquisition, the Company completed a public offering of 2,702,900 shares of
common stock generating net proceeds of $11,448,000. The net proceeds of this
public offering were used to repay the private placement debt, and to fund the
cash portion of the purchase price of the Breckenridge Resort acquisition. The
remaining net proceeds were used for expenditures for property and equipment
totaling $618,000 in 1996, primarily at the Breckenridge Resort, and for working
capital purposes. In connection with the Breckenridge Resort acquisition, the
Company assumed $20,242,000 of long-term debt secured by liens on substantially
all of the assets of the Breckenridge Resort. In 1996, the Company borrowed an
additional $300,000 under a line of credit for working capital purposes at the
Breckenridge Resort. Debt repayments in 1996 totaled $788,000.
In April 1997, the Company acquired AEG for aggregate consideration of
$3,211,000, including transaction related costs. The primary sources of funds
for the AEG acquisition were operating cash flows and the issuance of $2,480,000
of notes payable to the sellers of AEG ("AEG Notes"). The purchase price for
AEG also included a future contingent payment, to be paid in shares of the
common stock of the Company, based on 1997 earnings of AEG. The aggregate
purchase price for AEG was not to exceed $7,200,000. In contemplation of the
future contingent payment, the Company placed 809,800 shares of common stock of
the Company into escrow. Subsequent to year end, the Company and the sellers
agreed upon an amount of the future contingent payment on a basis different from
that set forth in the original purchase agreement. This agreed upon value is
contingent upon the successful sale of certain of the businesses comprising AWC.
The agreement will result in the release of 445,400 shares from escrow to the
sellers with the balance of the common stock returned to the Company. In
November 1997, the Company borrowed $2,600,000 from a bank, the proceeds from
which were used to repay $1,980,000 of the AEG Notes in 1997. The remaining
$500,000 of AEG Notes were repaid in January 1998.
In July 1997, the Company acquired a 51% interest in a group of entities
comprising AWC for aggregate consideration of $7,863,000, including transaction
related costs. To fund this acquisition, the Company completed a public
offering of 2,600,000 shares of common stock generating net proceeds of
$8,129,000. The remaining net proceeds from this offering were used for working
capital purposes. The purchase price for AWC also included a future contingent
payment, to be paid in shares of the common stock of the Company, based on the
average earnings of AWC, as defined in the purchase agreement, for the years
1996 - 1998. As a result of the contemplated sale of certain of the businesses
of AWC, it is not expected that any portion of the future contingent payment
related to AWC will be paid.
In November 1997, the Company entered into an agreement with an existing
mortgage note holder to refinance $10,723,000 of mortgage notes payable. In
connection with the refinancing, the Company increased its borrowings to
$14,600,000 from this lender and extended the amortization period of the loan.
The new loan provides for (i) the amortization of principal and interest
payments over a period of 20 years for the first three years of the loan and
over a period of 12 years for the remaining four years of the loan, (ii) the
accrual of interest at 9% for the first three years and the lender's base rate
plus .5% for the remaining four years of the loan and (iii) the repayment of
all principal and accrued interest in November 2004. The increased borrowings
under the new loan and cash flow from operations were used to repay $4,374,000
of other indebtedness of the Company in 1997.
-11-
<PAGE> 13
In connection with the acquisition of the Breckenridge Resort, the
Company agreed to repurchase up to 86,200 shares of the Company's Common Stock
owned by certain prior owners of the Breckenridge Resort at $5.00 per share and
agreed to pay a fee of $97,000 to one of the former owners of the Breckenridge
Resort. During 1997, the Company repurchased 4,800 such shares for aggregate
consideration of $24,200. Subsequent to yearend, the Company agreed to purchase
an additional 42,200 shares for aggregate consideration of $211,000. The Company
is currently negotiating with the holders of the remaining shares subject to the
repurchase as to the timing of such repurchase.
In November 1997, the Company ceased operations at the Nashville
Restaurant. Management of the Company is currently evaluating the future use or
sale of this facility. The Company has also decided to discontinue operations
in the concert promotion and amphitheater businesses, which were part of AWC.
As a result, in March 1998 the Company entered into negotiations to sell these
businesses to an unaffiliated third party for cash. The Company expects to
complete the sale of these businesses in the second quarter of 1998 and to
realize a one-time pre-tax gain as a result of this sale. The Company is also
engaged in preliminary negotiations regarding the potential disposition of the
Breckenridge Resort. The Company believes that the disposition of these assets
would be material to the Company's operations and financial position.
In 1998, the Company expects to continue its aggressive growth strategy
in certain sectors of the entertainment industry. The Company anticipates that
business acquisitions made by the Company in 1998 will be completed through a
combination of cash, notes payable issued to the sellers and the issuance of
common stock of the Company to the sellers. Management believes that cash flow
from operations and proceeds from the sale of existing businesses, together with
future issuances of its equity and debt securities, will be adequate to fund
the operations and expansion plans of the Company in 1998. In addition, to
provide any additional funds necessary for the continued pursuit of the
Company's growth strategies, the Company may incur, from time to time,
additional short- and long-term bank indebtedness. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which will relate to the financial condition and performance of
the Company, and some of which will be beyond the Company's control, such as
prevailing interest rates and general economic conditions. There can be no
assurance that such additional financing will be available or, if available,
will be on terms acceptable to the Company. To the extent that the Company is
able to finance its growth through external sources of capital, the Company
intends to continue to grow its operations through additional acquisitions. Even
if the Company is able to secure external financing sources for its growth
plans, there can be no assurance that the Company will be able to acquire any
additional businesses or assets, that any businesses or assets that are acquired
will be or will become profitable or the Company will be able to effectively
integrate any such businesses into its existing operations.
Year 2000
The Company has assessed and continues to assess the impact of the
Year 2000 issue on its reporting systems and operations. Based on existing
operations, the Company does not expect this issue to have any material effect
on its business. To date the Company has not incurred any costs to address this
issue and does not expect to in the future.
Forward-Looking Statements
The foregoing discussion may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such statements are intended to be
covered by the safe harbors created by such provisions. These statements
include the plans and objectives of management for future growth of the Company,
including plans and objectives related to the sale of certain of the businesses
comprising AWC, and the consummation of future private and public issuances of
the Company's
-13-
<PAGE> 14
equity and debt securities. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-KSB will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements required by this item are filed
herewith:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants dated April 10, 1998 15
Consolidated Balance Sheet as of December 31, 1997 16
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1997 17
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1997 18
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1997 19
Notes to Consolidated Financial Statements 20
</TABLE>
-14-
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
TBA Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of TBA Entertainment
Corporation (a Delaware corporation)(formerly Nashville Country Club, Inc.) and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TBA Entertainment
Corporation and subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996 and 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 10, 1998
-15-
<PAGE> 16
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents ............................................................. $ 3,369,300
Accounts receivable ................................................................... 955,700
Inventories ........................................................................... 442,200
Prepaid expenses and other current assets ............................................. 534,000
------------
Total current assets ............................................................... 5,301,200
Property and equipment, net .............................................................. 33,670,900
Investment in Joint Venture .............................................................. 15,100
Other assets, net:
Net long-term assets of discontinued operations ....................................... 9,363,500
Goodwill .............................................................................. 3,494,100
Other ................................................................................. 716,700
------------
Total assets ............................................................................. $ 52,561,500
============
Current liabilities:
Accounts payable and accrued liabilities .............................................. $ 6,497,400
Notes payable and current portion of long-term debt ................................... 1,606,200
Notes payable to stockholders ......................................................... 500,000
Net current liabilities of discontinued operations .................................... 872,000
------------
Total current liabilities .......................................................... 9,475,600
Long-term debt, net of current portion ................................................... 21,632,500
Capital land lease obligation ............................................................ 733,000
------------
Total liabilities .................................................................. 31,841,100
------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares, 334,300 of Series
A convertible preferred stock issued and outstanding, $10,000
liquidation preference ............................................................ 10,000
Common stock, $.001 par value; authorized 20,000,000 shares, 7,190,400
shares issued and outstanding .................................................... 7,200
Additional paid in capital............................................................. 24,892,200
Accumulated deficit ................................................................... (4,164,800)
Less treasury stock, at cost, 4,800 shares............................................. (24,200)
------------
Total stockholders' equity ........................................................ 20,720,400
------------
Total liabilities and stockholders' equity ............................................... $ 52,561,500
============
</TABLE>
See notes to financial statements.
-16-
<PAGE> 17
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revenues:
Resort ............................................ $ 10,809,000 $ 23,791,800
Entertainment ..................................... -- 6,437,100
------------ ------------
Total revenues .................................. 10,809,000 30,228,900
------------ ------------
Departmental expenses:
Resort ............................................. 11,822,800 20,731,100
Entertainment ...................................... -- 5,995,600
Corporate expenses ................................. 347,000 598,600
Depreciation and amortization ...................... 599,300 1,096,000
------------ ------------
Total operating expenses ......................... 12,769,100 28,421,300
------------ ------------
(Loss) income from operations ........................ (1,960,100) 1,807,600
Equity in income of Joint Venture .................. -- 78,900
Interest expense, net .............................. (1,167,200) (1,845,800)
------------ ------------
(Loss) income from continuing operations ............. (3,127,300) 40,700
Income from discontinued operations, net of income
taxes of $351,800..................; ............... -- 361,600
------------ ------------
Net (loss) income .................................... $ (3,127,300) $ 402,300
============ ============
Earnings per common share - basic:
(Loss) income from continuing operations ........... $ (0.87) $ 0.01
Income from discontinued operations ................ -- 0.06
------------ ------------
Net (loss) income .................................. $ (0.87) $ 0.07
============ ============
Earnings per common share - diluted:
(Loss) income from continuing operations .......... $ (0.87) $ 0.01
Income from discontinued operations ............... -- 0.05
------------ ------------
Net (loss) income ................................. $ (0.87) $ 0.06
============ ============
</TABLE>
See notes to financial statements.
-17-
<PAGE> 18
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
-------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31,
1995 .............................. 334,300 $ 10,000 1,470,000 $ 3,224,700 $ --
Issuance of shares of common
stock and warrants,
net of offering costs ........... -- -- 2,702,900 11,448,100 --
Issuance of shares of common
stock in business combination .. -- -- 417,500 2,097,600 --
Net loss .......................... -- -- -- -- --
-------- -------- ---------- ------------ ---------------
BALANCES, December 31,
1996 .............................. 334,300 10,000 4,590,400 16,770,400 --
Issuance of shares of common
stock and warrants,
net of offering costs ........... -- -- 2,600,000 8,129,000 --
Conversion to $.001 par
value stock upon
reincorporation.................. -- -- -- (24,892,200) 24,892,200
Treasury stock purchased .......... -- -- -- -- --
Net Income ........................ -- -- -- -- --
-------- -------- ---------- ------------ ---------------
BALANCES, December 31,
1997 (1).......................... 334,300 $ 10,000 7,190,400 $ 7,200 $ 24,892,200
======== ======== ========== ============ ===============
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCK STOCKHOLDERS'
DEFICIT SHARES AMOUNT EQUITY
----------- ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCES, December 31,
1995 .............................. $(1,439,800) -- $ -- $ 1,794,900
Issuance of shares of common
stock and warrants,
net of offering costs ........... -- -- -- 11,448,100
Issuance of shares of common
stock in business combination .. -- -- -- 2,097,600
Net loss .......................... (3,127,300) -- -- (3,127,300)
----------- ------ -------- -------------
BALANCES, December 31,
1996 .............................. (4,567,100) -- -- 12,213,300
Issuance of shares of common
stock and warrants,
net of offering costs ........... -- -- -- 8,129,000
Conversion to $.001 par
value stock upon
reincorporation.................. -- -- --
Treasury stock purchased .......... -- (4,800) (24,200) (24,200)
Net Income ........................ 402,300 -- -- 402,300
----------- ------ -------- -------------
BALANCES, December 31,
1997 (1).......................... $(4,164,800) (4,800) $(24,200) $ 20,720,400
=========== ====== ======== =============
</TABLE>
(1) The December 31, 1997 balance for number of shares of common stock
outstanding does not include 809,800 contingently issued shares that were placed
in escrow pursuant to the acquisition of Avalon Entertainment Group, Inc. in
April 1997 (Note 5).
See notes to financial statements.
-18-
<PAGE> 19
'
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ............................................................. $ (3,127,300) $ 402,300
------------ ------------
Adjustments to reconcile net (loss) income to net cash (used in) provided by
continuing operations ......................................................
Income from discontinued operations ..................................... -- (361,600)
Depreciation and amortization ........................................... 599,300 1,096,000
Undistributed earnings of Joint Venture ................................. -- (79,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .......................... 107,400 (236,700)
(Increase) decrease in inventories .................................. (59,900) 28,700
Increase in prepaid expenses and other current assets ............... (98,200) (1,600)
Increase in other assets ............................................ -- (32,600)
Increase in accounts payable and accrued expenses ................... 2,569,200 133,900
------------ ------------
Total adjustments ................................................ 3,117,800 547,100
------------ ------------
Net cash (used in) provided by continuing operations..................... (9,500) 949,400
------------ ------------
Cash flows from investing activities:
Acquisitions, net of cash acquired ............................................ (7,823,300) (7,867,700)
Expenditures for property and equipment ....................................... (617,500) (527,500)
Increase in other assets....................................................... -- (120,300)
------------ ------------
Net cash used in investing activities ................................... (8,440,800) (8,515,500)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs ................... 11,448,100 8,129,000
Proceeds from borrowings .................................................... 1,497,700 7,207,200
Repayments of borrowings .................................................... (1,986,100) (6,354,400)
Payment of loan fees......................................................... (85,100) (385,900)
Purchase of treasury stock................................................... -- (24,200)
------------ ------------
Net cash provided by financing activities ............................... 10,874,600 8,571,700
------------ ------------
Net cash used in discontinued operations -- (296,300)
------------ ------------
Net increase in cash and cash equivalents ....................................... 2,424,300 709,300
Cash and cash equivalents - beginning of year ................................... 235,700 2,660,000
------------ ------------
Cash and cash equivalents - end of year ......................................... $ 2,660,000 $ 3,369,300
============ ============
</TABLE>
See notes to financial statements.
-19-
<PAGE> 20
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
1. NATURE OF BUSINESS AND MANAGEMENT'S BUSINESS STRATEGY
TBA Entertainment Corporation ("TBA") was incorporated in September 1997 in
connection with the reincorporation of Nashville Country Club, Inc. ("NCCI")
which was incorporated in June 1993 for the purpose of acquiring and operating
entertainment-related businesses. TBA and NCCI are collectively referred to as
the "Company". The Company opened a restaurant in Nashville, Tennessee on
November 17, 1994 (the "Nashville Restaurant"). In 1996, the Company acquired
The Village at Breckenridge Resort (the "Breckenridge Resort"), a resort complex
consisting of hotels, restaurants, meeting and commercial space, and property
management contracts with respect to guest accommodations located in properties
included in and separate from the Breckenridge Resort, all located in
Breckenridge, Colorado. In 1997, the Company acquired 100% of the outstanding
common stock of Avalon Entertainment Group, Inc. ("AEG"), a company engaged in
producing corporate entertainment events, entertainment marketing programs and
artists management (Note 5) and acquired a 51% controlling interest in a group
of entities (collectively, "Avalon West Coast" or "AWC") that owns and manages
amphitheaters, produces concerts, provides advertising services and is involved
in event merchandising for large-scale sporting and entertainment events (Note
7).
The Company is focusing its future growth only in certain segments of the
entertainment sector and, accordingly, is in the process of divesting itself of
businesses that are not a part of the future growth plans of the Company. As
part of its divestiture plans, the Company has entered into negotiations to sell
certain of the assets comprising AWC that are involved in the ownership and
management of amphitheaters, concert promotion and advertising services (Note 7)
and is in preliminary negotiations for the potential sale of the Breckenrige
Resort (Note 4). Management intends to use the proceeds from the sale of these
assets to provide capital to expand its other entertainment-related businesses.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries - The Village at Breckenridge
Acquisition Corp., Inc., Property Management Acquisition Corp., Inc. and AEG,
and its majority owned subsidiaries comprising AWC. The accompanying
consolidated statements of operations include the operations of the Breckenridge
Resort from the April 29, 1996 acquisition date, AEG from the April 21, 1997
acquisition date and AWC from the July 31, 1997 acquisition date. All
significant intercompany accounts and transaction have been eliminated in
consolidation.
As discussed in Note 1, subsequent to December 31, 1997, the Company entered
into negotiations to sell certain of the businesses comprising AWC.
Accordingly, the operating results of these businesses for all periods
presented have been reclassified and reported as discontinued operations and
the assets and liabilities of these businesses have been reclassified as net
current liabilities of discontinued operations and net long-term assets of
discontinued operations at December 31, 1997 (Note 7).
The following unaudited pro forma financial information includes the results of
operations of the Company as if the acquisitions of the Breckenridge Resort and
AEG had occurred as of January 1, 1996. The pro forma results include
amortization of the excess purchase price over fair value of net assets
acquired, interest expense and adjustments to salaries and ownership
distributions to former owners of AEG. No pro forma adjustments have been made
for the results of operations of AWC before the AWC acquisition date because the
operations of those businesses of AWC being sold are reflected as discontinued
operations. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed as of the
beginning of each of the periods presented, nor are they necessarily indicative
of future consolidated results.
-20-
<PAGE> 21
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Total revenues ....... $26,294,000 $32,152,000
Net (loss) income .... $(1,312,000) $ 343,500
Earnings per common
share:
Basic .............. ($.29) $.06
Diluted............. ($.29) $.05
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
Cash and cash equivalents consist primarily of cash in banks and highly liquid
investments purchased with an original maturity of three months or less. The
Company holds its investments in highly qualified financial institutions. At
times, such investments may be in excess of insured limits. As of December 31,
1997, the Company had $300,500 of cash held in escrow that was restricted for
payment of property taxes and insurance.
The following is a supplemental disclosure to the Statements of Cash Flows for
the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash paid during the year for interest ...................... $1,254,700 $1,806,200
Non-cash transactions:
Common stock issued in business combinations .............. 2,097,600 --
Notes payable issued in business combinations ............. -- 2,480,000
</TABLE>
Inventories
Inventories consist primarily of food and beverage, retail, and operating
supplies, which are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Land and improvements ............................ $ 14,041,900
Land under capital lease ......................... 800,000
Buildings and improvements........................ 17,945,400
Furniture, fixtures and equipment ................ 2,526,500
------------
35,313,800
Less - accumulated depreciation and amortization.. (1,642,900)
------------
Property and equipment, net ...................... $ 33,670,900
============
</TABLE>
Property and equipment are recorded at cost and are depreciated or amortized
using the straight-line method, over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements ........................ 15-39 years
Furniture, fixtures and equipment ................ 3-7 years
</TABLE>
The Company follows the policy of capitalizing expenditures that materially
increase asset lives and charges ordinary maintenance and repairs to operations
as incurred.
-21-
<PAGE> 22
Other Assets
Loan fees incurred with respect to certain of the Company's notes payable are
being amortized over the terms of the notes payable using the straight-line
method which approximates the effective interest rate method. Accumulated
amortization of loan fees totaled $44,200 at December 31, 1997.
Goodwill, which represents costs in excess of net assets of businesses acquired,
is being amortized using the straight-line method over periods ranging from
five to twenty years. The Company continually evaluates goodwill to assess
recoverability from estimated future results of operations and cash flows.
Accumulated amortization of goodwill totaled $124,800 at December 31, 1997.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the following as of
December 31, 1997:
<TABLE>
<S> <C>
Advance deposits ....................... $3,145,200
Accounts payable ....................... 853,100
Due to homeowners ...................... 678,900
Accrued payroll ........................ 429,200
Accrued property taxes ................. 343,800
Other accrued expenses ................. 1,047,200
----------
$6,497,400
==========
</TABLE>
Advance Deposits and Revenue Recognition
Advance deposits related to the Breckenridge Resort are recorded as a liability
until rooms and other services are provided and revenues are earned. Advance
deposits reflected in the accompanying consolidated balance sheet relate
primarily to the winter ski season ending in April. Customer deposits and
Company expenditures related to future corporate shows are recorded as advance
deposits and prepaid expenses, respectively, and recognized as revenue and
expense in the month the show takes place.
Property Management Contracts
The Breckenridge Resort has contracts relating to the management and rental of
approximately 330 living units, located in properties included in and separate
from the Breckenridge Resort. These contracts are primarily for a period of one
year with renewal options. The Breckenridge Resort pays a fee of 55% to 60% of
the gross revenue to the owner of the living unit. This amount is due monthly
and is recorded as due to homeowners. Revenues generated from the rental of
these units are reported as resort revenue with the fee paid to the owner
reported as resort expense. The loss of all or a significant amount of the
contracts would have a material impact on the results of operations of the
Breckenridge Resort.
Income Taxes
The Company accounts for income taxes under the liability method required by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred income tax assets
and liabilities based on enacted tax laws for any temporary differences between
financial reporting and tax bases of assets, liabilities and carryforwards. SFAS
109 also requires that deferred tax assets be reduced by a valuation allowance
if it is more likely than not that some or all of the deferred tax asset will
not be realized.
Net (Loss) Income Per Common Share
In February 1997, Statement of Financial Accounting Standards No, 128, "Earnings
Per Share" ("SFAS 128") was issued. Under SFAS 128, basic earnings per share
("basic EPS") is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period. SFAS 128
replaces fully diluted EPS with
-22-
<PAGE> 23
EPS assuming dilution ("diluted EPS"). SFAS 128 did not impact the Company's
previously reported earnings per share. The Company calculates diluted EPS
assuming all securities or other contracts to issue common stock are exercised
or converted into common stock at the beginning of the year (or the time of
issuance, if later). The following table reconciles the computation of basic EPS
to diluted EPS:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Basic Earnings Per Common Share:
Net (loss) income from continuing operations .............................. $(3,127,300) $ 40,700
Weighted average common stock outstanding.................................. 3,575,900 5,680,300
----------- -----------
Basic earnings per common share............................................ $ (0.87) $ 0.01
=========== ===========
Diluted Earnings Per Common Share:
Net (loss) income from continuing operations .............................. $(3,127,300) $ 40,700
----------- -----------
Weighted average common stock outstanding.................................. 3,575,900 5,680,300
Additional common stock resulting from dilutive securities:
Preferred Stock.......................................................... -- 334,300
Weighted average common stock expected to be issued in
AEG transaction........................................................ -- 310,000
----------- -----------
Weighted average common stock and dilutive securities
outstanding ............................................................... 3,575,900 6,324,600
----------- -----------
Diluted earnings per common share ......................................... $ (0.87) $ 0.01
=========== ===========
</TABLE>
Preferred stock convertible into 334,300 shares of common stock were not
considered in calculating 1996 diluted earnings per share as their inclusion
would have been anti-dilutive. In addition, options and warrants to purchase
1,864,000 and 2,264,000 shares of common stock in 1996 and 1997, respectively,
were not considered in calculating diluted earnings per share as their inclusion
would have been anti-dilutive.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
-23-
<PAGE> 24
Reclassifications
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform with classifications used in 1997.
4. THE BRECKENRIDGE RESORT ACQUISITION
Effective April 29, 1996, the Company acquired the Breckenridge Resort from an
unaffiliated third party for approximately $31.5 million, consisting of
approximately $8.1 million in cash, $2.1 million of common stock (417,500
shares) and the assumption of $21.3 million of net Breckenridge Resort
liabilities. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the
date of acquisition. The allocation was made as follows:
<TABLE>
<S> <C>
Assets Acquired:
Land and buildings ................................. $30,360,000
Furniture, fixtures, and equipment ................. 1,100,000
Cash ............................................... 231,000
Accounts receivable ................................ 719,000
Other current assets ............................... 318,000
-----------
32,728,000
-----------
Liabilities assumed:
Long-term debt ..................................... 20,644,000
Accounts payable ................................... 776,000
Other current liabilities .......................... 1,156,000
-----------
22,576,000
-----------
Net assets acquired ......................................... $10,152,000
===========
</TABLE>
5. AVALON ENTERTAINMENT GROUP, INC. ACQUISITION
Effective April 21, 1997 the Company acquired 100% of the common stock of Avalon
Entertainment Group, Inc. The purchase price included a cash payment of $400,000
and the issuance of $2,480,000 of promissory notes ("AEG Notes") as of April 21,
1997, and a future contingent payment, to be paid in shares of common stock of
the Company, based on 1997 earnings of AEG. The aggregate purchase price for AEG
was not to exceed $7,200,000. In contemplation of the payment of the future
contingent amount, the Company placed 809,800 shares of the Company's common
stock into escrow on April 21, 1997. Subsequent to December 31, 1997, the
Company and the sellers agreed upon the amount of the future contingent payment
on a basis different than that set forth in the original purchase agreement.
This agreed upon value is contingent upon the successful sale of certain of the
businesses comprising AWC (Note 7). This will result in the release of 445,400
shares from escrow to the sellers with the balance of the common stock returned
to the Company. If the sale of AWC does not close, the Company will apply the
provisions of the original agreement in determining the amount of contingent
payment, if any. Including acquisition costs, the aggregate purchase price for
AEG, recorded as of December 31, 1997, totaled
-24-
<PAGE> 25
$3,211,000. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the
date of acquisition. The excess of the aggregate purchase price over fair market
value of net liabilities assumed of $3,401,100, was recorded as goodwill and is
being amortized over 20 years.
The AEG Notes issued in connection with the acquisition accrued interest at a
stated rate of 5%. Additional interest expense of $43,200 was imputed on the AEG
Notes using an effective rate of 8%. In November 1997, the Company obtained a
$2,600,000 note payable from a bank (Note 8), the proceeds of which were used to
repay $1,980,000 of the AEG Notes in 1997. The remaining $500,000 of AEG Notes
are reflected as notes payable to stockholders in the accompanying consolidated
balance sheet and were repaid in January 1998.
6. INVESTMENT IN WARNER/AVALON JOINT VENTURE
AEG owns a 50% interest in a joint venture with Warner Custom Music Corp. The
joint venture, Warner/Avalon, develops and coordinates live, sponsored music
entertainment marketing tours and programs and related projects and generates
revenues primarily from third party corporate sponsorships. Warner/Avalon
recognizes revenue by amortizing the contract sponsorship funds over the life of
the related programs, which may range from single day events to tours lasting
several months.
AEG accounts for the investment using the equity method of accounting. Summary
statements of operations data of Warner/Avalon used to determine the equity in
income of Joint Venture, included in the summary pro forma financial information
(Note 2) for the years ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revenues ............. $ 9,635,900 $10,831,700
Net Income ........... $ 899,000 $ 220,800
</TABLE>
Summary balance sheet data of Warner/Avalon consists of the following as of
December 31, 1997:
<TABLE>
<S> <C>
Current assets ................. $528,800
Non-current assets ............. 345,100
Current liabilities ............ 843,700
Partners' capital .............. 30,200
</TABLE>
As of December 31, 1997, the Company had undistributed earnings from
Warner/Avalon of $15,100.
During 1996, the two largest customers accounted for 80% and 15% of gross
revenues of Warner/Avalon. In 1997, the two largest customers accounted for 68%
and 29% of gross revenues of Warner/Avalon.
In 1997, Warner/Avalon entered into various agreements to develop a live,
sponsored, music tour for each of the years 1997, 1998 and 1999. During 1997 the
tour incurred operating losses of $666,000 which reduced Warner/Avalon's net
income for 1997. As of March 1998, a line-up of artists satisfactory to the tour
sponsor was not available. Accordingly, the tour sponsor terminated its
agreement with Warner/Avalon, resulting in the cancellation of the tour program
for 1998 and 1999.
7. AVALON WEST COAST ACQUISITION AND DISPOSITION
Effective July 31, 1997, the Company acquired a 51% controlling interest in AWC,
a group of entities affiliated with AEG. The remaining 49% of AWC is owned by a
group of individuals who are officers and stockholders of the Company. The
purchase price included a $7 million cash payment with proceeds from the
Company's stock offering (Note 10) and a future contingent payment based on the
average earnings of AWC (as defined) for the years 1996-1998. Including
acquisition costs, the total purchase price for AWC
-25-
<PAGE> 26
recorded as of December 31, 1997 is $7,862,900. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets acquired and the liabilities assumed
based on their estimated fair values on the date of acquisition.
As discussed in Note 1, the Company has decided to discontinue operations in
the concert promotion and amphitheater businesses, which were a part of AWC. As
a result, in March 1998 the Company entered into negotiations to sell its 51%
controlling interest in these businesses to an unaffiliated third party (the
"buyer") for cash. The group of individuals that owned the remaining 49% of AWC
also entered into negotiations to sell their interest in these businesses to
the buyer. The Company expects to recognize a one-time pre-tax gain as a
result of the sale of these businesses.
Net income attributable to those businesses of AWC included in the sale to the
buyer, from the date the Company acquired AWC (July 31, 1997) to December 31,
1997, are shown as discontinued operations in the accompanying consolidated
statements of operations. The following is a summary of the revenue and expenses
related to these businesses for the period from acquisition to December 31,
1997:
<TABLE>
<S> <C>
Revenues ...................................... $13,204,000
Cost of revenues .............................. 8,786,000
General and administrative .................... 2,044,700
Depreciation and amortization ................. 300,300
Interest expense, net ......................... 40,200
Operating profits due to WAP partner .......... 898,900
Provision for income taxes .................... 351,800
Minority interest in AWC ...................... 420,500
-----------
Net income attributable to the
Company ..................................... $ 361,600
===========
</TABLE>
The components of the net assets of the businesses to be sold included in the
accompanying consolidated balance sheet are as follows:
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents .......................... $ 513,000
Accounts receivable ................................ 1,030,500
Other current assets ............................... 49,500
Less current liabilities:
Accounts payable ................................... 726,900
Current portion of long-term debt .................. 507,000
Advance deposits ................................... 387,600
Other accrued liabilities .......................... 843,500
-----------
Net current liabilities ..................................... $ 872,000
===========
Long-term assets:
Property and equipment, net ........................ $11,780,700
Other assets, net .................................. 124,100
Less long-term liabilities:
Minority interest .................................. 2,241,300
Long-term debt, net of current portion ............. 300,000
-----------
Net long-term assets ........................................ $ 9,363,500
===========
</TABLE>
Effective April 1997, one of the entities comprising AWC entered into a
partnership ("Western Amphitheater Partners" or "WAP") with Pavilion Partners.
WAP was formed for the purpose of
-26-
<PAGE> 27
combining the operations of the Irvine Meadows Amphitheatre (owned by the
Company) and Glen Helen Pavilion (owned by Pavilion Partners). Pursuant to the
partnership agreement, each partner retained ownership of its respective
amphitheater and shared equally in the net operating results of WAP. The
Company's amphitheater operations comprise a portion of the AWC businesses
proposed to be sold.
The Company is responsible for the day to day operational management of WAP and
is responsible for procurring the artists for both amphitheaters. Accordingly,
the operations of WAP have been consolidated in the accompanying consolidated
statements of operations and are included in the discontinued operations of AWC
described above. Pavilion Partners' 50% share of WAP net income was $898,900 for
the period from August 1, 1997 to December 31, 1997. In connection with the WAP
partnership, AWC received a fee for carrying out booking and logistical
production of all events held at the two amphitheaters. The amount of this fee
recognized as an expense by WAP and income by AWC was $276,000 for the period
from August 1, 1997 to December 31, 1997, which amount is eliminated in
consolidation.
As of December 31, 1997, the accompanying consolidated balance sheet includes a
receivable from Pavilion Partners of $373,600, representing cash receipts
received by Glen Helen Pavilion not yet remitted to WAP, net of operating
profits due to Pavilion Partners. This amount is reflected in net current
liabilities of discontinued operations.
The following is a summary of the significant accounting policies related to the
AWC businesses proposed to be sold. Property and equipment are stated at cost
and related depreciation and amortization is provided using the straight-line
method over 3 to 5 years for furniture, fixtures and other equipment, over 15
years for capitalized lease equipment and over the lesser of 5 to 35 years or
the remaining term of the lease for leasehold improvements. Revenues are
recognized as concert events occur. Expenses are properly matched to the period
in which related revenues are recognized.
AWC leases the land on which the Irvine Meadows Amphitheater is located under a
20-year lease agreement ending February 28, 2017. The lease agreement specifies
annual payments of the greater of $700,000, 5% of gross amphitheater sales, or
25% of net cash flow from operations. Rent expense under this operating lease
was $291,700 for the period from August 1, 1997 to December 31, 1997.
Long-term debt of the AWC businesses to be sold consists of the following as of
December 31, 1997:
<TABLE>
<S> <C>
Notes payable to banks, interest at prime plus 1-3% (9.5 - 11.5% at
December 31, 1997), repaid in 1998 .................................. $ 200,000
Notes payable to stockholders, no stated interest rate or
repayment terms ..................................................... 207,000
Note payable to stockholders and other individuals, interest at prime
plus 1% (9.5% at December 31, 1997) unsecured, payments of $100,000
plus interest are required each year on November 15.................. 400,000
---------
807,000
Less-current portion ................................................ (507,000)
---------
$ 300,000
=========
</TABLE>
In 1997 the Company commenced development of a 16,000 seat amphitheater in
Camarillo, California which is located on Ventura County land. The Company
anticipates entering into a long-term lease agreement with the County of
Ventura. Management estimates the total construction cost will approximate
$10,000,000, of which approximately $127,400 and $600,000 has been incurred as
of December 31, 1997 and April 10, 1998, respectively. The amphitheater under
development is included in the assets of AWC proposed to be sold.
-27-
<PAGE> 28
8. LONG-TERM DEBT
Long-term debt of the Company, excluding long-term debt associated with
discontinued operations (Note 7), consists of the following as of December 31,
1997:
<TABLE>
<S> <C>
Mortgage note payable to a bank, interest at 9%, due
November 2004, secured by substantially all the assets of
the Breckenridge Resort ............................................... $ 14,569,600
Mortgage note payable to an unaffiliated third party, interest at 7%,
due December 1999, secured by substantially all the assets of the
Breckenridge Resort ................................................... 5,100,400
Note payable to a bank, interest at the bank's prime rate plus 0.25%
(8.75% at December 31, 1997), due December 2000,
secured by a pledge of the common stock of AEG ....................... 2,600,000
Note payable to a bank, interest at prime plus 2% (10.5% as of
December 31, 1997), repaid in March 1998, unsecured ................. 300,000
Note payable to a bank, interest at 9%, due May 2001,
secured by property management agreements ............................. 280,000
Equipment and other notes payable and capital leases, interest ranging
from 9% to 15.5%, with various maturity dates through July 2001,
secured by accounts receivable, equipment, machinery, property
management agreements and contract rights related to the Breckenridge
Resort ................................................................ 238,700
------------
23,088,700
Less-current portion .................................................. (1,456,200)
------------
$ 21,632,500
============
</TABLE>
In November 1997, the Company entered into an agreement to refinance a mortgage
note payable to a bank related to the Breckenridge Resort. The financing
included an extension of the amortization period of the loan and additional
borrowings of $3.9 million, the proceeds from which were used to repay three
other mortgage notes payable related to the Breckenridge Resort. The Company
paid additional loan fees of $298,100 related to the refinancing, which amount
is included in other assets in the accompanying consolidated balance sheet.
The Company obtained a $250,000 line of credit in September 1997. The Company
borrowed $150,000 on this line of credit in September 1997, which amount remains
outstanding as of December 31, 1997. Borrowings under the line of credit accrue
interest at the bank's prime rate minus 0.25% (8.25% at December 31, 1997).
Interest is payable monthly and amounts outstanding under the line of credit are
due June 1, 1998.
The Company entered into a private placement with five non-affiliated accredited
investors pursuant to which the Company borrowed $250,000 in December 1995 for
working capital purposes. In January 1996, the Company entered into one
additional note agreement with a non-affiliated accredited investor for $50,000
under the same terms. The Notes were repaid in April 1996 with proceeds from a
stock offering (Note 10).
-28-
<PAGE> 29
Future annual maturities of long-term debt consists of the following as of
December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 ................................................................................ $ 1,456,200
1999 ................................................................................ 5,794,800
2000 ................................................................................ 1,925,100
2001 ................................................................................ 575,400
2002 ................................................................................ 391,900
Thereafter .......................................................................... 12,945,300
-----------
Total ...................................................................... $23,088,700
===========
</TABLE>
9. LEASES
Operating Leases
The Breckenridge Resort leases its retail stores to tenants under noncancelable
operating lease agreements. The agreements generally require that the
Breckenridge Resort pay applicable property taxes, insurance, repairs, and
common area maintenance costs, which are billable to tenants under lease terms.
Expense pass-throughs billed to tenants totaled $290,000 and $380,000 during
1996 and 1997, respectively. Several of these leases also require percentage
rent payments based on sales and have escalation clauses based on changes in the
consumer price index for future periods.
The following is a schedule of future minimum rents to be received (excluding
percentage rent payments) under the non-cancelable operating lease agreements:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998 ..................................................................... $ 1,020,500
1999 ..................................................................... 865,400
2000 ..................................................................... 482,800
2001...................................................................... 354,200
2002...................................................................... 176,100
Thereafter ............................................................... 201,900
------------
Total minimum rents ............................................. $ 3,100,900
============
</TABLE>
Capital Lease
The Company is a party to an agreement dated September 30, 1993 to lease real
property on which the Nashville Restaurant is located (Note 13). The lease had
an initial term of twenty years with a ten-year renewal option. In accordance
with terms of the lease agreement, at any time during the term of the lease, the
Company has the option to purchase the leased property for $800,000 less lease
payments and base rent paid through the closing date, or in the event of the
death of the original landlord, the amount of base rent paid by the Company
prior to and within 60 days after such death. The land under capital lease and
the lease obligation were recorded on the consolidated balance sheet due to the
existence of the bargain purchase option provision in the lease. As a result of
the death of the lessor of the property on June 23, 1994, the Company's option
to purchase the property became fixed at $733,000 in August 1994. The monthly
lease payment is $7,000 plus 4.5% of the purchase option price. Rental expense
totaled $118,000 during each of 1996 and 1997.
10. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 1,000,000 shares of $.001 par value preferred
stock. The Company has designated 557,100 shares of the authorized preferred
stock as Series A Convertible Preferred Stock ("Series A Preferred Stock"), of
which 334,300 shares have been issued. These shares are reflected in the
-29-
<PAGE> 30
accompanying consolidated balance sheet at $10,000. Holders of shares of Series
A Preferred Stock are not entitled to vote, except as required by applicable
law. Each share of Series A Preferred Stock has a liquidation preference of
$0.03 per share and is convertible into one share of common stock (i) at the
option of the holder if during the five-year period following the issuance of
the Series A Preferred Stock, the Company has earned after tax income for any
fiscal year of at least $500,000 based on generally accepted accounting
principles and (ii) automatically, in the event that 80% or more of the
Company's common stock is acquired by an entity or individual not previously
affiliated with the Company if the common stock has traded at an average bid
price per share of $7.50 or more during the preceding 90 business days or if the
acquisition price per share for the Company's common stock is $7.50 or more. The
Series A Preferred Stock does not have any preference on the payment of
dividends and participates equally in all dividends on a share for share basis
with the common stock.
Common Stock
The Company is authorized to issue 20,000,000 shares of $.001 par value common
stock, of which 7,190,400 shares are outstanding as of December 31, 1997. In
addition, in connection with the acquisition of AEG (Note 5), the Company placed
809,800 shares of common stock into escrow in contemplation of the payment of
the future contingent amount due under the AEG purchase agreement.
In April 1996, the Company completed an offering of 1,351,455 units, each
consisting of two shares of common stock and one redeemable common stock
purchase warrant. The net proceeds were used to consummate the Breckenridge
Resort Acquisition (Note 4), to repay indebtedness (Note 8), and for working
capital purposes. The redeemable warrants are detachable and separately
transferable. Each redeemable warrant entitles the holder to purchase one share
of common stock at a price of $6.25 per share until April 2001, and is
redeemable by the Company at $0.50 per warrant under certain conditions. In
connection with this offering, the underwriter was also granted a warrant to
acquire up to 120,000 units at $15.50 per unit. The warrants issued in 1996 were
outstanding at December 31, 1997.
In July 1997, the Company issued 2,600,000 shares of its common stock for the
purpose of completing the Avalon West Coast Acquisition (Note 7) and for working
capital purposes. In connection with this offering, the underwriter was granted
a warrant to acquire up to 130,000 shares of common stock at $4.20 per share
until July 2002. These warrants were outstanding as of December 31, 1997.
At December 31, 1997, the Company also had outstanding warrants to purchase
60,000 shares of common stock at $6.00 per share, expiring February 1999 and
warrants to purchase 12,500 shares of common stock at $5.00 per share, expiring
February 1999.
Stock Options
In 1995, the Company issued options to purchase 50,000 shares of common stock at
a price of $5.50 per share to certain employees under the 1995 Stock Option
Plan. The options vest over a four-year period.
In 1996, the Company issued options to purchase 30,000 shares of common stock at
$5.00 per share to certain directors of the Company in connection with the
Breckenridge Resort Acquisition. In 1997 these options were cancelled and new
options to purchase 30,000 shares of common stocks at $4.50 per share were
issued and immediately exercisable.
In 1997, the stockholders approved the 1997 Stock Option Plan that authorized
the issuance of incentive stock options or nonqualified stock options for
500,000 shares of common stock to key employees, officers and directors of the
Company. Options under the 1997 Stock Option Plan are granted at prices not less
than the fair market value on the date of grant and expire not more than ten
years from the date of grant. In April 1997, the Company's Chief Executive
Officer received options to purchase 250,000 shares of common stock at $5.40 per
share. The options were immediately exercisable. The Company also issued options
to purchase 20,000 shares of common stock at $5.00 per share in June 1997 to an
officer. These options vest over a four-year period. As of December 31, 1997, no
options have been exercised.
Information relating to stock options during 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
Weighted-
Shares Average
Under Exercise
Options Price
----------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 50,000 $ 5.50
Granted 30,000 5.00
--------
Options outstanding at December 31, 1996 80,000 5.31
Cancelled (30,000) 5.00
Granted 300,000 5.28
--------
Options outstanding at December 31, 1997 350,000 5.31
========
Options exerciseable at December 31, 1997 310,000 5.31
========
</TABLE>
The weighted average remaining life of the outstanding stock options at
December 31, 1997 was 6.14 years.
The Company applies APB Opinion 25 and related interpretations in accounting for
stock options; accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value of the stock options
at grant date consistent with the method of SFAS 123, the Company's net
-30-
<PAGE> 31
loss and net loss per share would have been the unaudited pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Pro forma net loss ........................ $(3,179,200) $(30,800)
Pro forma net loss per share .............. (.89) (.01)
</TABLE>
As required by SFAS No. 123, the Company provides the following disclosure of
hypothetical values for these awards. The weighted-average grant-date fair value
of options granted during 1996 and 1997 was estimated to be $3.04 and $1.51,
respectively.
The fair value of each option grant was estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions for 1996 and 1997, respectively; risk free interest rates of 6.33
and 6.70 percent; expected lives of 5 years and 3 years; volatility of 62.22 and
39.62 percent and no assumed dividends. Additional adjustments are made for
assumed cancellations and expectations that shares acquired through the exercise
of options are held during employment.
Change in Par Value
In September 1997, Company stockholders approved a reincorporation of the
Company in the State of Delaware and a change from no par value to $.001 par
value common and preferred stock. The change in par value has been recorded as
an adjustment to additional paid-in capital and common stock.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Under SFAS 107, "Fair Value of Financial Instruments", the Company is required
to disclose the fair value of financial instruments, including off balance sheet
financial instruments, when fair value can be reasonably estimated. The values
provided are representative of fair values only as of December 31, 1996 and
1997, and do not reflect subsequent changes in the economy, interest and tax
rates, and other variables that may impact determination of fair value. The
following methods and assumptions were used in estimating fair values:
Cash and cash equivalents: the carrying amount approximates fair value.
Short-term and long-term debt: the carrying value of short-term debt
approximates fair value. The fair value of long-term debt is estimated
based on the current borrowing rates of similar issues.
<TABLE>
<CAPTION>
1996 1997
---- ----
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents .......... $ 2,659,000 $ 2,659,000 $ 3,369,000 $ 3,369,000
Short-term debt .................... $ 884,300 $ 884,300 $ 2,106,200 $ 2,106,200
Long-term debt ..................... $19,521,700 $19,521,700 $21,632,600 $21,632,600
</TABLE>
12. INCOME TAXES
There is no current or deferred tax expense from continuing operations for 1996
and 1997. The Company was in a loss position in 1996 and utilized net operating
loss carryforwards in 1997. The benefits of net operating loss carryforwards and
other timing differences have not previously been recognized. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Realization of the future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating loss
carryforward period. Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting purposes. The
income tax effect of temporary differences comprising the deferred tax assets
and liabilities as of December 31, 1997 are as follows:
-31-
<PAGE> 32
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards .............. $1,710,000
Deferred costs ................................ 40,000
Other ......................................... 20,000
----------
Deferred tax liabilities: 1,770,000
Accelerated depreciation for tax .............. (140,000)
----------
Net deferred tax assets ................................ 1,630,000
Valuation allowance .................................... (1,630,000)
----------
$ --
</TABLE> ==========
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $4.5 million for income tax purposes which expire at various dates
through 2011. During 1997, the valuation allowance for the net deferred tax
assets decreased $140,000 from $1,770,000 to $1,630,000 as a result of the
decrease in the net deferred tax asset from 1996 to 1997.
The Company anticipates that the sale of certain of the businesses of AWC, as
discussed in Note 7, will result in a one-time gain in 1998 and, accordingly,
the Company will be able to realize a portion of the deferred tax asset for NOL
carryforwards in 1998.
13. COMMITMENTS AND CONTINGENCIES
Redevelopment of the Breckenridge Resort
In August 1996, the Company entered into a letter of intent with an unaffiliated
third party development company which set forth the major business points
pursuant to which the two parties would form a joint venture to redevelop a
portion of the Breckenridge Resort's assets. The letter of intent contemplated
that the Company would contribute certain land and buildings to the joint
venture and the joint venture partner would contribute cash and services.
Proceeds from the sale of redeveloped assets and from the management of assets
retained by the joint venture would be distributed as provided in the letter of
intent, subject to the negotiation of a definitive agreement. As of April 10,
1998, the joint venture partners are proceeding with initial planning and design
efforts associated with the redevelopment. However, no definitive agreement has
been entered into with respect to the joint venture. As discussed in Note 1, the
Company is in preliminary negotiations for the potential sale of the
Breckenridge Resort, including the assets to be redeveloped.
Operations of the Nashville Restaurant
In November 1997, the Company ceased operations at the Nashville Restaurant. The
net book value of the property and equipment of the Nashville Restaurant as of
December 31, 1997, included in the accompanying consolidated balance sheet is
$2,363,700. Total revenues of the Nashville Restaurant for 1996 and 1997,
included in resort revenues in the accompanying consolidated statements of
operations are $2,138,700 and $1,899,300, respectively. Management of the
Company is evaluating the future use or sale of this facility (Note 9) and
believes that the net book value of the Nashville Restaurant assets are
realizable.
Acquisition of Property Management Company
In December 1997, the Company acquired a property management company
that has contracts relating to the management and rental of approximately 50
living units in Breckenridge, Colorado. The acquisition (accounted for under the
purchase method) included a cash payment of $150,000 in December 1997 and a
future contingent payment not to exceed $150,000, due in May 1998. The future
contingent payment will be adjusted downward for those rental management
contracts which do not meet certain criteria as defined in the purchase and sale
agreement. In December 1997, the Company obtained a $280,000 loan from a bank
(Note 8), the proceeds of which are to be used to satisfy the final purchase
price.
Repurchase of Stock
In connection with the Breckenridge Resort Acquisition, the Company agreed to
repurchase up to 86,234 shares of common stock issued to the sellers of the
Breckenridge Resort at $5.00 per share and agreed to pay a fee of $97,000 to one
of the sellers. During 1997, the Company repurchased 4,800 such shares for
aggregate consideration of $24,200, which are reflected as treasury stock in the
accompanying consolidated balance sheet. Subsequent to year end, the Company
agreed to repurchase an additional 42,200 shares for aggregate consideration of
$211,000. The Company is currently negotiating with the holders of the remaining
shares subject to the repurchase as to the timing of the repurchase.
-32-
<PAGE> 33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item regarding the directors and executive
officers of the Company will be included in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A in connection with the
Company's 1998 annual meeting of stockholders and is incorporated herein by
reference thereto.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item regarding the directors and executive
officers of the Company will be included in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A in connection with the
Company's 1998 annual meeting of stockholders and is incorporated herein by
reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with the Company's 1998 annual meeting of stockholders and is incorporated
herein by reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in connection
with the Company's 1998 annual meeting of stockholders and is incorporated
herein by reference thereto.
-33-
<PAGE> 34
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Merger Agreement among TBA Entertainment Corporation and Avalon Acquisition Corp., Inc.(1)
3.1 -- Certificate of Incorporation of the Company. (2)
3.2 -- Bylaws of the Company. (2)
4.1 -- Specimen Common Stock Certificate. (2)
4.3 -- Certificate of Designation of Series A Convertible Preferred Stock of the Company. (2)
10.1 -- Lease dated September 30, 1993 between the Company and William Madison Smith. (2)
10.2 -- Employment Agreement dated as of January 1, 1994 between the Company and Thomas
Jackson Weaver III. (3)
10.3 -- Employment Agreement dated as of January 1, 1994 between the Company and Prab Nallamilli. (3)
10.4 -- Intentionally omitted.
10.5 -- Stock Purchase Warrant dated February 24, 1994 between the Company and Yee, Desmond, Schroeder
& Allen, Inc. (3)
10.6 -- Form of Indemnification Agreement between the Company and each of the directors and executive
officers. (3)
10.7 -- Employment Agreement dated April 29, 1996 between the Company and Jeffrey McIntyre. (3)
10.8 -- Employment Agreement dated April 29, 1996 between the Company and Mark van Hartesvelt. (3)
10.9 -- TBA Entertainment Corporation 1995 Stock Option Plan. (5)
10.10 -- Form of Stock Option Agreement for options granted under the 1995 Stock Option Plan. (5)
10.11 -- TBA Entertainment Corporation 1997 Stock Option Plan. (6)
10.12 -- Form of Stock Option Agreement for options granted under the 1997 Stock Option Plan. (6)
10.13 -- Representative's Warrant Agreement dated April 23, 1996 between the Company and H.J. Meyers &
Co., Inc. (5)
10.14 -- Warrant Agreement dated April 23, 1996 among the Company, H.J. Meyers & Co., Inc. and American
Stock Transfer & Trust Company. (5)
10.18 -- Employment Agreement between Avalon Entertainment Group, Inc. and Marc W. Oswald. (6)
10.19 -- Employment Agreement between Avalon Entertainment Group, Inc. and Greg M. Janese. (6)
10.20 -- Placement Agent Warrant Agreement between the Company and Rauscher Pierce Refsnes, Inc. (7)
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
</TABLE>
- -------------------
(1) Incorporated by reference to the same exhibit number in the Company's
Current Report on Form 8-K filed on April 21, 1997.
(2) Incorporated by reference to the same exhibit number in the Company's
Current Report on Form 8-K filed on September 23, 1997.
(3) Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form SB-2 (Registration Number 33-69944).
(4) Incorporated by reference to the same exhibit number in the Company's
Registration Statement on Form SB-2 (Registration No. 33-97890).
(5) Incorporated by reference to the same exhibit number in the Company's
Form 10-KSB for the fiscal year ended December 31, 1995.
-34-
<PAGE> 35
(6) Incorporated by reference to the same exhibit number in the Company's
Form 10-KSB, as amended, for the fiscal year ended December 29, 1996.
(7) Incorporated by reference to the same exhibit number in the Company's
Current Report on Form 8-K filed on June 20, 1997.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended
December 31, 1997.
-35-
<PAGE> 36
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Hickory Valley, Tennessee, on the 14th day of April, 1998.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
-------------------------------------
Thomas Jackson Weaver III
Chairman of the Board and
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas Jackson Weaver III Chairman of the Board, Chief Executive April 14, 1998
- ---------------------------------------------- Officer and President (Principal
Thomas Jackson Weaver III Executive and Financial Officer)
/s/ Robert E. Geddes Director April 14, 1998
- ----------------------------------------------
Robert E. Geddes
/s/ Thomas Miserendino Director April 14, 1998
- ----------------------------------------------
Thomas Miserendino
/s/ Frank Bumstead Director April 14, 1998
- ----------------------------------------------
Frank Bumstead
/s/ Charles Flood Director April 14, 1998
- ----------------------------------------------
Charles Flood
/s/ Jeffrey McIntyre Director April 14, 1998
- ----------------------------------------------
Jeffrey McIntyre
/s/ Prab Nallamilli Director April 14, 1998
- ----------------------------------------------
Prab Nallamilli
Director April , 1998
- ----------------------------------------------
Louis J. Risi, Jr.
Director April , 1998
- ----------------------------------------------
Steven L. Risi
Director April , 1998
- ----------------------------------------------
Jose F. Rosado
/s/ Mark van Hartesvelt Director April 14, 1998
- ----------------------------------------------
Mark van Hartesvelt
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
/s/ Frank A. McKinnie Weaver, Sr. Director April 14, 1998
- ----------------------------------------------
Frank A. McKinnie Weaver, Sr.
/s/ Kyle Young Director April 14, 1998
- ----------------------------------------------
Kyle Young
/s/ Bryan J. Cusworth Chief Financial Officer (Principal April 14, 1998
- ---------------------------------------------- Accounting Officer)
Bryan J. Cusworth
</TABLE>
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries
NCC Broadcast, Inc.
The Village at Breckenridge Acquisition Corp., Inc.
Property Management Acquisition Corp., Inc.
Avalon Entertainment Group, Inc.
AWC Acquisition Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,369,300
<SECURITIES> 0
<RECEIVABLES> 955,700
<ALLOWANCES> 0
<INVENTORY> 442,200
<CURRENT-ASSETS> 5,301,200
<PP&E> 35,313,800
<DEPRECIATION> 1,642,900
<TOTAL-ASSETS> 52,561,500
<CURRENT-LIABILITIES> 9,475,600
<BONDS> 21,632,500
0
10,000
<COMMON> 7,200
<OTHER-SE> 24,868,000
<TOTAL-LIABILITY-AND-EQUITY> 52,604,700
<SALES> 0
<TOTAL-REVENUES> 30,228,900
<CGS> 0
<TOTAL-COSTS> 26,726,700
<OTHER-EXPENSES> 1,694,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,845,800
<INCOME-PRETAX> 40,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,700
<DISCONTINUED> 361,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,300
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
</TABLE>
