<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998
Commission file number 0-22582
TBA ENTERTAINMENT CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware I.R.S. Employer
(State or Other Jurisdiction of 62-1535897
Incorporation or Organization) Identification Number
402 Heritage Plantation Way, Hickory Valley, Tennessee 38042
(Address of Principal Executive Offices)
(901) 764-2300
(Registrant's Telephone Number, Including Area Code)
None
(Former Name if Changed Since Last Report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days: Yes [X] No [ ]
As of April 30, 1998, the Registrant had outstanding 7,958,065 shares of Common
Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
PART I - Financial Information
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets.......................................... 1
Consolidated Statements of Operations................................ 2
Consolidated Statements of Cash Flows................................ 3
Notes to Consolidated Financial Statements........................... 4
Item 2. Management's Discussion and Analysis or Plan of Operation............ 9
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
Signatures....................................................................15
</TABLE>
<PAGE> 3
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,369,300 $ 2,612,500
Accounts receivable 955,700 1,397,900
Inventories 442,200 544,300
Prepaid expenses and other current assets 534,000 533,400
------------ ------------
Total current assets 5,301,200 5,088,100
Property and equipment, net 33,670,900 33,558,200
Investment in Joint Venture 15,100 105,500
Other assets, net:
Net long-term assets of discontinued operations 9,363,500 9,791,800
Goodwill 3,494,100 3,459,300
Other 716,700 966,900
------------ ------------
Total assets $ 52,561,500 $ 52,969,800
============ ============
Current liabilities:
Current portion of long-term debt $ 1,606,200 $ 1,346,000
Accounts payable and accrued liabilities 6,497,400 5,818,400
Notes payable to stockholders 500,000 --
Net current liabilities of discontinued operations 872,000 1,398,600
------------ ------------
Total current liabilities 9,475,600 8,563,000
Capital land lease obligation 733,000 733,000
Long-term debt, net of current portion 21,632,500 21,383,200
------------ ------------
Total liabilities 31,841,100 30,679,200
------------ ------------
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 10,000
Common stock, $.001 par value; authorized 20,000,000 shares, 7,190,400
shares issued and outstanding 7,200 7,200
Additional paid in capital 24,892,200 24,892,200
Accumulated deficit (4,164,800) (2,591,300)
Less treasury stock, at cost, 5,500 shares (24,200) (27,500)
------------ ------------
Total stockholders' equity 20,720,400 22,290,600
------------ ------------
Total liabilities and stockholders' equity $ 52,561,500 $ 52,969,800
============ ============
</TABLE>
See notes to financial statements.
<PAGE> 4
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PRO FORMA
MARCH 31, THREE MONTHS ENDED
------------------------------ MARCH 31,
1997 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Resort ........................................ $ 10,101,500 $ 10,083,200 $ 10,101,500
Entertainment ................................. -- 4,189,600 1,543,500
------------ ------------ ------------
Total revenues .............................. 10,101,500 14,272,800 11,645,000
------------ ------------ ------------
Operating expenses:
Resort ........................................ 7,523,100 7,694,300 7,523,100
Entertainment ................................. -- 3,711,600 1,567,500
Depreciation and amortization ................. 256,100 324,000 305,100
Corporate expenses ............................ 132,300 183,900 132,300
------------ ------------ ------------
Total operating expenses .................... 7,911,500 11,913,800 9,528,000
------------ ------------ ------------
Income from operations ........................... 2,190,000 2,359,000 2,117,000
Equity in income of Joint Venture ................ -- 90,500 8,000
Interest expense, net ............................ (411,400) (454,600) (442,400)
------------ ------------ ------------
Income from continuing operations ................ 1,778,600 1,994,900 $ 1,682,600
============
Loss from discontinued operations, including
income tax benefit of $91,600 in 1998 -- (421,400)
------------ ------------
Net income........................................ $ 1,778,600 $ 1,573,500
============ ============
Earnings per common share - basic:
Income from continuing operations $ .39 $ .28 $ .23
Loss from discontinued operations -- (.06) ============
------------ ------------
Net income $ .39 $ .22
============ ============
Earnings per common share - diluted:
Income from continuing operations $ .36 $ .25 $ .21
Loss from discontinued operations -- (.05) ============
------------ ------------
Net income $ .36 $ .20
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE> 5
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,778,600 $ 1,573,500
----------- -----------
Adjustments to reconcile net income to net cash provided by continuing
operations:
Loss from discontinued operations -- 421,400
Depreciation and amortization 253,800 324,000
Undistributed earnings of Joint Venture -- (90,500)
Changes in assets and liabilities:
Increase in accounts receivable (624,000) (442,200)
Increase in inventory (600) (102,100)
(Increase) decrease in prepaid expenses and other current assets (38,200) 600
Decrease in accounts payable and accrued expenses (1,074,700) (679,000)
----------- -----------
Total adjustments (1,483,700) (567,800)
----------- -----------
Net cash provided by continuing operations 294,900 1,005,700
----------- -----------
Cash flows from investing activities:
Expenditures for property and equipment (74,200) (147,700)
Increase in other assets (96,800) (279,000)
----------- -----------
Net cash used in investing activities (171,000) (426,700)
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock -- (3,300)
Repayments of borrowings (164,000) (970,400)
----------- -----------
Net cash used in financing activities (164,000) (973,700)
----------- -----------
Net cash used in discontinued operations -- (362,100)
----------- -----------
Net decrease in cash and cash equivalents (40,100) (756,800)
Cash and cash equivalents - beginning of period 2,660,000 3,369,300
----------- -----------
Cash and cash equivalents - end of period $ 2,619,900 $ 2,612,500
=========== ===========
Cash paid during the period for interest $ 435,000 $ 460,200
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE> 6
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of TBA Entertainment Corporation, a Delaware corporation, and its
wholly owned and majority owned subsidiaries, including VAB Acquisition Corp.
Inc., which acquired The Village at Breckenridge Resort (the "Breckenridge
Resort") on April 29, 1996, Avalon Entertainment Group, Inc. ("AEG"), which the
Company acquired on April 21, 1997 and AWC Acquisition Corp., Inc., a direct
wholly owned subsidiary through which the Company acquired a 51% interest in a
group of entities collectively referred to as Avalon West Coast ("AWC") on July
31, 1997 (collectively, the "Company"). The accompanying unaudited consolidated
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 10(b) of Regulation S-B under the
Securities Exchange Act of 1934. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results of the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-KSB for the
year ended December 31, 1997 (the "1997 Form 10-KSB").
Certain prior period amounts have been reclassified to conform with the 1998
presentation. Such reclassifications had no impact on the Company's 1997 net
income.
The acquisition of AEG was effective April 21, 1997 and the acquisition of a 51%
interest in AWC was effective July 31, 1997. The pro forma unaudited
consolidated statement of operations for the three-month period ended March 31,
1997 includes the results of operations of AEG assuming the acquisition of AEG
had occurred effective January 1, 1997. No pro forma adjustments have been made
for the results of operations of AWC before the July 31, 1997 acquisition date
because the operations of those businesses being sold (Note 5) are reflected as
discontinued operations.
2. NET 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 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:
4
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
Net income from continuing operations ..................... $1,778,600 $1,994,900
Weighted average common stock outstanding ................. 4,590,400 7,190,400
---------- ----------
Basic earnings per common share ........................... $ .39 $ .28
========== ==========
Diluted Earnings Per Common Share:
Net income from continuing operations ..................... $1,778,600 $1,994,900
---------- ----------
Weighted average common stock outstanding ................. 4,590,400 7,190,400
Additional common stock resulting from dilutive securities:
Preferred Stock ......................................... 334,300 334,300
Common stock to be issued in
AEG transaction ....................................... -- 445,400
---------- ----------
Common stock and dilutive securities
outstanding ............................................... 4,924,700 7,970,100
---------- ----------
Diluted earnings per common share ......................... $ .36 $ .25
========== ==========
</TABLE>
Options and warrants to purchase 1,864,000 and 2,264,000 shares of common stock
in 1997 and 1998, respectively, were not considered in calculating diluted
earnings per share as their inclusion would have been anti-dilutive.
3. 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. Including acquisition costs, the aggregate
purchase price for AEG, recorded as of March 31, 1998, totaled $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.
Subsequent to March 31, 1998 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. On May 13, 1998, 445,400 shares were released from
escrow to the sellers with the balance of the common stock returned to the
Company. The release of the 445,400 shares to the sellers will result in the
recognition of additional purchase price for the acquisition of AEG of
approximately $2,000,000. The additional purchase price will be allocated to
goodwill and amortized over 20 years.
4. 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
unaudited statements of operations data of Warner/Avalon used to determine the
equity in income of Joint Venture, included in the accompanying pro forma
statement of operations for the three months ended March 31, 1997 and the
statement of operations for the three months ended March 31, 1998 are as
follows:
5
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<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues ............ $ 1,257,600 $1,888,000
Net Income ......... $ 16,100 $ 181,000
</TABLE>
Summary unaudited balance sheet data of Warner/Avalon consists of the following
as of March 31, 1998:
<TABLE>
<S> <C>
Current assets .......... $2,137,100
Non-current assets ...... 335,900
Current liabilities ..... 2,261,200
Partners' capital ....... 211,800
</TABLE>
As of March 31, 1998, the Company had undistributed earnings from Warner/Avalon
of $105,500.
5. 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 was 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 1997 stock offering. Including acquisition costs, the total purchase
price for AWC recorded as of March 31, 1998 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.
On May 13, 1998 the Company sold its 51% controlling interest in certain of the
AWC businesses to an unaffiliated third party (the "buyer") for $9,915,000 in
cash before applicable transaction expenses. The individuals that owned the
remaining 49% of AWC also sold their interest in these businesses to the buyer.
The Company will recognize a one-time pre-tax gain in the second quarter of 1998
as a result of the sale of its interest in these businesses.
Net loss attributable to those businesses of AWC included in the sale to the
buyer, 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 three months ended March 31, 1998:
6
<PAGE> 9
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1998
(unaudited)
--------------
<S> <C>
Revenues .................................. $ 1,279,400
Operating expenses ........................ 2,157,300
Depreciation and amortization ............. 183,500
Interest expense, net ..................... 25,100
Operating losses due from WAP
partner ................................ (201,000)
Income tax benefit ........................ (91,600)
Minority interest in net loss of
AWC .................................... (372,500)
-----------
Net loss attributable to the
Company ................................ $ (421,400)
===========
</TABLE>
The components of the net assets of the businesses sold included in the
accompanying consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
<S> <C>
Current assets:
Cash and cash equivalents ......................... $ 380,300
Accounts receivable ............................... 615,700
Other current assets .............................. 135,500
Less current liabilities:
Accounts payable .................................. 580,200
Current portion of long-term debt ................. 307,000
Advance deposits .................................. 1,413,200
Other accrued liabilities ......................... 229,700
-----------
Net current liabilities .................................... $ 1,398,600
===========
Long-term assets:
Property and equipment, net ....................... $11,839,000
Other assets, net ................................. 121,600
Less long-term liabilities:
Minority interest ................................. 1,868,000
Long-term debt, net of current
portion ....................................... 300,000
-----------
Net long-term assets ....................................... $ 9,791,800
===========
</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 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 sold.
Through the date of the sale, the Company was responsible for the day to day
operational management of WAP and was responsible for procuring 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
7
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described above. Pavilion Partners' 50% share of the WAP net loss was $201,000
for the three months ended March 31, 1998. In connection with the WAP
partnership, AWC receives a fee for carrying out booking and logistical
production of all events held at the two amphitheaters.
As of March 31, 1998, the accompanying consolidated balance sheet includes a
receivable from Pavilion Partners of $374,600, representing cash receipts
received by Glen Helen Pavilion not yet remitted to WAP, net of operating
profits and losses attributable to Pavilion Partners. This amount is reflected
in net current liabilities of discontinued operations.
6. INCOME TAXES
The Company calculates and records the amounts of income taxes payable or
refundable currently or in future years for temporary differences between the
financial statement basis and income tax basis based on the current enacted tax
laws. No provision for income taxes has been provided in the accompanying
unaudited financial statements as the Company has net operating loss
carryforwards to offset future net income. The deferred tax asset for the
remaining net operating losses would be fully impaired as a result of the
uncertainty as to their ultimate utilization. The Company expects to realize a
portion of this in 1998 as a result of the sale of the AWC businesses (Note 5).
7. SUBSEQUENT EVENT
In May 1998 the Company entered into a letter of intent to acquire 100% of the
common stock of Corporate Productions, Inc. for approximately $5,000,000 to be
paid in a combination of cash, common stock of the Company and notes payable.
The Company expects to complete the acquisition in the second quarter of 1998.
8
<PAGE> 11
ITEM 2. 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 the 1997 Form 10-KSB.
GENERAL
The following discussion summarizes the Company's financial condition, changes
in financial condition and results of operations for the three months ended
March 31, 1998 and 1997 and sets forth a summary of the Company's future
prospects.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
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, Corporate Meeting production 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 acquisition of
AEG (acquired in April 1997) as though the acquisition had occurred as of
January 1, 1997 for consolidated statements of operations purposes. The pro
forma results are not necessarily indicative of the combined results that would
have occurred had the acquisition of AEG actually occurred as of January 1,
1997.
In July 1997, the Company acquired a 51% interest in AWC. In May 1998, the
Company sold its 51% interest in AWC (other than ECM). Accordingly, the
operating results of these businesses for the three months ended March 31, 1998
have been reported as discontinued operations. The pro forma results of
operations for the three months ended March 31, 1997 discussed below do not
include any pro forma adjustments for the results of operations of AWC before
the July 31, 1997 acquisition date of AWC.
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 Three Months Ended March 31, 1998 and 1997
Total revenues increased $2,627,800, or 23%, to $14,272,800 for the three months
ended March 31, 1998 from $11,645,000 for the three months ended March 31, 1997.
Resort revenues remained relatively constant at $10,083,200 for the three months
ended March 31, 1998 compared to $10,101,500 for the three months ended March
31, 1997 primarily resulting from increased revenues at the Breckenridge Resort
of $514,000, offset by a decrease of $532,000 due to the closure of the
Nashville Restaurant. Breckenridge Resort revenues increased primarily due to
revenue growth at the Breckenridge Resort's travel company, as the Company
sought to provide travel and recreation services to more visitors to the
Breckenridge Resort. Rooms revenue remained relatively constant for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
9
<PAGE> 12
The Breckenridge Resort experienced a 15% increase in the number of occupied
room nights, offset by a 15% decrease in average daily rate. The increase in the
number of occupied room nights is primarily attributable to a net increase of 25
living units and the continued aggressive marketing of the Breckenridge Resort.
The decrease in average daily room rate results from the addition of 50 economy
class living units at the end of 1997 and from heightened competition in the
Colorado ski resort area.
Entertainment revenues increased $2,646,100, or 171%, to $4,189,600 for the
three months ended March 31, 1998 from $1,543,500 for the three months ended
March 31, 1997. The increase resulted primarily from the production of 36
additional Corporate Entertainment events, to 66 events produced in the three
months ended March 31, 1998 compared to 30 events produced in the three months
ended March 31, 1997 which were partially offset by a decrease in the average
revenue per event, to $44,000 in 1998 compared to $51,000 for 1997. The
remaining increase results primarily from new business created by AEG's
corporate meeting production division which was established in late 1997. This
division specializes in the design, development, production and staging of
corporate meetings, presentations and special events. During the three months
ended March 31, 1998, this division produced revenue of $1,186,700 from 10
events, or approximately $119,000 per event. Due to the nature of the work
performed, the corporate meeting production division generated higher revenues
per event than the corporate division.
Total operating expenses increased $2,385,800, or 25%, to $11,913,800 for the
three months ended March 31, 1998 from $9,528,000 for the three months ended
March 31, 1997.
Resort operating expenses increased $171,200, or 2%, to $7,694,300 for the three
months ended March 31, 1998 from $7,523,100 for the three months ended March 31,
1997 primarily resulting from increased operating expenses at the Breckenridge
Resort of $645,000, offset by a decrease of $474,300 due to the closure of the
Nashville Restaurant. Breckenridge Resort operating expenses, as a percent of
Breckenridge Resort revenues, increased to 76% for the three months ended March
31, 1998 from 73% for the three months ended March 31, 1997. The increase was
primarily due to the relative fixed nature of specific operating expenses per
occupied room night as compared to lower revenue per occupied room night
(average daily rate) and the 39% increase in activity in the Breckenridge
Resort's travel company which operating expenses represent in excess of 90% of
travel company revenues.
Entertainment operating expenses increased $2,144,100, or 137%, to $3,711,600
for the three months ended March 31, 1998 from $1,567,500 for the three months
ended March 31, 1997. Direct costs of producing corporate entertainment events
increased $816,700, or 68%, to $2,013,900 for the three months ended March 31,
1998 from $1,197,200 for the three months ended March 31, 1997. The increase in
direct costs was due to the increase in the number of events produced. Direct
costs, as a percentage of revenues decreased to 69% for the 1998 period from 78%
for the 1997 period. The decrease was primarily due to the production of several
large corporate entertainment events at higher profit margins for the three
months ended March 31, 1998. During the three months ended March 31, 1998,
operating expenses related to the corporate meeting production division were
approximately $736,100. Direct costs as a percentage of revenue for corporate
meeting production events was 62%. Due to the nature of the work performed, the
corporate meeting production division generated lower direct costs per event
than the corporate entertainment division. Other entertainment operating
expenses increased $591,300 for the three months ended March 31, 1998 compared
to the three months ended March 31, 1997 primarily due to development of the
corporate meeting production division and salary and related expense increases
associated with the increased number of corporate entertainment events.
Corporate expenses increased $51,600, or 39%, to $183,900 for the three months
ended March 31, 1998 from $132,300 for the three months ended March 31, 1997,
primarily as a result of increased operating expenses associated with the growth
of the Company.
Depreciation and amortization increased $18,900, or 6%, to $324,000 for the
three months ended March 31, 1998 from $305,100 for the three months ended March
31, 1997. 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 increased
$82,500 to $90,500 for the three months ended March 31, 1998 from $8,000 for the
three months ended March 31, 1997. Revenues for Warner/Avalon increased
$630,400, or 50%, to $1,888,000 for the three months ended March 31, 1998 from
$1,257,600 for the three months ended March 31, 1997. The increase results
primarily from the production of one large single day Entertainment Marketing
event in 1998 representing $1,888,000 of revenues, which was partially offset by
a $1,257,600
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<PAGE> 13
decrease in revenues due to the loss of an Entertainment Marketing tour in 1998.
Direct costs of producing entertainment marketing programs increased $540,300,
or 57%, to $1,483,800 for the three months ended March 31, 1998 from $943,500
for the three months ended March 31, 1997. Direct costs, as a percentage of
revenues, increased to 79% for the three months ended March 31, 1998 from 75%
for the three months ended March 31, 1997. The increase results because direct
costs of large single day Entertainment Marketing events are generally higher
than direct costs for tours. Other general and administrative expenses for
Warner/Avalon decreased $102,000 for the three months ended March 31, 1998
compared to the year ended March 31, 1997 primarily due to a restructuring of
the Entertainment Marketing division cost centers which results in certain
personnel and other overhead costs being allocated directly to specific events.
As a result, certain costs which were classified as general and administrative
costs in 1997 are now being classified as direct costs.
Net interest expense increased $12,200, or 3%, to $454,600 for the three months
ended March 31, 1998 from $442,400 for the three months ended March 31, 1997,
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 income from continuing operations increased $312,300, to net income of
$1,994,900 for the three months ended March 31, 1998 from net income of
$1,682,600 for the three months ended March 31, 1997 due to the reasons
described above.
Discontinued Operations
On May 13, 1998, the Company sold its 51% interest in certain of the AWC
businesses. The individuals that owned the remaining 49% of AWC also sold 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."
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents of $2,612,500
and a working capital deficit of $2,076,300, excluding the net working capital
deficit of discontinued operations of $1,398,600 and including $1,346,000 of
current portion of long-term debt. Cash provided by continuing operations was
$1,005,700 for the three months ended March 31, 1998 compared to $294,900 for
the three months ended March 31, 1997. Primary sources of the 1998 and 1997 cash
provided by continuing operations related to the Company's improved net income
from continuing operations. The sources of cash from operations were partially
offset by increases in accounts receivable and decreases in accounts payable and
accrued liabilities.
Cash used in investing activities for the three months ended March 31, 1998 was
$426,700 and includes the purchase of property and equipment primarily at the
Breckenridge Resort and an increase in other assets which are primarily costs
incurred in contemplation of the AWC disposition. Cash used in investing
activities for the three months ended March 31, 1997 was $171,000 and includes
the purchase of property and equipment primarily at the Breckenridge Resort and
an increase in other assets which are primarily related to the acquisition of
AEG.
Cash used in financing activities for the three months ended March 31, 1998 and
1997 was $973,700 and $164,000, respectively, and is primarily related to the
repayments of borrowings.
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") (see Note 3). 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.
11
<PAGE> 14
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. On May 13, 1998, the Company sold its 51% controlling interest in
certain of the AWC businesses for $9,915,000 in cash before applicable
transaction expenses. (See Note 5)
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.
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 shares for aggregate consideration of
$24,200. In April, 1998, the Company purchased 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. In May 1998 the Company sold its 51% interest in AWC to an
unaffiliated third party for cash. The Company will 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 this asset 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. In May 1998, the Company signed a
letter of intent to acquire 100% of the common stock of Corporate Productions,
Inc., for approximately $5,000,000 to be paid in a combination of cash, common
stock of the Company and notes payable. The Company expects to complete this
acquisition in the second quarter of 1998. The Company anticipates that other
business acquisitions made by the Company in 1998 will also 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 certain of the businesses of AWC,
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.
12
<PAGE> 15
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 acquisition of certain businesses and the
consummation of future private and public issuances of the Company's 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-
QSB 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.
13
<PAGE> 16
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon by the stockholders of the Company during
the quarter ended March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
__ Exhibits:
Exhibit 27 Financial Data Schedule
__ Form 8-Ks filed during the quarterly period ended
March 31, 1998:
None
14
<PAGE> 17
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 15th day of May, 1998.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
-------------------------------------------------
Thomas Jackson Weaver III
Chairman of the Board and Chief Executive Officer
By: /s/ Bryan J. Cusworth
-------------------------------------------------
Bryan J. Cusworth
Chief Financial Officer
15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,612,500
<SECURITIES> 0
<RECEIVABLES> 1,397,900
<ALLOWANCES> 0
<INVENTORY> 544,300
<CURRENT-ASSETS> 5,088,100
<PP&E> 35,460,100
<DEPRECIATION> 1,901,800
<TOTAL-ASSETS> 52,969,800
<CURRENT-LIABILITIES> 8,563,000
<BONDS> 21,383,200
0
10,000
<COMMON> 7,200
<OTHER-SE> 24,864,700
<TOTAL-LIABILITY-AND-EQUITY> 52,969,800
<SALES> 0
<TOTAL-REVENUES> 14,272,800
<CGS> 0
<TOTAL-COSTS> 11,405,900
<OTHER-EXPENSES> 507,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 454,600
<INCOME-PRETAX> 1,994,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,994,900
<DISCONTINUED> 421,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,573,500
<EPS-PRIMARY> .22
<EPS-DILUTED> .20
</TABLE>
