<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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
(Exact Name of Registrant as specified in its Charter)
DELAWARE 62-1535897
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification no.)
16501 VENTURA BOULEVARD
ENCINO, CALIFORNIA 91436
(Address of principal executive offices) (Zip Code)
(818) 728-2600
(Registrant's telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes [X] No [ ]
As of November 5, the Registrant had outstanding 8,422,500 shares of Common
Stock, par value $.001 per share.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - Financial information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets................................................................ 3
Consolidated Statements of Operations...................................................... 4
Consolidated Statements of Cash Flows...................................................... 5
Notes to Consolidated Financial Statements................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K........................................................... 14
Signatures............................................................................................. 15
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 13,629,600 $ 15,583,800
Accounts receivable, net of allowance for doubtful
accounts of $63,500 and $55,800........................................... 3,262,800 2,355,100
Deferred charges and other current assets .................................. 3,812,800 1,616,800
Net short-term assets from sale of discontinued operations ................. -- 2,552,000
------------ ------------
Total current assets .................................................. 20,705,200 22,107,700
Property and equipment, net .................................................. 2,798,200 1,853,600
Other assets, net:
Goodwill ................................................................... 18,077,500 16,008,600
Investment in Joint Venture ................................................ 461,100 410,600
Other ...................................................................... 207,300 64,700
------------ ------------
Total assets ............................................................... $ 42,249,300 $ 40,445,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 3,800,900 $ 4,299,400
Deferred revenue ........................................................... 4,089,700 2,114,800
Current portion of long-term debt .......................................... 1,329,100 759,600
------------ ------------
Total current liabilities .............................................. 9,219,700 7,173,800
Long-term debt, net of current portion ....................................... 3,918,900 4,755,700
Total liabilities ...................................................... 13,138,600 11,929,500
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
2,400 and 68,800 of Series A convertible preferred stock issued
and outstanding, respectively, liquidation preference, $100
and $2,100, respectively ................................................. 100 2,100
Common stock, $.001 par value; authorized 20,000,000 shares,
8,937,200 and 8,831,500 shares issued, respectively ..................... 8,900 8,800
Additional paid in capital ................................................. 30,743,300 30,723,100
Accumulated earnings (deficit) ............................................. 232,200 (1,493,800)
Less treasury stock, at cost, 446,700 and 196,700 shares, respectively ..... (1,873,800) (724,500)
------------ ------------
Total stockholders' equity ............................................. 29,110,700 28,515,700
------------ ------------
Total liabilities and stockholders' equity ................................... $ 42,249,300 $ 40,445,200
============ ============
</TABLE>
See notes to financial statements.
3
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ...................................................... $ 12,858,200 $ 8,671,500 $ 34,471,100 $ 15,787,800
Costs related to revenue ...................................... 7,859,700 5,943,200 22,204,700 10,773,700
------------ ------------ ------------ ------------
Gross profit margin ......................................... 4,998,500 2,728,300 12,266,400 5,014,100
Selling, general and administrative expense ................... 3,533,000 1,778,500 9,070,600 4,003,400
Depreciation and amortization expense ......................... 465,600 187,900 1,318,100 342,200
Equity in (income) loss of Joint Venture ...................... (6,100) (22,700) 31,900 (403,500)
Minority interest ............................................. -- -- -- (36,000)
Interest (income) expense, net ................................ 10,900 (141,100) (226,600) (47,700)
------------ ------------ ------------ ------------
Income from continuing operations before income taxes ......... 995,100 925,700 2,072,400 1,155,700
Provision for income taxes .................................... 405,500 -- 825,600 --
------------ ------------ ------------ ------------
Income from continuing operations ............................. 589,600 925,700 1,246,800 1,155,700
------------ ------------ ------------ ------------
Discontinued operations:
Income (loss) from operations, including income tax benefit
of $189,900 for the nine months ended September 30, 1998 .. -- (250,300) -- 30,600
Gain on disposition of discontinued operations, net of income
tax provision of $399,600 for the nine months ended
September 30, 1999 ....................................... -- -- 479,200 1,245,400
------------ ------------ ------------ ------------
Net income (loss) from discontinued operations .............. -- (250,300) 479,200 1,276,000
------------ ------------ ------------ ------------
Net income .................................................... $ 589,600 $ 675,400 $ 1,726,000 $ 2,431,700
============ ============ ============ ============
Earnings per common share -- basic:
Income from continuing operations ........................... $ .07 $ .11 $ .15 $ .15
Income (loss) from discontinued operations .................. -- (.03) .05 .17
------------ ------------ ------------ ------------
Net income .................................................... $ .07 $ .08 $ .20 $ .32
============ ============ ============ ============
Earnings per common share -- diluted:
Income from continuing operations ........................... $ .07 $ .11 $ .15 $ .14
Income (loss) from discontinued operations .................. -- (.03) .05 .16
------------ ------------ ------------ ------------
Net income .................................................... $ .07 $ .08 $ .20 $ .30
============ ============ ============ ============
</TABLE>
See notes to financial statements.
4
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 1,726,000 $ 2,431,700
------------ ------------
Adjustments to reconcile net income to net cash provided
by continuing operations:
Income from discontinued operations ............................. (479,200) (1,276,000)
Depreciation and amortization ................................... 1,318,100 342,200
Equity in loss (income) of Joint Venture ........................ 31,900 (403,500)
Changes in assets and liabilities:
Increase in accounts receivable ............................... (200,900) (339,800)
Increase in deferred charges and other current assets ......... (2,349,600) (745,900)
Increase in other assets ...................................... (177,000) (51,000)
(Decrease) increase in accounts payable and accrued liabilities (788,900) 189,600
Increase in deferred revenue .................................. 1,974,900 787,600
------------ ------------
Total adjustments ........................................... (670,700) (1,496,800)
------------ ------------
Net cash provided by continuing operations .................. 1,055,300 934,900
------------ ------------
Cash flows from investing activities:
Proceeds from dispositions of businesses ......................... 3,483,600 18,519,900
Acquisitions of businesses, net of cash acquired ................. (3,069,600) (2,023,500)
Expenditures for property and equipment .......................... (714,300) (242,900)
------------ ------------
Net cash (used in) provided by investing activities ......... (300,300) 16,253,500
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings ......................................... 73,000 --
Repurchases of common stock ...................................... (2,030,900) (680,000)
Repayments of borrowings ......................................... (751,300) (950,100)
------------ ------------
Net cash used in financing activities ....................... (2,709,200) (1,630,100)
------------ ------------
Net cash used in discontinued operations ............................. -- (154,300)
------------ ------------
Net (decrease) increase in cash and cash equivalents ................. (1,954,200) 15,404,000
Cash and cash equivalents - beginning of period ...................... 15,583,800 978,600
------------ ------------
Cash and cash equivalents - end of period ............................ $ 13,629,600 $ 16,382,600
============ ============
</TABLE>
See notes to financial statements.
5
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
TBA Entertainment Corporation and subsidiaries (collectively, the "Company"),
is a diversified communications and entertainment company that produces a
broad range of business communications, meeting production and entertainment
services for corporate meetings, develops and produces integrated music
marketing programs, manages music industry artists and develops and executes
merchandising programs for entertainment and sporting events.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete year-end financial statements. The
accompanying financial statements should be read in conjunction with the more
detailed financial statements and related footnotes included in the Company's
Form 10-KSB for the year ended December 31, 1998.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation of the
financial position of the Company as of September 30,1999, and the results of
its operations and cash flows for the three and nine month periods ended
September 30, 1999 and 1998, respectively, have been included. Operating
results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1999.
2. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic earnings per common share:
Income from continuing operations .............. $ 589,600 $ 925,700 $1,246,800 $1,155,700
Weighted average common stock outstanding ...... 8,497,400 8,243,300 8,522,200 7,643,300
---------- ---------- ---------- ----------
Basic earnings per common share ................ $ .07 $ .11 $ .15 $ .15
========== ========== ========== ==========
Diluted earnings per common share:
Income from continuing operations .............. $ 589,600 $ 925,700 $1,246,800 $1,155,700
---------- ---------- ---------- ----------
Weighted average common stock outstanding ...... 8,497,400 8,243,300 8,522,200 7,643,300
Additional common stock resulting from
Dilutive securities:
Preferred stock .............................. 2,400 158,100 2,400 275,600
Weighted average common stock issued in
connection with acquisitions ............... -- -- -- 218,600
Shares issuable for stock options and warrants 11,800 -- 33,700 --
---------- ---------- ---------- ----------
Common stock and dilutive securities outstanding 8,511,600 8,401,400 8,558,300 8,137,500
---------- ---------- ---------- ----------
Diluted earnings per common share .............. $ .07 $ .11 $ .15 $ .14
========== ========== ========== ==========
</TABLE>
Options and warrants to purchase 2,034,000 and 2,589,000 shares of common
stock were not considered in calculating diluted earnings per share in 1999
and 1998, respectively, as their inclusion would have been anti-dilutive.
6
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3. INVESTMENT IN JOINT VENTURE
The Company owns a 50% interest in a joint venture with Warner Custom Music
Corp. The joint venture, Warner/TBA, develops and coordinates live, sponsored
music entertainment marketing tours and programs, and related projects, and
generates revenues primarily from third party corporate sponsorships.
Warner/TBA 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.
The Company accounts for the investment using the equity method of
accounting. Summary unaudited statements of operations data of Warner/TBA are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ......... $ 2,052,800 $ 4,110,000 $ 7,231,000 $ 8,676,000
Net income (loss) 12,200 45,400 (63,800) 807,000
</TABLE>
Summary unaudited balance sheet data of Warner/TBA consists of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
(UNAUDITED)
<S> <C>
Current assets ................... $1,639,700
Non-current assets ............... 196,700
Current liabilities .............. 1,181,900
Partners' capital ................ 654,500
</TABLE>
4. 1999 ACQUISITION
On March 18, 1999, the Company acquired 100% of the common stock of Karin
Glass & Associates, Inc. and affiliated companies (collectively, "KGA"), for
a maximum purchase price of approximately $3,200,000. The purchase price paid
at closing included a cash payment of $2,300,000 and the issuance of 221,500
shares of common stock of the Company valued at $900,000. The purchase price
paid at closing is subject to reduction based on the earnings of KGA during
each of the years 1999 and 2000. The sellers pledged their shares of common
stock of the Company as collateral during the earn-out period. 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.
5. COMMON STOCK REPURCHASE PROGRAM
The board of directors authorized the repurchase, at management's discretion,
of up to 1,000,000 shares of the Company's common stock until December 31,
1999. The Company's repurchases of shares of common stock are recorded as
treasury stock and result in a reduction of stockholders' equity. During the
nine months ended September 30, 1999, the Company repurchased 443,700 shares
of its common stock for total consideration of $2,030,900 pursuant to the
stock repurchase program.
6. NEW ACCOUNTING PRONOUNCEMENT
In September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Under the statement, every
derivative is recorded on the balance sheet as either an asset or liability
measured at its fair value. Changes in the derivative's fair value will be
recognized in earnings unless specific hedge accounting criteria are met. The
FASB, in its' June 1999 release of SFAS No. 137, delayed the effective date
for reporting periods beginning after June 15, 2000. The Company is currently
analyzing the Statement to determine the impact, if any, on the Company's
financial position or results of operations.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of the following discussion and analysis is to explain the major
factors and variances between periods of the Company's financial condition and
results of operations. 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
Company's 1998 Form 10-KSB.
INTRODUCTION
The Company is a diversified communications and entertainment services company
that produces a broad range of business communications, meeting production and
entertainment services for corporate meetings, develops and produces integrated
music marketing programs and special events, manages music artists and develops
and executes merchandising programs for large-scale entertainment and sporting
events.
In April 1997, the Company acquired its first corporate communications and
entertainment company, TBA Entertainment Group Nashville, Inc., formerly Avalon
Entertainment Group, Inc. ("AEG"), including a 50% interest in the Warner/TBA
(formerly Warner/Avalon) joint venture. In 1998, the Company grew its operations
through the acquisition of several additional corporate communications and
entertainment services businesses, including Titley Spalding & Associates, LLC
("TSA"), TBA Entertainment Group Chicago, Inc., formerly Corporate Productions,
Inc, ("CPI"), Corporate Incentives, Inc. ("CII"), TBA Entertainment Group
Phoenix, Inc., formerly Image Entertainment Productions, Inc. ("Image"), TBA
Entertainment Group Dallas, Inc., formerly Magnum Communications, Inc.
("Magnum"), and TKS Marketing, Inc. ("TKS") (collectively, the "1998
Acquisitions"). In 1999, the Company also completed the acquisition of Karin
Glass & Associates, Inc. and affiliated companies (collectively, "KGA").
GENERAL
The Company currently derives a majority of its revenues (68% for the nine
months ended September 30, 1999 versus 91% for the nine months ended September
30, 1998) from the production of business communications and entertainment
events for corporate clients. The Company works with its clients to develop
creative programming to deliver messages to the client's targeted audiences. The
Company receives a fee for providing these services, which may include
developing creative content, designing audio/visual presentations and arranging
for live entertainment and related production services, including lights and
sound. Revenue is recognized when the services are completed for each event.
Costs of producing the events are also deferred until the event occurs.
The remainder of the Company's revenues are generated from event merchandising
(23% for the nine months ended September 30, 1999 versus 3% for the nine months
ended September 30, 1998) artist management (6% for each of the nine months
ended September 30, 1999 and September 30, 1998), and entertainment marketing
(3% for the nine months ended September 30, 1999 versus none for the nine months
ended September 30, 1998). Event merchandising revenue is recognized when the
merchandise is shipped or sold to the customer. Cost of sales includes the
direct cost of acquiring or producing the merchandise. Artist management
revenue, which generally consists of commissions received from artists'
earnings, is recognized in the period in which the artist earns the revenue.
There are generally only minimal direct costs associated with generating artist
management revenue. Entertainment marketing revenues and cost of revenues are
recognized when the services are completed for each program or, for those
programs with multiple events, apportioned to each event and recognized as each
event occurs.
The Company also develops and produces entertainment marketing programs and
special events through a 50% interest in Warner/TBA, a joint venture with an
affiliate of Time Warner. The Company accounts for these activities using the
equity method of accounting.
8
<PAGE> 9
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Results of operations of each of the 1998 Acquisitions and the KGA acquisition
are included from the corresponding acquisition dates.
Revenues increased $18,683,300, or 118%, to $34,471,100 in the 1999 period from
$15,787,800 in the 1998 period. $9,198,700 of the increase resulted from the
production of 197 additional corporate meeting and entertainment events, to 395
events in the 1999 period compared to 198 events produced in the 1998 period.
The increase in the number of shows is primarily attributable to the
acquisitions of CPI, Image and Magnum, which occurred in the third and fourth
quarters of 1998. The average revenue per event was approximately $59,700 in the
1999 period versus $72,800 in the 1998 period. In the 1998 period, the average
revenue per event was higher due to the impact of producing two events with
revenues totaling $2,400,000. In addition, the 1999 average revenue per event
was reduced by the impact of a higher number of lower revenue events produced by
one of the 1998 Acquisitions. In general, the Company is aggressively pursuing
larger corporate meeting and entertainment events with Fortune 1000 companies.
Event merchandising revenues increased $7,291,800 to $7,792,400 for the 1999
period from $500,600 for the 1998 period, due to the addition of merchandising
activities through the acquisition of CII (August 1998) and KGA (March 1999).
Artist management revenues increased $1,331,800 for the 1999 period from the
1998 period. The increase results primarily from a full nine months of revenues
from the acquisition of TSA, which occurred in June 1998. The remaining revenue
increase of $861,000 results from record royalties associated with the Company's
comprehensive pay per view entertainment marketing program, "For the Record". In
the 1998 period, all entertainment marketing programs were executed through the
Warner/TBA joint venture, which is accounted for using the equity method of
accounting.
Cost of revenues increased $11,431,000, or 106%, to $22,204,700 for the 1999
period from $10,773,700 for the 1998 period. The increase resulted primarily
from the production of additional corporate meeting and entertainment events and
the addition of merchandising activities discussed above. Cost of revenues as a
percentage of revenues decreased to 64% for the 1999 period from 68% for the
1998 period. The decrease results from a general improvement in gross profit
margins in all divisions as well as the increase in artist management revenues
which typically have minimal direct costs.
Selling, general and administrative expenses increased $5,067,200, or 127%, to
$9,070,600 for the 1999 period from $4,003,400 for the 1998 period. The increase
results primarily from increased personnel and related operating expenses
associated with the increased number of corporate entertainment and meeting
planning events, as well as selling, general and administrative expenses
associated with the 1998 Acquisitions and the KGA acquisition. The increase is
further explained by increased personnel and related expenses incurred to
develop an administrative and accounting infrastructure to manage the Company's
growth during the past year.
Depreciation and amortization expense increased $975,900, or 285%, to $1,318,100
for the 1999 period from $342,200 for the 1998 period. The increase results
primarily from the amortization of goodwill and depreciation of property and
equipment associated with the 1998 Acquisitions and the KGA acquisition.
Equity income from the Company's 50% joint venture interest in Warner/TBA
decreased to a loss of $31,900 for the 1999 period from income of $403,500 for
the 1998 period. Revenues for Warner/TBA decreased $1,445,000 or 17% over the
1998 period. Operating costs for Warner/TBA, including general and
administrative expenses, decreased 574,200 over the 1998 period. Net income for
Warner/TBA decreased due to higher talent costs associated with a major client
tour, the cancellation of the 1999 NBA All-Star Game and lower than expected
sales for the June 1999 RockFest.
For the 1999 period, net interest income was $226,600 versus net interest income
of $47,700 for the 1998 period. The change is attributable primarily to interest
earned on increased cash balances resulting from proceeds from the sale of
discontinued businesses and offset by increased interest expense from
outstanding debt associated with the 1998 Acquisitions.
The provision for income taxes, as a percentage of income from continuing
operations before income taxes, is 40% for the 1999 period, which reflects
statutory tax rates adjusted for estimated permanent book/tax differences. There
was no provision for income taxes for the 1998 period, as the Company had net
operating loss carryforwards available to offset taxable income.
Net income from continuing operations increased $91,100, to $1,246,800 for the
1999 period from $1,155,700 for the 1998 period due to the reasons described
above.
9
<PAGE> 10
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Results of operations of each of the 1998 Acquisitions and the KGA acquisition
are included from the corresponding acquisition dates.
Revenues increased $4,186,700, or 48%, to $12,858,200 in the 1999 period from
$8,671,500 in the 1998 period. $1,082,500 of the increase resulted from the
production of 58 additional corporate meeting and entertainment events, to 130
events in the 1999 period compared to 72 events produced in the 1998 period. The
increase in the number of shows is primarily attributable to the acquisitions of
CPI, Image and Magnum, which occurred in the third and fourth quarters of 1998.
The average revenue per event was approximately $66,600 in the 1999 period
versus $105,800 in the 1998 period. In the 1998 period, the average revenue per
event was higher due to the impact of producing two events with revenues
totaling $2,400,000.
Event merchandising revenues increased $2,339,100 for the 1999 period from the
1998 period, due to the addition of merchandising activities through the
acquisition of CII (August 1998) and KGA (March 1999). Artist management
revenues increased $436,300 for the 1999 period from the 1998 period. The
remaining revenue increase of $328,800 results from continuing record royalties
associated with the Company's comprehensive pay per view entertainment marketing
program, "For the Record". In the 1998 period, all entertainment marketing
programs were executed through the Warner/TBA joint venture, which is accounted
for using the equity method of accounting.
Cost of revenues increased $1,916,500, or 32%, to $7,859,700 for the 1999 period
from $5,943,200 for the 1998 period. The increase resulted primarily from the
production of additional corporate meeting and entertainment events and the
addition of merchandising activities discussed above. Cost of revenues as a
percentage of revenues decreased to 61% for the 1999 period from 69% for the
1998 period. The decrease results primarily from the increase in artist
management revenues which typically have minimal direct costs.
Selling, general and administrative expenses increased $1,754,500, or 99%, to
$3,533,000 for the 1999 period from $1,778,500 for the 1998 period. The increase
results primarily from increased personnel and related operating expenses
associated with the increased number of corporate entertainment and meeting
planning events, as well as selling, general and administrative expenses
associated with the 1998 Acquisitions and the KGA acquisition. The increase is
further explained by increased personnel and related expenses incurred to
develop an administrative and accounting infrastructure to manage the Company's
growth during the past year.
Depreciation and amortization expense increased $277,700, or 148%, to $465,600
or the 1999 period from $187,900 for the 1998 period. The increase results
primarily from the amortization of goodwill and depreciation of property and
equipment associated with the 1998 Acquisitions and the KGA acquisition.
Equity income from the Company's 50% joint venture interest in Warner/TBA
decreased to $6,100 from $22,700 for the 1998 period. Revenues for Warner/TBA
decreased $2,057,200, or 50%, over the 1998 period. Operating costs of
Warner/TBA, including general and administrative expenses, decreased to
$2,040,600 for the 1999 period from $4,065,000 for the 1998 period. The higher
revenues and operating costs in the 1998 period were due to the Goodwill Games
event, which did not occur in the 1999 period.
For the 1999 period, net interest expense was $10,900 versus net interest income
of $141,100 for the 1998 period. The change is attributable primarily to
interest expense on outstanding debt associated with the 1998 Acquisitions
offset by interest income from proceeds from the sale of discontinued
businesses.
The provision for income taxes, as a percentage of income from continuing
operations before income taxes, is 41% for the 1999 period, which reflects
statutory tax rates adjusted for estimated book/tax differences. There was no
provision for income taxes for the 1998 period, as the Company had net operating
loss carryforwards available to offset taxable income.
Net income from continuing operations decreased $336,100, to net income of
$589,600 for the 1999 period from net income of $925,700 for the 1998 period due
to the reasons described above.
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<PAGE> 11
DISCONTINUED OPERATIONS
Prior to 1998, the Company acquired and operated certain businesses that were
sold in 1998. These businesses included the Nashville Country Club restaurant
(opened in November 1994 and sold in December 1998), the Village at Breckenridge
Resort (the "Breckenridge Resort") (acquired in April 1996 and sold in August
1998) and a 51% controlling interest in a group of entertainment companies
(collectively referred to as "AWC") involved in concert promotion and
amphitheater operations (acquired in July 1997 and sold in May 1998). The sale
of these businesses has resulted in the reclassification of the operating
results of these businesses to discontinued operations for the three and nine
months ended September 30, 1998, in accordance with generally accepted
accounting principles.
In May 1998, the Company sold its 51% controlling interest in AWC to SFX
Entertainment, Inc. As a result, the Company recognized a gain from the sale of
AWC in the three and nine month periods ended September 30, 1998 of $1,245,400.
In August 1998, the Company sold the Breckenridge Resort to Vail Summit Resorts,
Inc.("Vail"). Pursuant to the sale agreement, $3,000,000 of the sales proceeds
that were being held in escrow until the consummation of certain other
transactions between Vail and an unaffiliated third party developer, were
released to the Company in April 1999. As a result, the Company recognized a
gain from the sale of the Breckenridge Resort in the nine months ended September
30, 1999 of $479,200, net of income taxes of $399,600.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash and cash equivalents of
$13,629,600 and working capital of $11,485,500 including $1,329,100 of current
portion of long-term debt. Cash provided by continuing operations was $1,055,300
for the first nine months of 1999 compared to cash provided by continuing
operations of $934,900 for the 1998 period. In the 1999 period, net income from
continuing operations plus depreciation and amortization and plus equity in loss
(less equity in income) of Joint Venture provided $2,533,000 of operating cash
flow, versus $1,094,400 of operating cash flow in the 1998 period. In the 1999
period, the net change in working capital used $1,364,500 of operating cash
flow, with increases in accounts receivable and deferred revenue and other
assets, and decreases in accounts payable and other accrued liabilities, offset
by an increase in deferred charges and other current assets. In the 1998 period,
the net change in working capital used $108,500 of operating cash flow, with
increases in deferred revenue, and accounts payable and accrued liabilities
offset by increases in accounts receivable and deferred charges and other
current assets.
Net cash used in investing activities for the first nine months of 1999 was
$300,300, resulting primarily from cash used for the KGA acquisition and
expenditures for property and equipment, offset in part by proceeds from the
sale of the Breckenridge Resort. Cash provided by investing activities for the
1998 period was $16,253,500 and resulted primarily from the sale of AWC and the
Breckenridge Resort, offset by cash used to acquire TSA, CPI, Image and CII, and
expenditures for property and equipment.
Net cash used in financing activities for the first nine months of 1999 and 1998
was $2,709,200 and $1,630,100, respectively, resulting primarily from the
purchase of treasury shares pursuant to the Company's stock repurchase program
and the repayment of borrowings.
The Company has pursued an aggressive growth strategy since its formation in
1993. From the Company's inception through December 31, 1997, the Company
acquired and operated certain businesses that were sold in 1998. These
businesses included the Nashville Country Club restaurant (opened in November
1994 and sold in December 1998), the Breckenridge Resort (acquired in April 1996
and sold in August 1998) and AWC (acquired in July 1997 and sold in May 1998).
The Company relied on external sources of funds, including public offerings of
its common stock and bank borrowings, to finance the acquisition of these
businesses and to fund the general operations of the Company. In 1997, the
Company began to focus its growth strategy on the acquisition of entertainment
services companies. To finance this growth strategy, the Company sought to
divest itself of its capital intensive resort and amphitheater operations. In
1998, the Company realized net proceeds of $19,393,800 from the sale of these
businesses, after repayment of borrowings associated with these businesses and
applicable transaction costs. In April 1999, the Company received an additional
$3,000,000 of net proceeds from the sale of the Breckenridge Resort that were
held in escrow, as of December 31, 1998, pending the consummation of certain
transactions involving the Breckenridge Resort.
In April 1997, the Company acquired its first corporate communications and
entertainment services business (AEG) for aggregate consideration of $3,211,000,
including transaction related costs. The primary sources of fund 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"). In November 1997, the Company
borrowed $2,600,000 from a bank, the proceeds of which were used to repay
$1,980,000 of the AEG Notes. In the first quarter of 1998, the Company repaid
the remaining $500,000 of AEG Notes.
11
<PAGE> 12
Subsequent to the first quarter of 1998, the Company acquired five additional
entertainment related businesses for total consideration paid at closing of
$12,406,700, including applicable transaction costs. The total purchase price
paid at closing included cash payments of $5,427,000, including transaction
costs, 956,000 shares of common stock of the Company valued at $4,071,700 and
the issuance of $2,908,000 of aggregate value of notes payable ("Acquisition
Notes"). The Company utilized a portion of the net proceeds from the sale of
certain businesses described above to fund the cash portion of the purchase
price for the 1998 Acquisitions.
The Acquisition Notes are payable in various installments of principal plus
accrued interest at 8% through August 2004. Acquisition Notes totaling $458,000
are subject to reduction based on the earnings of Image for the years 1999 and
2000. During 1998 and continuing through a portion of 2003 (the "Earn-out
Period"), the sellers of TSA and TKS will be paid additional purchase price
consideration based on the earnings of TSA and TKS during each of the years in
the Earn-out Period, up to a maximum of $6,380,000 additional purchase price.
The additional purchase price for 1998 related to TSA, totaling $546,500 was
paid entirely in cash in April 1999. Subsequent to 1998, the additional purchase
price for TSA and TKS will be paid 60% in cash and 40% in notes payable which
are payable in semi-annual installments with 8% interest over a five-year
period.
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. In March 1999, the Company acquired KGA
for a maximum purchase price of $3,200,000. The purchase price paid at closing
included a cash payment of $2,300,000 and the issuance of 221,500 shares of
common stock of the Company valued at $900,000. The purchase price is subject to
reduction based on the earnings of KGA during each of the years 1999 and 2000.
The Company anticipates that future business acquisitions made by the Company
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.
The Company's board of directors has authorized the repurchase of up to
1,000,000 shares of the Company's common stock until December 31, 1999. As of
December 31, 1998, the Company had repurchased 196,700 shares of common stock
for total consideration of $724,500. In the first nine months of 1999, the
Company repurchased an additional 443,600 shares of common stock for total
consideration of $2,030,900. The Company utilized proceeds from the sale of
businesses and cash flow from operations to fund the repurchases of common
stock.
Management believes that cash flow from operations and remaining proceeds from
the sale of AWC, the Breckenridge Resort and the Nashville Country Club
restaurant, will be adequate to fund the operations and the expansion plans of
the Company in 1999. In addition, to provide any additional funds necessary for
the continued pursuit of the Company's growth strategies, the Company may issue
additional equity and debt securities and 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 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 internal and external sources of capital, the
Company intends to continue to grow its operations through additional
acquisitions. There can be no assurance that the Company will be able to acquire
any additional businesses, that any businesses that are acquired will be or will
become profitable or that the Company will be able to effectively integrate any
such businesses into its existing operations.
OTHER CONSOLIDATED ITEMS
As of the end of 1998, the Company had fully utilized substantially all net
operating loss carryforwards for income tax purposes. Pursuant to Statement of
Financial Accounting Standards No. 109, the Company has recognized a current
deferred tax asset for the effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes.
NEW ACCOUNTING PRONOUNCEMENT
In September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Under the statement, every
derivative is recorded on the balance sheet as either an asset or liability
measured at its fair value. Changes in the derivative's fair value will be
recognized in earnings unless specific hedge accounting criteria are met. The
FASB, in its' June 1999 release of SFAS No. 137, delayed the effective date for
reporting periods beginning after June 15, 2000. The Company is currently
analyzing the Statement to determine the impact, if any, on the Company's
financial position or results of operations.
12
<PAGE> 13
YEAR 2000
Many currently installed computer systems, hardware and software products
("Computer Applications") are coded to accept only two digit entries rather than
four digits to define the applicable year. Consequently, these Computer
Applications may not be able to properly recognize dates beginning with the year
2000 which could result in miscalculations or system failures. As a result, many
companies' Computer Applications may need to be upgraded or replaced in order to
comply with "Year 2000" requirements.
The Company's Computer Applications consist of both internal systems and systems
provided by third parties. The Company believes that its Computer Applications
are Year 2000 compliant because the Company purchased such Computer Applications
during 1998 and 1999 from suppliers that represented them to be Year 2000
compliant.
A comprehensive program is in place to remediate potential Year 2000 issues in
purchased software and hardware, as well as noninformation technology (IT)
systems. The program is divided into four phases:
1. complete inventory of IT and non-IT systems that may be sensitive to the
Year 2000 issue
2. assessment of systems to determine Year 2000 compliance
3. remediate non-compliant systems by repair or replacement
4. testing of remediated systems
The inventory and assessment phases were completed by the end of 1998. The
Company completed the remediation phase and the testing phase by the end of
October 1999. Some IT-related third-party software manufacturers continue to
release minor updates. These updates are being implemented by the Company as
soon as they are available from the manufacturers.
While the Company believes that its Year 2000 conversion is completed and will
not result in any disruption to the Company's business, the Company acknowledges
the uncertainties involved in preparing its system for the Year 2000. As such,
the Company is developing a comprehensive Year 2000 specific contingency plan.
However, there can be no assurance that the Company will identify all
susceptible systems or that systems provided by third parties will be Year 2000
compliant or that any resulting Year 2000 issues would not have an adverse
effect on the operations of the Company.
The Company has not incurred any significant costs to date that are specifically
attributable to resolving the Year 2000 issue and does not estimate the future
costs related to the resolution of this matter to be material.
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 judgements 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-Q
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 of the Company will be achieved.
13
<PAGE> 14
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(A) Exhibits:
Exhibit 27 Financial Data Schedule
(B) Form 8-K's filed during the quarterly period ended September 30, 1999:
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements 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 Encino, California, on the
l2th day of November, 1999.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
---------------------------------------
Thomas Jackson Weaver III
Chairman of the Board,
Chief Executive Officer and President
By: /s/ Bryan J. Cusworth
---------------------------------------
Bryan J. Cusworth,
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TBA
ENTERTAINMENT CORP. FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,629,600
<SECURITIES> 0
<RECEIVABLES> 3,326,300
<ALLOWANCES> 63,500
<INVENTORY> 428,100
<CURRENT-ASSETS> 20,705,200
<PP&E> 3,418,000
<DEPRECIATION> 619,800
<TOTAL-ASSETS> 42,249,300
<CURRENT-LIABILITIES> 9,219,700
<BONDS> 3,918,900
0
100
<COMMON> 8,900
<OTHER-SE> 29,110,700
<TOTAL-LIABILITY-AND-EQUITY> 42,249,300
<SALES> 0
<TOTAL-REVENUES> 34,471,100
<CGS> 0
<TOTAL-COSTS> 22,204,700
<OTHER-EXPENSES> 10,325,800
<LOSS-PROVISION> 62,900
<INTEREST-EXPENSE> 339,800
<INCOME-PRETAX> 2,072,400
<INCOME-TAX> 825,600
<INCOME-CONTINUING> 1,246,800
<DISCONTINUED> 479,200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,726,00
<EPS-BASIC> .20
<EPS-DILUTED> .20
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