<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 MARCH 31, 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 May 7, 1999, the Registrant had outstanding 8,507,600 shares of Common
Stock, par value $.001 per share.
<PAGE> 2
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
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. 9
Condition and Results of Operations
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K ................. 14
Signatures................................................... 15
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 12,296,400 $ 15,583,800
Accounts receivable, net of allowance for doubtful
accounts of $55,800 and $130,800, respectively ..... 2,813,000 2,355,100
Deferred charges and other current assets .............. 1,588,400 1,616,800
Net short-term assets from sale of discontinued
operations ......................................... 3,154,100 2,552,000
------------ ------------
Total current assets ........................ 19,851,900 22,107,700
Property and equipment, net ............................... 2,577,800 1,853,600
Other assets, net:
Goodwill ............................................... 18,250,300 16,008,600
Investment in Joint Venture ............................ 265,000 410,600
Other .................................................. 84,100 64,700
------------ ------------
Total assets ................................ $ 41,029,100 $ 40,445,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............... $ 4,708,000 $ 4,299,400
Deferred revenue ....................................... 2,152,500 2,114,800
Current portion of long-term debt ...................... 1,317,700 759,600
------------ ------------
Total current liabilities .................... 8,178,200 7,173,800
Long-term debt, net of current portion .................... 4,478,400 4,755,700
------------ ------------
Total liabilities ............................ 12,656,600 11,929,500
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000
shares, 68,800 and 4,600 of Series A convertible
preferred stock issue and outstanding, respectively,
liquidation preference, $2,100 and $100, respectively . 100 2,100
Common stock, $.001 par value; authorized 20,000,000
shares, 8,831,500 and 8,927,800 shares issued,
respectively .......................................... 8,900 8,800
Additional paid in capital .............................. 30,743,300 30,723,100
Accumulated deficit ..................................... (686,300) (1,493,800)
Less treasury stock, at cost, 196,700 and 404,700
shares, respectively .................................. (1,693,500) (724,500)
------------ ------------
Total stockholders' equity ................... 28,372,500 28,515,700
------------ ------------
Total liabilities and stockholders' equity ... $ 41,029,100 $ 40,445,200
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE> 4
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------- -----------
<S> <C> <C>
Revenues........................................ $11,244,800 $4,189,500
Costs related to revenue........................ 7,432,500 2,783,700
----------- ----------
Gross profit margin.................... 3,812,300 1,405,800
Selling, general and administrative expense..... 2,889,400 1,111,900
Depreciation and amortization expense........... 374,100 57,800
Equity in loss (income) of Joint Venture........ 156,900 (90,500)
Interest (income) expense, net.................. (146,400) 45,500
----------- ----------
Income from continuing operations
before income taxes .......................... 538,300 281,100
Provision for income taxes .................... 210,000 --
----------- ----------
Income from continuing operations .............. 328,300 281,100
----------- ----------
Discontinued operations:
Income from operations, including income
tax benefit of $91,600 for the three
months ended March 31, 1998.............. -- 1,292,300
Gain on disposition of discontinued
operations, net of income tax provision of
$399,600 for the three months ended
March 31, 1999............................. 479,200 --
---------- ----------
Income from discontinued operations......... 479,200 1,292,300
---------- ----------
Net income...................................... $ 807,500 $1,573,400
========== ==========
Earnings per common share -- basic:
Income from continuing operations......... $.04 $.04
Income from discontinued operations....... .06 .18
---------- ----------
Net income...................................... $.10 $.22
========== ==========
Earnings per common share -- diluted:
Income from continuing operations......... $.04 $.04
Income from discontinued operations....... .06 .16
---------- ----------
Net income...................................... $.10 $.20
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE> 5
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 807,500 $ 1,573,400
------------ ------------
Adjustments to reconcile net income to net cash provided
by continuing operations:
Income from discontinued operations ........................ (479,200) (1,292,300)
Depreciation and amortization .............................. 374,100 57,800
Equity in loss (income) of Joint Venture ................... 156,900 (90,500)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ............ 235,000 (322,300)
Decrease (increase) in deferred charges and other
current assets ..................................... 138,400 (108,000)
(Increase) in other assets ............................ (42,400) (21,100)
(Decrease) increase in accounts payable and
accrued liabilities ................................ (292,200) 547,500
Increase in advance deposits and deferred revenue...... 37,600 214,100
------------ ------------
Total adjustments .............................. 128,200 (1,014,800)
------------ ------------
Net cash provided by continuing operations ..... 935,700 558,600
------------ ------------
Cash flows from investing activities:
Proceeds from dispositions of businesses ....................... 381,000 --
Acquisition of business, net of cash acquired .................. (2,435,800) --
Expenditures for property and equipment ........................ (187,400) (116,100)
------------ ------------
Net cash used in investing activities .......... (2,242,200) (116,100)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings ..................................... 73,000 --
Purchase of treasury stock ................................... (1,850,700) --
Repayments of borrowing ...................................... (203,200) (780,000)
------------ ------------
Net cash used in financing activities .......... (1,980,900) (780,000)
------------ ------------
Net cash provided by discontinued operations ....................... -- 149,200
------------ ------------
Net decrease in cash and cash equivalents .......................... (3,287,400) (188,300)
Cash and cash equivalents - beginning of period .................... 15,583,800 978,600
------------ ------------
Cash and cash equivalents - end of period .......................... $ 12,296,400 $ 790,300
============ ============
</TABLE>
See notes to financial statements.
5
<PAGE> 6
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 March 31, 1999, and the results of
its operations and cash flows for the three-month periods ended March 31,
1999 and 1998, respectively, have been included. Operating results for the
three months ended March 31, 1999, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999.
Certain prior period amounts have been reclassified to conform with the 1999
presentation. Such reclassifications had no impact on the Company's 1998 net
income.
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
MARCH 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Basic earnings per common share:
Income from continuing operations ........ $ 328,300 $ 281,100
Weighted average common stock outstanding 8,449,600 7,192,900
---------- ----------
Basic earnings per common share .......... $ .04 $ .04
========== ==========
Diluted earnings per common share:
Income from continuing operations ........ $ 328,300 $ 281,100
---------- ----------
Weighted average common stock outstanding 8,449,600 7,192,900
Additional common stock resulting from
dilutive securities:
Preferred stock ........................ 4,600 334,300
Weighted average common stock issued in
connection with acquisitions ....... -- 445,400
Shares issuable for stock options and
warrants ........................... 39,100 --
---------- ----------
Common stock and dilutive securities
outstanding ......................... 8,493,200 7,972,600
---------- ----------
Diluted earnings per common share ........ $ .04 $ .04
========== ==========
</TABLE>
Options and warrants to purchase 2,774,900 and 2,589,000 shares of common
stock in 1999 and 1998, respectively, were not considered in calculating
diluted earnings per share as their inclusion would have been anti-dilutive.
6
<PAGE> 7
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
MARCH 31,
1999 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues........ $ 71,200 $1,888,000
Net (loss) income (313,800) 181,000
</TABLE>
Summary unaudited balance sheet data of Warner/TBA consists of the
following:
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
(UNAUDITED)
<S> <C>
Current assets .... $4,041,000
Non-current assets 267,400
Current liabilities 3,903,900
Partners' capital . 404,500
</TABLE>
4. 1999 ACQUISITION
On March 17, 1999, the Company acquired 100% of the common stock of Karin
Glasse & 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. 1998 DISPOSITIONS
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 ("Breckenridge Resort") (acquired in April 1996 and
sold in August 1998) and a 51% controlling interest in a group of entities
(collectively referred to as "AWC") (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 months ended March 31, 1998, in accordance with generally accepted
accounting principles.
The following is a summary of the revenue and expenses related to the
Breckenridge Resort and the Nashville Country Club Restaurant, together
which previously comprised the Company's Resort Division, that are included
in discontinued operations for the three months March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
(UNAUDITED)
<S> <C>
Revenues................... $10,083,200
Operating expenses......... 7,694,200
Depreciation and
amortization............. 266,200
Interest expense, net...... 409,100
----------
Net income from
discontinued operations.. $1,713,700
==========
</TABLE>
7
<PAGE> 8
The following is a summary of the revenue and expenses of AWC that are
included in discontinued operations for the three months ended
March 31, 1998:
<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
Income tax benefit................. (91,600)
Minority interest in net loss
of AWC........................... (573,500)
----------
Net loss from discontinued
operations attributable to
the Company...................... $ (421,400)
==========
</TABLE>
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
three months ended March 31, 1999 of $479,200, net of income taxes of
$399,600.
6. COMMON STOCK REPURCHASE PROGRAM
In August 1998, 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 August 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 three months ended March 31, 1999, the Company
repurchased 398,600 shares of its common stock for total consideration of
$1,850,700 pursuant to the stock repurchase program.
8
<PAGE> 9
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 (73% and 98% for the
three months ended March 31, 1999 and 1998, respectively) 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 artist management (5%
and 2% of total revenues for the three months ended March 31, 1999 and 1998,
respectively), event merchandising (19% and 0% of total revenues for the three
months ended March 31, 1999 and 1998, respectively) and entertainment marketing
(3% and 0% of total revenues for the three months ended March 31, 1999 and 1998,
respectively). 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. 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. 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.
Results of Operations - Comparison of the three months ended
March, 1999 and 1998
Results of operations of each of the 1998 Acquisitions and the KGA acquistion,
are included from the corresponding acquisition dates.
Revenues increased $7,055,300, or 168%, to $11,244,800 in the 1999 period from
$4,189,500 in the 1998 period. $4,156,200 of the increase resulted from the
production of 73 additional corporate meeting and entertainment events, to 149
events in the 1999 period compared to 76 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 increased to approximately $56,200 in the 1999
period from $53,900 in the 1998 period. The Company is aggressively pursuing
larger corporate meeting and entertainment events with Fortune 1000 companies.
9
<PAGE> 10
In the 1999 period, the Company produced 5 events with revenues in excess of
$250,000, versus one such event in the 1998 period. However, the impact of the
increase in the number of larger events was somewhat offset by the acquisition
of Image, which occurred in September 1998. Historically, Image has produced a
large number of relatively low revenue events. The Company anticipates that
Image will produce fewer low revenue events in the future as the Company seeks
to expand Image's corporate communications and entertainment services.
Artist management revenues increased $440,200 for the 1999 period from the 1998
period. The increase results from the addition of five artists to the Company's
artist management roster. The addition of three of these artists resulted from
the acquisition of TSA, which occurred in June 1998. Event merchandising
revenues increased $2,161,500 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). The Company did not have significant merchandising
activities in the first quarter of 1998. The remaining revenue increase of
$297,400 results from continuing record sale royalties associated with the
comprehensive pay per view entertainment marketing program that was executed by
the Company in the fourth quarter of 1998. 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 $4,648,800, or 167%, to $7,432,500 for the 1999
period from $2,783,700 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 remained constant at 66% for both the 1999 and 1998
periods.
Selling, general and administrative expenses increased $1,777,500, or 160%, to
$2,889,400 for the 1999 period from $1,111,900 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 $316,300, or 547%, to $374,100
for the 1999 period from $57,800 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 $156,900 for the 1999 period from income of $90,500 for
the 1998 period. Revenues for Warner/Avalon decreased to $71,200 for the 1999
period from $1,888,000 for the 1998 period. Operating costs of Warner/TBA,
including general and administrative expenses, decreased to $385,000 for the
1999 period from $1,707,000 for the 1998 period. The overall decrease in
revenues and operating expenses results primarily from the elimination of the
1999 NBA all-star game event, which Warner/TBA had produced in the first quarter
of 1998.
For the 1999 period, net interest income was $146,400 versus net interest
expense of $45,500 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, offset by increased outstanding debt associated with
the 1998 Acquisitions.
The provision for income taxes, as a percentage of income taxes from continuing
operations before income taxes, is 39% 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 increased $47,200, to $328,300 for the
1999 period from $281,100 for the 1998 period due to the reasons described
above.
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 Breckenridge Resort
(acquired in April 1996 and sold in August 1998) and a 51% controlling interest
in another 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
months ended March 31, 1999 and 1998, in accordance with generally accepted
accounting principles. Operating results of these businesses and other
information for discontinued operations appear in the notes to unaudited
consolidated financial statements captioned "1998 Dispositions" (Note 5).
10
<PAGE> 11
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 three-months ended March
31, 1999 of $479,200, net of income taxes of $399,600.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash and cash equivalents of $12,296,400
and working capital of $11,673,700 including $1,317,700 of current portion of
long-term debt. Cash provided by continuing operations was $935,700 for the
first quarter of 1999 compared to cash provided by continuing operations of
$558,600 for the first quarter of 1998. In the 1999 period, net income from
continuing operations plus depreciation and amortization and less equity in loss
(income) of Joint Venture provided $859,300 of operating cash flow, versus
$248,400 of operating cash flow in the 1998 period. In the 1999 period, the net
change in working capital provided $76,400 of operating cash flow, with
decreases in accounts receivables and deferred charges and other current assets
offset by decreases in accounts payable and other accrued liabilities. In the
1998 period, the net change in working capital provided $310,200 of operating
cash flow, with increases in advance deposits and deferred reserve, and accounts
payable and accrued liabilities offset by increases in accounts receivable and
deferred charges and other current assets.
Cash used in investing activities for the first quarter of 1999 was $2,424,200
resulting primarily from cash used for the KGA acquisition and expenditures for
property and equipment offset by cash received from sale of discontinued
businesses. Cash used in investing activities for the first quarter of 1998
was $116,100 and resulted from expenditures for property and equipment.
Cash used in financing activities for the first quarter of 1999 was $1,980,900,
resulting primarily from the purchase of treasury shares pursuant to the
Company's stock repurchase program and the repayment of borrowings. Cash used in
financing activities for the first quarter of 1998 was $780,000, resulting
from 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 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"). 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.
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.
11
<PAGE> 12
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. In March 1999, the Company acquired Karin
Glass & Associates, Inc. and affiliated companies (collectively, "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.
In 1998, the Company's board of directors authorized the repurchase of up to
1,000,000 shares of the Company's common stock until August 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 quarter of 1999, the Company repurchased
an additional 398,600 shares of common stock for total consideration of
$1,850,700. 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.
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 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 non-information 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
12
<PAGE> 13
The inventory and assessment phases were completed by the end of 1998. The
Company anticipates completing the remediation and testing phases by the end of
the third quarter of 1999. While the Company's Year 2000 conversion is expected
to be completed prior to any potential 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-KSB
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives 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 March 31, 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
17th day of May, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,296,400
<SECURITIES> 0
<RECEIVABLES> 2,943,800
<ALLOWANCES> 130,800
<INVENTORY> 278,200
<CURRENT-ASSETS> 19,851,900
<PP&E> 2,865,300
<DEPRECIATION> 287,600
<TOTAL-ASSETS> 41,029,100
<CURRENT-LIABILITIES> 8,178,200
<BONDS> 4,478,400
0
100
<COMMON> 8,900
<OTHER-SE> 28,363,500
<TOTAL-LIABILITY-AND-EQUITY> 28,372,500
<SALES> 0
<TOTAL-REVENUES> 11,244,800
<CGS> 0
<TOTAL-COSTS> 7,432,500
<OTHER-EXPENSES> 3,263,500
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 110,900
<INCOME-PRETAX> 538,300
<INCOME-TAX> 210,002
<INCOME-CONTINUING> 328,300
<DISCONTINUED> 479,200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807,500
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
