<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 JUNE 30, 2000
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)
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<S> <C>
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)
</TABLE>
(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 August 4, 2000, the Registrant had outstanding 8,022,500 shares of Common
Stock, par value $.001 per share.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
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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....................... 9
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signatures......................................................... 18
</TABLE>
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 12,913,100 $ 12,847,600
Accounts receivable, net of allowance for doubtful
accounts of $93,300 and $50,000, respectively ............ 4,876,200 3,593,400
Inventories .................................................. 800,900 563,300
Deferred charges and other current assets .................... 5,975,400 2,479,500
------------ ------------
Total current assets ............................... 24,565,600 19,483,800
Property and equipment, net ..................................... 3,197,800 2,937,500
Other assets, net:
Goodwill ..................................................... 25,933,300 19,383,700
Investments in Joint Venture ................................. -- 588,700
Other ........................................................ 832,000 755,800
------------ ------------
Total assets ...................................... $ 54,528,700 $ 43,149,500
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ..................... $ 4,902,000 $ 3,765,500
Deferred revenue ............................................. 13,528,900 4,497,600
Notes payable and current portion of long-term debt .......... 3,197,200 3,328,000
------------ ------------
Total current liabilities .......................... 21,628,100 11,591,100
Long-term debt, net of current portion .......................... 5,173,500 3,719,600
------------ ------------
Total liabilities .................................. 26,801,600 15,310,700
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized
1,000,000 shares, 2,200 and 2,600 of Series A
convertible preferred stock issued and
outstanding, respectively,
liquidation preference $100 ................................. 100 100
Common stock, $.001 par value; authorized 20,000,000
shares, 8,857,100 and 8,714,300 shares issued,
respectively ................................................ 8,900 8,700
Additional paid in capital .................................... 30,605,900 29,859,900
Retained earnings ............................................. 326,900 32,200
Less treasury stock, at cost, 779,100 and 495,500
shares, respectively ........................................ (3,214,700) (2,062,100)
------------ ------------
Total stockholders' equity ......................... 27,727,100 27,838,800
------------ ------------
Total liabilities and stockholders' equity ......... $ 54,528,700 $ 43,149,500
============ ============
</TABLE>
See notes to financial statements.
3
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
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Revenues ...................................................... $ 18,967,900 $ 10,368,100 $ 39,269,900 $ 21,612,900
Costs related to revenue ...................................... 12,492,400 6,912,400 26,443,500 14,345,000
------------ ------------ ------------ ------------
Gross profit margin .......................................... 6,475,500 3,455,700 12,826,400 7,267,900
Selling, general and administrative expense ................... 5,388,000 2,648,300 10,760,300 5,537,700
Depreciation and amortization expense ......................... 665,300 478,400 1,319,900 852,400
Equity in (income) loss of Joint Venture ...................... -- (118,900) -- 38,000
Interest (income) expense, net ................................ 52,400 (91,100) 105,500 (237,400)
------------ ------------ ------------ ------------
Income from continuing operations before income taxes ......... 369,800 539,000 640,700 1,077,200
Provision for income taxes .................................... 219,000 210,200 346,000 420,100
------------ ------------ ------------ ------------
Income from continuing operations ............................. 150,800 328,800 294,700 657,100
------------ ------------ ------------ ------------
Discontinued operations:
Gain on disposition of discontinued
operations, net of income tax provision of
$399,600 for the six months ended June 30, 1999 ............. -- -- -- 479,200
------------ ------------ ------------ ------------
Net income .................................................... $ 150,800 $ 328,800 $ 294,700 $ 1,136,300
============ ============ ============ ============
Earnings per common share -- basic:
Income from continuing operations ............................ $ .02 $ .04 $ .04 $ .08
Income from discontinued operations .......................... -- -- -- .05
------------ ------------ ------------ ------------
Net income .................................................... $ .02 $ .04 $ .04 $ .13
============ ============ ============ ============
Earnings per common share -- diluted:
Income from continuing operations ............................ $ .02 $ .04 $ .04 $ .08
Income from discontinued operations .......................... -- -- -- 05
------------ ------------ ------------ ------------
Net income .................................................... $ .02 $ .04 $ .04 $ .13
============ ============ ============ ============
</TABLE>
See notes to financial statements.
4
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 1999
------------ ------------
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Cash flows from operating activities:
Net income ............................................................... $ 294,700 $ 1,136,300
----------- -----------
Adjustments to reconcile net income to net cash provided
by continuing operations:
Income from discontinued operations .................................. -- (479,200)
Depreciation and amortization ........................................ 1,319,900 852,400
Equity in loss of Joint Venture ...................................... -- 38,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ...................... (854,700) 75,300
(Increase) in inventories ....................................... (237,700) --
(Increase) in deferred charges and other
current assets ............................................... (3,159,200) (148,800)
(Increase) in other assets ...................................... (103,000) (67,600)
Increase (decrease) in accounts payable and
accrued liabilities .......................................... 881,200 (2,010,200)
Increase in advance deposits and deferred revenue ............... 9,076,100 941,400
----------- -----------
Total adjustments ........................................ 6,922,600 798,700
----------- -----------
Net cash provided by continuing operations ............... 7,217,300 337,600
----------- -----------
Cash flows from investing activities:
Proceeds from dispositions of businesses ................................. -- 3,483,600
Acquisition of businesses, net of cash acquired .......................... (3,993,900) (3,074,300)
Expenditures for property and equipment .................................. (489,100) (405,300)
----------- -----------
Net cash (used in) provided by investing activities....... (4,483,000) 4,000
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ............................................... -- 73,000
Net borrowings on credit lines ......................................... 1,400 --
Purchase of treasury stock ............................................. (1,152,600) (1,912,700)
Repayments of borrowings................................................ (1,517,600) (556,800)
----------- -----------
Net cash used in financing activities .................... (2,668,800) (2,396,500)
----------- -----------
Net increase (decrease) in cash and cash equivalents ......................... 65,500 (2,054,900)
Cash and cash equivalents - beginning of period .............................. 12,847,600 15,583,800
----------- -----------
Cash and cash equivalents - end of period .................................... $12,913,100 $13,528,900
=========== ===========
</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 (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 Company was
incorporated in Tennessee in June 1993 and reincorporated in Delaware in
September 1997.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
year-end financial statements. The accompanying consolidated financial
statements should be read in conjunction with the more detailed financial
statements and related footnotes included in the Company's Form 10-K for the
year ended December 31, 1999.
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 June 30, 2000, and the results of its
operations and cash flows for the three and six month periods ended June 30,
2000 and 1999, respectively, have been included. Operating results for the
three and six months ended June 30, 2000, are not necessarily indicative of
the results that may be expected for the fiscal year ending December 31,
2000.
2. BUSINESS ACQUISITIONS
2000
On January 3, 2000, the Company acquired 100% of the common stock of Romeo
Entertainment Group, Inc. ("Romeo") for a maximum purchase price of
$6,750,000. The purchase price paid at closing included a cash payment of
$3,475,000, the issuance of 142,300 shares of common stock of the Company
valued at $750,000 and the issuance of two promissory notes totaling
$2,525,000. On April 5, 2000, the Company acquired 100% of the common stock
of EJD Concert Services, Inc. ("EJD"), for a purchase price of $600,000.
1999
The Company acquired Karin Glass & Associates, Inc. and affiliated companies
on March 17, 1999 and Mike Atkins Management, Inc. on December 6, 1999.
Each of these acquisitions has been accounted for under the purchase method
of accounting. Operating results of each of these acquisitions are included
in the accompanying consolidated statements of operations from their
respective acquisition dates. The following Pro Forma Condensed Statements of
Operations Data represents the consolidated results of operations for the
three and six months ended June 30, 1999, as if these acquisitions had
occurred as of the beginning of 1999. The pro forma results reflect certain
adjustments, including amortization of the excess purchase price over fair
value of net assets acquired, interest expense on the acquisition debt and
adjustments to salaries and ownership distributions to former owners.
6
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Pro Forma Condensed Statements of Operations Data
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June 30, 1999
-----------------------------
Three Months Six Months
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Revenues .......................................... $12,128,900 $25,060,600
Gross Margin ...................................... 4,152,200 8,780,300
Income from continuing operations ................. 393,400 461,400
Earnings per common share -- basic
Income from continuing operations .............. $ 0.05 $ 0.05
Earnings per common share -- diluted
Income from continuing operations .............. $ 0.05 $ 0.05
</TABLE>
The pro forma results are not necessarily indicative of what actually would have
occurred had the acquisitions been completed as of the beginning of 1999 nor are
they necessarily indicative of future consolidated results.
3. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic earnings per common share:
Income from continuing operations $ 150,800 $ 328,800 $ 294,700 $ 657,100
Weighted average common stock outstanding 8,177,500 8,512,800 8,259,000 8,534,500
----------- ----------- ----------- -----------
Basic earnings per common share $ 0.02 $ 0.04 $ 0.04 $ 0.08
=========== =========== =========== ===========
Diluted earnings per common share:
Income from continuing operations $ 150,800 $ 328,300 $ 294,700 $ 657,100
----------- ----------- ----------- -----------
Weighted average common stock outstanding 8,177,500 8,512,800 8,259,000 8,534,500
Additional common stock resulting from
dilutive securities:
Preferred stock 2,200 4,600 2,200 4,600
Shares issuable for stock options and
warrants 8,100 53,800 18,300 48,300
----------- ----------- ----------- -----------
Common stock and dilutive securities
outstanding 8,187,800 8,571,200 8,279,500 8,587,400
----------- ----------- ----------- -----------
Diluted earnings per common share $ 0.02 $ 0.04 $ 0.04 $ 0.08
=========== =========== =========== ===========
</TABLE>
Options and warrants to purchase 3,101,500 and 1,864,000 shares of common
stock in 2000 and 1999, respectively, were not considered in calculating
diluted earnings per share as their inclusion would have been anti-dilutive.
4. INVESTMENT IN JOINT VENTURE
Through December 31, 1999, the Company owned a 50% interest in a joint
venture with Warner Custom Music Corp. The joint venture, Warner/TBA,
developed and coordinated live, sponsored music entertainment marketing tours
and programs and related projects, and generated revenues primarily from
third party corporate sponsorships. Warner/TBA recognized revenue by
amortizing the contract sponsorship funds over the life of the related
programs, which ranged from single day events to tours lasting several
months.
Effective December 31, 1999, the formal joint venture agreement with Warner
reached the end of its term. Pursuant to an agreement with Warner, the net
assets of Warner/TBA were distributed to TBA on January 1, 2000. TBA will
continue to execute entertainment marketing programs previously developed by
Warner/TBA and will pay Warner a net profits interest for certain of the 2000
programs.
7
<PAGE> 8
Through December 31, 1999, the Company accounted for the investment using the
equity method of accounting. Summary unaudited statements of operations data
of Warner/TBA for the three and six months ended June 30, 1999 are as
follows:
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THREE MONTHS SIX MONTHS
------------ ----------
<S> <C> <C>
Revenues ............... $5,107,000 $5,178,200
Net income (loss)....... 237,800 (76,000)
</TABLE>
The following summary balance sheet data of Warner/TBA reflects the assets
and liabilities distributed to the Company on January 1, 2000.
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<S> <C>
Current assets ............... $650,700
Non-current assets ........... 155,900
Current liabilities .......... 242,200
</TABLE>
8
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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 1999 Form 10-K.
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 industry artists and
develops and executes merchandising programs for 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 and 1999, the Company grew its
operations through the acquisition of several additional corporate
communications and entertainment services, artist management and merchandising
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"), TKS
Marketing, Inc. ("TKS") (collectively, the "1998 Acquisitions"); Karin Glass &
Associates, Inc. and affiliated companies (collectively, "KGA") and Mike Atkins
Management, Inc. ("Atkins") (collectively, the "1999 Acquisitions"). In 2000,
the Company also completed the acquisition of Romeo Entertainment Group, Inc.
("Romeo") and EJD Concert Services, Inc. ("EJD") (collectively, the "2000
Acquisitions").
General
The Company classifies it operations in four major business segments. The
Company currently derives a majority of its revenues (70% and 69% for the six
months ended June 30, 2000 and 1999, 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 event merchandising
(16% and 23% of total revenues for the six months ended June 30, 2000 and 1999,
respectively), artist management (4% and 5% of total revenues for the six months
ended June 30, 2000 and 1999, respectively) and entertainment marketing (10% and
3% of total revenues for the six months ended June 30, 2000 and 1999,
respectively). 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. Generally, there are 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.
Through December 31, 1999, the Company also developed and produced entertainment
marketing programs and special events through Warner/TBA, a joint venture with
an affiliate of Time Warner. The Company accounted for these activities using
the equity method of accounting. Effective December 31, 1999, the formal joint
venture agreement reached the end of its term. Accordingly, beginning in January
2000, the Company has recognized all revenue and expenses associated with
entertainment marketing programs that were previously executed by the Warner/TBA
joint venture. TBA will pay Time Warner a net profits interest for certain of
the 2000 programs.
9
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RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Results of operations of each of the 2000 Acquisitions and each of the 1999
Acquisitions are included from the corresponding acquisition dates.
Revenues increased $17,657,000, or 82%, to $39,269,900 in the 2000 period from
$21,612,900 in the 1999 period. Of the increase, $12,539,700 came from corporate
meeting and entertainment events. Although the number of corporate meeting and
entertainment events decreased to 227 in the period from 272 in the 1999 period,
the average revenue per event increased to $121,100 in the 2000 period from
$54,900 in the 1999 period. The Company continues to aggressively pursue larger
corporate meeting and entertainment events with Fortune 1000 companies. In the
2000 period, the Company produced 17 events with revenues in excess of $250,000
compared to 13 such events in the 1999 period.
Entertainment marketing revenues increased $3,533,300 to $4,057,500 for the 2000
period from $524,200 for the 1999 period, due primarily to the 2000
consolidation of the Warner/TBA programs, which added approximately $1,836,600
of revenues, and to the addition of Romeo and EJD, which contributed
approximately $1,342,300 of revenues.
Event merchandising revenues increased $1,027,900 for the 2000 period over the
1999 period, due primarily to the addition of merchandising activities through
the acquisition of KGA in March 1999. Artist management revenues increased
$556,100 for the 2000 period over the 1999 period, resulting primarily from an
increase in the Company's artist roster.
Cost of revenues increased $12,098,500, or 84%, to $26,443,500 for the 2000
period from $14,345,000 for the 1999 period. Cost of revenues, as a percentage
of revenues, increased to 67% for the 2000 period from 66% for the 1999 period,
due primarily to the production of the 2000 NBA Allstar Game in the first
quarter of 2000, which had a lower gross margin and increased cost of sales on
certain merchandise sales, partially offset by increased gross margins on
corporate meetings and entertainment events.
Selling, general and administrative expenses increased $5,222,600, or 94%, to
$10,760,300 for the 2000 period from $5,537,700 for the 1999 period. The
increase results primarily from increased personnel and related operating
expenses associated with the increased corporate entertainment and meeting
planning business, as well as selling, general and administrative expenses
associated with the 1999 Acquisitions, the 2000 Acquisitions and the
consolidation of activities previously accounted for by the Warner/TBA joint
venture. 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 $467,500, or 55%, to $1,319,900
for the 2000 period from $852,400 for the 1999 period. The increase results
primarily from the amortization of goodwill associated with the 1999
Acquisitions and the 2000 Acquisitions.
For the 1999 period, the Company's 50% joint venture interest in Warner/TBA
resulted in a loss of $38,000. Revenues and operating expenses for Warner/TBA in
the 1999 period were $5,178,200 and $5,316,900, respectively. As discussed above
in the 2000 period, all programs previously produced by Warner/TBA are now
included in the consolidated results of operations of the Company.
For the 2000 period, net interest expense was $105,500 compared to net interest
income of $237,400 for the 1999 period. The change is attributable to less
interest income earned on decreasing cash balances resulting from cash used for
acquisitions, debt repayments and stock repurchases and by increased interest
expense associated with outstanding debt related to the 1999 Acquisitions and
the 2000 Acquisitions.
The provision for income taxes, as a percentage of income taxes from continuing
operations before income taxes, is 54% for the 2000 period compared to 39% for
the 1999 period, which reflect statutory tax rates adjusted for estimated
book/tax differences. The 2000 rate is higher due to the 1999 use of the last of
the Company's operating loss carryforwards available to offset taxable income
and to the increase of nondeductible amortization of goodwill from certain of
the Company's acquisitions.
Net income from continuing operations decreased $362,400 to $294,700 for the
2000 period from $657,100 for the 1999 period due to the reasons described
above.
10
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COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Results of operations of each of the 2000 Acquisitions and each of the 1999
Acquisitions are included from the corresponding acquisition dates.
Revenues increased $8,599,800, or 83%, to $18,967,900 in the 2000 quarter from
$10,368,100 in the 1999 quarter. Of the increase, $6,386,700 came from corporate
meeting and entertainment events. Although the number of corporate meeting and
entertainment events decreased to 113 in the 2000 quarter from 140 in the 1999
quarter, the average revenue per event increased to $115,700 in the 2000 quarter
from $47,800 in the 1999 quarter. The Company continues to aggressively pursue
larger corporate meeting and entertainment events with Fortune 1000 companies.
Entertainment marketing revenues increased $2,352,600 to $2,579,500 for the 2000
quarter from $226,900 for the 1999 quarter, due primarily to the 2000
consolidation of the Warner/TBA programs, which added approximately $544,800 of
revenues, and to the additions of Romeo and EJD, which contributed approximately
1,310,700 of revenues.
Event merchandising revenues decreased $384,000 for the 2000 quarter over the
1999 quarter. Artist management revenues increased $244,500 for the 2000 quarter
over the 1999 quarter, resulting primarily from an increase in the Company's
artist roster.
Cost of revenues increased $5,580,000, or 81%, to $12,492,400 for the 2000
quarter from $6,912,400 for the 1999 quarter. Cost of revenues, as a percentage
of revenues, decreased to 66% for the 2000 quarter from 67% for the 1999
quarter, primarily due to increased artist management revenues, offset by
increased cost of sales on certain merchandise sales.
Selling, general and administrative expenses increased $2,739,700, or 103%, to
$5,388,000 for the 2000 quarter from $2,648,300 for the 1999 quarter. The
increase results primarily from increased personnel and related operating
expenses associated with the increased corporate entertainment and meeting
planning business, as well as selling, general and administrative expenses
associated with the 2000 Acquisitions and the consolidation of activities
previously accounted for by the Warner/TBA joint venture. 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 $186,900, or 39%, to $665,300
for the 2000 quarter from $478,400 for the 1999 quarter. The increase results
primarily from the amortization of goodwill associated with the 1999
Acquisitions and the 2000 Acquisitions.
For the 1999 quarter, the Company's 50% joint venture interest in Warner/TBA
resulted in a gain of $118,900. Revenues and operating expenses for Warner/TBA
in the 1999 quarter were $5,107,000 and $350,300, respectively. As discussed
above in the 2000 period, all programs previously produced by Warner/TBA are now
included in the consolidated results of operations of the Company.
For the 2000 quarter, net interest expense was $52,400 compared to net interest
income of $91,100 for the 1999 quarter. The change is attributable to less
interest income earned on decreasing cash balances resulting from cash used for
acquisitions, debt repayments and stock repurchases and by increased interest
expense associated with outstanding debt related to the 1999 Acquisitions and
the 2000 Acquisitions.
The provision for income taxes, as a percentage of income taxes from continuing
operations before income taxes, is 59% for the 2000 quarter compared to 39% for
the 1999 quarter, which reflect statutory tax rates adjusted for estimated
book/tax differences. The 2000 rate is higher due to the 1999 use of the last of
the Company's operating loss carryforwards available to offset taxable income
and to the increase of nondeductibile amortization of goodwill from certain of
the Company's acquisitions.
Net income from continuing operations decreased $178,000 to $150,800 for the
2000 quarter from $328,800 for the 1999 quarter due to the reasons described
above.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position, funding
acquisitions and working capital needs from cash reserves and out of operating
cash flow. At June 30, 2000, the Company had cash and cash equivalents of
$12,913,100 and working capital of $2,937,500 including $3,197,200 of short term
borrowings and the current portion of long-term debt. Cash provided by
continuing operations was $7,217,300 for the first six months of 2000 compared
to cash provided by continuing operations of $337,600 for the first six months
of 1999. The fluctuation in cash provided by continuing operations between the
2000 and 1999 periods primarily reflects the timing of deferred revenue and
prepaid expenses associated with programs occurring in following periods.
Cash used in investing activities for the first six months of 2000 was
$4,554,400 resulting primarily from cash used for the Romeo and EJD acquisitions
and expenditures for property and equipment. Cash provided by investing
activities for the first six months of 1999 was $4,000, resulting primarily from
cash received from the sale of discontinued businesses, offset by cash used for
the KGA acquisition and expenditures for property and equipment.
Cash used in financing activities for the first six months of 2000 was
$2,597,400, resulting primarily from the repayment of borrowings and the
purchase of treasury stock. Cash used in financing activities for the first six
months of 1999 was $2,396,500, resulting primarily from the purchase of treasury
stock 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. 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 1998, the Company realized net
proceeds of $19,393,800 from the sale of discontinued operations, after
repayment of borrowings associated with these businesses and applicable
transaction costs. In 1999, the Company received the final $3,000,000 of net
proceeds from the sale of discontinued operations.
The Company used a portion of the proceeds from the sale of these operations to
fund part of the purchase of AEG in 1997, the 1998 Acquisitions, the 1999
Acquisitions and the 2000 Acquisitions. The remainder of the purchase prices of
these acquisitions was funded through the issuance of the Company's common stock
and debt. The acquisition notes are payable in various installments of principal
plus accrued interest at 8% through April 2005.
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. The Company anticipates that future
business acquisitions made by the Company will be completed through a
combination of cash, issuance of notes payable to the sellers and the issuance
of the Company's common stock to the sellers.
Management believes that cash flow from operations and current cash reserves are
adequate to meet its current working capital requirements. 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-term 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.
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<PAGE> 13
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-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
PART II
OTHER INFORMATION
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
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<S> <C> <C>
2.1(1) -- Merger Agreement between TBA Entertainment Corporation and
Avalon Acquisition Corp., Inc. and Avalon Entertainment Group,
Inc.
2.2(2) -- Purchase Agreement between TBA Entertainment Corporation,
Titley Spalding & Associates, LLC, Clarence Spalding and Robert
R. Titley dated June 18, 1998.
2.3(3) -- Purchase Agreement between TBA Entertainment Corporation and
SFX Entertainment, Inc. and AWC Acquisition Corp. dated May 13,
1998.
2.4(4) -- Stock Purchase Agreement between TBA Entertainment
Corporation, Magnum Communications, Inc, William R. Cox, Gary A.
Larr, Charles A. Barry and Lon M. Hudman dated October 15, 1998.
2.5(5) -- Merger Agreement among TBA Entertainment Corporation, CPI
Acquisition Corp., Inc., Richard S. Smith, Richard W. Perry,
Pamela J. Furmanek and Corporate Productions, Inc. dated August
11, 1998.
2.6(6) -- Stock Purchase Agreement among TBA Entertainment Corporation,
Kenneth C. Koziol and Image Entertainment Productions dated
September 15, 1998.
2.7(7) Stock Purchase Agreement among TBA Entertainment Corporation,
Karin Glass & Associates, Inc., Ink Up, Inc., KGA, Inc., Karin
Glass and Kenneth Glass dated March 18, 1999.
3.1(8) -- Certificate of Incorporation of the Company.
3.2(9) -- Bylaws of the Company.
4.1(10) -- Specimen Common Stock Certificate.
4.2(11) -- Article IX of the Certificate of Incorporation of the Company
(included in Exhibit 3.1).
4.3(12) -- Certificate of Designation of Series A Convertible Preferred
Stock of the Company.
4.4(13) -- Specimen Warrant Certificate.
10.1(14) -- Purchase and Sale Agreement between TBA Entertainment
Corporation and Vail Summit Resorts, Inc. dated July 10, 1998.
10.2(15) -- Employment Agreement dated as of January 1, 1994 between the
Company and Thomas Jackson Weaver III.
10.3(16) -- Employment Agreement dated as of January 1, 1994 between the
Company and Prab Nallamilli.
10.4(17) -- Stock Purchase Warrant dated February 24, 1994 between the
Company and Yee, Desmond, Schroeder & Allen, Inc.
10.5(18) -- Form of Indemnification Agreement between the Company and
each of the directors and executive officers.
10.6(19) -- TBA Entertainment Corporation 1995 Stock Option Plan.
10.7(20) -- Form of Stock Option Agreement for options granted under the
1995 Stock Option Plan.
10.8(21) -- TBA Entertainment Corporation 1997 Stock Option Plan.
10.9(22) -- Form of Stock Option Agreement for options granted under the
1997 Stock Option Plan.
10.10(23) -- Representative's Warrant Agreement dated April 23, 1996 between
the Company and H.J. Meyers & Co., Inc.
10.11(24) -- Warrant Agreement dated April 23, 1996 among the Company, H.J.
Meyers & Co., Inc. and American Stock
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
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<S> <C> <C>
Transfer & Trust Company.
10.12(25) -- Registration Rights Agreement between the Company, Robert E.
Geddes, Greg M. Janese, Thomas Miserendino, Brian K. Murphy and
Marc W. Oswald.
10.13(26) -- Consulting Agreement between Avalon Entertainment Group, Inc.
and Robert E. Geddes.
10.14(27) -- Consulting Agreement between Avalon Entertainment Group Inc.
and Thomas Miserendino.
10.15(28) -- Employment Agreement between Avalon Entertainment Group, Inc.
and Marc W. Oswald.
10.16(29) -- Employment Agreement between Avalon Entertainment Group, Inc.
and Greg M. Janese.
10.17(30) -- Placement Agent Warrant Agreement between the Company and
Rauscher Pierce Refsnes, Inc.
10.18(31) -- Stock Purchase Agreement among TBA Entertainment Corporation,
Robert Romeo and Romeo Entertainment Group, Inc. dated November
26, 1999.
10.19(32) -- Stock Purchase Agreement among TBA Entertainment Corporation,
Mike Atkins and Mike Atkins Management, Inc. dated December 6,
1999.
10.20(33) -- Stock Purchase Agreement among TBA Entertainment Corporation,
EJD Concert Services, Inc. and the selling shareholders.
10.21(34) -- TBA Entertainment Corporation 2000 Stock Option Plan.
27* -- Financial Data Schedule.
</TABLE>
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* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated on April 21, 1997.
(2) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated on June 18, 1998.
(3) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated May 13, 1998.
(4) Incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated October 18, 1998.
(5) Incorporated herein by reference to Exhibit 2.5 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998.
(6) Incorporated herein by reference to Exhibit 2.6 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998.
(7) Incorporated herein by reference to Exhibit 2.7 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998.
(8) Incorporated herein by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(9) Incorporated herein by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(10) Incorporated herein by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(11) Incorporated herein by reference to Exhibit 4.3 to the Company's Current
Report on Form 8-K dated April 21, 1997.
(12) Incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-97890) dated March
15, 1996.
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<PAGE> 16
(13) Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended (June 30, 1998).
(14) Incorporated herein by reference to Exhibit 10.2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(15) Incorporated herein by reference to Exhibit 10.3 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(16) Incorporated herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(17) Incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-69944) dated
December 8, 1993.
(18) Incorporated herein by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(19) Incorporated herein by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(20) Incorporated herein by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(21) Incorporated herein by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(22) Incorporated herein by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(23) Incorporated herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(24) Incorporated herein by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(25) Incorporated herein by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(26) Incorporated herein by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(27) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(28) Incorporated herein by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 29,
1996.
(29) Incorporated herein by reference to Exhibit 10.20 to the Company's Current
Report on Form 8-K dated June 20, 1997.
(30) Incorporated herein by reference to Exhibit 10.20 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-29775) dated June
20, 1997.
(31) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31,
1999.
16
<PAGE> 17
(32) Incorporated herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1999.
(33) Incorporated herein by reference to Exhibit 10.20 to the Company's
Form 10-Q for the quarter ended March 31, 2000.
(34) Incorporated herein by reference to the Company's definitive proxy
statement on Schedule 14A filed June 29, 2000.
(B) Form 8-K's filed during the quarterly period ended June 30, 2000:
None
17
<PAGE> 18
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
10th day of August, 2000.
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
18
