<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, 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 October 31, 2000, the Registrant had outstanding 7,704,500 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 4. Submission of Matters to a Vote of Security Holders.................. 14
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>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................................................... $ 8,394,300 $ 12,847,600
Accounts receivable, net of allowance for doubtful accounts of
$290,400 and $50,000, respectively ............................................ 7,883,700 3,593,400
Inventories ....................................................................... 828,500 563,300
Deferred charges and other current assets ......................................... 4,430,500 2,479,500
------------ ------------
Total current assets ............................................................ 21,537,000 19,483,800
Property and equipment, net ......................................................... 3,194,300 2,937,500
Other assets, net:
Goodwill .......................................................................... 25,580,300 19,383,700
Investments in Joint Venture ...................................................... -- 588,700
Other ............................................................................. 550,700 755,800
------------ ------------
Total assets .................................................................... $ 50,862,300 $ 43,149,500
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .......................................... $ 8,526,900 $ 3,765,500
Deferred revenue .................................................................. 6,908,900 4,497,600
Notes payable and current portion of long-term debt ............................... 3,196,100 3,328,000
------------ ------------
Total current liabilities ....................................................... 18,631,900 11,591,100
Long-term debt, net of current portion .............................................. 4,614,800 3,719,600
------------ ------------
Total liabilities ............................................................... 23,246,700 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 ................................................................. 939,900 32,200
Less treasury stock, at cost, 958,700 and 495,500 shares, respectively ........... (3,939,200) (2,062,100)
------------ ------------
Total stockholders' equity ..................................................... 27,615,600 27,838,800
------------ ------------
Total liabilities and stockholders' equity ...................................... $ 50,862,300 $ 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>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 32,020,500 $ 12,858,200 $ 71,290,400 $ 34,471,100
Costs related to revenue ......................... 23,688,400 7,859,700 50,131,900 22,204,700
------------ ------------ ------------ ------------
Gross profit margin ............................ 8,332,100 4,998,500 21,158,500 12,266,400
Selling, general and administrative expense ...... 6,284,500 3,533,000 17,044,800 9,070,600
Depreciation and amortization expense ............ 705,800 465,600 2,025,700 1,318,100
Equity in (income) loss of Joint Venture ......... -- (6,100) -- 31,900
Interest (income) expense, net ................... 3,900 10,900 109,300 (226,600)
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes .................................. 1,337,900 995,100 1,978,700 2,072,400
Provision for income taxes ....................... 725,000 405,500 1,071,000 825,600
------------ ------------ ------------ ------------
Income from continuing operations ................ 612,900 589,600 907,700 1,246,800
------------ ------------ ------------ ------------
Discontinued operations:
Gain on disposition of discontinued
operations, net of income tax provision of
$399,600 for nine months ended
September 30, 1999 ............................. -- -- -- 479,200
------------ ------------ ------------ ------------
Net income ....................................... $ 612,900 $ 589,600 $ 907,700 $ 1,726,000
============ ============ ============ ============
Earnings per common share -- basic:
Income from continuing operations .............. $ 0.08 $ 0.07 $ 0.11 $ 0.15
Income from discontinued operations ............ -- -- -- 0.05
------------ ------------ ------------ ------------
Net income ....................................... $ 0.08 $ 0.07 $ 0.11 $ 0.20
============ ============ ============ ============
Earnings per common share -- diluted:
Income from continuing operations .............. $ 0.08 $ 0.07 $ 0.11 $ 0.15
Income from discontinued operations ............ -- -- -- 0.05
------------ ------------ ------------ ------------
Net income ....................................... $ 0.08 $ 0.07 $ 0.11 $ 0.20
============ ============ ============ ============
</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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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
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Cash flows from operating activities:
Net income ................................................................. $ 907,700 $ 1,726,000
------------ ------------
Adjustments to reconcile net income to net cash provided by continuing
operations:
Income from discontinued operations ...................................... -- (479,200)
Depreciation and amortization ............................................ 2,025,700 1,318,100
Equity in loss of Joint Venture .......................................... -- 31,900
Change in assets and liabilities:
Increase in accounts receivable .......................................... (3,858,400) (200,900)
Increase in inventories .................................................. (265,200) --
Increase in deferred charges and other current assets .................... (1,476,500) (2,349,600)
Decrease (increase) in other assets ...................................... 163,200 (177,000)
Increase (decrease) in accounts payable and accrued liabilities .......... 4,384,400 (788,900)
Increase in advance deposits and deferred revenue ........................ 2,424,200 1,974,900
------------ ------------
Total adjustments ...................................................... 3,397,400 (670,700)
------------ ------------
Net cash provided by continuing operations ............................. 4,305,100 1,055,300
------------ ------------
Cash flow from investing activities:
Proceeds from dispositions of businesses ................................... -- 3,483,600
Acquisition of businesses, net of cash acquired ............................ (4,107,600) (3,069,600)
Expenditures for property and equipment .................................... (697,800) (714,300)
------------ ------------
Net cash used in investing activities .................................. (4,805,400) (300,300)
------------ ------------
Cash flow from financing activities:
Proceeds from borrowings ................................................... -- 73,000
Net payments on credit lines ............................................... (270,100) --
Purchase of treasury stock ................................................. (1,877,100) (2,030,900)
Repayments of borrowings ................................................... (1,805,800) (751,300)
------------ ------------
Net cash used in financing activities .................................. (3,953,000) (2,709,200)
------------ ------------
Net decrease in cash and cash equivalents .................................... (4,453,300) (1,954,200)
Cash and cash equivalents - beginning of period .............................. 12,847,600 15,583,800
------------ ------------
Cash and cash equivalents - end of period .................................... $ 8,394,300 $ 13,629,600
============ ============
</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 (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 September 30, 2000, and the
results of its operations and cash flows for the three and nine month
periods ended September 30, 2000 and 1999, respectively, have been
included. Operating results for the three and nine months ended
September 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 TBA Merchandising and Design, formerly 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 nine months ended September 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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<CAPTION>
SEPTEMBER 30, 1999
--------------------------------
THREE MONTHS NINE MONTHS
------------ -----------
<S> <C> <C>
Revenues ................................... . $17,650,800 $42,711,400
Gross Margin ................................ 6,128,100 14,908,400
Income from continuing operations ........... 916,500 1,378,000
Earnings per common share - basic
Income from continuing operations ........ $ 0.11 $ 0.16
Earnings per common share - diluted
Income from continuing operations ........ $ 0.11 $ 0.16
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic earning per share:
Income from continuing operations ......................... $ 612,900 $ 589,600 $ 907,700 $1,246,800
Weighted average common stock outstanding ................. 8,004,300 8,497,400 8,116,500 8,522,200
---------- ---------- ---------- ----------
Basic earnings per common stock ........................... $ 0.08 $ 0.07 $ 0.11 $ 0.15
========== ========== ========== ==========
Diluted earnings per common share:
Income from continuing operations ......................... $ 612,900 $ 589,600 $ 907,700 $1,246,800
---------- ---------- ---------- ----------
Weighted average common stock outstanding ................. 8,004,300 8,497,400 8,116,500 8,522,200
Additional common stock resulting from dilutive securities:
Preferred stock ......................................... 2,200 2,400 2,200 2,400
Shares issuable for stock options and warrants .......... 5,500 11,800 14,500 33,700
---------- ---------- ---------- ----------
Common stock and dilutive securities outstanding .......... 8,012,000 8,511,600 8,133,200 8,558,300
---------- ---------- ---------- ----------
Diluted earnings per common share ......................... $ 0.08 $ 0.07 $ 0.11 $ 0.15
========== ========== ========== ==========
</TABLE>
Options and warrants to purchase 3,114,000 and 2,034,000 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 nine months ended September 30, 1999
are as follows:
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<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
<S> <C> <C>
Revenues .................. $2,052,800 $7,231,000
Net income (loss).......... 12,200 (63,800)
</TABLE>
The following summary balance sheet data of Warner/TBA reflects the assets
and liabilities distributed to the Company on January 1, 2000.
<TABLE>
<S> <C>
Current assets........... $650,700
Non-current assets....... 155,900
Current liabilities...... 242,200
</TABLE>
5. STOCK REPURCHASE PROGRAM
The board of directors of the Company have authorized the repurchase, at
management's discretion, of up to 2,000,000 shares of the Company's common
stock until December 31, 2000. The Company's purchases of common stock are
recorded as treasury stock and result in a reduction of stockholders'
equity. Through December 31, 1999, the Company had repurchased 705,300
shares of common stock, of which 209,800 shares were cancelled. Repurchases
of common stock totaled $3,023,600 as of December 31, 1999.
For the three and nine month periods ended September 30, 2000, the Company
had repurchased a total of 179,700 and 463,200 shares of common stock,
respectively. Repurchases of common stock totaled $724,500 and $1,877,100
for the three and nine month periods ended September 30, 2000 respectively.
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 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"); TBA
Merchandising and Design, formerly 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 its operations in four major business segments. The
Company currently derives a majority of its revenues (58% and 68% for the
nine months ended September 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
(12% and 23% of total revenues for the nine months ended September 30, 2000 and
1999, respectively), artist management (4% and 5% of total revenues for the nine
months ended September 30, 2000 and 1999, respectively) and entertainment
marketing (25% and 3% of total revenues for the nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 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 $36,819,300, or 107%, to $71,290,400 in the 2000 period from
$34,471,100 in the 1999 period. Of the increase, $18,046,700 came from corporate
meeting and entertainment events. Although the number of corporate meeting and
entertainment events decreased to 315 in the period from 395 in the 1999 period,
the average revenue per event increased to $132,300 in the 2000 period from
$59,700 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 36 events with revenues in excess of $250,000
compared to 20 such events in the 1999 period.
Entertainment marketing revenues increased $17,110,700 to $17,971,800 for the
2000 period from $861,100 for the 1999 period, due primarily to the 2000
consolidation of Warner/TBA programs, which added approximately $9,061,800 of
revenues. In addition, the Company recognized revenues in the fairs and
festivals sector, resulting from the acquisitions of Romeo and EJD, which
contributed approximately $7,720,400 of revenues.
Event merchandising revenues increased $1,037,600 to $8,830,000 for the 2000
period from $7,792,400 for the 1999 period, due primarily to a full nine months
of merchandising activities from the acquisition of KGA, which occurred in March
1999. Artist management revenues increased $624,200 for the 2000 period over the
1999 period, resulting primarily from an increase in the Company's artist
roster due to the acquisition of Atkins.
Cost of revenues increased $27,927,200, or 126%, to $50,131,900 for the 2000
period from $22,204,700 for the 1999 period. Cost of revenues, as a percentage
of revenues, increased to 70% for the 2000 period from 64% for the 1999 period.
The increase in cost of sales is due primarily to the 2000 increase in
entertainment marketing activities through the consolidation of Warner/TBA
programs and the addition of fairs and festivals, both of which have overall
higher cost of sales than the Company's other lines of business. In addition,
the company also experienced higher costs of sales in its merchandising
activities, resulting from increased revenues in the premiums merchandise
business which have higher cost of sales then the event merchandise business.
Cost of sales in the Company's corporate communications and artist management
businesses remained relatively consistent between periods.
Selling, general and administrative expenses increased $7,974,200, or 88%, to
$17,044,800 for the 2000 period from $9,070,600 for the 1999 period. The
increase results primarily from increased personnel and related operating
expenses associated with the increased corporate meeting and entertainment
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 $707,600, or 54%, to $2,025,700
for the 2000 period from $1,318,100 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 $31,900. Revenues and operating expenses for Warner/TBA in
the 1999 period were $7,231,000 and $7,409,000, 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 $109,300 compared to net interest
income of $226,600 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 40% for
the 1999 period, which reflect statutory tax rates adjusted for estimated
book/tax differences. The 2000
10
<PAGE> 11
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 $339,100 to $907,700 for the
2000 period from $1,246,800 for the 1999 period due to the reasons described
above.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 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 $19,162,300, or 149%, to $32,020,500 in the 2000 quarter from
$12,858,200 in the 1999 quarter. Of the increase, $5,507,100 came from corporate
meeting and entertainment events. Although the number of corporate meeting and
entertainment events decreased to 98 in the 2000 quarter from 130 in the 1999
quarter, the average revenue per event increased to $144,900 in the 2000 quarter
from $66,600 in the 1999 quarter. The Company continues to aggressively pursue
larger corporate meeting and entertainment events with Fortune 1000 companies.
In the 2000 quarter, the company produced 19 events with revenues in excess of
$250,000 compared to 7 such events in the 1999 quarter.
Entertainment marketing revenues increased $13,577,400 to $13,914,300 for the
2000 quarter from $336,900 for the 1999 quarter, due primarily to the 2000
consolidation of the Warner/TBA programs, which added approximately $7,225,200
of revenues. In addition, the Company recognized revenues in the fairs and
festivals sector, resulting from the acquisitions of Romeo and EJD, which
contributed approximately $6,378,100 of revenues.
Event merchandising and artist management had revenue increases of $9,700 and
$60,200, respectively, for the 2000 quarter over the 1999 quarter. The Company
continues to search for additional merchandising programs to enhance revenue
growth in the event merchandising division. In addition, the Company continues
to attract new artists and new artist managers to continue the revenue growth in
the artist management division.
Cost of revenues increased $15,828,700, or 201%, to $23,688,400 for the 2000
quarter from $7,859,700 for the 1999 quarter. Cost of revenues, as a percentage
of revenues, increased to 74% for the 2000 quarter from 61% for the 1999
quarter. The increase in cost of sales is due primarily to the 2000 increase in
entertainment marketing activities through the consolidation of Warner/TBA
programs and the addition of fairs and festivals, both of which have overall
higher cost of sales than the Company's other lines of business. In addition,
the Company also experienced higher costs of sales in its merchandising
activities, resulting from increased revenues in the premiums merchandise
business which have higher cost of sales than the event merchandise business.
Selling, general and administrative expenses increased $2,751,500, or 78%, to
$6,284,500 for the 2000 quarter from $3,533,000 for the 1999 quarter. The
increase results primarily from increased personnel and related operating
expenses associated with the increased corporate meeting and entertainment
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.
Depreciation and amortization expense increased $240,200, or 52%, to $705,800
for the 2000 quarter from $465,600 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 $6,100. Revenues and operating expenses for Warner/TBA in
the 1999 quarter were $2,052,800 and $2,092,100, 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 $3,900 compared to net interest
expense of $10,900 for the 1999 quarter.
The provision for income taxes, as a percentage of income taxes from continuing
operations before income taxes, is 54% for the 2000 quarter compared to 41% 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 nondeductible amortization of goodwill from certain of
the Company's acquisitions.
Net income from continuing operations increased $23,300 to $612,900 for the 2000
quarter from $589,600 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 September 30, 2000, the Company had cash and cash equivalents of
$8,394,300 and working capital of $2,905,100, including $3,196,200 of short term
borrowings and the current portion of long-term debt. Cash provided by
continuing operations was $4,305,100 for the first nine months of 2000 compared
to cash provided by continuing operations of $1,055,300 for the first nine
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 nine months of 2000 was
$4,805,400, resulting primarily from cash used for the Romeo and EJD
acquisitions and expenditures for property and equipment. Cash used in investing
activities for the first nine months of 1999 was $300,300, 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 nine months of 2000 was
$3,953,000, resulting primarily from the repayment of borrowings and the
purchase of treasury stock. Cash used in financing activities for the first nine
months of 1999 was $2,709,200, 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 common stock of the
Company 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.
12
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of TBA Entertainment Corporation was
held on August 8, 2000. The stockholders approved the following proposals:
1. To elect eight directors to serve until the next annual meeting of
stockholders and until their respective successors shall have been duly
elected and qualified.
<TABLE>
<CAPTION>
Director For Withheld
-------- --- -------
<S> <C> <C>
Frank Bumstead 6,350,756 613,550
Charles Flood 6,350,756 613,550
Joseph C. Galante 6,350,756 613,550
W. Reid Sanders 6,350,756 613,550
S. Herbert Rhea 6,349,756 614,550
Frank McKinnie Weaver 6,350,756 613,550
Thomas J. Weaver, III 6,350,756 613,550
Kyle Young 6,350,756 613,550
</TABLE>
1. To approve the TBA Entertainment Corporation 2000 Stock Option Plan.
<TABLE>
<CAPTION>
For Against Abstain
-------- ------- -------
<S> <C> <C>
6,223,640 725,841 14,825
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <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>
14
<PAGE> 15
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
--------- -----------------------
<S> <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>
----------
* 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.
15
<PAGE> 16
(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.
(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.
16
<PAGE> 17
(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.
(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 September 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
14th day of November, 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
