Tickets Com 10Q 2001 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

or


[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From .

Commission File Number 000-21949

TICKETS.COM, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		06-1424841
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

555 Anton Boulevard, 11th Floor, Costa Mesa, California 92626
(Address of principal executive offices)

(714) 327-5400
Registrant’s Telephone Number, Including Area Code

Indicate by check mark 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, 2001 there were approximately 7,435,334 shares of the Registrant’s Common Stock, par value $.000225 per share, outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements.
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risks
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use Of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Forms 8-K
SIGNATURES
EXHIBIT 3.1

TICKETS.COM, INC.

FORM 10-Q

TABLE OF CONTENTS


Item		Description	Page No.





PART I

Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000	3
		Condensed Consolidated Statements of Operations (unaudited) — Three Months and Nine Months Ended September 30, 2001 and 2000	4
		Condensed Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended September 30, 2001 and 2000	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28

PART II

Item 1.	Legal Proceedings		29
Item 2.	Changes in Securities and Use of Proceeds		31
Item 3.	Defaults Upon Senior Securities		32
Item 4.	Submission of Matters to a Vote of Security Holders		32
Item 5.	Other Information		32
Item 6.	Exhibits and Reports on Form 8-K		32

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

TICKETS.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

A S S E T S


				September 30,			December 31,
				2001			2000

				(Unaudited)
Current assets:
	Cash and cash equivalents			$	17,906		$	20,026
	Restricted cash				1,975			100
	Accounts receivable, net of allowances of $2,663 and $1,996, respectively				14,124			11,021
	Prepaid expenses and other current assets				9,988			19,904

		Total current assets			43,993			51,051
Property and equipment, net					14,103			16,920
Goodwill and intangible assets, net					42,494			48,604
Other assets					2,878			14,841

				$	103,468		$	131,416


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
	Accounts payable			$	15,672		$	11,713
	Accrued liabilities				8,047			8,970
	Current portion of long-term debt and capital lease obligations				1,583			2,634
	Deferred revenue and other current liabilities				4,259			2,758

		Total current liabilities			29,561			26,075
Long-term debt and capital lease obligations, net of current portion					317			1,406
Other liabilities					953			1,589

			Total liabilities		30,831			29,070
Minority interest					183			327
Series F Senior Cumulative Redeemable Convertible Preferred Stock, $.000225 par value; 28,333 shares authorized, 28,333 shares issued and outstanding in 2001 and none in 2000, liquidation preference: $17,315					16,789			—
Stockholders’ equity:
	Common stock, $.000225 par value; 225,000 shares authorized; 7,435 and 7,410 shares issued and outstanding, respectively				2			2
	Additional paid-in capital				323,056			323,047
	Accumulated deficit				(267,249	)		(220,856	)
	Accumulated other comprehensive loss				(144	)		(174	)

		Total stockholders’ equity			55,665			102,019

				$	103,468		$	131,416

The accompanying notes are an integral part of these condensed consolidated financial statements.

TICKETS.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

(Unaudited)


				Three Months Ended						Nine Months Ended
				Septembers 30						September 30

				2001			2000			2001			2000

Revenue				$	14,711		$	14,545		$	46,840		$	43,376
Cost of services					7,311			9,153			26,015			29,242

		Gross profit			7,400			5,392			20,825			14,134
Operating expenses:
	Sales and marketing				4,149			7,327			14,896			30,314
	Technology development				2,443			3,049			6,645			11,636
	General and administrative				7,716			8,245			23,383			22,434
	Amortization of goodwill and intangibles				2,358			2,542			7,080			7,441
	Impairment of assets				2,519			—			17,952			—
	Restructuring charge				(2,669	)		—			(2,669	)		35,124
	Abandoned acquisition costs				—			—			—			995

		��	Total operating expenses		16,516			21,163			67,287			107,944

Loss from operations					(9,116	)		(15,771	)		(46,462	)		(93,810	)
Other income (expense):
	Other income (expense)				113			430			312			2,084
	Minority interest				144			(33	)		144			(67	)

			Total other income (expense), net		257			397			456			2,017

Loss before provision for income taxes					(8,859	)		(15,374	)		(46,006	)		(91,793	)
	Provision for income taxes				30			—			72			110

Net loss					(8,889	)		(15,374	)		(46,078	)		(91,903	)
Preferred dividends					(315	)		—			(315	)		—

Net loss available to common stockholders				$	(9,204	)	$	(15,374	)	$	(46,393	)	$	(91,903	)

Loss per share — basic and diluted:
		Net loss available to common stockholders		$	(1.24	)	$	(2.08	)	$	(6.25	)	$	(12.59	)

		Weighted average common shares outstanding — basic and diluted			7,425			7,393			7,421			7,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

TICKETS.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)


			Nine Months Ended
			September 30

			2001			2000

Cash Flows From Operating Activities:
Net loss			$	(46,078	)	$	(91,903	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Impairment of assets			17,952			—
	Restructuring charge			(2,669	)		35,124
	Depreciation			5,950			4,328
	Amortization of goodwill and intangibles			7,080			7,441
	Provision for uncollectible receivables			1,700			538
	Noncash expense			2,248			3,982
	Minority interest			(144	)		67
Changes in Operating Assets and Liabilities:
	Accounts receivable			(4,803	)		(4,168	)
	Prepaid expenses and other assets			622			(2,424	)
	Accounts payable			3,958			(3,416	)
	Accrued liabilities			1,746			1,964
	Deferred revenue and other liabilities			1,084			(1,432	)

		Net cash used in operating activities		(11,354	)		(49,899	)

Cash Flows From Investing Activities:
	Purchases of property and equipment			(3,134	)		(4,960	)
	Equity investment in strategic partners			—			(1,500	)
	Acquisitions, net of cash acquired			—			(1,429	)
	Change in restricted cash			—			(7	)

		Net cash used in investing activities		(3,134	)		(7,896	)

Cash Flows From Financing Activities:
	Proceeds from issuance of Series F Senior Cumulative Redeemable Convertible Preferred Stock, net of issuance costs of $526			16,474			—
	Principal payments on long-term debt			(2,140	)		(1,940	)
	Proceeds from exercise of stock options			9			2,872

		Net cash provided by financing activities		14,343			932

Net decrease in cash and cash equivalents				(145	)		(56,863	)
Cash and cash equivalents, beginning of period				20,026			94,173

Cash and cash equivalents, end of period			$	19,881		$	37,310

Supplemental Disclosures of Cash Flow Information:
	Interest paid		$	61		$	260

	Income tax paid		$	60		$	—

Supplemental Disclosure of Non-cash Financing Activities:

The Company will satisfy its preferred dividend requirements by either the issuance of common stock or cash. Such accrued dividend requirements totaled approximately $315,000 from the date of issuance of the preferred stock through September 30, 2001.

The accompanying notes are an integral part of these condensed consolidated financial statements.

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

1. Description of Business

Tickets.com, Inc. and its wholly-owned subsidiaries Bay Area Seating Service, Inc. (“BASS”), ProTix, Inc. (“ProTix”), TicketsLive Corporation (“TicketsLive”), dataCulture, Ltd. (“dataCulture”) and Lasergate Systems, Inc. (“Lasergate”), collectively (the “Company”, “Tickets.com”, “we”, “us” or “our”), is a leading business-to-business ticketing solutions provider for live events. We facilitate the sale of tickets by enabling venues and entertainment organizations with proprietary and progressive software, call centers, interactive voice response systems and retail outlets. We build private label ticketing gateways to enable live entertainment organizations with an e-commerce distribution platform. Our automated ticketing solution is used by thousands of entertainment organizations such as leading performing arts centers, professional sports organizations and various stadiums and arenas in the U.S., Canada, Europe, Australia and Latin America.

2. Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of September 30, 2001 and December 31, 2000, the condensed consolidated statements of operations for the three months and nine months ended September 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they have been condensed and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results of operations for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes in our annual report on Form 10-K/A for the year ended December 31, 2000.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Loss

Differences between our net loss as reported and comprehensive loss are related to foreign currency translation.

Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash

We have $2.0 million as compensating balances at various banks. All compensating balances expire within 120 days, except for the requirement to renew $1.0 million every 90 days with our primary banking institution.

Property and Equipment

Property and equipment is stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of three to five years or, for leasehold improvements, over the term of the

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

lease if shorter. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed and any gain or loss is reflected in results of operations.

Goodwill and Intangible Assets

Intangible assets consist primarily of the portion of the purchase price of businesses acquired allocated to existing technology, customer relationships, tradenames, assembled workforce, and noncompete agreements. Goodwill represents the excess of cost over the fair value of net identified assets acquired in business combinations accounted for under the purchase method.

Impairment of Assets

We assess the recoverability of our assets on an annual basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, impairment is recognized to reduce the carrying value of the assets to the estimated fair value. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. Additionally, in conjunction with the review for impairment, the remaining estimated lives of certain assets are assessed. (See Note 5.)

Revenue Recognition

We primarily generate revenue from per ticket service fees charged directly to consumers who order tickets through our web site, call centers, interactive voice response or retail outlets, net of revenue sharing agreements. In addition, we charge a handling fee to consumers for all tickets sold by us, other than through retail outlets. We recognize service fee and handling fee revenue from ticket sales at the time the sale is made.

Additionally, we generate revenue from license and support fees charged to licensees of our in-house systems products. Revenue is recognized on sales contracts when the following conditions are met: a signed contract is obtained, delivery has occurred, the total sales price is fixed and determinable, collectibility is probable, and any uncertainties with regard to customer acceptance are resolved. Deferred revenue consists primarily of deferred software license revenue related to the license of our software, and related fees under maintenance and support contracts. Deferred maintenance and support revenue is recognized as it is earned, over the term of the related agreement.

Revenues and expenses from transactions involving the exchange of services for non-cash consideration are valued at the fair market value based on the amount that would be charged on a cash basis and by comparing such amounts to what other third parties pay for such services. Revenues and expenses from these transactions are recognized in accordance with the established guidelines related to the type of the underlying revenue or expense.

We additionally generated ticketing services revenues through the auction of venues’ and performers’ tickets on our web site. Under those types of arrangements, we generally purchased, at face value, any unsold tickets that were allocated for auction on our web site. If we were unable to sell these tickets, or sell them at less than face value, losses were incurred on the tickets purchased. The gross value of the sale of these tickets was recorded as revenues. The amount paid for the tickets, amounts paid to performers venues or charities, and the costs of delivering the tickets to the consumers were recognized as cost of services. Pursuant to current ticket auction contracts with certain entertainers, certain amounts collected above the face value were donated to a charity of the performer’s choice, the amounts donated are also included as cost of services. As of May 2000, we no longer provided auction services.

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

Cost of Services

Cost of services includes expenses related to the distribution and delivery of tickets. These expenses include primarily payroll related to call centers and distribution personnel, telecommunications, data communications, and commissions paid on tickets distributed through retail outlets.

Additionally, cost of services includes costs related to the installation and support of our in-house systems mainly consisting of payroll and travel services related costs, the cost of hardware and software that we resell to our licensees.

Income Taxes

We apply the asset and liability method in recording income taxes, under which deferred income tax assets and liabilities are determined, based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Additionally, deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.

Net Loss Per Share

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or result in the issuance of common stock that would then share in our earnings. Potentially dilutive securities are excluded from the calculation of diluted loss per share since their inclusion would be antidilutive.

Reclassifications

Certain reclassifications have been made in the 2000 statements to conform to the 2001 presentation.

4. Reverse Stock Split

On July 11, 2001, our stockholders approved a one-for-eight reverse stock split effective July 23, 2001. All references in the accompanying condensed consolidated financial statements to the number of common shares and warrants and options to purchase common shares and per share data have been restated to reflect the effect of this action. Our convertible preferred stock was not subject to the split, however the conversion rate to common of the preferred shares gives effect to the one-for-eight reverse stock split.

5. Impairment of Assets

In the first quarter of 2001, we recorded a charge of $15.4 million for the impairment of various assets. This charge consisted primarily of the write-down of investments that are no longer core to our business. Management had determined the online marketing asset with Excite@Home would not be fully realized and was partially written down by $13.9 million. Additionally, we wrote-off our strategic investment in two Internet based companies for $1.5 million. This resulted in a decrease of current assets of $7.5 million and other long-term assets of $7.9 million in the first quarter of 2001. In the third quarter of 2001, we recorded an additional charge of $2.5 million for the impairment of the remaining asset with Excite@Home which is not expected to be realized due to the fact that Excite@Home filed bankruptcy during the third quarter. This additional charge resulted in a decrease of current assets of $2.5 million.

6. Restructuring Charge

On June 5, 2000, the board of directors approved a restructuring plan to be executed over 15 months. The plan redirected our business strategy, requiring a focus on our core ticketing business. This focus entailed taking advantage of the efficiencies of the Internet while emphasizing the relationship with our clients rather than with consumers. This was partially accomplished through an emphasis on the clients’ web site ahead of our own. This

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

strategy was an exit from our original Internet ticketing portal strategy. The portal strategy relied on high cost branding efforts to drive high volume traffic to our www.tickets.com web site which would in turn support other Internet related revenues such as web advertising, travel and merchandise sales. In addition, our software operations focused on consolidating software code lines. Achieving our goals required continued integration of all previous acquisitions, a reduction in workforce and a consolidation of offices including telephone sales centers.

In connection with this new strategy, we recorded restructuring charges of $35.1 million in the second quarter of 2000. The restructuring charges were comprised of $30.7 million related to the write-off of certain intangible assets, $2.8 million related to the consolidation of facilities, $1.2 million of involuntary termination benefits and $0.4 million related to the termination of existing contracts. The write-off of certain intangible assets represented a noncash impairment charge of long-lived assets relating to the acquisitions of CA Tickets.com, Inc. and Lasergate Systems, Inc. We assessed the anticipated future cash flows and determined that certain of the intangible assets resulting from the acquisitions of CA Tickets.com, Inc. and Lasergate Systems, Inc. were impaired due to the change in business strategy. Accordingly, we reduced the carrying value of the related long-lived assets to their estimated fair value, determined based upon a discounted cash flow method. We also reviewed the estimated lives of certain long-lived assets which resulted in shortened lives and the acceleration of amortization expense for certain intangible assets. The remaining carrying value of goodwill related to CA Tickets.com, Inc. and Lasergate Systems, Inc. will be amortized over a three year period.

As a result of the restructuring, the actual total cost was $32.4 million, which resulted in an over accrual of restructuring costs of $2.5 million related to the consolidation of facilities and $0.2 million related to involuntary termination benefits. The total over accrual of $2.7 million was reversed in the third quarter ended September 30, 2001.

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

7. Business Segment Reporting

The operating segments below reflect the segmentation of the business under which management evaluates financial data to make operating decisions and assess performance. We are organized into four reportable operating segments: Ticketing Services Group (“TSG”), Internet Ticketing Group (“ITG”), International Group, and Other. TSG focuses on delivering outsourcing solutions. ITG focuses on providing online ticketing solutions to its domestic clients. The International Group focuses on providing online ticketing solutions to its international clients. Segment performance measurement is based on operating income before other corporate expenses, amortization of intangibles, asset impairments, interest income and expense and income taxes. Other corporate expenses principally consist of unallocated administrative support and technology functions. There have been no inter-segment sales. Assets are not allocated to specific products and accordingly cannot be reported by segment. The business segment information for the prior periods has been restated to reflect the change in business strategy in 2000.


			Three Months Ended						Nine Months Ended
			September 30						September 30

			2001			2000			2001			2000

			(Unaudited)						(Unaudited)
			(In thousands)						(In thousands)
Revenue:
	TSG		$	7,788		$	8,064		$	27,193		$	25,324
	ITG			4,924			4,371			14,199			11,198
	International			1,521			1,753			4,239			4,958
	Other			478			357			1,209			1,896

		Total revenue		14,711			14,545			46,840			43,376

Gross profit:
	TSG			2,863			1,926			9,937			5,010
	ITG			3,161			2,290			7,324			5,026
	International			898			927			2,493			2,691
	Other			478			249			1,071			1,407

		Total gross profit		7,400			5,392			20,825			14,134

Operating income/(loss):
	TSG			(551	)		(2,997	)		(1,619	)		(10,277	)
	ITG			812			(126	)		(1,283	)		(556	)
	International			115			136			90			(2,087	)
	Other			461			(2,341	)		(1,734	)		(14,681	)

		Total segment operating income (loss)		837			(5,328	)		(4,546	)		(27,601	)
Other operating expenses, unallocated:
	Administrative support and technology functions			7,826			7,504			19,789			20,742
	Amortization of intangibles			2,050			2,542			6,460			7,441
	Impairment of assets			2,519			—			17,952			—
	Restructuring charge			(2,669	)		—			(2,669	)		35,124
	Abandoned acquisition costs			—			—			—			995

Net Loss			$	(8,889	)	$	(15,374	)	$	(46,078	)	$	(91,903	)

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

8. Litigation

On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a lawsuit against us in the United States District Court for the Central District of California,TICKETMASTER CORPORATION, an Illinois corporation, and TICKETMASTER ONLINE-CITYSEARCH, INC., A Delaware corporation, vs. Tickets.com, Inc. a Delaware corporation,and related cross-action, case number 99-07654WDK, seeking unspecified damages and a court order to prohibit us from, among other things, linking Internet consumers to internal pages within Ticketmaster’s web site and using the Ticketmaster name on our web site. In addition, the suit alleges that we engaged in other wrongful acts, such as providing false and misleading information on our web site regarding the availability of tickets and related information on the Ticketmaster web site, and taking copyrighted information from the Ticketmaster web site for use on our web site. The suit originally sought (i) an injunction to prohibit us from further engaging in any alleged unlawful activity, (ii) treble damages, (iii) attorneys’ fees and other unspecified damages. On September 15, 1999 we filed a motion to dismiss the lawsuit. A hearing on the motion to dismiss had been scheduled for January 2000. On January 7, 2000, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a First Amended Complaint, which modified their previous allegations and added two claims for unfair competition and alleged violations of the Lanham Act.

We filed a motion to dismiss the Amended Complaint and on March 27, 2000, the Court dismissed four (4) of the six (6) claims in the Amended Complaint. Ticketmaster Corporation and Ticketmaster Online-CitySearch also filed a Motion for Preliminary Injunction seeking an order precluding us from, among other things, providing links to certain pages within the Ticketmaster web site. On August 10, 2000, the Court denied this motion.

In May 2000, we filed a counterclaim against Ticketmaster Corporation and Ticketmaster Online-CitySearch alleging that they have engaged in certain acts and practices that are an unlawful restraint of trade, unlawful monopolization and attempted monopolization in violation of Federal and state antitrust laws and violation of state unfair competition law and interference with economic advantage. Our claim seeks treble damages, punitive damages and declaratory and injunctive relief. Ticketmaster and Ticketmaster Online have filed a motion to dismiss our counterclaim, and on September 25, 2000 the Court denied this motion.

On April 26, 2001 the United States District Court, Central District of California, Western Division, issued an order establishing the appropriate framework within which to conduct discovery, which includes the dates of April 1, 2002 for the completion of non-expert discovery. Discovery, including interrogatories, document production and depositions are ongoing as of this date. The court has also tentatively set the trial date for this matter for January 2, 2003.

On July 10, 2001, Tickets.com and certain of its current and former directors and officers were named as defendants in a class action lawsuit pending in the federal district court in the Southern District of New York, WILLIAM BRANCH, et al, vs. MORGAN STANLEY DEAN WITTER, CREDIT SUISSE FIRST BOSTON CORP., S.G. COWEN SECURITIES CORP., et. al., Docket Number L-3624-01. Tickets.com has also been named in six other, similar cases also pending in the federal district court in the Southern District of New York. The complaints allege that our underwriters engaged in unlawful stock allocation and commission practices concerning our initial public offering, including alleged tie-in arrangements with their customers. The complaints also allege that the prospectus and registration statement in our initial public offering contained materially false and misleading statements related to underwriting fees, commissions and other economic benefits arising from the alleged underwriter activities. The complaints allege causes of action under Sections 11, 12(2) and 15 of the Securities Act of 1933, as well as Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934. Similar cases have been filed against a number of other companies and their underwriters. There has been minimal activity in these cases to date, limited primarily to procedural issues focusing on the plaintiff and certification of a plaintiff class to prosecute the claim of similarly situated plaintiffs on a consolidated basis.

On September 17, 2001, Tickets.com was served with a complaint, NAPVENTURE PARTNERS LLC; PROMOWEST PRODUCTIONS, INC., VS. TICKETS.COM, INC.The suit seeks damages in an unspecified

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

amount and asserts six causes of action for: (i) breach of written contract, (ii) breach of the implied covenant of good faith and fair dealing, (iii) violation of the California Unfair Competition Act and (iv) violation of Section 17200, Et Seq., of the California Business and Professions Code. This case arises out of a prior agreement between Tickets.com and the plaintiff providing for, among other things, Tickets.com to make an investment in the plaintiff, which was engaged in the development and construction of a new venue complex in Ohio, and a ticketing services agreement providing for us to provide ticketing services to the venue once completed. All investments to be made by Tickets.com were tied to certain construction milestones, to ensure that progress of the development was continuing. Following our first scheduled payment of the investment, the plaintiff returned all sums previously paid and sought to cancel the agreement, which we refused. This suit followed seeking, among other things, cancellation of the agreement. The case is currently in the process of being transferred from Los Angeles to Orange County Superior Court. Discovery has just begun in this matter.

On July 2, 2001, Tickets.com, and certain of its officers and directors and investors were served with a complaint,R4 HOLDINGS VS. TICKETS.COM.The complaint alleged causes of action against us and the other defendants based on (i) fraudulent misrepresentation and fraudulent inducement, (ii) breach of contract, (iii) breach of fiduciary duty, and (iv) civil conspiracy. The complaint asserted that the causes of action arose out of certain stockholder agreements between the plaintiff and us and the other defendants prior to the our initial public offering. Following initial investigation and prior to us filing an answer to this matter, the plaintiffs voluntarily dismissed the action on October 2, 2001.

On November 7, 2001, Tickets.com, certain of its officers and directors and investors, were served with a complaint,R4 HOLDINGS and HILL INTERNATIONAL VS. TICKETS.COM, ET AL.The factual basis of this action is essentially the same as the action that the plaintiff voluntarily dismissed on October 2, 2001, however the plaintiff has pleaded the current action under general “common law” causes of action: (i) tortious interference with contract; (ii) breach of contract; (iii) breach of implied covenant of good faith and fair dealing; (iv) fraudulent misrepresentation and fraudulent inducement; (v) breach of fiduciary duty; (vi) tortious interference of economic advantage; (vii) civil conspiracy. Factually, the complaint alleges that plaintiffs are the founding shareholders of the company that eventually evolved into Tickets.com, Inc. The complaint further alleges that pursuant to the plaintiffs’ investment in Tickets.com, they were parties to a stockholder agreement and an investors’ rights agreement with Tickets.com, which, among other things, entitled the plaintiffs to appoint two members to our Board of Directors.

The complaint also states that in contemplation of our planned initial public offering of the common stock, and by virtue of the investors’ rights agreement, the plaintiffs were required to execute lock-up agreements wherein the plaintiffs agreed to refrain from trading their shares in Tickets.com for a period of one hundred and eighty (180) days following the date of our initial public offering. The complaint alleges that due to certain actions of the Board, which constituted a breach of the underlying stockholder’s agreement, the plaintiffs were no longer bound by the terms of the lock-up agreement. The complaint alleges that the members of the Board conspired against the plaintiffs by doing certain acts, which culminated in the negation of the plaintiff’s rights to appoint members to the Board of Directors as well as their ability to sell their shares of stock in Tickets.com at the time of our initial public offering.

The underlying facts of this case were initially disclosed in the “risk factors” section of our registration statement as filed with the Securities and Exchange Commission.

During the initial stages of the first action brought by the plaintiffs, we retained counsel to provide us and the named officers and directors a defense. We will continue to employ such counsel in the instant matter. As of this date, no motions or responsive pleadings have been filed in this matter.

We also tendered the prior matter to our insurance carriers for coverage of defense costs and other potential claims asserted by the plaintiffs. The plaintiff voluntarily dismissed the first matter before our carriers issued any opinion regarding coverage. We intend to submit the current matter to our carriers for a position on coverage for defense costs and other potential claims.

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

We have not recorded a provision for these matters in our financial statements.

9. Non-Monetary Agreement

In December 1999, we entered into an agreement with the Salt Lake Organizing Committee (“SLOC”) to be the Official Ticketing Services Supplier for the 2002 Olympic and Paralympic Winter Games (“Games”). Under the terms of the agreement, we are the exclusive provider of ticketing services for the Games, including Internet, mail and telephone orders as well as the operation of the local and regional ticket retail outlets.

We reached an agreement with SLOC that the ticketing services to be delivered by us are based on a fixed price contract, consisting of cash payments for $3.4 million and the consideration for the marketing rights to advertise as an official supplier of the Games. The estimated market value of this agreement is $6.5 million. The non-cash portion of this agreement represents a barter agreement. We recorded revenue of $0.3 million for the three months and $1.7 million for the nine months ended September 30, 2001 and recognized non-cash advertising expense of $0.2 million and $0.5 million relating to the barter portion of this transaction for the three and nine months ended September 30, 2001, respectively.

10. Equity

On June 23, 2001, we sold 10,833,333 shares of our Series F Cumulative Redeemable Preferred Stock (“Preferred Stock”) at a price per share of $0.60 for an aggregate purchase price of $6.5 million less direct issuance costs of $0.4 million. On August 1, 2001, we sold 17,500,000 shares of Preferred Stock at a price per share of $0.60 for an aggregate purchase price of $10.5 million less direct issuance costs of $0.2 million.

The Preferred Stock ranks senior to our Common Stock. If we pay cash dividends on our Common Stock, then the holders of Preferred Stock (“Preferred Holders”) will be entitled to share in such dividends on a pro rata basis as if their shares of Preferred Stock had been converted into Common Stock. In addition, the Preferred Holders will be paid cumulative dividends at an annual rate of (i) nine percent per annum of the Accreted Value (as defined below), over (ii) any cash dividends paid to the Preferred Holders in accordance with the immediately preceding sentence. Such dividends accrue and compound quarterly whether or not declared by our Board of Directors, and will be added to the Accreted Value on each such quarterly date. “Accreted Value” means $0.60 plus the amount of any dividends added thereto.

Each share of Preferred Stock is convertible at the option of the Preferred Holders into shares of Common Stock at the conversion ratio equal to (i) the Accreted Value (plus any accrued and unpaid dividends) divided by (ii) $0.60, subject to adjustment as provided under the antidilution adjustments described below (the “Conversion Price”). Initially, each share of Preferred Stock was convertible into one share of Common Stock. However, as a result of our recent 1-for-8 reverse stock split, each eight shares of Preferred Stock are now convertible into one share of Common Stock. As of September 30, 2001, we have accrued preferred dividends in the amount of $315,000.

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2001
(Unaudited)

11. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 “Business Combinations” which addresses financial accounting and reporting for business combinations and supersedes Accounting Principles Board (“APB”) No. 16, “Business Combinations”, and SFAS No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises”. SFAS No. 141 requires that all business combinations and acquisitions be accounted for based on fair value of assets exchanged under the purchase method, separate recognition of intangible assets apart from goodwill when these assets meet certain criteria and additional disclosure of the primary reasons for a business combination and the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet captions. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. We have adopted the provisions of SFAS No. 141 as of July 1, 2001.

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, “Intangible Assets”. Under the provisions of SFAS No. 142, acquired goodwill and other intangible assets will be aggregated with a company’s existing operating units and evaluated for impairment. These assets will be tested for impairment at least annually using a two-step process that begins with an estimation of the fair value of the reporting unit. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. SFAS No. 142 also requires additional disclosures of information related to the changes in carrying amounts of goodwill and other intangible assets from period to period in the aggregate by reportable segment and asset class for those assets subject to amortization and for those not subject to amortization. It also requires that the estimated intangible asset amortization expense for the next five years be disclosed. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001 with early application permitted for entities with fiscal years beginning after March 15, 2001. SFAS No. 142 is required to be applied at the beginning of an entity’s fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise as a result of the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principle. SFAS No. 142 further requires that all goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to its non-amortization and amortization provisions. Our management continues to evaluate the potential effects SFAS No. 142 may have on future earnings and as such will adopt SFAS No. 142 for our fiscal year beginning January 1, 2002.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 (with earlier application being encouraged). We do not expect the adoption of SFAS 143 to have a material impact on our financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in that Opinion). The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, with early application encouraged and generally are to be applied prospectively. We do not expect the adoption of SFAS 144 to have a material impact on our financial condition or results of operations.


*Item 2.*	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

This Quarterly Report on Form 10-Q, including information incorporated herein by reference, contains “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. These forward-looking statements include risks and uncertainties and relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. Although we believe that such forward-looking statements are reasonable, it cannot assure you that such expectations will prove to be correct. Important language regarding factors that could cause actual results to differ materially from such expectations is disclosed herein. All forward-looking statements are expressly qualified in their entirety by such language. We do not undertake any obligation to update any forward-looking statements. You are also urged to carefully review and consider the various disclosures made that describe certain factors that affect our business, including the risk factors that follow.

Overview

We are a leading business-to-business ticketing solutions provider for live events. We facilitate the sale of tickets by enabling venues and entertainment organizations with proprietary and progressive software, through an integrated distribution network that includes the Internet, call centers, interactive voice response systems and retail outlets. We build private label ticketing gateways to enable live entertainment organizations with an e-commerce distribution platform. Our automated ticketing solution is used by thousands of entertainment organizations such as leading performing arts centers, professional sports organizations and various stadiums and arenas in the U.S., Canada, Europe, Australia and Latin America.

Three Months Ended September 30, 2001 Compared to the Three Months Ended September 30, 2000

Revenues

Ticketing Services Group. Revenues from TSG decreased 3.7% to $7.8 million for the three months ended September 30, 2001 from $8.1 million for the three months ended September 30, 2000. The decrease for the quarter was directly related to the tragic events of September 11, 2001. Revenues during the last three weeks of the quarter were significantly reduced as many events were postponed (25) and cancelled (30). Additionally, the general rate of ticket sales was down over 45% during this three-week period.

Internet Ticketing Group. Revenues from ITG increased 11.4% to $4.9 million for the three months ended September 30, 2001 from $4.4 million for the three months ended September 30, 2000. The increased revenue was a result of our contract with Major League Baseball Advanced Media, LP, entered into in June 2000. With this contract, we had an increased number of teams and higher ticket volume sold via the Internet relative to the same quarter last year. Additionally, we had more enabled software licensees and new clients added subsequent to September 30, 2000. Included in ITG’s revenue for the three months ended September 30, 2001 was $0.3 million relating to the non-monetary portion of the SLOC agreement.

International.International revenues decreased 16.7% to $1.5 million for the three months ended September 30, 2001 from $1.8 million for the three months ended September 30, 2000. The decrease reflects a reduction in software license fee revenue and third party hardware sales revenue. Software license fee revenue has decreased due to the change in market conditions in the United Kingdom, resulting from the reduction in Government funding for cultural events. The decrease in hardware sales is directly related to the decrease in software license fee revenue. We believe that with the introduction of our new Windows based product, we should be able to compete more effectively in the United Kingdom market.

Cost of Services

Ticketing Services Group. Cost of services for TSG decreased 19.8% to $4.9 million for the three months ended September 30, 2001 from $6.1 million for the three months ended September 30, 2000. As a percentage of TSG revenues, total cost of services for TSG decreased to 63.2% from 76.1%. The decrease was mainly attributable to successful implementation of cost reduction plans to contain our telecommunication and call center expenses. We believe the cost of services as a percentage of revenue will continue to decrease from the prior year due to our

continued cost reduction efforts to contain telecommunication costs and increased efficiency in our call center operations.

Internet Ticketing Group. Cost of services for ITG decreased 14.3% to $1.8 million for the three months ended September 30, 2001 from $2.1 million for the three months ended September 30, 2000. As a percentage of ITG revenue, cost of services decreased to 35.8% from 47.6%. The decrease is a result of our continued efforts in streamlining processes and the reduction of duplication stemming from the subsidiaries we acquired in prior years.

International.Cost of services for International decreased 25% to $0.6 million for the three months ended September 30, 2001 from $0.8 million for the three months ended September 30, 2000. As a percentage of International revenue, cost of services decreased to 41.0% from 47.1%. The decrease is a result of our efforts to streamline our operations and cost cutting efforts.

Operating Expenses

Sales and Marketing. Sales and marketing expenses decreased 43.8% to $4.1 million for the three months ended September 30, 2001 from $7.3 million for the three month ended September 30, 2000. As a percentage of total revenues, sales and marketing expenses decreased to 28.2% from 50.4%. The decrease reflects the elimination of the periodic expense related to the asset impairment for our online marketing relationship with Excite@Home, which occurred in the first and third quarters of 2001. The decrease is also attributable to the decline in professional services, reflecting the issuance of warrants to performers in the prior year as well as termination of our relationship with an advertising agency in the year ended December 31, 2000. In addition, a decrease in advertising expenses as we continue to focus our efforts on our clients instead of building our brand also contributed to this reduction.

Technology Development. Technology development expenses decreased 20.0% to $2.4 million for the three months ended September 30, 2001 from $3.0 million for the three months ended September 30, 2000. As a percentage of total revenues, technology development expenses decreased to 16.6% from 21.0%. This decrease was related to a reduction of duplicated efforts stemming from the subsidiaries we acquired in prior years. The decrease reflects our efforts to consolidate software code lines, resulting in reduced costs to support fewer software products. As we continue our efforts to improve and expand our core ticketing system, we expect a greater stabilization of our expenses and additional benefits from consolidation to reduce our development efforts to a support function for a single ticketing system.

General and Administrative. General and administrative expenses decreased 6.1% to $7.7 million for the three months ended September 30, 2001 from $8.2 million for the three months ended September 30, 2000. As a percentage of total revenue, general and administrative expenses decreased to 52.5% from 56.7%. We anticipate general and administrative expenses will continue to decline as we integrate operations of our acquired subsidiaries, including consolidation of administration functions and reduction in office space. We should also see a continued decline in general and administrative expenses as a result a contingent fee agreement with our legal counsel in the Ticketmaster action to mitigate further expenditure on legal fees.

Restructuring Charge. A restructuring charge of $35.1 million was recorded in the three months ended June 30, 2000 as a result of our board of directors approving a restructure plan to be executed over a 15 month period. The plan redirected our business strategy, requiring a focus on our core ticketing business. This focus entailed taking advantage of the efficiencies of the Internet while emphasizing the relationship with our clients rather than with consumers. This was partially accomplished through an emphasis on the clients’ web site ahead of our own. This strategy was an exit from our original Internet ticketing portal strategy. The portal strategy relied on high cost branding efforts to drive high volume traffic to our www.tickets.com web site which would in turn support other Internet related revenues such as web advertising, travel and merchandise sales. In addition, our software operations focused on consolidating the software code lines. Achieving our goals required an integration of all previous acquisitions, a reduction in workforce and a consolidation of offices including telephone sales centers. As a result of the restructuring, the actual total cost was $32.4 million, which resulted in an over accrual of restructuring costs of $2.5 million related to the consolidation of facilities and $0.2 million related to involuntary termination benefits. The total over accrual of $2.7 million was reversed in the third quarter ended September 30, 2001.

Impairment of Assets.In the third quarter of 2001, we recorded an additional charge of $2.5 million for the impairment of the remaining asset with Excite@Home which is not expected to be realized due to the fact that Excite@Home filed for bankruptcy during the third quarter.

Other Income (Expense)

Other Income, net. Other income, net consists principally of interest income and interest expense. Interest income is generated primarily from cash and cash equivalents held in interest bearing accounts. Interest income decreased 66.4% to $0.2 million for the three months ended September 30, 2001 from $0.6 million for the three months ended September 30, 2000. The decrease is mainly due to lower cash balances that resulted from our cash used in operating and investing activities. Interest expense decreased 35.8% to $0.1 million for the three months ending September 30, 2001 from the three months ended September 30, 2000. The decrease in interest expense is due to the reduction of long term debt obligations during the period.

Net Loss

Net Loss. For the three months ended September 30, 2001, our net loss was $8.9 million or $1.20 per share. The decrease in the net loss was primarily due to revenue growth and the result of our actions described above to decrease our operating expenses.

Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September 30, 2000

Revenues

Ticketing Services Group. Revenues from TSG increased 7.5% to $27.2 million for the nine months ended September 30, 2001 from $25.3 million for the nine months ended September 30, 2000. The increase was due to an increase in the number of high profile performances such as Madonna, Backstreet Boys, Destiny’s Child, U2, NSync, Dave Mathews Band, and various full-service Major League Baseball clients, relative to the same period last year, not withstanding the postponement and cancellation of events following September 11, 2001. These performances increased our revenues from fees related to ticket sales.

Internet Ticketing Group. Revenues from ITG increased 26.8% to $14.2 million for the nine months ended September 30, 2001 from $11.2 million for the nine months ended September 30, 2000. The increased revenue was a result of our contract with Major League Baseball Advanced Media, LP. With this contract, we had an increased number of teams and higher ticket volume sold via the Internet relative to the period last year. Additionally, we had more enabled software licensees and new clients added subsequent to September 30, 2000. Included in ITG’s revenue for the nine months ended September 30, 2001 was $2.1 million relating to the non-monetary portion of the SLOC agreement.

International. International revenues decreased 16.0% to $4.2 million for the nine months ended September 30, 2001 from $5.0 million for the nine months ended September 30, 2000. The decrease reflects a drop in software license fee revenue and third party hardware sales revenue. Software license fee revenue has decreased due to the change in market conditions in the United Kingdom, resulting from the reduction in Government funding for cultural events. The decrease in hardware sales is directly related to the decrease in software license fee revenue. We believe that with the introduction of our new Windows based product, we should be able to compete more effectively in the United Kingdom market.

Cost of Services

Ticketing Services Group. Cost of services for TSG decreased 14.8% to $17.3 million for the nine months ended September 30, 2001 from $20.3 million for the nine months ended September 30, 2000. As a percentage of TSG revenues, total cost of services for TSG decreased to 63.5% from 80.2%. The decrease was mainly attributable to successful implementation of cost reduction plans to contain our telecommunication and call center expenses. We believe the cost of services as a percentage of revenue will continue to decrease from the prior year due to our continued cost reduction efforts to contain telecommunication costs and the increased efficiency in our call center operations.

Internet Ticketing Group. Cost of services for ITG increased 11.3% to $6.9 million for the nine months ended September 30, 2001 from $6.2 million for the nine months ended September 30, 2000. This increase is related to the growth in our license and support business, including services for SLOC. As a percentage of ITG revenue, cost of services decreased to 48.4% from 55.1%. The decrease is a result of our continued efforts in streamlining processes and the reduction of duplication stemming from the subsidiaries we acquired in prior years.

International. Cost of services for International decreased 26.1% to $1.7 million for the nine months ended September 30, 2001 from $2.3 million for the nine months ended September 30, 2000. The decrease was primarily related to the decrease in International service revenue. As a percentage of International revenue, cost of services decreased to 41.2% from 45.7%. This decrease is a result of our efforts to streamline our operations and cost cutting efforts.

Operating Expenses

Sales and Marketing. Sales and marketing expenses decreased 50.8% to $14.9 million for the nine months ended September 30, 2001 from $30.3 million for the nine months ended September 30, 2000. The decrease reflects the elimination of the periodic expense related to the asset impairment for the online marketing relationship with Excite@Home during the first and third quarters of 2001. As a percentage of total revenues, sales and marketing expenses decreased to 31.8% from 69.9%. The decrease is also attributable to the decline in professional services, reflecting the issuance of warrants to performers in the prior year as well as termination of our relationship with an advertising agency in the year ended December 31, 2000. In addition, a decrease in advertising expenses as we continue to focus our efforts on our clients instead of building our brand also contributed to the reduction.

Technology Development. Technology development expenses decreased 43.1% to $6.6 million for the nine months ended September 30, 2001 from $11.6 million for the nine months ended September 30, 2000. As a percentage of total revenues, technology development expenses decreased to 14.2% from 26.8%. This decrease was related to a reduction of duplicated efforts stemming from the subsidiaries we acquired in prior years. The decrease reflects our efforts to consolidate software code lines, resulting in reduced costs to support fewer software products. As we continue our efforts to improve and expand our core ticketing system, we expect a greater stabilization of our expenses and additional benefits from consolidation to reduce our development efforts to a support function for a single ticketing system.

General and Administrative. General and administrative expenses increased 4.5% to $23.4 million for the nine months ended September 30, 2001 from $22.4 million for the nine months ended September 30, 2000. In the second quarter of 2001, we recorded a charge of $392,000 related to fees incurred from the termination of a proposed financing arrangement. As a percentage of total revenue, general and administrative expenses decreased to 49.9% from 51.7%. We anticipate general and administrative expenses will decline as we integrate operations of our acquired subsidiaries, including consolidation of administration functions and reduction in office space. We should also see a decline in general and administrative expenses as a result of a contingent fee agreement with our legal counsel in the Ticketmaster action to mitigate further expenditure on legal fees.

consumers. This was partially accomplished through an emphasis on the clients’ web site ahead of our own. This strategy was an exit from our original Internet ticketing portal strategy. The portal strategy relied on high cost branding efforts to drive high volume traffic to our www.tickets.com web site which would in turn support other Internet related revenues such as web advertising, travel and merchandise sales. In addition, our software operations focused on consolidating the software code lines. Achieving our goals required an integration of all previous acquisitions, a reduction in workforce and a consolidation of offices including telephone sales centers. As a result of the restructuring, the actual total costs was $32.4 million, which resulted in over accrual of restructuring costs of $2.5 million related to the consolidation of facilities and $0.2 million related to involuntary termination benefits. The total over accrual of $2.7 million was reversed in the third quarter ended September 30, 2001.

Impairment of Assets.In the first quarter of 2001, we recorded a charge of $15.4 million for the impairment of various assets. This charge consisted primarily of the write-down of investments that are no longer core to our business. We had determined the online marketing asset with Excite@Home will not be fully realized and was partially written down by $13.9 million. Additionally, we wrote-off our strategic investment in two Internet based companies of $1.5 million. This resulted in a decrease of current assets of $7.5 million and other long-term assets of $7.9 million. In the third quarter of 2001, we recorded an additional charge of $2.5 million for the impairment of our remaining asset with Excite@Home which we do not expect to realize due to the fact that Excite@Home filed for bankruptcy during the third quarter.

Other Income (Expense)

Other Income, net. Other income, net consists principally of interest income and interest expense. Interest income is generated primarily from cash and cash equivalents held in interest bearing accounts. Interest income decreased 75.0% to $0.6 million for the nine months ended September 30, 2001 from $2.4 million for the nine months ended September 30, 2000. The decrease is mainly due to lower cash balances that resulted from our cash used in operating and investing activities. Interest expense decreased 25.0% to $0.3 million for the nine months ending September 30, 2001 from $0.4 million for the nine months ended September 30, 2000.

Net Loss

Net Loss. For the nine months ended September 30, 2001, our net loss was $46.1 million or $6.21 per share. For the nine months ended September 30, 2000, our net loss was $91.9 million or $12.59 per share. The decrease in the net loss was primarily due to revenue growth and due to the results of our actions described above to decrease our operating expenses. Excluding the impairment of long lived assets in 2001 and the effects for the costs and recovery of restructure charges for 2001 and 2000, net loss decreased 45.8% to $30.8 million in 2001 from $56.8 million in 2000.

Liquidity and Capital Resources

Our cash and cash equivalents decreased by $0.1 million to $19.9 million as of September 30, 2001 from $20.0 million as of December 31, 2000. The decrease resulted primarily from net cash used in operating activities of $11.4 million, purchases of property and equipment of $3.1 million and payments on long-term debt and leases of $2.1 million. The decrease in cash was offset by the issuance of redeemable preferred stock for $17.0 million net of issuance costs of $0.5 million. The decrease in cash was also offset by increases in current liabilities of $3.5 million and decreases in current assets of $7.1 million. The decrease in current liabilities was due to the timing of ticketing customer payments. The decrease in current assets was mainly due to the write-off of Excite@Home mentioned above in Impairment of Assets.

We and certain of our current and former directors and officers have been named in various legal complaints. These matters have been tendered to our insurance carriers for coverage of legal fees and costs incurred in connection with the defense of these matters, as well as for any potential liability found against us and any named officers and directors. Insurance coverage and the extent of coverage on these matters is subject to final determination by our insurance carriers and is subject to a deductible. Additionally, we have entered into a contingent fee agreement with our legal counsel in the Ticketmaster action to mitigate further expenditure on legal fees.

On May 1, 2001, we entered into a stock purchase agreement with certain investors. Pursuant to the stock purchase agreement, we sold an aggregate of 28.3 million shares of our Series F Senior Cumulative Redeemable Preferred Stock to the investors at a price of $0.60 per share, which resulted in total gross proceeds of $17.0 million (before deducting fees and expenses) to us. The purchase of such shares by the investors was affected in two closings of $6.5 million and $10.5 million, respectively. The first phase of funding was completed on June 21, 2001 and the second phase completed on August 1, 2001. We believe that the cash generated from operations, along with our existing cash and cash equivalents, will be sufficient to meet our capital needs for at least the next 12 months.

Forward Looking Information Under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. The Act was designed to encourage companies to provide prospective information about them without fear of litigation. The prospective information must be identified as forward looking and must be accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements. The statements about our plans, strategies, intentions, expectations and prospects contained throughout the document are based on current expectations. These statements are forward looking and actual results may differ materially from those predicted as of the date of this report in the forward-looking statements, which involve risks and uncertainties. In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Forward Looking Information Regarding Revenue Growth and Execution of Our Business Plan

Outlined below are certain factors that may preclude us from meeting our revenue expectations and fulfilling our business strategy.

If We Fail To Retain Clients, We May Experience A Loss Of Revenue. In order to achieve our intended growth and market presence, we must satisfy our current clients’ needs. If we fail to do so, we may lose significant clients and the revenue we generate from those clients.

We May Lose Key Personnel, Which Could Adversely Affect Our Relationships With Major Clients Or Strategic Partners And Impair The Effectiveness Of Our Operations. Key personnel may choose not to continue their employment with us for reasons including compensation, location, and the perception of career opportunities with us, our competitors, or in other industries. If we lose key personnel, our relationships with major clients or strategic partners who had close relationships with these personnel may be impaired. In addition, if we are unable to replace any key personnel that we may lose, we may suffer a disruption of operations and a decline in revenue.

We Have Limited Experience In Offering E-Commerce Services To Consumers And May Not Be Able To Generate Substantial Revenues and Efficiencies From Internet Sales. We began online ticket sales in the third quarter of 1997. Historically, we have sold tickets primarily through retail stores and telephone sales centers. In order to generate substantial revenues and efficiencies from online ticket sales, we must significantly increase the number of clients who use our online ticketing services. These clients generally use software systems that do not enable ticket sales over the Internet without a specific software upgrade. We cannot guarantee continued acceptance of our clients to Internet enable their ticketing services.

System Failures Could Damage Our Reputation And Result In The Loss Of Customers And Clients. Our business is almost entirely dependent on our call centers, computer systems and telecommunications systems. Heavy stress placed on our systems during peak periods could cause our systems to operate at unacceptably low speeds or fail altogether. Any significant degradation or failure of our systems or any other systems in the ticketing process, including telephone or telecommunications services, even for a short time, could cause consumers to suffer delays in ticket purchases. The resulting inconvenience to consumers could damage our reputation with the public, cause consumers to purchase tickets from other sources and deter repeat customers. Delays in services could also cause substantial losses for clients, which could result in claims against us. These delays could also result in the termination or non-renewal of our existing service agreements.

In the future, increased volume due to growth, if any, may require us to expend substantial funds to expand and further upgrade our technology, transaction processing systems and network infrastructure. Any inability to add additional software and hardware on a timely basis to accommodate increased traffic on our web site may cause unanticipated system disruptions and result in slower response times. We do not presently have fully redundant systems, a formal disaster recovery plan or alternative providers of hosting services, nor do we carry sufficient business interruption insurance to compensate us for all of the possible losses that we may incur. In addition, our clients’ in-house systems also may be subject to failures and degradations that could interrupt ticket sales both through clients’ systems and on our web site. Unanticipated problems may cause a significant system outage or data loss, and result in the loss of clients.

We May Not Be Able To Maintain Or Improve Our Competitive Position Because Of The Intense Competition In The Ticketing Industry. Intense competition in the ticketing industry presents significant challenges to management, marketing and technical personnel. We believe competition will become more challenging as the market for tickets expands and technology advances. Our primary competitor on a national level is Ticketmaster Corporation, which has operations in multiple locations throughout the United States. Ticketmaster Corporation has a widely recognized brand name in the live event ticketing business, a longer operating history in the ticketing industry generally and in Internet ticketing specifically, more extensive ticketing inventory and greater financial and other resources than we do. We commenced our operations in May 1996 and did not begin to sell tickets on the Internet until October 1997. Because of our limited operating history, we have not yet gained the same level of brand recognition or accumulated as broad a ticketing inventory as Ticketmaster Corporation. In addition, because we have developed through the acquisition of smaller, regional outsourcing services providers and in-house systems developers, we are still in the stages of developing a strong national presence.

Our competitors also include:

	•		a number of smaller, regional outsourcing services providers;

	•		international and national in-house systems providers;

	•		entertainment organizations that handle their own ticket sales and distribution through online and other distribution channels;

	•		international, national and local outsourcing services providers, which may or may not currently offer online transactional capabilities.

Many of these competitors have greater brand recognition, longer operating histories and a greater number of well-established client relationships than we do in the geographic regions in which they operate. Because of our relatively short operating history and presence in a limited number of geographic regions prior to our move into e-commerce, we have not yet established a significant competitive position in a number of geographic areas.

In Order To Maintain Our Competitive Position In The Ticketing Industry, We Must Be Able To Attract New Clients And Ticket Inventory, And We Cannot Be Certain That We Will Be Able To Do So. If we cannot attract new clients and ticket inventory, or if we lose clients to other outsourcing services providers or otherwise, we may not be able to maintain our competitive position in the ticketing industry. In recent years, the live entertainment industry has been moving toward consolidation. As a result, contracts for outsourcing services are often negotiated on a multi-venue basis, and large ticket inventories are concentrated in the hands of a few entertainment conglomerates. Because outsourcing services contracts are often multi-year contracts and there are fewer potential new clients, competition for their business is especially intense. Historically, we have grown our business primarily through acquisitions. Industry consolidation has reduced the number of viable acquisition candidates and, accordingly, limited future acquisition opportunities. In order to increase our client base and ticket inventory, we may need to attract clients who currently have relationships with other outsourcing services providers. At the same time, other outsourcing services providers will likely attempt to attract our current clients to use their outsourcing services. In addition, our clients may terminate their contracts for a variety of reasons, or may not renew their contracts at the end of their terms.

The Process Of Integrating Technologies From Our Acquisitions Could Disrupt Our Ticketing Systems And Damage Our Relationships With Our Clients. The process of integrating the various technologies of acquired companies into one interactive system has caused, and may in the future cause, system downtime and other system disruptions. We expect to integrate and consolidate several of our in-house systems over the next several years. We may experience system failures in the future as a result of this integration, which could impair our relationships with our clients. Any system failures could cause one or more of our clients to terminate its contract or fail to renew its contract with us.

Because We Have A Limited Operating History As A Consolidated Business, We Have An Unproven Business Model. Since 1996, we have completed eleven acquisitions of companies with diverse backgrounds in the ticketing industry. We have a limited history operating as a consolidated business, and accordingly, an unproven business model that is substantially dependent on the growth of revenues from increased ticket sales on the Internet and expanding our client base. We cannot be certain that we will be successful in increasing our Internet sales in future periods as well as increase our client base. If we are not, our revenues will not grow in accordance with our business model and may fall short of expectations of market analysts and investors, which could negatively affect the price of our common stock.

Online Security Breaches Could Result In A Loss Of Consumer Confidence In E-Commerce, Which Could Impair Our Ability To Implement Our Business Model. The secure transmission of confidential information over the Internet is essential in maintaining consumer and supplier confidence in our services. Any publicized security problems affecting us or other e-commerce companies could inhibit the growth of e-commerce and, accordingly, the growth of our Internet sales revenue as contemplated in our business model. We rely on licensed encryption and authentication technology to effect secure transmission of confidential information, including credit card numbers. We cannot be certain that our security measures will prevent security breaches, including break-ins, viruses or disruptions by consumers or others. A party that is able to circumvent our security systems could steal proprietary information, damage our database or communications lines or otherwise cause interruptions in our operations. Security breaches also could damage our reputation and expose us to a risk of loss or litigation and possible liability. Our insurance policies carry coverage limits that may not be adequate to reimburse us for losses caused by security breaches.

Our Reliance On Third Party Software And Hardware Makes Us Vulnerable To Changes In Our Suppliers’ Products And Services, Which Could Adversely Affect Our Ability To Service Our Clients In A Timely Manner. Our automated ticketing solutions incorporate software products and use computer hardware and equipment developed by other entities. Our reliance on third party software and hardware makes us vulnerable to changes in our suppliers’ products and services and any such changes may impair our ability to provide adequate outsourcing services and in-house systems to our clients in a timely manner. For example, we cannot be certain that all of our suppliers will remain in business or will continue to support the product lines that we use. Nor can we be certain that their product lines will remain viable or will otherwise continue to be available to us. Our current suppliers could significantly alter their pricing in a manner adverse to us. If any of these entities ceases to do business, abandons or fails to enhance a particular product line, or significantly raises its prices, we may need to seek other suppliers. We cannot be certain that other suppliers will be able to provide us with necessary products at favorable prices, or at all.

We Depend On Retail Stores To Reach Consumers, And If We Cannot Maintain These Relationships And Establish New Relationships, Our Ticket Sales Would Be Adversely Affected. A significant portion of our ticket sales are generated through arrangements with retail stores. Our contracts with these retail stores are generally for a one-year term, and subject to periodic negotiations regarding sales commissions, customer service and other matters. These stores cater to consumers who are likely to purchase tickets for sporting and entertainment events, and are attractive to other ticketing services. If we cannot maintain good retail relationships and continue to establish new relationships, our ability to reach consumers and generate sufficient ticket sales could be materially and adversely affected.

We May Become Subject To More Restrictive E-Commerce Regulation That Could Adversely Affect Our Ability To Increase Internet Sales. We are subject to regulations applicable to businesses generally and laws or regulations applicable to e-commerce directly. Currently, we believe that there are few laws and regulations directly applicable to the Internet and online ticketing services. It is likely, however, that a number of laws and regulations may be adopted with respect to the Internet or commercial online services that could affect our online ticketing services.

Any new legislation or regulation, or the application of existing laws and regulations to the Internet and commercial online services could restrict our ability to grow our business according to our plan.

Laws regulating e-commerce might cover matters such as, among other things, user privacy and the use of our consumer database for email marketing purposes, limitations on ticket service fees, the content of our web site, taxation by states where we sell tickets, copyright protection for us and competing ticketing services, distribution, direct linking, antitrust and consumer protection laws.

In addition, the applicability of a variety of existing laws in various jurisdictions to the Internet and commercial online services may take years to resolve. These issues may include property ownership, sales and other taxes, libel and personal privacy, among others. For example, tax authorities in a number of states currently are reviewing the appropriate tax treatment of companies engaged in e-commerce. New state tax regulations may subject us to additional state sales and income taxes.

We May Be Affected By Changes In Laws And Standards Relating To Data Collection And Use Practices And The Privacy Of Internet Users. Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal and state scrutiny and legislative and regulatory activity concerning data collection and use practices. Various federal and state governments and agencies have recently proposed limitations on the collection and use of information regarding Internet users. In October 1998, the European Union adopted a directive that limits the collection and use of information regarding Internet users in Europe. In addition to government activity, a number of industry and privacy advocacy groups are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us. Although our compliance with applicable federal and state laws, regulations and industry guidelines has not had a material adverse effect on us, governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting us and our customers. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these regulations may have on our business. However, these regulations and guidelines could adversely affect our business.

Because Of Our Limited Operating History And Limited Internet Experience May Cause Significant Fluctuations In Our Operating Results. Our limited operating history makes it difficult for us to predict future results of operations and difficult for you to evaluate our prospects or us. Our operating results may fall below the expectations of market analysts or investors in some future quarter. If this occurs, the price of our common stock would likely decrease. The emerging nature of the markets in which we compete makes forecasting more difficult and potentially unreliable. Our current and future expense levels are based predominantly on our operating plans and estimates of future revenues, and are to a large extent fixed. We may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenues. Accordingly, if our revenues in any particular quarter are lower than anticipated, our operating results would likely fall short of market expectations.

The Seasonality Of The Live Entertainment Industry Could Cause Our Quarterly Operating Results To Fall Below The Expectations Of Market Analysts And Investors, Which Could Adversely Affect The Market Price Of Our Common Stock. Many popular live entertainment events are held during the warm weather months. In addition, ticket sales for such events generally commence several months prior to the event date. Because of these factors, our business generally has lower revenues in the first and fourth fiscal quarters. These seasonality issues could cause our quarterly operating results to fall below market expectations, and adversely affect the market price of our common stock. Other related seasonality issues that could cause our quarterly operating results to fluctuate in the future include:

	•		the dates event tickets are released for sale by our clients;

	•		the decisions of one or more clients to cancel or postpone events;

	•		the timing of large, nonrecurring events; and

	•		the concentration of events in any given quarter.

As More Of Our Clients Use Our Online Services, We May Encounter Technological Difficulties That Could Impair Our Ability To Increase Online Revenues. In order for most of our clients to use our online ticketing capabilities, we must develop and install additional software to make their systems compatible with ours. This process can be difficult and we may encounter technological difficulties that may inhibit us from servicing our clients online, which may cause more of our clients to terminate or fail to renew its contract with us. Because we have a broad portfolio of in-house systems, we must either create separate Internet interfaces for each of these products or consolidate our in-house systems. We may experience difficulties in further consolidating our portfolio of in-house systems into a few comprehensive in-house systems and in developing links from our clients’ various software and hardware systems to our ticketing systems and databases. Due to these potential technological difficulties, some clients may be averse to change and may require a lengthy sales cycle before they will upgrade to Internet ticketing on our system.

Infringement Or Other Claims Could Adversely Affect Our Ability To Market Our Products, Limit Our Rights To Certain Technology And Harm Our Results Of Operations. Although we believe we have valid proprietary rights to all of our intellectual property, we could be subject to claims of alleged trademark, patent or other infringement as a result of our actions or the actions of our licensees. Any litigation over intellectual property rights or business practices could result in:

	•		payment by us of substantial damages;

	•		injunctive or other equitable relief that could block our ability to market or license our products; and

	•		the loss of rights to technologies necessary to operate portions of our business.

Any litigation, regardless of the outcome, could result in substantial costs and diversion of managerial and other.

Our Proprietary Technology And Intellectual Property May Be Inadequately Protected, Which Could Harm Our Competitive Position. We rely on trademark, trade secret and copyright law to protect our technology and our brand. We also rely on confidentiality and/or license and other agreements with employees, customers, and others to protect our proprietary rights. We have no patents. Despite our efforts to control access to our proprietary information, it may be possible for a third party to copy or otherwise obtain and use our products, technologies or other intellectual property without authorization. In addition, effective copyright, trademark, trade secret and patent protection may be unavailable or limited in foreign countries that do not offer protection comparable to that provided by United States laws. Internet technologies are evolving rapidly, and third parties may also develop similar or superior technologies independently. Any unauthorized use of our proprietary information could result in costly and time-consuming litigation to enforce our proprietary rights. In addition, any third party development of similar or superior technologies could impede our ability to compete effectively in the ticketing industry.

Ineffective Protection Of Our Trademarks And Service Marks Could Reduce The Value Of Our Brands. We cannot be certain that the steps we have taken and will take to protect our brands will be adequate, and such steps may require considerable expenditures. Nor can we be certain that third parties will not infringe upon or misappropriate the copyrights, trademarks, trade dress and similar proprietary rights that currently protect our brands. Ineffective protection of these rights could reduce the value of our brands. We have registered the trade name “Tickets.com” and the stylized trademark “1.800.TICKETS”, the service mark “Advantix” and other trademarks in the United States. We have also applied to register the trade names “Tickets.com” in various foreign countries. Effective trademark, service mark, copyright and trade secret protection will not be available or sought in every country in which our products and services are available online or by telephone. We may not be able to obtain effective trademark or service mark registration until the prolonged use of our marks has generated secondary meaning for purposes of trademark and service mark law. In addition, there are other parties who have corporate names or brand names very similar to ours, and whose names may also include the term “tickets,” and who may, as a result, bring claims against us for trademark infringement or challenge our rights to register the trade name “Tickets.com,” the stylized trademark “1.800.TICKETS,” or both.

Our Licensees Could Diminish The Quality Of Our Brands And Adversely Affect Our Reputation. We have licensed in the past, and expect to license in the future, proprietary rights such as trademarks or copyrighted material

to third parties. While we attempt to ensure that the quality of our brands are maintained by these licensees, we cannot be certain that these licensees will not take actions that might materially and adversely affect the value of our proprietary rights or reputation.

If We Are Not Able To Preserve Our Domain Names We May Not Be Able To Compete Effectively On The Internet. We currently hold the Internet domain names “tickets.com,” “ProTix.com,” “bass-tix.com,” “basstickets.com,” “fantastix.com” and others. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. Any such inability could impair our ability to compete effectively on the Internet. The acquisition and maintenance of domain names are generally regulated by governmental agencies and their designees. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, there can be no assurance that we will be able to acquire or maintain relevant domain names in all countries in which we conduct or intend to conduct business. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear.

Forward Looking Information Regarding Cost of Services

We May Become Subject To State Regulation Of Ticket Sales, Which Could Impose Restrictions On The Manner And Pricing Of Our Ticket Sales. Many states and municipalities have adopted statutes regulating ticketing transactions within their jurisdictions. We cannot be certain whether any of these laws and regulations may be determined to be applicable to our business or whether new laws and regulations potentially adverse to our business will be adopted. If we become subject to additional laws and regulations, the manner and pricing of our ticket sales may be restricted, which could have an adverse effect on our revenues. Some states and municipalities require that ticket sellers obtain a resellers license. One or more states or municipalities could take the position that a telephonic or electronic ticket sale to one of their residents is a sufficient basis for application of that jurisdiction’s reseller statute. Because we believe these statutes to be inapplicable to our activities, we may not be in compliance with these statutes. Governmental agencies or authorities could also argue that other state or local licensing or “ticket scalping” statutes apply to our activities. These statutes, among other things, limit the amount of service charges and other fees that may be charged in connection with ticket sales. Other state and local regulations establish maximum service fees on tickets for certain sporting and other events.

Forward Looking Information Regarding Operating Expenses

If We Cannot Effectively Integrate Our Numerous Acquisitions, We May Experience Increased Costs, Operating Inefficiencies, System Disruptions And The Loss Of Clients. The integration of acquired companies into a cohesive business requires the combination of different business models, financial, accounting and other internal systems, varied technologies and personnel who have dissimilar expertise and backgrounds. It also requires the management of companies or operating units that are geographically dispersed throughout the United States and internationally. We cannot be certain that we will be able to successfully integrate the operations, personnel or systems of these acquired companies in a timely fashion, if at all. If we fail to integrate operations and personnel effectively, we will experience duplication of costs and operating inefficiencies. If we are unable to integrate technologies successfully, we may experience system disruptions or failures that could result in the dissatisfaction or loss of clients. We also cannot be certain that we will achieve value from our acquisitions commensurate with the consideration paid. If we are unable to generate sufficient revenue from any acquired companies, we will experience an unanticipated shortfall in revenue and may fail to meet the expectations of investors. If this occurs, the market price of our common stock would likely decline.

The process of integrating our recent acquisitions has placed and will continue to place a significant burden on our management team. Integration is complex, and presents numerous risks and uncertainties in addition to those set forth above, including the following:

If We Cannot Attract And Retain Qualified Personnel In A Cost Effective And Timely Manner, We May Not Be Able To Execute Our Growth Strategy. The significant growth of our business over the past three years due to our acquisition of eight companies has placed substantial demands on our management and other personnel. Our future growth, if any, will depend in part on our ability to attract, motivate and retain skilled technical, sales and

management personnel. Competition for these personnel is intense, and we expect it to increase as e-commerce expands. We cannot be certain that we will be able to retain our existing personnel or attract additional qualified personnel in the future. In addition, a significant portion of our workforce is comprised of telephone sales representatives. We compete with telemarketing firms, among others, for telephone sales personnel and sometimes must pay premium hourly wages to attract and retain them. In addition, their high turnover rate increases our recruiting and training costs. We cannot be certain that we will be able to continue to hire and retain qualified personnel to support our planned growth in a cost effective or timely manner. If we cannot, our ability to execute our growth strategy could be impaired.

The Loss Of Personnel Could Require Us To Provide Costly Severance Packages, Which Could Adversely Affect Our Operating Results. Although we have employment agreements with several of our executive officers, including our Chief Executive Officer, our executive officers and key employees may terminate their employment at any time for any reason. In some circumstances, termination of their employment could result in substantial payments by us for severance benefits under these employment agreements.

Acquisitions Will Create Charges To Earnings That Could Adversely Affect Our Operating Results And, Accordingly, The Market Price Of Our Common Stock. As a result of past acquisitions, we have recorded a significant amount of goodwill that will adversely affect our operating results for the foreseeable future. As of September 30, 2001, we had goodwill and other intangible assets of $42.5 million, which must be amortized in the future and will result in a reduction of our earnings. If the amount of recorded goodwill or other intangible assets is increased or we have future losses and are unable to demonstrate our ability to recover the amount of goodwill, the amount of amortization could be increased or the period of amortization could be shortened. This would increase annual amortization charges or result in a write-off of goodwill in a one-time, non-cash charge, which could be significant based on our acquisitions to date.

We May Face Liability For Online Content That May Not Be Covered By Our Insurance. Because we are disseminating information, we may face liability for the nature and content of the materials on our web site or on sites to which we have links. These liability claims could include, among others, claims for defamation, negligence, indecency, fraud from secondary sales, and copyright, patent and trademark infringement. These claims have been brought, and sometimes successfully pressed, against online services. Although we intend to maintain general liability insurance coverage, it may not cover claims of these types. It also may not be adequate to indemnify us for any liability that may be imposed. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could have a material adverse effect on our reputation and our ability to effectively operate our web site.

Forward Looking Information Regarding Liquidity and Capital Resources

Our Stock Price Has Been And May Continue To Be Very Volatile, Which May Make Us A Target Of Securities Class Action Litigation. The market price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations. In the past, securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We are currently the target of such litigation and may be the target of additional litigation in the future. Securities litigation could result in substantial costs and divert our management’s attention and other resources.

Other factors, some of which are beyond our control, that could cause the market price of our common stock to fluctuate include:

	•		operating results that vary from the expectations of securities analysts and investors;

	•		changes in securities analysts’ and investors’ expectations as to our future financial performance;

	•		changes in market valuations of other Internet or online services companies;

	•		announcements by us or our competitors of technological innovations, new services, significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

	•		loss of a major venue or client;

	•		announcements by third parties of significant claims or proceedings against us or developments in those proceedings; and

	•		future sales of our stock.

We Face Risks From International Operations That Could Adversely Affect Our Cash Flow And Licensing Revenues. We have only recently commenced operations in a number of international markets and a key component of our strategy is to expand our business internationally. Our plans to expand internationally are subject to inherent risks, including:

	•		Adverse Fluctuations In Currency Exchange Rates Could Expose Us To Losses Because Some Of Our Contracts And Liabilities Are Payable In Foreign Currencies. Payments due to our acquisition of dataCulture, Ltd. are payable in pounds sterling over 12 equal quarterly installments. In addition, we are also exposed to foreign currency exchange rate risks inherent in our assets and liabilities denominated in currencies other than the United States dollar. If the United States dollar becomes weaker against foreign currencies these payments will be greater in dollar terms and our cash flow would be adversely affected.

	•		If We Cannot Adequately Enforce Our Intellectual Property Rights Internationally, We May Lose Licensing Revenues. Many of our foreign business relationships involve the licensing of our software products. If we are unable to enforce our intellectual property rights because they are not recognized under foreign laws, our customers could duplicate or modify our software products without our consent and deprive us of licensing revenues.

Inflation and Foreign Currency Risk

Inflation has not had a significant impact on our operations during the periods covered by the accompanying consolidated financial statements. Additionally, we are not presently subject to significant foreign exchange risk as international operations currently constitute a minor part of our operations. However, some of the recent companies we have acquired have operations internationally that could subject us to inflation and foreign currency risks in the future. If we are affected by inflation or foreign currency fluctuations in the countries where we will have operations, our business, financial condition and results of operations could be adversely affected.

Effect of Recent Accounting Changes

after March 15, 2001. SFAS No. 142 is required to be applied at the beginning of an entity’s fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise as a result of the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principle. SFAS No. 142 further requires that all goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to its non-amortization and amortization provisions. Our management continues to evaluate the potential effects SFAS No. 142 may have on future earnings and as such will adopt SFAS No. 142 for our fiscal year beginning January 1, 2002.

Item 3.Quantitative and Qualitative Disclosures About Market Risks

We are not exposed to material market risks related to fluctuations in interest rates. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. Some of our contracts and liabilities are payable in foreign currencies. Accordingly, we are subject to exposure from adverse movement in foreign currency exchange rates. This exposure is primarily related to revenue and operating expenses in the United Kingdom and denominated in the respective local currency.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

On July 10, 2001, Tickets.com and certain of its current and former directors and officers were named as defendants in a class action lawsuit pending in the federal district court in the Southern District of New York, WILLIAM BRANCH, et al, vs. MORGAN STANLEY DEAN WITTER, CREDIT SUISSE FIRST BOSTON CORP., S.G. COWEN SECURITIES CORP., et. al, Docket Number L-3624-01. Tickets.com has also been named in six other, similar cases also pending in the federal district court in the Southern District of New York. The complaints allege that our underwriters engaged in unlawful stock allocation and commission practices concerning our initial public offering, including alleged tie-in arrangements with their customers. The complaints also allege that the prospectus and registration statement in our initial public offering contained materially false and misleading statements related to underwriting fees, commissions and other economic benefits arising from the alleged underwriter activities. The complaints allege causes of action under Sections 11, 12(2) and 15 of the Securities Act of 1933, as well as Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934. Similar cases have been filed against a number of other companies and their underwriters. There has been minimal activity in these cases to date, limited primarily to procedural issues focusing on the plaintiff and certification of a plaintiff class to prosecute the claim of similarly situated plaintiffs on a consolidated basis.

On September 17, 2001, Tickets.com was served with a complaint, NAPVENTURE PARTNERS LLC; PROMOWEST PRODUCTIONS, INC., VS. TICKETS.COM, INC.The suit seeks damages in an unspecified

The underlying facts of this case were initially disclosed in the “risk factors” section of the Company’s registration statement as filed with the Securities and Exchange Commission.

We have not recorded a provision for these matters in our financial statements.

Item 2.Changes in Securities and Use Of Proceeds

On June 23, 2001, we sold 10,833,333 shares of our Series F Senior Cumulative Redeemable Preferred Stock (“Preferred Stock”) at a price per share of $0.60 for an aggregate purchase price of $6.5 million. On August 1, 2001, we sold an additional 17,500,000 shares of Preferred Stock also at a price per share of $0.60 for an aggregate purchase price of $10.5 million. The investors consisted of General Atlantic Partners 74, L.P. (“GAP 74”), GapStar, LLC (“GapStar”), GAP Coinvestment Partners II, L.P. (“GAP Coinvestment”), International Capital Partners, Inc., Profit Sharing Trust, Sports Capital Partners, LP, Sports Capital Partners, Cayman Islands, L.P., Sports Capital Partners CEV, LLC, Ardara, Inc., and to Zesiger Capital Group, LLC, as agent and attorney-in-fact for certain other purchasers. We sold the shares in reliance on the exemption from registration provided by Rule 506 promulgated under Section 4(2) of the Securities Act of 1933, as amended, based on the nature of the purchasers and the nature of the arms’-length negotiated transaction.

We have the right to redeem the Preferred Stock as follows:

(iv) If on any date after June 23, 2003, but prior to June 23, 2004, the volume-weighted average trading price of our Common Stock, as reported on the Nasdaq NMS or other major exchange on which our stock trades, for the ninety consecutive trading days immediately preceding the date in question (the “Average Trading Price”), equals or exceeds 200% of the Conversion Price, we will have the right to redeem in cash all, but not less than all, outstanding shares of Preferred Stock at the following redemption price per share (the “Redemption Price”): the greater of (a) the Accreted Value of the Preferred Stock on such date, plus all accrued and unpaid dividends up to such date or (b) the volume-weighted average trading price per share of our Common Stock for the twenty consecutive trading days immediately prior to the redemption date multiplied by the number of shares of Common Stock into which the Preferred Stock is convertible on such date;


	(v) If on or after June 23, 2004, but prior to June 23, 2005, the Average Trading Price equals or exceeds 250% of the Conversion Price, we have the right to redeem in cash all outstanding shares of Preferred Stock at the Redemption Price; or


	(vi) If on or after June 23, 2005, but prior to June 23, 2006, the Average Trading Price equals or exceeds 300% of the Conversion Price, we have the right to redeem in cash all outstanding shares of Preferred Stock at the Redemption Price.

On June 23, 2006, each then outstanding share of Preferred Stock will automatically convert into the right to receive a cash payment equal to the Redemption Price.

Any holder of Preferred Stock may convert its shares of Preferred Stock until we have paid the Redemption Price.

As long as GAP 74, GAP Coinvestment and GapStar and/or any of their affiliates own at least a majority of the outstanding shares of Preferred Stock, the Preferred Holders, voting as a separate class, have the right to elect two members of our Board of Directors. In addition, if GAP 74, GAP Coinvestment and GapStar and/or any of their affiliates together own at least a majority of the outstanding shares of Preferred Stock, then the Preferred Holders, voting as a separate class, are entitled to elect one additional member of our Board of Directors.

The holders of Preferred Stock are entitled to customary antidilution rights including, adjustments for stock splits, stock dividends and other structural changes. In addition, if we issue Common Stock (or securities convertible into or exchangeable for our Common Stock) at a price per share (“New Issue Price”) less than the Conversion Price then in effect, the Conversion Price will be adjusted to equal the New Issue Price.

Under a Registration Rights Agreement, entered into among the investors and us, GAP 74, GAP Coinvestment and GapStar as a group have one demand registration right for an underwritten offering, and all of the investors have customary “piggy-back” and “shelf” registration rights in both primary and secondary offerings. In addition, the investors have additional demand registration rights if less than 75% of their shares are sold.

Proceeds from the sale of the Preferred Stock are being used to fund our working capital needs.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Submission of Matters to a Vote of Security Holders

None.

Item 5.Other Information

None.

Item 6.Exhibits and Reports on Forms 8-K

(a)Exhibits

3.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Tickets.com, Inc.

(b)Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

	Tickets.com, Inc. (Registrant)

Dated: November 13, 2001	/s/ W. THOMAS GIMPLE W. Thomas Gimple Co-Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

/s/ ERIC P. BAUER

Eric P. Bauer
Chief Financial Officer
(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Description





3.1		Certificate of Amendment of Amended and Restated Certificate of Incorporation of Tickets.com, Inc.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Tickets Com (TIXX) Inactive 10-Q2001 Q3 Quarterly report

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