Tickets Com 10Q 2002 Q1 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 March 31, 2002

[ ]

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 (State or Other Jurisdiction of Incorporation or Organization)		06-1424841 (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 April 30, 2002 there were approximately 7,545,705 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

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 March 31, 2002 (unaudited) and December 31, 2001		3
	Condensed Consolidated Statements of Operations (unaudited) — Three Months Ended March 31, 2002 and 2001		4
	Condensed Consolidated Statements of Cash Flows (unaudited) — Three Months Ended March 31, 2002 and 2001		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25








PART II








Item 1.	Legal Proceedings		26
Item 2.	Changes in Securities and Use of Proceeds		27
Item 3.	Defaults Upon Senior Securities		28
Item 4.	Submission of Matters to a Vote of Security Holders		29
Item 5.	Other Information		29
Item 6.	Exhibits and Reports on Form 8-K		29

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

TICKETS.COM, INC. AND SUBSIDIARIES

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


			March 31,			December 31,
			2002			2001

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	27,265		$	8,779
	Restricted cash			1,368			2,552
	Accounts receivable, net of allowances of $1,681 and $1,824, respectively			9,084			5,808
	Prepaid expenses and other current assets			8,760			7,966

		Total current assets		46,477			25,105
	Property and equipment, net			13,341			14,517
	Goodwill, net			34,184			34,184
	Intangible assets, net			6,299			6,320
	Other assets			2,422			4,291

		Total assets	$	102,723		$	84,417

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	15,490		$	12,320
	Accrued liabilities			6,366			4,660
	Other current liabilities			3,471			4,427

		Total current liabilities		25,327			21,407
Long-term liabilities				612			950

		Total liabilities		25,939			22,357
Series F Senior Cumulative Redeemable Convertible Preferred Stock, $.000225 par value; 28,333 shares authorized, 28,333 shares issued and outstanding in 2002 and 2001, liquidation preference: $18,103				17,670			17,206
Series G Senior Cumulative Redeemable Convertible Participating Preferred Stock, $.000225 par value; 8,475 shares authorized; 8,475 shares issued and outstanding in 2002; liquidation preference: $20,035				19,760			—
Stockholders’ equity:
	Common Stock, $.000225 par value; 225,000 shares authorized; 7,546 shares issued and outstanding			2			2
	Additional paid-in capital			326,388			323,404
	Accumulated deficit			(286,469	)		(278,039	)
	Officer loan			(279	)		(279	)
	Accumulated other comprehensive loss			(288	)		(234	)

		Total stockholders’ equity		39,354			44,854

		Total liabilities and stockholders’ equity	$	102,723		$	84,417

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
			March 31,

			2002			2001

Net revenue			$	17,857		$	14,938
Cost of services				9,265			9,699

		Gross profit		8,592			5,239

Operating expenses:
	Sales and marketing			3,295			5,296
	Technology development			3,800			3,553
	General and administrative			6,522			9,076
	Impairment of assets			—			15,434

		Total operating expenses		13,617			33,359

Loss from operations				(5,025	)		(28,120	)
Other income				55			129

Loss before provision for income taxes				(4,970	)		(27,991	)
Provision for income taxes				33			—

Net loss				(5,003	)		(27,991	)
Preferred stock dividends				(398	)		—
Accretion of preferred stock to redemption value				(66	)		—
Value of preferred stock beneficial conversion feature				(2,963	)		—

Net loss available to common stockholders			$	(8,430	)	$	(27,991	)

Loss per share — basic and diluted:
	Net loss available to common stockholders		$	(1.12	)	$	(3.77	)

	Weighted average common shares outstanding			7,542			7,419

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)


			Three Months Ended
			March 31,

			2002			2001

Cash Flows From Operating Activities:
Net loss			$	(5,003	)	$	(27,991	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Impairment of assets			—			15,434
	Depreciation and amortization of intangibles			2,283			4,261
	Provision for uncollectible receivables			128			600
	Non-cash expenses			631			661
Changes in Operating Assets and Liabilities:
	Accounts receivable			(3,233	)		1,849
	Prepaid expenses and other assets			399			55
	Accounts payable			3,169			1,719
	Accrued liabilities			1,242			1,662
	Deferred revenue and other liabilities			(783	)		443

		Net cash used in operating activities		(1,167	)		(1,307	)

Cash Flows From Investing Activities:
	Purchases of property and equipment			(769	)		(1,630	)
	Change in restricted cash			1,184			—

		Net cash provided by (used in) investing activities		415			(1,630	)

Cash Flows From Financing Activities:
	Proceeds from issuance of Series G Senior Cumulative Redeemable Convertible Participating Preferred Stock, net of issuance costs of $240			19,760			—
	Proceeds from issuance of promissory note			1,000			—
	Principal payments on long-term debt and promissory note			(1,544	)		(698	)
	Proceeds from exercise of stock options			22			48

		Net cash provided by (used in) financing activities		19,238			(650	)

Net increase (decrease) in cash and cash equivalents				18,486			(3,587	)
Cash and cash equivalents, beginning of period				8,779			20,026

Cash and cash equivalents, end of period			$	27,265		$	16,439

Supplement Disclosure of Cash Flow Information:
	Interest paid		$	20		$	75

	Taxes paid		$	33		$	18

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 $1.1 million from the date of issuance of the Series F preferred stock through March 31, 2002. Accrued dividends related to the Series G preferred stock were immaterial at March 31, 2002.

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

TICKETS.COM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(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, Latin America and Asia.

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 March 31, 2002 and December 31, 2001, the condensed consolidated statements of operations for the three months ended March 31, 2002 and 2001 and the condensed consolidated statements of cash flows for the three months ended March 31, 2002 and 2001. 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 ended March 31, 2002 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 for the year ended December 31, 2001.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements and related notes include the accounts of Tickets.com, Inc. and its wholly-owned subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation.

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 net loss as reported and comprehensive loss are related to foreign currency translation adjustments. A reconciliation of comprehensive loss is as follows (in thousands):


	Three months ended
	March 31,

	2002			2001

Net loss	$	(5,003	)	$	(27,991	)
Foreign currency translation adjustment		(54	)		(2	)

Comprehensive loss	$	(5,057	)	$	(27,993	)

Cash Equivalents

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

Restricted Cash

We have $1.4 million as collateral with our credit card processor and at various banks.

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 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

In June 2001, the FASB issued Statement of Financial Accounting Standards (“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”. In connection with the adoption of SFAS No. 142, we will need to perform an impairment test of goodwill and other intangible assets in 2002. Under the provisions of SFAS No. 142, acquired goodwill and other intangible assets will be aggregated with our existing business segments and evaluated for impairment. These assets will be tested for impairment at least annually using a two-step process that begins with an allocation of goodwill to our business segments and then we will estimate the fair market value of the reporting business segment. 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 business segment and asset class for those assets subject to amortization and for those not subject to amortization. The process of evaluating goodwill for impairment involves the determination of the fair value of our business segments. Inherent in such fair value determinations are certain judgments and estimates, including the interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. Adoption of this standard could produce a significant impairment in 2002.

In 2001, we assessed the recoverability of our assets on an annual basis or whenever adverse events or changes in circumstances or business climate indicated that expected undiscounted future cash flows related to such assets were not sufficient to support the net book value of such assets. If undiscounted cash flows were not sufficient to support the recorded assets, impairment was recognized to reduce the carrying value of the assets to the estimated fair value. Cash flow projections were 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 were 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 distribution centers, interactive voice response or retail outlets. 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. From time to time, we enter into contracts with clients whereby we pay a portion of the clients’ share of convenience fees up front. When this occurs, the up front fees are amortized against revenue over the period of the contract under the terms of the underlying contracts. Additionally, we may collect fees from the consumer on behalf of our clients and such fees are not recorded as revenue.

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 maintenance and support contracts which are recognized as they are earned over the term of the 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.

In connection with six of our ticketing service agreements, we have made payments to the venues for certain exclusivity and other ticketing services rights granted over the term of the applicable agreement. We have, in the past, recorded these payments as prepaids and have amortized these payments to advertising expense over the term of the applicable contract. The unamortized balance of these payments is $4.4 million at March 31, 2002. In 2001, we adopted Emerging Issues Task Force (“EITF”) Issue No. 00-22, “Accounting

for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future” which changed the accounting for these types of payments. EITF Issue No. 00-22 requires that the amortization be recorded as reduction or offset to revenue. Reclassifications have been made in the 2001 statements to conform to the 2002 presentation.

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.

The Internal Revenue Code of 1986, as amended, imposes substantial restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382. Events which may cause limitations in the amount of net operating losses that we may use in any one-year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The issuance of our Series G Preferred Stock on March 25, 2002, may have triggered such an ownership change. Due to the complexities of the calculation, a determination has not been made at this time.

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 2001 statements to conform to the 2002 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 and which have suffered other than a temporary decline in fair market value. We 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, Encryptix and Campus Pipeline, 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, Excite@Home filed for bankruptcy and we recorded an additional charge of $2.5 million for the impairment of our remaining marketing asset with Excite@Home.

6. 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.


			Three Months Ended
			March 31,

			2002			2001

			(Unaudited)
			(In thousands)
Revenue:
	TSG		$	10,832		$	8,994
	ITG			5,294			4,415
	International			1,396			1,209
	Other			335			320

		Total revenue		17,857			14,938
Gross profit:
	TSG			4,030			2,764
	ITG			3,386			1,548
	International			842			649
	Other			334			278

		Total gross profit		8,592			5,239
Operating expenses:
	TSG			2,346			3,887
	ITG			1,420			2,575
	International			636			802
	Other			966			1,138

		Total segment operating expense		5,368			8,402
Other operating expenses, unallocated:
	Administrative support and technology functions			(6,664	)		(5,984	)
	Depreciation and amortization of intangibles			(1,585	)		(3,539	)
	Impairment of assets			—			(15,434	)

Loss from operations			$	(5,025	)	$	(28,120	)

7. Litigation

Ticketmaster 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, 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 its 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 of the six 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 Ticketmaster pages. 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 February 27, 2002 the United States District Court, Central District of California, Western Division issued an order revising the framework within which to complete discovery and trial preparation. Based on the order, September 1, 2002 was established as the date for the completion of discovery and the trial date was set for February 3, 2003. Discovery, including interrogatories, document production and depositions are ongoing as of this date.

We have entered into a contingent fee agreement with our counsel providing that should we prevail in the litigation, our counsel may receive fifty percent of any recovery in exchange for a deferral of continuing legal fees.

William Branch, et. al., vs. Tickets.com, Inc., et. al. On July 10, 2001, we and certain of our current and former directors and officers were named in a class action pending in the federal district court in the Southern District of New York, case number 01CV-6008. We were also 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 limited activity in these cases to date.

NAP Venture Partners LLC ; PromoWest Productions, Inc., vs. Tickets.com, Inc.On September 17, 2001 we were served with a complaint brought by NAP Venture Partners LLC and PromoWest Productions, Inc. The suit was originally filed in Los Angeles Superior Court, but following a change in venue, the case is currently pending in Orange County Superior Court, County of Orange, State of California, assigned the case number of 01CC14946. The suit seeks damages in an unspecified amount and asserts 6 causes of action: breach of written contract, breach of the implied covenant of good faith and fair dealing, violation of the Unfair Competition Act and Business and Professions Code, Section 17200 et seq. This case arises out of a prior agreement between us and the plaintiff providing for, among other things, us 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 us were tied to certain construction milestones, to ensure that progress of the development was continuing. Following our first scheduled payment of funds, the plaintiff returned all sums previously paid by the us and sought to cancel the agreement, to which we refused. This suit followed seeking, among other things, cancellation of the agreement.

Robert Smola and Barry Sturner vs. Tickets.com, inc., and Chicago National League Ball Club, Inc.On April 29, 2002, we were served with a complaint seeking to certify three separate plaintiff consumer classes and seeking damages against us and the Chicago Cubs National League baseball team, based on alleged violations to two Illinois statutes: (i) the Illinois Scalping Act and (ii) the Illinois Consumer Fraud and Deceptive Business Practices Act. The case was filed in the Circuit Court of Cook County, Illinois County Department, Chancery Division, case number of 02CH0813.

The complaint cites that the amount of the ticket convenience fee charged to a consumer is based on the face value of the ticket, however, the actual service rendered for which the convenience fee is charged is no different for a higher priced ticketed than it is for a lower priced ticket. The complaint alleges that this variance in the assessed amount of the convenience fee, based solely on the face value of a ticket, is unreasonable and is accordingly, in violation of the Scalping Act. The complaint further alleges that the convenience fee assessed for the purchase of tickets “will-call” is unreasonable as no “service” is rendered to the ticket buyer and accordingly, such practice is a violation of the Scalping Act. The complaint finally alleges that the amounts assessed for shipping and handling fees, as well as the method for the selection of shipping and handling options on Cub’s Web site are violations of the Consumer Fraud Act.

We are currently evaluating the plaintiff’s claims and intend to retain counsel to provide us a defense in this matter.

We believe these matters will not result in a material impact to our financial position or financial results, therefore, we have not recorded a provision for these matters in our condensed consolidated financial statements.

8. Equity

Series F Preferred Stock

On June 23, 2001, we sold 10,833,333 shares of our Series F Senior Cumulative Redeemable Convertible Preferred Stock (the “Series F Preferred Stock”) for $0.60 per share. The aggregate purchase price was $6.5 million. On August 1, 2001, we sold an additional 17,500,000 shares of Series F Preferred Stock for $0.60 per share. The aggregate purchase price was $10.5 million.

The Series F Preferred Stock ranks senior to our Common Stock. If we pay dividends on our Common Stock then the holders of the Series F Preferred Stock will receive the same dividends as if their shares of Series F Preferred Stock were converted into Common Stock. In addition, we will pay cumulative dividends on the Series F Preferred Stock at the rate of nine percent per year of the Series F Accreted Value (as defined below), less any cash dividends paid to the holders of the Series F Preferred Stock because of a dividend paid on the Common Stock as described in the second sentence of this paragraph. The cumulative dividends accrue and compound quarterly whether or not declared by our Board of Directors. As of March 31, 2002, accrued dividends were approximately $1.1 million. The accretion of the Series F Preferred Stock redemption value was $0.1 million in the quarter ended March 31, 2002.

Series G Preferred Stock

On March 25, 2002, we sold 8,474,576 shares of our Series G Senior Cumulative Redeemable Convertible Participating Preferred Stock (the “Series G Preferred Stock”). We also sold warrants (the “Warrants”) to purchase 1,800,000 shares of our Common Stock, at an exercise price of $2.36 per share. We received an aggregate purchase price of $20.0 million for the sale of the Series G Preferred Stock and the Warrants, less $0.2 million in issuance costs. The purchasers of the Series G Preferred Stock were General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., and GapStar, LLC. On March 18, 2002, we filed a Form 8-K describing the transaction and the terms of the Series G Preferred Stock. We sold the Series G Preferred Stock and the Warrants in reliance on the exemption from registration provided by Rule 506 of the Securities Act of 1933, as amended. We relied upon the Rule 506 exemption because of the nature of the purchasers and the fact that the sale was an arms’ length negotiated transaction.

The Warrants are exercisable at any time by delivery to us of a duly executed exercise form and payment of the exercise price. The Warrants were valued at approximately $3.0 million using the Black-Scholes Options Pricing Model. We have not and do not intend to pay dividends, therefore the dividend yield was 0.0%, volatility rate used was 67.9%, and risk-free interest rate of 5.5%, with contractual life of seven years. In connection the Series G Preferred Stock, we recorded the value of the beneficial conversion feature of approximately $3.0 million during quarter ended March 31, 2002.

The Series G Preferred Stock ranks senior to our Common Stock and the Series F Preferred Stock. If we pay dividends on our Common Stock then the holders of the Series G Preferred Stock will receive such dividends as if their shares of Series G Preferred Stock were converted into Common Stock. In addition, we will pay cumulative dividends on the Series G Preferred Stock at a rate of nine percent per year of the Series G Accreted Value (as defined below), minus any cash dividends paid to the holders of the Series G Preferred Stock because of a dividend paid on the Common Stock as described in the second sentence of this paragraph. The cumulative dividends will accrue and compound quarterly whether or not declared by our Board of Directors. “Series G Accreted Value” means $2.36 plus the amount of any accrued and unpaid dividends.

Each share of Series G Preferred Stock is convertible at the option of the holders of the Series G Preferred Stock into shares of Common Stock at a conversion ratio equal to the Series G Accreted Value divided by $2.36, subject to antidilution adjustments as described below (the “Series G Conversion Price”). In addition, if the holders of the Series G Preferred Stock convert the Series G Preferred Stock after March 25, 2004, such holders will receive an additional amount equal to the Series G Liquidation Payment (as defined below) for each shares of Series G Preferred Stock converted, payable at the election of a majority of the holders of the Series G Preferred Stock in either cash or shares of Common Stock. This additional amount is payable only with respect to a maximum of 2,824,858 shares if converted prior to March 25, 2005 and a maximum of 5,649,717 shares if converted prior to March 25, 2006.

of one share of our Common Stock on each of the twenty consecutive trading days ending on and including the trading day prior to such date. In connection with the Series G Preferred Stock, we requested and received a waiver from Nasdaq of the stockholder approval requirements of Nasdaq Marketplace Risks 4350 and 4351.

In the event of a merger or consolidation of us or a sale of our voting stock or our assets or our liquidation, dissolution or winding up, each holder of Series G Preferred Stock will be entitled to the following: (i) to be paid for each share of Series G Preferred Stock an amount equal to the Participation Factor (as hereinafter defined) times the Series G Accreted Value at the time of such event (such product, the “Series G Liquidation Payment”), and (ii) to receive the number of shares of our Common Stock to which such share of Series G Preferred Stock is convertible upon the closing of such event. “Participation Factor” means two, but will be reduced to one in the case of a merger or sale if the Participation Reduction Amount (as hereinafter defined) is greater than two times the Series G Conversion Price. “Participation Reduction Amount” means a fraction, (A) the numerator of which is the aggregate consideration paid to the holders of our capital stock in such sale or merger minus the aggregate Series G Accreted Value on the closing date of such sale or merger minus the amount of the Series F Participation Payment and (B) the denominator of which is the aggregate number of outstanding shares of Common Stock assuming the conversion of the Series G Preferred Stock, the Series F Preferred Stock and all other securities convertible into shares of Common Stock immediately prior to the closing date of such sale or merger.

The holders of the Series G Preferred Stock have the right to vote, on an as converted basis, on all matters that require a vote of the Common Stock. In addition, the following actions require the approval of the holders of a majority of the outstanding Series G Preferred Stock: (i) any modification or amendment to our Certificate of Incorporation or Bylaws that would affect the rights, preferences, powers and privileges of the Series G Preferred Stock; (ii) the issuance or authorization of any additional capital stock or options to acquire shares of capital stock; (iii) the redemption for cash of any capital stock that is junior or equal to the Series G Preferred Stock; (iv) the declaration or payment of any dividends or other distributions on any capital stock that is junior or equal to the Series G Preferred Stock; (v) a liquidation or any sale or merger; (vi) any action resulting in a deemed dividend under section 305 of the Internal Revenue Code; (vii) the assumption or issuance of debt in excess of $3.0 million; (viii) capital expenditures in excess of $1.5 million individually or $4.0 million in the aggregate during any twelve-month period, or $1.0 million not included in the annual operating budget; (ix) any material change in our accounting methods or policies; and (x) any change in the number of directors constituting the Board of Directors. As long as General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., and GapStar, LLC and/or any of their affiliates own at least a majority of the outstanding shares of Series G Preferred Stock, the holders of Series G Preferred Holders have the right to elect two directors of our Board of Directors.

The holders of the Series G 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 Common Stock) at a price per share (“New Issue Price”) less than the Series G Conversion Price then in effect, the Series G Conversion Price shall be adjusted to equal the New Issue Price.

Under the Amended and Restated Registration Rights Agreement, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., and GapStar, LLC have two demand registration rights for an underwritten offering, and the Series F Preferred Stock purchasers will have customary “piggy-back” registration rights in both primary and secondary offerings (i.e., a right to participate in registrations initiated by us or other of our stockholders).

9. Promissory Note

In March 2002, the Company entered into a letter of agreement with General Atlantic Partners 74, L.P. pursuant to which GAP 74 loaned $1.0 million to the Company in exchange for the issuance by the Company of a senior promissory note in favor of GAP 74. The promissory note was in the principal amount of $1.0 million and accrued interest at a rate of nine percent per year. The promissory note was due and payable on April 15, 2002. On March 25, 2002 the Company sold the shares of its Series G Preferred Stock as described above and the Company used a portion of the proceeds from such sale to satisfy the Company’s debt to GAP74 pursuant to the promissory note. A director of the Company is a managing member of General Atlantic Partners, LLC, the general partner of GAP 74.

10. Change in Control

Following the consummation of the Series F Preferred Stock and the Series G Preferred Stock transactions, investment entities affiliated with General Atlantic Partners, LLC hold a majority of the total voting power of our capital stock. As a result, they can control any matters submitted to a vote of the stockholders, including the election of directors.

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 is continuing to evaluate the effects SFAS No. 142 may have on future earnings and as such has adopted SFAS No. 142 for our fiscal year beginning January 1, 2002. We anticipate to implement SFAS No. 142 in the quarter ended June 30, 2002. In the quarter ended March 31, 2001, we incurred $2.4 million in amortization of goodwill and intangibles. Under SFAS No. 142, we discontinued the periodic amortization of goodwill. This change in accounting method reduced our periodic amortization of goodwill and intangibles to $0.3 million for the quarter ended March 31, 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. Adoption of SFAS 144 did not 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

Various “forward-looking statements” have been made in this Form 10-Q, including information incorporated herein by reference within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may also be included in Tickets.com, Inc.’s other reports filed under the Securities Exchange Act of 1934, in its

press releases and in other documents. In addition, from time to time, Tickets.com, Inc., through its management, may make oral forward-looking statements.

Forward-looking statements are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods and other future events to differ materially from what is currently anticipated. These forward looking statements generally refer to future plans and performance, and are identified by the words “project,” “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “aim,” “will” or the negative thereof and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only to expectations as of the date on which they are made. Certain statements in this Form 10-Q, including those relating to Tickets.com, Inc.’s expected results, and its anticipated cash requirements and sources, are forward-looking statements. Such statements involve risks and uncertainties, which may cause results to differ materially from those set forth in these statements. Factors that may cause actual results in future periods to differ from current expectations include, among other things, the continued availability of sufficient working capital, the availability of adequate sources of capital, and the successful integration of previous acquisitions and consolidation of software code lines. These and other factors identified in this Form 10-Q, including but not limited to the risk factors discussed herein and in Tickets.com, Inc.’s previously filed public documents, could affect the forward-looking statements contained herein and therein. Tickets.com, Inc. undertakes no obligation to update publicly or revise any forward-looking statements or explain the reasons why actual results may differ.

The risks and uncertainties contained herein, among other things, should be considered in evaluating Tickets.com, Inc.’s prospects and future financial performance.

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, Latin America and Asia.

Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31, 2001

Revenues

Ticketing Services Group. Revenues from TSG increased 20.0% to $10.8 million for the three months ended March 31, 2002 from $9.0 million for the three months ended March 31, 2001. This increase was primarily due to an increase of approximately $2.3 million related to our entrance into the Oklahoma, Houston, and Greensboro markets through the additions of the Myriad Convention Center and Arena, the Houston Astros, and the Greensboro Coliseum Complex, as well as the addition of three full service major league baseball teams during the first quarter of 2002. This increase was partially offset by a decrease in revenue in the Las Vegas market, due to a reduced number of events such as the Xtreme Football League, and the Pittsburgh market, due to lower attendance at events held at PNC Park.

Internet Ticketing Group. Revenues from ITG increased 20.5% to $5.3 million for the three months ended March 31, 2002 from $4.4 million for the three months ended March 31, 2001. This increase was primarily due to an increase of $1.2 million related to our Internet ticketing revenue, attributable principally to our contract with Major League Baseball Advanced Media, LP, (“MLBAM”). We supply the Internet ticketing for 20 of the 30 major league baseball teams, 12 of which are recorded under the ITG business segment and the balance, which are full service customers, are recorded under the TSG business segment. We experienced higher ticket fees due to the increased Internet sales volume for these teams relative to the same quarter last year. This increase was slightly offset by a $0.2 million decrease in software license and support fees. Included in ITG revenue for the first quarter ended March 31, 2002 was $0.8 million relating to our contract with the Salt Lake Olympic Committee, which was unchanged from the revenues for the first quarter of 2001.

International.International revenue increased 16.7% to $1.4 million for the three months ended March 31, 2002 from $1.2 million for the three months ended March 31, 2001 primarily due to an increase in license and support revenue in 2002.

Other.Other revenues were $0.3 million for each of the quarters ended March 31, 2002 and 2001. Other revenues primarily relate to our marketing relationships with various vendors as well as advertising sales from our website.

Cost of Services

Ticketing Services Group. Cost of services for TSG increased 9.7% to $6.8 million for the three months ended March 31, 2002 from $6.2 million for the three months ended March 31, 2001. As a percentage of TSG revenues, total cost of services for TSG decreased to 62.8% from 69.3%. The increase in cost of services was primarily attributable to an increase of $1.2 million in credit card fees associated with the increase in TSG revenue. The increase in credit card fees was partially offset by a decrease of $0.7 million in payroll expenses and telecommunication costs resulting from our cost reduction plans in our call centers.

Internet Ticketing Group. Cost of services for ITG decreased 34.5% to $1.9 million for the three months ended March 31, 2002 from $2.9 million for the three months ended March 31, 2001. The majority of this decrease was related to a $0.6 million decrease in payroll and payroll related expenses in the first quarter of 2002 as compared to the first quarter of 2001. As a percentage of ITG revenue, cost of services decreased to 36.0% from 64.9% in the same quarter last year. The majority of this decrease as a percentage of revenue was the effect of spreading fixed costs over a higher revenue base from the increased volume of ticketing fees from Internet sales.

International.Cost of services for International remained unchanged at $0.6 million for each of the three months ended March 31, 2002 and 2001. As a percentage of International revenue, cost of services decreased to 39.7% from 46.3%. Due to cost controls we have implemented, we have been able to maintain our costs while increasing our revenues.

Operating Expenses

Sales and Marketing.Sales and marketing expenses decreased 37.7% to $3.3 million for the three months ended March 31, 2002 from $5.3 million for the three months ended March 31, 2001. As a percentage of total revenues, sales and marketing expenses decreased to 18.5% from 35.5%. The decrease reflects the elimination of a periodic expense of $0.4 million taken in the first quarter of 2001 as a result of the asset impairment charge for our online marketing relationship with Excite@Home, which occurred in the third quarter of 2001. In addition, we continued to make reductions in our headcount resulting in a decreased payroll expense of $0.7 million and office related expenses of $0.4 million from the same period last year. Advertising expenses also decreased $0.3 million as we continued to focus on leveraging our client’s brands thereby resulting in a significant reduction in spending to promote our own brand.

Technology Development. Technology development expenses increased 5.6% to $3.8 million for the three months ended March 31, 2002 from $3.6 million for the three months ended March 31, 2001. As a percentage of total revenues, technology development expenses decreased to 21.3% from 24.2%. Our reliance on outside professional services continued to drop resulting in a decrease of $0.1 million in the first quarter of 2002 from the same quarter last year, while computer related expenses and payroll expenses increased by $0.2 million and $0.1 million, respectively.

General and Administrative. General and administrative expenses decreased 28.6% to $6.5 million for the three months ended March 31, 2002 from $9.1 million for the three months ended March 31, 2001. As a percentage of total revenue, general and administrative expenses decreased to 36.5% from 60.8%. The reduction is primarily attributable to a change in our accounting method for amortization of goodwill and intangibles. During the quarter ended March 31, 2001, we amortized $2.4 million of goodwill and intangibles as a general and administrative expense. Under SFAS No. 142, “Goodwill and Other Intangible Assets”, which we adopted in 2002, we discontinued the periodic amortization of goodwill. This change in accounting method reduced our periodic amortization of goodwill and amortization to $0.3 million for the quarter ended March 31, 2002. In addition to the reduction of the amortization of goodwill, our telecommunication expenses and rent also decreased by $0.5 and $0.1 million, respectively. Our bad debt expense also decreased by $0.4 million over the same quarter last year.

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 determined the online marketing asset with Excite@Home would not be fully realized and it was partially written down by $13.9 million. Additionally, we wrote-off our strategic investment in two Internet based companies, Encryptix and Campus Pipeline, 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, Excite@Home filed for bankruptcy and we recorded an additional charge of $2.5 million for the impairment of our remaining marketing asset with Excite@Home.

Other Income

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 50.0% to $0.1 million for the three months ended March 31, 2002 from $0.2 million for the three months ended March 31, 2001. The decrease was primarily due to a reduction in cash available for investment in the first quarter of 2002.

Net Loss

Net Loss. For the three months ended March 31, 2002, our net loss available to common stockholders was $8.4 million or $1.12 per share. For the three months ended March 31, 2001, our net loss was $28.0 million or $3.77 per share. The decrease in the net loss was primarily due to:

	•		Charge for impairment of assets of $15.4 million;

	•		Increased revenue by $2.9 million in 2002;

	•		Discontinuation of periodic amortization for goodwill of approximately $2.0 million in 2002;

	•		Decreased sales and marketing expenses of $2.0 million from reduced payroll expenses, office related expenses and advertising expenses.

These factors contributing to our decrease in net loss available to common stockholders, were offset by the following factors:

	•		Recording of the value of the beneficial conversion feature of approximately $3.0 million in 2002;

	•		Preferred stock dividends of $0.4 million in 2002.

Liquidity and Capital Resources

Our cash and cash equivalents increased by $18.5 million during the three months ended March 31, 2002, from $8.8 million as of December 31, 2001. The increase resulted primarily from the issuance of Series G Preferred Stock for $20.0 million, net of issuance costs of $0.2 million. Additionally, current liabilities increased $3.6 million primarily due to an increase in accounts payables of $3.2 million and accrued liabilities of $1.2 million, partially offset by a decrease in other current liabilities. This increase in cash was partially offset by an increase in accounts receivables of $3.2 million primarily due to an increase of $1.8 million in credit card receivables and $1.4 million in accounts receivable due from clients who process their own credit card transactions but use our ticketing solutions. This increase in accounts receivable was related to a timing issue at the quarter ended March 31, 2002. These funds were received in April 2002.

We have incurred losses since our inception and, given our decision to continue to invest our capital in infrastructure and business expansion, we expect to continue to incur losses in the future. We also anticipate purchasing additional property and equipment during 2002. We currently have contractual commitments, principally lease obligations, advertising, and client marketing agreements, of approximately $7.2 million during the next 12 months and lesser amounts in the years thereafter. Further, we, and some of our current and former directors and officers, have been named in various legal complaints. We have tendered these matters 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 arrangement with our legal counsel in the Ticketmaster action to mitigate our further expenditures on fees, although we will continue to bear significant costs associated with this litigation. Under the contingent fee arrangement, our legal counsel will be entitled to 50% of the recovery, if any, that we may receive in the Ticketmaster litigation.

We believe that our existing cash and cash equivalents are sufficient to meet these needs and fund our operations for at least the next 12 months. However, while we do not expect a significant fall off in our revenue or related operating cash flows, due to the largely fixed nature of our infrastructure costs, such a fall off resulting from events such as further terrorist attacks, an extended major league baseball strike or lock out, the loss of major clients, or other causes, could result in our needing an additional capital infusion. In addition, our Series F Preferred Stock and Series G Preferred Stock accrue cumulative dividends at a rate of nine percent per year, compounding quarterly. While we will likely pay these dividends by issuing additional shares of our Common Stock, we may elect to pay them in cash. We are also obligated to redeem our Series F Preferred Stock and Series G Preferred Stock in 2006 and 2007, respectively, as described above. We cannot assure you that we will have sufficient financial resources to make those redemption payments or be able to obtain replacement financing on those redemption dates. We also cannot assure you that if additional capital is required that it will be available on reasonable terms or at all. In addition, the holders of our Series F Preferred Stock and Series G Preferred Stock have the right to prevent us from incurring any further debt or issuing additional equity securities.

Critical Accounting Policies

We believe the following are among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements inNote 2, Summary of Significant Accounting Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.We continue to invest capital in our infrastructure and business expansion to obtain and develop new software and code line to enhance our ticketing inventory management and to offer customized products to our clients. Our intention is not to market and resell the specific software and code line, but to use it in the management of ticket inventory and processing. As of March 31, 2002, capitalized computer software costs were $2.4 million, net of accumulated amortization.

Our capitalized costs are comprised of direct costs and allocated costs. Direct costs incurred include payments made to outside vendors for programming and internal direct labor. Common costs such as benefits are allocated based on direct labor dollars within a specific department and business unit. Further improvements and enhancements to the software and code line are expensed as incurred. Amortization for these assets is recorded on the straight-line method over the estimated useful lives of each individual product. We continue to review these assets for impairment by taking into consideration enhancements and other new products developed by us. Recoverability of the assets is measured by their future effectiveness for us and the anticipated expiration based on future code line. If such assets are considered to be impaired or superceded by new code line, the impairment is recognized and the value is written down to an appropriate fair market value. If it is determined that the utilization of the software or code line is less than originally estimated, then its life will be shortened and the amortization will be accelerated. There are many assumptions and estimates underlying the determination of an impairment event or loss. The assumptions and estimates include, but are not limited to, the continued usefulness of the asset and the estimated fair market value of the assets, which are based on additional assumptions such as asset utilization and length of service the asset will be used. Although we believe our assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.

Statements of Financial Accounting Standards (“SFAS”) No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and SFAS No. 142, Goodwill and Other Intangible Assets.In connection with the adoption of SFAS No. 142, we will need to perform an impairment test of goodwill and other intangible assets in 2002. Under the provisions of SFAS No. 142, acquired goodwill and other intangible assets will be aggregated with our existing business segments and evaluated for impairment. These assets will be tested for impairment at least annually using a two-step process that begins with an allocation of goodwill to our business segments and then we will estimate the fair market value of the reporting business segment. 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 business segment and asset class for those assets subject to amortization and for those not subject to amortization. The process of evaluating goodwill for impairment involves the determination of the fair value of our business segments. Inherent in such fair value determinations are certain judgments and estimates, including the interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises or our strategies change, it is possible that our conclusion regarding goodwill impairment could change and result in a material effect on our financial position or results of operations.

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in transactions accounted for purchases are included in goodwill. As disclosed in the consolidated financial statements, we had goodwill in the amount of $34.2 million, net of accumulated amortization, as of March 31, 2001. In the three months ended March 31, 2001, goodwill was amortized on the straight-line method over a 10-year period. Inherent in such valuations, we must make certain judgments, estimates, and assumptions about our strategic plans with regard to our operations. There are many assumptions and estimates underlying the determination of an impairment event or loss. To the extent additional information arises or our strategies change, it is possible that our conclusion regarding goodwill impairment could change and result in a material effect on our financial position or results of operations. Additionally, under the new guidelines of SFAS 142, the assessment of the recoverability of goodwill will be impacted if the fair market value does not exceed the carrying value. Adoption of this standard could produce a significant impairment in the second quarter of 2002.

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 this 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 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 and generally 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.

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 continue to 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 additional 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. Additionally, we may not 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 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.

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 increasing our client base. If we are not successful in these endeavors, our

revenues will not grow in accordance with our business plan 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.

A Strike In Major League Baseball Or The Public Discussion Of A Possible Strike Could Materially Adversely Impact Our Revenue.Concern about the cancellation of baseball games as a result of a strike or lock out in Major League Baseball, the actual cancellation or postponement of individual baseball games or the ultimate cancellation or postponement of the entire baseball season, could significantly reduce our revenue. We generate fees from the sale of individual tickets and if events are either cancelled or alternatively, if consumers reduce their purchases in anticipation of a potential strike or lock out, those fees would be negatively impacted. If any of the above circumstances occur, we would see a reduction in our revenues from our various relationships with MLBAM and individual baseball teams with a commensurate erosion of our operating results.

We Depend On Retail Stores To Reach Consumers, And If We Cannot Maintain These Relationships And Establish New Relationships, Our Ticket Sales May Be Adversely Affected.A portion of our ticket sales is generated through arrangements with retail stores. Our contracts with these retail stores are generally for a short-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 attracted 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.

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 their 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 with 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 trademarked 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. We are currently the target of a complaint by two individuals seeking a consumer class based on the violation of scalping regulations and may be the target of additional complaints in the future. 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 11 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. 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 skilled 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 we evaluate on a regular basis for impairment. Under SFAS No. 142, Goodwill and Other Intangibles, we will be required to test for impairment using estimated fair value of the reporting units as well as undiscounted cash flows. As of March 31, 2002, we had goodwill and other intangible assets of $40.5 million. 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, an additional impairment charge would be taken, thereby significantly affecting our operating results.

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 Are Obligated To Redeem Our Preferred Stock In 2006 and 2007 And May Not Have Sufficient Financial Resources To Do So.We are obligated to redeem our Series F Preferred Stock and Series G Preferred Stock in 2006 and 2007, respectively. We do not currently have sufficient financial resources to make those redemption payments and we may not generate sufficient funds from our operations or be able to obtain replacement financing on reasonable terms, or at all, before such redemption dates.

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.

Our Principal Stockholders Own a Majority of Our Capital Stock and Control the Company.Following the consummation of the Series F Preferred Stock and the Series G Preferred Stock transactions, investment entities affiliated with General Atlantic Partners, LLC hold a majority of the total voting power of our capital stock. As a result, they can control any matters submitted to a vote of the stockholders, including the election of directors. Such concentration of ownership may have the effect of delaying or preventing a change in control in the future.

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.

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 in Canada and denominated in their respective local currency.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

In June of 2001, we have entered into a contingent fee agreement with our counsel providing that should we prevail in the litigation, our counsel may receive fifty percent of any recovery in exchange for a deferral of continuing legal fees.

sought to cancel the agreement, to which we refused. This suit followed seeking, among other things, cancellation of the agreement.

The complaint further alleges that the convenience fee assessed for the purchase of tickets “will-call” is unreasonable as no “service” is rendered to the ticket buyer and accordingly, such practice is a violation of the Scalping Act. The complaint finally alleges that the amounts assessed for shipping and handling fees, as well as the method for the selection of shipping and handling options on Cub’s Web site are violations of the Consumer Fraud Act.

We are currently evaluating the plaintiff’s claims and intend to retain counsel to provide us a defense in this matter.

Item 2.Changes in Securities and Use Of Proceeds

On March 25, 2002, we sold 8,474,576 shares of our Series G Senior Cumulative Redeemable Convertible Participating Preferred Stock (the “Series G Preferred Stock”). We also sold warrants (the “Warrants”) to purchase 1,800,000 shares of our Common Stock, at an exercise price of $2.36 per share. We received an aggregate purchase price of $20.0 million for the sale of the Series G Preferred Stock and the Warrants. The purchasers of the Series G Preferred Stock were General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., and GapStar, LLC. On March 18, 2002, we filed a Form 8-K describing the transaction and the terms of the Series G Preferred Stock. We sold the Series G Preferred Stock and the Warrants in reliance on the exemption from registration provided by Rule 506 of the Securities Act of 1933, as amended. We relied upon the Rule 506 exemption because of the nature of the purchasers and the fact that the sale was an arms’ length negotiated transaction.

The Warrants are exercisable at any time by delivery to us of a duly executed exercise form and payment of the exercise price.

The Series G Preferred Stock ranks senior to our Common Stock and the Series F Preferred Stock. If we pay dividends on our Common Stock then the holders of the Series G Preferred Stock will receive such dividends as if their shares of Series G Preferred Stock were converted into Common Stock. In addition, we will pay cumulative dividends on the Series G Preferred Stock at a rate of nine percent per year of the Series G Accreted Value (as defined below), minus any cash dividends paid to the holders of the Series G Preferred Stock because of a dividend paid on the Common Stock as described in the second sentence of this paragraph. The cumulative dividends will accrue and compound and quarterly whether or not declared by our Board of Directors. “Series G Accreted Value” means $2.36 plus the amount of any accrued and unpaid dividends.

On March 25, 2007, we will automatically redeem all of the shares of Series G Preferred Stock in cash, at a redemption price per share equal to the greater of the Series G Liquidation Payment (as defined below) calculated on such date or the average trading price of one share of our Common Stock on each of the twenty consecutive trading days ending on and including the trading day prior to

such date. In connection with the issuance of the issuance of the Series G Preferred Stock, we requested and received a waiver from Nasdaq of the stockholder approval requirements of Nasdaq Marketplace Risks 4350 and 4351.

In March 2002, the Company entered into a letter of agreement with General Atlantic Partners 74, L.P. pursuant to which GAP 74 loaned $1 million to the Company in exchange for the issuance by the Company of a senior promissory note in favor of GAP 74. The promissory note was in the principal amount of $1 million and accrued interest at a rate of nine percent per year. The promissory note was due and payable on April 15, 2002. On March 25, 2002 the Company sold the shares of its Series G Preferred Stock as described above and the Company used a portion of the proceeds from such sale to satisfy the Company’s debt to GAP74 pursuant to the promissory note. Mr. Braden R. Kelly, a director of the Company, is a managing member of General Atlantic Partners, LLC, the general partner of GAP 74.

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) None

(b) Reports on Form 8-K:

	1.		On March 18, 2002, we filed a Current Report on Form 8-K reporting under Items 1, 5 and 7, the execution of a stock purchase agreement by and among us and General Atlantic Partners 74 L.P., GAP Coinvestment Partners II, L.P. and GapStar, LLC providing for the sale by us of our Series G Senior Cumulative Redeemable Convertible Participating Preferred Stock and warrants to purchase our Common Stock.

	2.		On March 29, 2002, we filed a current report on Form 8-K reporting under Items 1 and 7, the execution of a letter agreement with General Atlantic 74 L.P. providing for a loan to us of $1.0 million in exchange for a senior promissory note.

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: May 14, 2002

/s/ RONALD BENSION

Ronald Bension
Chief Executive Officer
(Principal Executive Officer)

/s/ ERIC P. BAUER

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

Tickets Com (TIXX) Inactive 10-Q2002 Q1 Quarterly report

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