UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2009
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-24592
Tix Corporation
(Exact name of small business issuer as specified in its charter)
Delaware | 95-4417467 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
12001 Ventura Place, Suite 340, Studio City, California 91604
(Address of principal executive offices)
(818) 761-1002
(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 ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period that the Registrant was required to submit and post such reports). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ¨ No x
Number of shares of Tix Corporation common stock, $.08 par value, issued and outstanding as of July 30, 2009: 32,428,626, exclusive of treasury shares.
Special Note Regarding Forward-Looking Statements:
This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements that include the words “believes”, “expects”, “anticipates”, “intends”, “plans”, “may”, “will” or similar expressions that are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements may include, among others, statements concerning the Company's expectations regarding its business, growth prospects, revenue trends, operating costs, working capital requirements, facility expansion plans, competition, results of operations and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 involve known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to differ materially from those expressed in or implied by the forward-looking statements contained herein.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning the Company and its business made throughout this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, as well as other public reports filed with the United States Securities and Exchange Commission. Investors should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. Except as required by applicable law or regulation, the Company undertakes no obligation to update or revise any forward-looking statement contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, whether as a result of new information, future events or otherwise.
Tix Corporation and Subsidiaries
Index
Page No. | |||
PART I. FINANCIAL INFORMATION | |||
Item 1. Financial Statements | |||
Condensed Consolidated Balance Sheets –June 30, 2009 (Unaudited) and December 31, 2008 | 1 | ||
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - Three months ended June 30, 2009 and 2008 | 2 | ||
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - Six months ended June 30, 2009 and 2008 | 3 | ||
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Six months ended June 30, 2009 | 4 | ||
Condensed Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2009 and 2008 | 5-6 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | ||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 38 | ||
Item 4. Controls and Procedures | 38 | ||
PART II. OTHER INFORMATION | |||
Item 1. Legal Proceedings | 38 | ||
Item 1A. Risk Factors | 38 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 39 | ||
Item 3. Defaults upon Senior Securities | 39 | ||
Item 4. Submission of Matters to a Vote of Security Holders | 39 | ||
Item 5. Other Information | 40 | ||
Item 6. Exhibits | 40 | ||
SIGNATURES | 40 |
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 12,944,000 | $ | 9,192,000 | ||||
Accounts receivable, including show revenues earned but not billed | 1,038,000 | 1,104,000 | ||||||
Inventory, net | 2,248,000 | 3,320,000 | ||||||
Prepaid expenses and other current assets | 624,000 | 867,000 | ||||||
Total current assets | 16,854,000 | 14,483,000 | ||||||
Property and equipment: | ||||||||
Office equipment and furniture | 1,913,000 | 1,816,000 | ||||||
Equipment under capital lease | 408,000 | 408,000 | ||||||
Leasehold improvements | 365,000 | 364,000 | ||||||
Property and equipment, cost basis | 2,686,000 | 2,588,000 | ||||||
Less accumulated depreciation | (1,419,000 | ) | (1,155,000 | ) | ||||
Total property and equipment, net | 1,267,000 | 1,433,000 | ||||||
Other assets: | ||||||||
Intangible assets: | ||||||||
Goodwill | 5,895,000 | 5,639,000 | ||||||
Intangibles, net | 5,768,000 | 6,751,000 | ||||||
Total intangible assets | 11,663,000 | 12,390,000 | ||||||
Capitalized theatrical costs | 815,000 | 459,000 | ||||||
Deposits and other assets | 184,000 | 83,000 | ||||||
Total other assets | 12,662,000 | 12,932,000 | ||||||
Total assets | $ | 30,783,000 | $ | 28,848,000 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,101,000 | $ | 4,822,000 | ||||
Accrued expenses | 2,559,000 | 1,515,000 | ||||||
Current portion of capital lease obligations | 63,000 | 51,000 | ||||||
Deferred revenue | 80,000 | 100,000 | ||||||
Income taxes payable | 106,000 | - | ||||||
Total current liabilities | 6,909,000 | 6,488,000 | ||||||
Non-current liabilities: | ||||||||
Capital lease obligations, less current portion | 39,000 | 78,000 | ||||||
Deferred rent | 52,000 | 85,000 | ||||||
Total non-current liabilities | 91,000 | 163,000 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Preferred stock, $.01 par value; 500,000 shares authorized; none issued | ||||||||
Common Stock, $.08 par value; 100,000,000 shares authorized; 32,437,626 shares outstanding net of 1,005,000 treasury shares, and 32,345,863 shares outstanding net of 732,370 treasury shares at June 30, 2009 and December 31, 2008 respectively | 2,676,000 | 2,646,000 | ||||||
Additional paid-in capital | 89,093,000 | 88,062,000 | ||||||
Cost of shares held in treasury (1,005,000 shares at June 30, 2009 and 732,370 shares at December 31, 2008 respectively) | (2,541,000 | ) | (2,098,000 | ) | ||||
Accumulated deficit | (65,430,000 | ) | (66,384,000 | ) | ||||
Accumulated other comprehensive loss | (15,000 | ) | (29,000 | ) | ||||
Total stockholders' equity | 23,783,000 | 22,197,000 | ||||||
Total liabilities and stockholders' equity | $ | 30,783,000 | $ | 28,848,000 |
See accompanying notes to condensed consolidated financial statements.
1
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues | $ | 26,584,000 | $ | 16,864,000 | ||||
Operating expenses: | ||||||||
Direct costs of revenues | 21,410,000 | 12,323,000 | ||||||
Selling and marketing expenses | 581,000 | 799,000 | ||||||
General and administrative expenses, including non-cash equity-based costs of $438,000 and $594,000 in 2009 and 2008, respectively (including $303,000 and $415,000 for officers, directors and employees in 2009 and 2008, respectively) | 3,337,000 | 4,059,000 | ||||||
Depreciation and amortization | 626,000 | 1,102,000 | ||||||
Total costs and expenses | 25,954,000 | 18,283,000 | ||||||
Operating Income (Loss) | 630,000 | (1,419,000 | ) | |||||
Other: | ||||||||
Other income | 129,000 | 164,000 | ||||||
Interest income | 9,000 | 11,000 | ||||||
Interest expense | (3,000 | ) | (4,000 | ) | ||||
Other income, net | 135,000 | 171,000 | ||||||
Net income (loss) before income tax expense | 765,000 | (1,248,000 | ) | |||||
Current income tax expense (benefit) | 106,000 | (82,000 | ) | |||||
Net income (loss) | 659,000 | (1,166,000 | ) | |||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustments | 9,000 | (44,000 | ) | |||||
Comprehensive income (loss) | $ | 668,000 | $ | (1,210,000 | ) | |||
Net income (loss) per common share - | ||||||||
Basic | $ | 0.02 | $ | (0.04 | ) | |||
Diluted | $ | 0.02 | $ | (0.04 | ) | |||
Weighted average common shares outstanding - | ||||||||
Basic | 32,361,325 | 31,805,228 | ||||||
Diluted | 32,645,364 | 31,805,228 |
See accompanying notes to the condensed consolidated financial statements.
2
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Six Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues | $ | 46,754,000 | $ | 40,027,000 | ||||
Operating expenses: | ||||||||
Direct costs of revenues | 36,336,000 | 29,054,000 | ||||||
Selling and marketing expenses | 1,187,000 | 2,175,000 | ||||||
General and administrative expenses, including non-cash equity-based costs of $851,000 and $1,196,000 in 2009 and 2008, respectively (including $693,000 and $829,000 for officers, directors and employees in 2009 and 2008, respectively) | 7,093,000 | 7,521,000 | ||||||
Depreciation and amortization | 1,247,000 | 2,224,000 | ||||||
Total costs and expenses | 45,863,000 | 40,974,000 | ||||||
Operating Income (Loss) | 891,000 | (947,000 | ) | |||||
Other: | ||||||||
Other income | 154,000 | 208,000 | ||||||
Interest income | 22,000 | 45,000 | ||||||
Interest expense | (7,000 | ) | (10,000 | ) | ||||
Other income, net | 169,000 | 243,000 | ||||||
Net income (loss) before income tax expense | 1,060,000 | (704,000 | ) | |||||
Current income tax expense | 106,000 | - | ||||||
Net income (loss) | 954,000 | (704,000 | ) | |||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustments | 14,000 | (44,000 | ) | |||||
Comprehensive income (loss) | $ | 968,000 | $ | (748,000 | ) | |||
Net income (loss) per common share - | ||||||||
Basic | $ | 0.03 | $ | (0.02 | ) | |||
Diluted | $ | 0.03 | $ | (0.02 | ) | |||
Weighted average common shares outstanding - | ||||||||
Basic | 32,332,963 | 31,224,025 | ||||||
Diluted | 32,592,125 | 31,224,025 |
See accompanying notes to the condensed consolidated financial statements.
3
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common Stock | Paid In | Accumulated | Treasury | Comprehensive | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Stock | Loss | Equity | ||||||||||||||||||||||
Balance, December 31, 2008 | 32,345,863 | $ | 2,646,000 | $ | 88,062,000 | $ | (66,384,000 | ) | $ | (2,098,000 | ) | $ | (29,000 | ) | $ | 22,197,000 | ||||||||||||
Issuance of common stock to consultants | 29,166 | 3,000 | 47,000 | 50,000 | ||||||||||||||||||||||||
Issuance of common stock to officers and employees | 38,194 | 3,000 | 5,000 | 8,000 | ||||||||||||||||||||||||
Issuance of common stock on exercise of warrants and options | 106,557 | 9,000 | (55,000 | ) | (46,000 | ) | ||||||||||||||||||||||
Fair value of options issued to employees and directors | 685,000 | 685,000 | ||||||||||||||||||||||||||
Issuance of common stock related to acquisition of Magic Arts & Entertainment | 190,476 | 15,000 | 241,000 | 256,000 | ||||||||||||||||||||||||
Fair value of warrants issued to outside consultants | - | - | 108,000 | 108,000 | ||||||||||||||||||||||||
Net Income | 954,000 | 954,000 | ||||||||||||||||||||||||||
Foreign currency translation adjustment | 14,000 | 14,000 | ||||||||||||||||||||||||||
Cost of Treasury Stock | (272,630 | ) | (443,000 | ) | (443,000 | ) | ||||||||||||||||||||||
Balance, June 30, 2009 | 32,437,626 | $ | 2,676,000 | $ | 89,093,000 | $ | (65,430,000 | ) | $ | (2,541,000 | ) | $ | (15,000 | ) | $ | 23,783,000 |
See accompanying notes to the condensed consolidated financial statements.
4
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Month Ended June 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 954,000 | $ | (704,000 | ) | |||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 264,000 | 237,000 | ||||||
Amortization of intangible assets | 983,000 | 1,987,000 | ||||||
Fair valued common stock issued for services to employees | 8,000 | 24,000 | ||||||
Fair valued common stock issued for services to consultants | 50,000 | 367,000 | ||||||
Fair value of options issued to employees and directors | 685,000 | 805,000 | ||||||
Fair value of warrants issued to consultants | 108,000 | - | ||||||
Change in allowance of inventory | (2,000 | ) | 60,000 | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | 66,000 | (578,000 | ) | |||||
Inventory | 1,073,000 | 104,000 | ||||||
Prepaid expenses and other current assets | 243,000 | 320,000 | ||||||
Capitalized theatrical costs, deposits and other assets | (456,000 | ) | (461,000 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | 324,000 | 381,000 | ||||||
Income taxes payable | 106,000 | - | ||||||
Deferred revenue | (20,000 | ) | 2,000 | |||||
Deferred rent | (33,000 | ) | (74,000 | ) | ||||
Net cash provided by operating activities | 4,353,000 | 2,470,000 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (98,000 | ) | (336,000 | ) | ||||
Purchase of Magic Arts & Entertainment, net of cash acquired | - | (1,972,000 | ) | |||||
Purchase of NewSpace Entertainment, net of cash acquired | - | (1,254,000 | ) | |||||
Net cash used in investing activities | (98,000 | ) | (3,562,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Cost of Treasury Stock | (443,000 | ) | - | |||||
Payments on capital lease obligations | (28,000 | ) | (22,000 | ) | ||||
Net proceeds from exercise of options and warrants | (46,000 | ) | 54,000 | |||||
Net cash provided by (used in) financing activities | (517,000 | ) | 32,000 | |||||
Effect of exchange rate changes on cash | 14,000 | (36,000 | ) | |||||
Change in Cash: | ||||||||
Net increase (decrease) | 3,752,000 | (1,096,000 | ) | |||||
Balance at beginning of period | 9,192,000 | 7,417,000 | ||||||
Balance at end of period | $ | 12,944,000 | $ | 6,321,000 |
(Continued)
5
TIX CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
Six Month Ended June 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest | $ | 7,000 | $ | 10,000 | ||||
Non-cash investing activities: | ||||||||
Issuance of earn-out shares of 190,476 and originally issued 476,190 shares of common stock in conjunction with the acquisition of Magic Arts & Entertainment - Florida, Inc. in 2009 and 2008 respectively. | $ | 256,000 | $ | 2,257,000 | ||||
Issuance of 571,428 shares of common stock in conjunction with the acquisition of NewSpace Entertainment, Inc. | $ | - | $ | 2,595,000 |
See accompanying notes to the condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Nature of Business
Tix Corporation (the “Company”) was incorporated in Delaware in April 1993. The Company is a diversified integrated entertainment company providing ticketing services, event merchandising and the production and promotion of live entertainment. We operate three complementary business units: Ticketing Services (Tix4Tonight) provides discount, premium and membership group sales; Exhibit Merchandising (EM) provides our exhibit and event merchandise sales and services; and Tix Productions Inc. (TPI), provides the production and promotion of live entertainment.
Preparation of Interim Financial Statements
The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that its disclosures are sufficiently presented to prevent this information from being misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for a full year. The financial statements contained herein should be read in conjunction with the consolidated and combined financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K and interim financial statements and information reported on Forms 8-K and 10-Q.
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition, Presentation and Concentrations:
The Company has several streams of income, each of which is required under Generally Accepted Accounting Principles (GAAP) to be recognized in varying ways. The following is a summary of our revenue recognition policies.
The Company’s Las Vegas discount show ticketing business recognizes as revenue the commissions and related transaction fees earned from the sale of Las Vegas show tickets at the time the tickets are paid for and delivered to the customers. The Company’s commissions are calculated based on the face value of the show tickets sold. The Company’s transaction fees are charged on a per-ticket basis. With certain exceptions, ticket sales are generally non-refundable, although same-day exchanges of previously sold tickets are permitted. Claims for ticket refunds, which are generally received and paid the day after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. The Company does not have accounts receivable associated with its sales transactions, as payment is collected at the time of sale.
The Company’s Tix4Members.com recognizes as revenue the commissions and related transaction fees from the sale of tickets when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. Claims for ticket refunds, which are generally received and paid the week after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. Presently, Tix4Members.com does not have any accounts receivable associated with sales transactions to individual customers because payment is collected at the time of sale.
Tix4Dinner offers reservations for discounted dinners at various restaurants surrounding the Las Vegas strip and downtown with dining at specific times on the same day as the sale. Tix4Dinner recognizes as revenue the transaction fees earned from the booking of dinner reservations at the time the reservations are made. At this time, the Company has minor accounts receivable and no accounts payable associated with the Tix4Dinner operations, as the Company collects the transaction fee at the time the reservation is made, and the dinner payment is collected directly by the restaurant. The restaurants pay the Company a fee for each reservation.
Tix4Golf recognizes as revenue the difference between how much it charges its customers for tee-times and how much it pays golf courses for tee-times. The revenue per tee-time, as well as the cost per tee-time, varies, depending on the desirability of the golf course, tee-time, weather, time of year and several other factors. Revenue per tee-time is significantly higher when tee-times are guaranteed or pre-bought in large quantities. Tee-times are generally sold the day before or the day of the tee-time, however, tee-times may be booked in advance. Revenue is not recognized until the day of the tee-time. The Company does not have any accounts receivable associated with this business because all transactions are paid for at the time of purchase.
Tix4AnyEvent (AnyEvent) recognizes as revenue the gross amount from the sale of tickets that it owns. AnyEvent bears the risk of economic loss if the tickets are not sold by the date the event is scheduled to occur. Revenue is considered earned when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. AnyEvent does not have any accounts receivable associated with sales transactions to retail customers because payment is collected at the time of sale. However, sales transactions to other ticket brokers may be conducted on a credit basis, which would generate accounts receivable.
7
Exhibit Merchandising recognizes retail store sales at the time the customer takes possession of the merchandise. Sales are recorded net of discounts and returns and exclude sales tax. Discounts are estimated based upon historical experience. For online sales, revenue is recognized free on board (“FOB”) origin where title and risk of loss pass to the buyer when the merchandise leaves the Company's distribution facility at the time of shipment, which we refer to as the date of purchase by the customer. Sales are recognized net of merchandise returns, which are reserved for based on historical experience. Shipping and handling revenues from sales are included as a component of net sales. Conversely, shipping and handling costs are a component of direct cost of revenues. The Company does not have any accounts receivable associated with this business as transactions are done by cash or credit card.
On January 1, 2008, the Company began its live entertainment business. Revenue from the presentation and production of an event is recognized after the performance occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the tour’s season or the term of the contract. We account for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction to revenue.
Tix Productions Inc.’s (TPI) operating units Magic Arts & Entertainment and NewSpace act as both presenters and promoters of productions, as well as agent. TPI’s revenues from live entertainment where it is acting as the producer or promoter are a function of a number of elements; revenue is a direct reflection of tickets sold times ticket prices plus ancillary revenue streams including sponsorships and revenues generated through premium ticketing opportunities. In instances where the Company acts as the presenter or promoter it:
· | selects the suppliers or approves the selection of the supplier, | |
· | is the primary obligor with suppliers, | |
· | assumes credit risk, | |
· | directs the pricing of the tickets, and | |
· | purchases the advertising. |
The above are indicators of ownership and would be evidence that revenues and related expenses should be recorded at gross. As the Company is acting as the principal in the transaction, i.e., it has the risks and rewards of ownership and has recorded the related revenues and expenses at gross. In other instances where we only receive a fee and are not the principal obligors to vendors we record these revenues at net.
Consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
Stock-Based Compensation:
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees using Statement of Financial Accounting Standards (SFAS) No. 123R effective January 1, 2006, for all share-based payments granted based on the requirements of SFAS No. 123R for all awards granted to employees. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Intangible Assets and Goodwill:
The Company accounts for intangible assets and goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit. The Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
8
Impairment of Long-Lived Assets:
Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), established guidelines regarding when impairment losses on long-lived assets, which include property and equipment, should be recognized, and how impairment losses should be measured. SFAS No. 144 also provided a single accounting model for long-lived assets to be disposed of and significantly changed the criteria that would have to be met to classify an asset as held-for-sale.
Management regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs quarterly, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, then management prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. Management believes that the accounting estimate related to impairment of its property and equipment is a “critical accounting estimate” because: (1) it is highly susceptible to change from period to period because it requires management to estimate fair value, which is based on assumptions about cash flows and discount rates; and (2) the impact that recognizing an impairment would have on the assets reported on the Company’s balance sheet, as well as net income, could be material. Management’s assumptions about cash flows and discount rates require significant judgment because actual revenues and expenses have fluctuated in the past and are expected to continue to do so. There were no indications of impairment based on management’s assessment at June 30, 2009. At December 31, 2008, we recorded an impairment charge of $33.1 million related to the goodwill and intangible assets from our acquisition of EM. As of June 30, 2009, we have $11.7 million of remaining goodwill and intangible assets related to our acquisitions of John’s Tickets, LLC, EM, Magic and NewSpace. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business, and significant negative industry or economic trends. If current economic conditions worsen causing decreased revenues and increased costs, we may have further goodwill impairments.
Income Taxes:
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial reporting and tax basis of assets and liabilities. The Company considers future taxable income and ongoing, prudent and feasible tax planning strategies, in assessing the value of its deferred tax assets. If the Company determines that it is more likely than not that these assets will not be realized, the Company will reduce the value of these assets to their expected realizable value, thereby decreasing net income. Evaluating the value of these assets is necessarily based on the Company’s judgment. If the Company subsequently determines that the deferred tax assets, which were written down, would be realized in the future, the value of the deferred tax assets would be increased, thereby increasing net income in the period when that determination was made.
The Company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 prescribes a recognition threshold and a measurement attributable for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likelihood of being realized.
Fair Value of Financial Instruments:
The carrying amounts of financial instruments, including cash, accounts and other receivables, accounts payable and accrued liabilities, and short-term loans approximate fair value because of their short maturity. The carrying amounts of capital lease obligations approximate fair value because the related effective interest rates on these instruments approximate the rates currently available to the Company.
Cash Concentrations:
The Company's cash balances on deposit with banks in savings accounts in the United States (US) are guaranteed up to $250,000 by the Federal Deposit Insurance Corporation (the “FDIC”). The Company may periodically be exposed to risk for the amount of funds held in one bank in excess of the insurance limit. In order to control the risk, the Company's policy is to maintain cash balances with high quality financial institutions. At June 30, 2009, the Company’s aggregate cash in excess of the FDIC insured amount was $11.4 million. In addition, the Company had aggregate cash balances in Austria and The United Kingdom of $107,000 and $14,000, respectively, which are within these respective countries’ equivalent of the US FDIC guarantee.
Foreign Currency:
Results of foreign operations are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those operations are translated into U.S. dollars using the exchange rates at the balance sheet date. The realized and unrealized exchange losses and gains were minor in the three and six months ending June 30, 2009. The related translation adjustments are recorded in a separate component of stockholders’ equity in accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in the results of operations.
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Accounting Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs:
Advertising costs are charged to operations as selling and marketing expenses at the time the costs are incurred. For the three and six months ended June 30, 2009 and 2008, advertising costs were $576,000 and $1.2 million, and $1.6 million and $3.8 million, respectively.
Recent Accounting Pronouncements:
References to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC Staff Accounting Bulletin”, respectively.
In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-4, Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly (“FSP 157-4”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP provides guidance for estimating fair value when the volume and level of market activity for an asset or liability have significantly decreased and determining whether a transaction was orderly. This FSP applies to all fair value measurements when appropriate. The Company does not expect the adoption of this statement will have a significant impact on its financial statements based on current market conditions.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 115-2 amends existing guidance for determining whether an other than temporary impairment of debt securities has occurred. Among other changes, the FASB replaced the existing requirement that an entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert (a) it does not have the intent to sell the security, and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company has not determined the impact of the adoption of FSP 115-2 on its financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 107-1 requires an entity to provide the annual disclosures required by FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, in its interim financial statements. The Company provides the additional disclosures as required by FSP 107-1 in its quarterly report on Form 10-Q for the period ended June 30, 2009.
In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative non-governmental U.S. GAAP to be launched on July 1, 2009. The codification does not change current U.S. GAAP, but is intended to simplify user access to authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all accounting literature not included in the codification will be considered nonauthoritative. The codification is effective for the Company’s financial statements issued beginning in the quarter ending September 30, 2009. The Company does not expect the adoption of the codification to have an impact on its consolidated financial statements.
Note 3 - Acquisitions
On January 2, 2008, the Company entered into separate letters of intent to acquire Magic Arts and Entertainment, LLC (Magic) and NewSpace Entertainment, LLC (NewSpace). As part of the letters of intent, the managements of Magic and NewSpace agreed to manage the operations of their respective companies for the benefit of the Company from January 2, 2008 until the transactions could be finalized. The managements of Magic and NewSpace were required to consult and obtain the approval of the management of the Company prior to entering into any long term arrangements or transactions that were outside the normal course of business. Further, the Company assumed all responsibility for any losses or profits that might be incurred or earned during this period by both Magic and NewSpace. As such, the Company has included the results of operation of Magic and NewSpace in its consolidated operations as of January 2, 2008, the date the company acquired effective control. The acquisition of Magic was completed on February 29, 2008 and the acquisition of NewSpace was completed on March 12, 2008.
Magic Arts and Entertainment:
Pursuant to the Merger Agreement and Plan of Merger, we paid to the two stockholders of Magic, Joseph Marsh and Lee Marshall, a total of $2.1 million in cash and issued to them a total of 476,190 restricted shares of our common stock with a market value of $2.3 million. Mr. Marsh and Mr. Marshall were the former owners of Exhibit Merchandising. Mr. Marsh, as a result of the two transactions and open market purchases owns approximately 14% of the Company and Mr. Marshall owns approximately 6% of the Company. Further, at February 28, 2009, we issued an additional 190,476 shares of our common stock with a fair market value of $256,000 to the former owners of Magic Arts and Entertainment as they achieved the pre-determined EBITDA threshold. We will be required to issue to the former Magic stockholders an additional 190,476 shares of our common stock if certain EBITDA milestones are achieved during the next twenty-four months. These milestones are based upon the results achieved by Tix Productions, Inc. (“TPI”), a wholly owned subsidiary of the Company that focuses on providing live entertainment.
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The assets of Magic consist primarily of agreements, copyrights and licenses to theatres, productions, and touring acts. We carry on Magic’s business through TPI.
The acquisition of Magic has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the operations of the company have been consolidated commencing with the closing of the transaction. The $4.4 million purchase price was allocated based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm. As a result of the additional shares issued with a fair market value of $256,000, the adjusted purchase price of Magic is $4.7 million.
Allocation of the Purchase Price of Magic Arts & Entertainment:
Tangible assets, net of liabilities assumed: | $ | 143,000 | ||
Intangible assets: | ||||
Employment Agreement | 1,775,000 | |||
Technology-based | 5,000 | |||
Contract | 476,000 | |||
Goodwill | 2,273,000 | |||
Purchase price | $ | 4,672,000 |
In conjunction with the completion of the Merger, we entered into written employment agreements with Messrs. Marsh and Marshall, under which they serve as the Co-Chief Executive Officers of TPI. The term of each of the employment agreements commenced on February 29, 2008 and will expire on February 28, 2011, unless sooner terminated in accordance with the applicable provisions of the employment agreement. Under the employment agreements, Mr. Marsh is entitled to an annual salary of $100,000 and Mr. Marshall is entitled to an annual salary of $300,000 that will increase by $25,000 each year during the term of the agreement. Mr. Marshall also is eligible to receive annual bonuses based upon TPI exceeding performance milestones specified in his employment agreement.
In the event of the termination of employment of Mr. Marsh or Mr. Marshall for any reason other than termination by us for “cause” (as defined in the employment agreement) or termination by reason of his death or permanent disability, we have agreed to continue to pay Mr. Marsh or Mr. Marshall or their personal representatives, as the case may be, the annual salary under his employment agreement for six months following their departure.
Under their employment agreements, each of Messrs. Marsh and Marshall agrees not to compete with us during the period from the date on which their employment with the Company is terminated for any reason through the fifth anniversary of such date.
NewSpace Entertainment
Pursuant to the Merger, we paid to the three stockholders of NewSpace $1.4 million in cash and issued to them a total of 571,428 restricted shares of our common stock with a market value of $2.6 million.
The assets of NewSpace consist primarily of agreements, copyrights and licenses to theatres, productions, and touring acts. We carry on the business of NewSpace through TPI.
The acquisition of NewSpace has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the operations of the company have been consolidated commencing with the closing of the transaction. The $4.0 million purchase price was allocated and based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm. This valuation is still subject to change and revision may occur in the assigned value. The Company does not believe any changes or revisions will be significant.
Allocation of the Purchase Price of NewSpace Entertainment:
Tangible assets, net of liabilities assumed: | $ | 293,000 | ||
Intangible assets: | ||||
Licensing Contracts | 64,000 | |||
Employment Agreements | 1,698,000 | |||
Technology-based | 5,000 | |||
Goodwill | 1,953,000 | |||
Purchase price | $ | 4,013,000 |
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In conjunction with the completion of the Merger, we entered into written employment agreements with John Ballard, Steve Boulay and Bruce Granath, the three stockholders of NewSpace, pursuant to which they serve as President, Chief Operating Officer and Vice President - Marketing, respectively, at TPI. The term of each of the employment agreements commenced on March 11, 2008, and will expire on the third anniversary of such date, unless sooner terminated in accordance with applicable provisions of the employment agreements.
Mr. Ballard and Mr. Boulay are entitled under their respective employment agreements to an annual salary of $185,000. Mr. Granath, pursuant to his employment agreement, is entitled to an annual salary of $115,000. Messrs. Ballard, Boulay and Granath are each entitled to increases in their annual salaries of at least 3% per annum.
If Messrs. Ballard, Boulay and Granath are terminated “for cause” as defined in their employment agreements or the employment agreements expire upon their respective terms, each agrees not to compete with us during the period from the date of termination or expiration through the fifth anniversary of such date.
If the employment of Messrs. Ballard, Boulay or Granath is terminated “without cause” (as defined in their respective employment agreements), we have agreed to continue to pay Messrs. Ballard, Boulay, Granath, or their personal representatives, as the case may be, their annual salary under his employment agreement for six months.
Note 4- Intangible Assets
The following tables summarize the original cost, the related accumulated amortization, impairment adjustment, and the net carrying amounts for the Company’s intangible assets at June 30, 2009.
Estimated Useful | Original | Accumulated | Impairment | Other | Net Carrying | |||||||||||||||||
Lives | Cost | Amortization | Adjustment | Adjustment | Amount | |||||||||||||||||
Marketing Based | 3-6 years | $ | 12,277,000 | $ | (3,168,000 | ) | $ | (6,852,000 | ) | $ | - | $ | 2,257,000 | |||||||||
Contract commitments | 3-7 years | 6,794,000 | (2,734,000 | ) | (835,000 | ) | - | 3,225,000 | ||||||||||||||
Customer relationships | 3 years | 612,000 | (474,000 | ) | - | - | 138,000 | |||||||||||||||
Technology Based | 3 years | 111,000 | (82,000 | ) | - | - | 29,000 | |||||||||||||||
Intellectual property (e.g. domain names) | 5 years | 130,000 | (11,000 | ) | - | - | 119,000 | |||||||||||||||
Goodwill | indefinite | 31,084,000 | - | (25,445,000 | ) | 256,000 | 5,895,000 | |||||||||||||||
Total | $ | 51,008,000 | $ | (6,469,000 | ) | $ | (33,132,000 | ) | $ | 256,000 | $ | 11,663,000 |
Ticketing Services | ||||||||||||||||
Assigned | Accumulated | Carrying | ||||||||||||||
Value | Amortization | Adjustment | Amount | |||||||||||||
Marketing Based | $ | 75,000 | $ | (57,000 | ) | $ | - | $ | 18,000 | |||||||
Contract commitments | 124,000 | (46,000 | ) | - | 78,000 | |||||||||||
Customer relationships | 612,000 | (474,000 | ) | - | 138,000 | |||||||||||
Technology Based | 100,000 | (76,000 | ) | - | 24,000 | |||||||||||
Intellectual property (e.g. domain names) | 130,000 | (11,000 | ) | - | 119,000 | |||||||||||
Total | $ | 1,041,000 | $ | (664,000 | ) | $ | - | $ | 377,000 |
Merchandising | ||||||||||||||||
Assigned | Accumulated | Carrying | ||||||||||||||
Value | Amortization | Adjustment | Amount | |||||||||||||
Marketing Based | $ | 12,202,000 | $ | (3,111,000 | ) | $ | (6,852,000 | ) | $ | 2,239,000 | ||||||
Contract commitments | 2,657,000 | (1,421,000 | ) | (835,000 | ) | 401,000 | ||||||||||
Goodwill | 27,115,000 | (25,445,000 | ) | 1,670,000 | ||||||||||||
Total | $ | 41,974,000 | $ | (4,532,000 | ) | $ | (33,132,000 | ) | $ | 4,310,000 |
Live Entertainment | ||||||||||||||||
Assigned | Accumulated | Carrying | ||||||||||||||
Value | Amortization | Adjustment | Amount | |||||||||||||
Contract commitments | 4,013,000 | (1,267,000 | ) | - | 2,746,000 | |||||||||||
Technology Based | 11,000 | (6,000 | ) | - | 5,000 | |||||||||||
Goodwill | 3,969,000 | 256,000 | 4,225,000 | |||||||||||||
Total | $ | 7,993,000 | $ | (1,273,000 | ) | $ | 256,000 | $ | 6,976,000 |
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The 2009 adjustment to goodwill was the result of the issuance of 190,000 shares of common stock with a fair market value on the date of issuance of $256,000 to the former shareholders of Magic pursuant to an earn-out provision of the Magic Arts and Entertainment merger agreement.
Total amortization expense related to intangible assets for the three months ending June 30, 2009 and 2008 were $493,000 and $981,000, respectively. Total amortization expense related to intangible assets for the six months ending June 30, 2009 and 2008 were $983,000 and $1,987,000, respectively. The decline in amortization costs is primarily due to the $7.7 million impairment charge associated with EM which was recorded at December 31, 2008, and will result in an annual decrease of $2.0 million of amortization expense over the next four years. Total estimated amortization expense with respect to intangible assets for the remainder of 2009 through 2013 is as follows:
Years Ending December 31, | ||||
2009 | $ | (983,000 | ) | |
2010 | (1,596,000 | ) | ||
2011 | (1,326,000 | ) | ||
2012 | (1,326,000 | ) | ||
2013 | (403,000 | ) | ||
Beyond 2013 | (134,000 | ) | ||
Total | $ | (5,768,000 | ) |
Note 5- Obligations under Capital Leases
The Company has entered into various capital leases for equipment with monthly payments ranging from $216 to $1,767 per month, including interest, at interest rates ranging from 9.8% to 19.7% per annum. At June 30, 2009, monthly payments under these leases aggregated $5,600. The leases expire at various dates through 2013.
At June 30, 2009 and 2008, property and equipment for each period included assets under capital leases of $408,000, net of accumulated amortization of $297,000 and $257,000, respectively.
Minimum future payments under capital lease obligations for the remainder of 2009, and thereafter are as follows:
Years Ending December 31, | ||||
2009 | 30,000 | |||
2010 | 67,000 | |||
2011 | 9,000 | |||
2012 | 8,000 | |||
2013 | 3,000 | |||
Total payments | 117,000 | |||
Less: amount representing interest | (15,000 | ) | ||
Present value of minimum lease payments | 102,000 | |||
Less: current portion | (63,000 | ) | ||
Non-current portion | $ | 39,000 |
Note 6- Related Party Transactions
During 2009 and 2008, Benjamin Frankel, a director of the Company, was a principal in Frankel, LoPresti & Co., an accountancy corporation that provides tax advisory and preparation services to the Company. For the three and six months ended June 30, 2009, we paid Mr. Frankel or his firm $12,000 and $20,000, respectively for tax preparation and advisory services. No expenses were incurred for the three and six months ended June 30, 2008.
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Mr. Joseph Marsh, a greater than 10% shareholder of Tix, was a principal in Magic Arts and Entertainment - Florida, Inc., a company Tix acquired on January 2, 2008. For more details regarding the purchase of Magic, see Note 3. - Acquisitions.
Note 7- Stockholders’ equity
During the six months ended June 30, 2009, the Company issued: 29,000 shares of common stock to consultants with a fair market value of $50,000 on the date of issuance, and 38,000 shares of common stock to officers and employees with a fair market value of $8,000 on the date of issuance. Additionally, the Company issued 107,000 shares of common stock, net of 43,000 shares withheld related to income taxes as a result of an employee option exercise. The company issued 190,000 shares of common stock with a fair market value on the date of issuance of $256,000 pursuant to an earn-out provision of the Magic Arts and Entertainment merger agreement.
In the third quarter of 2008, the Company’s board of directors authorized a share repurchase program. As of June 30, 2009, the Company repurchased 1,000,000 shares for $2,532,000. The shares were repurchased at prices that range from $1.20 per share to $4.13 per share.
In the second quarter of 2009, the Company’s board of directors authorized an additional share repurchase program (“the 2009 Repurchase Program”) as the 1,000,000 shares authorized to be repurchased under the program authorized in the third quarter of 2008 had been purchased. Under the 2009 Repurchase Program, the Company had repurchased 5,000 shares for $9,600, as of June 30, 2009. Through July 20, 2009, the Company has repurchased 14,000 shares for $29,000. The shares were repurchased at prices that range from $1.91 per share to $2.18 per share.
Note 8- Stock-Based Compensation Plans
Summary of Stock Options:
The Company has various stock-based compensation plans. The intrinsic value of outstanding stock options at June 30, 2009 was $296,000, as compared to $927,000 at June 30, 2008. The intrinsic value of exercisable stock options at June 30, 2009 was $296,000, as compared to $683,000 at June 30, 2008. A summary of the combined stock options for the six months ended June 30, 2009 is as follows:
Weighted | ||||||||
Number | average | |||||||
of | exercise | |||||||
options | price | |||||||
Balance outstanding, December 31, 2008 | 1,263,000 | $ | 5.41 | |||||
Options granted | 250,000 | 1.27 | ||||||
Options exercised | (150,000 | ) | 0.15 | |||||
Options expired or forfeited | (128,000 | ) | 4.20 | |||||
Balance outstanding, June 30, 2009 | 1,235,000 | $ | 5.33 | |||||
Balance exercisable, June 30, 2009 | 585,000 | $ | 4.93 |
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Information relating to outstanding stock options at June 30, 2009, summarized by exercise price, is as follows:
Outstanding | Exercisable | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Life | Average | Average | ||||||||||||||||||
Exercise Price Per Share | Shares | (Years) | Exercise Price | Shares | Exercise Price | |||||||||||||||
$6.00 - $7.20 | 815,000 | 7.31 | $ | 7.01 | 315,000 | $ | 7.02 | |||||||||||||
$4.00 - $5.99 | 20,000 | 2.71 | $ | 4.30 | 20,000 | $ | 4.30 | |||||||||||||
$2.00 - $3.99 | 150,000 | 3.78 | $ | 3.07 | 150,000 | $ | 3.07 | |||||||||||||
$0.22 - $1.99 | 250,000 | 7.75 | $ | 1.27 | 100,000 | $ | 1.25 | |||||||||||||
1,235,000 | 6.89 | $ | 5.33 | 585,000 | $ | 4.93 |
Tix Corporation recorded compensation expense pursuant to FAS 123(R) for the six months ended June 30, 2009 and 2008 of $685,000 and $805,000, respectively. As of June 30, 2009, the Company has outstanding unvested options with future compensation costs of $1.7 million, which will be recorded as compensation expense as the options vest over their remaining average life of 6.89 years.
The assumptions used in calculating the fair value of the options granted during 2009, using the Black Scholes option-pricing model were as follows:
2009 | ||||
Risk free rate of return | 1.36 | % | ||
Option lives in years | 3 | |||
Annual volatility of stock price | 100.6 | % | ||
Dividend yield | 0 | % |
In conjunction with a consulting agreement in 2009, the Company issued 150,000 warrants, of which 75,000 vested immediately. The remaining 75,000 vest over six months, which is the term of the consulting agreement. As the consulting agreement can be terminated at any time and the consulting arrangement does not contain any performance measurements or sufficiently large disincentives for non-performance, the related consulting expense on these 75,000 warrants is recognized over the life of the contract. In the six months ended June 30, 2009, we recorded an expense of $90,000 related to this consulting agreement. In conjunction with a consulting agreement in 2008, the Company issued 150,000 warrants, of which 50,000 vested immediately. The remaining 100,000 warrants vested over six months, which is the term of the consulting agreement. As the consulting agreement could have been terminated at any time and the consulting arrangement does not contain any performance measurements or sufficiently large disincentives for non-performance, the related consulting expense on these 100,000 warrants was recognized over the life of the contract. In the six months ended June 30, 2009, the remaining 33,000 warrants vested, and we recorded an expense of $18,000.
A summary of warrant activity for the six months ended June 30, 2009 is as follows:
Weighted | ||||||||
Number | average | |||||||
of | exercise | |||||||
warrants | price | |||||||
Balance outstanding, December 31, 2008 | 2,672,007 | $ | 5.11 | |||||
Warrants granted | 150,000 | 1.14 | ||||||
Warrants exercised | - | - | ||||||
Warrants expired | - | - | ||||||
Balance outstanding, June 30, 2009 | 2,822,007 | $ | 4.90 |
The intrinsic value of outstanding warrants at June 30, 2009 was $491,000, as compared to $846,000 at June 30, 2008. Information relating to outstanding warrants at June 30, 2009, summarized by exercise price, is as follows:
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Outstanding | Exercisable | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Life | Average | Average | ||||||||||||||||||
Exercise Price Per Share | Shares | (Years) | Exercise Price | Shares | Exercise Price | |||||||||||||||
$2.00 - $5.50 | 2,522,007 | 0.34 | $ | 5.38 | 2,522,007 | $ | 5.38 | |||||||||||||
$0.36 - $1.99 | 300,000 | 2.62 | $ | 0.82 | 255,000 | $ | 0.76 | |||||||||||||
2,822,007 | 0.58 | $ | 4.90 | 2,777,007 | $ | 4.96 |
Note 9- Income Taxes
At June 30, 2009, the Company had Federal net operating loss carryforwards of approximately $27.1 million that begin expiring in 2009 in varying amounts through 2028. The Company also had California state net operating loss carryforwards of approximately $700,000. In October, 2008 California temporarily suspended use of net operating losses for 2008 and 2009, and the California state net operating losses expire beginning in 2015 in varying amounts through 2018.
SFAS No. 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Due to the restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s net operating loss carryforwards are limited to $6.7 million per year as a result of cumulative changes in stock ownership. As a result of the limitations related to Internal Revenue Code Section 382 and the Company’s lack of history of profits, as such, the Company recorded a 100% valuation allowance against its net deferred tax assets as of June 30, 2009 and 2008.
The provision for income taxes was $106,000 for the three and six months ended June 30, 2009 compared with a benefit of $82,000 and no provision for the three and six months ended June 30, 2008. The provision for income taxes for the three and six months ended June 30, 2009 and 2008 was determined using our effective rate estimated for the entire fiscal year.
In addition, during 2009, we utilized certain federal net operating loss (“NOL”) carryforwards. We have provided valuation allowances related to the benefits from income taxes resulting from the application of a statutory tax rate to our NOL’s generated in previous periods. The allowances were established and maintained as a result of our history of losses from operations.
Note 10- Earnings Per Share
The Company computes net income per common share in accordance with FASB Statement of Financial Accounting Standard 128, Earnings per Share (“Statement 128”). Under the provisions of Statement 128, basic net income per common share is computed by dividing the net income applicable to common shares by weighted average number of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of stock options, restricted stock and other potentially dilutive financial instruments only in the periods in which such effect is dilutive.
The following table sets forth the computation of basic and diluted income per common share:
Six Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net income (loss) | $ | 954,000 | $ | (704,000 | ) | |||
Weighted average common shares- basic | 32,332,963 | 31,224,025 | ||||||
Dilutive effect of employee incentive plans | 139,055 | - | ||||||
Dilutive effect of warrants issued to consultants | 120,107 | - | ||||||
Weighted average shares- diluted | 32,592,125 | 31,224,025 | ||||||
Net income per common share: | ||||||||
Basic | $ | 0.03 | $ | (0.02 | ) | |||
Diluted | $ | 0.03 | $ | (0.02 | ) |
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive.
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Three Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net income (loss) | $ | 659,000 | $ | (1,166,000 | ) | |||
Weighted average common shares- basic | 32,361,325 | 31,805,228 | ||||||
Dilutive effect of employee incentive plans | 145,526 | - | ||||||
Dilutive effect of warrants issued to consultants | 138,513 | - | ||||||
Weighted average shares- diluted | 32,645,364 | 31,805,228 | ||||||
Net income per common share: | ||||||||
Basic | $ | 0.02 | $ | (0.04 | ) | |||
Diluted | $ | 0.02 | $ | (0.04 | ) | |||
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive. |
Note 11- Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. SFAS No. 157 defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:
· | Level 1 – quoted prices in active markets for identical investments |
· | Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.) |
· | Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company financial assets that are measured at fair value on a recurring basis according to the fair value levels defined by SFAS No. 157 as of June 30, 2009 and December 31, 2008.
Financial Assets at Fair Value as of June 30, 2009 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents | $ | 12,931 | $ | — | $ | — | $ | 12,931 | ||||||||
Short-term investments | 13 | — | — | 13 | ||||||||||||
Long-term investments | — | — | — | — | ||||||||||||
Total cash and cash equivalents and investments | $ | 12,944 | $ | — | $ | — | $ | 12,944 |
Financial Assets at Fair Value as of December 31, 2008 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents | $ | 9,179 | $ | — | $ | — | $ | 9,179 | ||||||||
Short-term investments | 13 | — | — | 13 | ||||||||||||
Long-term investments | — | — | — | — | ||||||||||||
Total cash and cash equivalents and investments | $ | 9,192 | $ | — | $ | — | $ | 9,192 |
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There were no unrealized gains or losses included in earnings resulting from long-term investments associated with Level 3 financial assets during the six month period ended June 30, 2009.
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill and intangible assets associated with the acquisition of John’s Tickets, EM, Magic and NewSpace. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.
Note 12- Segment Reporting
We operate in three reportable segments: ticketing services, event and branded merchandising, and live entertainment.
Ticketing Services
Our ticketing business is operated by our wholly owned subsidiary Tix4Tonight. Ticketing Services offers three distinct services: discount ticketing, membership group sales, and premium event ticketing.
Discount Ticketing – Tix4Tonight, Las Vegas
When selling discounted tickets, Tix4Tonight generally sells them from six leased locations in Las Vegas under short-term, exclusive and non-exclusive agreements with approximately 80 Las Vegas shows, out of a total of approximately 100 shows running at any one time. Tix4Tonight typically offers tickets for more than 70 shows on any given day at a discount plus a service fee. Tix4Tonight receives inventory for sale the same day directly from the show producer, artist or theater. This is a reflection of the Las Vegas market and its last minute purchasing pattern. Tix4Tonight does not know the exact number of tickets for each show it will be able to offer for sale until the same day of the show. There are usually many more tickets available each day than are sold, although it is not uncommon for Tix4Tonight to sell out its supply of tickets for individual shows. The producers of the shows are paid on a weekly basis only for the tickets that Tix4Tonight actually sells to customers. Tix4Tonight has no financial risk with respect to unsold tickets and revenues are recorded at net of ticket cost, that is, commissions and fees on tickets sold.
Our opportunities to grow the Las Vegas operations are focused on growing our inventory by reaching agreements with additional shows, increasing the number of our storefront sales locations and working to further monetize the relationships we have with customers by offering additional, complementary products and services. Toward these ends, Tix4Tonight also offers discounted dining reservation tickets to approximately 30 Las Vegas area restaurants and discounted golf tee times to certain Las Vegas golf courses.
Membership Group Sales – Tix4Members.com
Tix Corporation launched its internet based Tix4Members.com in association with Costco. As with our Tix4Tonight operation in Las Vegas, Tix4Members.com offers a marketing channel for producers, presenters, artists, arenas and theaters nationwide to take advantage of our strong position in the discounted ticket sales and live entertainment industry. Tix4Members.com operates in a manner similar to Tix4Tonight with a few key differences. Instead of relying on physical ticket booth facilities for direct sales, Tix4Members.com uses the internet as its customer interface, and has expanded the date range of ticket availability instead of offering only day of show tickets.
Premium Ticketing – Tix4AnyEvent
Tix4Tonight operates a national event ticket broker called Tix4AnyEvent (AnyEvent), which focuses on premium tickets for sporting events, concert tours and theatres. In the area of premium tickets, we have changed from a retail ticket seller to the public to a wholesaler of tickets, that is, our clients are usually national retail ticket brokers. As a result of this change, we are assuming less risk, have been able to reduce our overhead and increase the likelihood of profitability. The tickets sold are generally obtained through the event sponsor, artist or producer; although in some circumstances the tickets that we sell are from secondary or resale markets. We continue to expand our event offerings in this field through our strong industry relationships. Tix4AnyEvent operations are located in the leased administrative offices of Tix4Tonight in Las Vegas.
Exhibit and Event Merchandising
The Company provides exhibit and event merchandising through its wholly-owned subsidiary, Exhibit Merchandising, LLC (EM). EM provides retail specialty stores for touring museum exhibitions and touring theatrical productions. EM provides a complete turn-key retail store including professional management and both custom-branded products and commercially-available products for sale. EM operates the stores in space provided in conjunction with the exhibit. To date, revenues from the management of retail outlets associated with the sale of merchandise related to touring exhibits have been primarily derived from “Tutankhamen and The Golden Age of the Pharaohs.”
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Management expects that EM’s growth will be from merchandising opportunities derived from shows produced or presented by our Live Entertainment segment, such as 101 Dalmatians, Jesus Christ Superstar and Mannheim Steamroller, or by adding additional exhibits and events that we currently do not represent.
Live Entertainment
In January 2008, the Company acquired two live theatrical and concert production companies: Magic Arts & Entertainment, LLC (Magic) and NewSpace Entertainment, Inc. (NewSpace). Both Magic and NewSpace are independent presenters of live theater and concerts with a history of working together. The Company merged the two entertainment companies into its wholly-owned subsidiary Tix Productions, Inc. We believe that by combining the operations of the two companies into a single entity, we are able to leverage our resources, gain operating efficiencies and more fully utilize the combined network of producers and promoters. NewSpace and Magic continue to do business under their former names as a reflection of the marketplace’s recognition of these entities.
As a live entertainment presenter, we book touring theatrical and concert presentations with a history of successful commercial appeal and participate in the development and roll out of new theatrical and concert presentations often originating on Broadway in New York or the West End in London. We use a wide variety of marketing channels to sell tickets to these programs including our substantial subscriber-based businesses in eleven US cities, our Salt Lake City based group sales team, and standard marketing tools including print, radio, television, outdoor and internet marketing tools. In addition, we invest in shows or productions in advance of their initial tour to obtain favorable touring and distribution rights.
Our Live Entertainment operation focuses on two major areas: production and presentation. As producers, we invest in the creation of original entertainment properties, which are then sold to third party presenters generating upfront guaranteed income, revenue sharing opportunities, and additional opportunities for sponsorship and other ancillary revenue streams. Examples of this are tours of Mannheim Steamroller Christmas, Jesus Christ Superstar and our upcoming theatrical production of 101 Dalmatians.
As presenters, we generally contract for entertainment properties from producers to present in markets in the US and Canada. We have worked in most major North American cities and can negotiate terms that are unavailable to presenters in individual markets. In eleven markets, we have substantial subscriber-based operations operating as “Broadway in (city name)” series which greatly reduces the risk associated with individual presentations and provides additional opportunities to generate sponsorship and other ancillary revenue streams. These markets are Salt Lake City, Eugene, Kalamazoo, Akron, Albuquerque, Colorado Springs, Detroit, Fresno, Boise, Birmingham, and Milwaukee. In Canada, we have a presenting relationship that operates under the name Canada Theatricals Live which is now the second largest presenter of theater-based events in Canada.
Revenue and expenses earned and charged between segments are eliminated in consolidation. Corporate expenses, interest income, interest expense and income taxes are managed on a total company basis. Information related to these operating segments is as follows:
Consolidating Statement of Operations (unaudited)
Six months ended June 30,
Ticketing | Exhibit | Live | Corporate | Consolidated | ||||||||||||||||
Services | Merchandising | Entertainment | Expenses | and Combined | ||||||||||||||||
2009 | ||||||||||||||||||||
Revenue | $ | 8,825,000 | $ | 5,110,000 | $ | 32,819,000 | $ | - | $ | 46,754,000 | ||||||||||
Direct operating expenses | 3,263,000 | 3,103,000 | 29,970,000 | - | 36,336,000 | |||||||||||||||
Selling, general and administrative expenses | 1,775,000 | 1,267,000 | 2,334,000 | 2,904,000 | 8,280,000 | |||||||||||||||
Depreciation and amortization | 119,000 | 593,000 | 395,000 | 140,000 | 1,247,000 | |||||||||||||||
Operating income (loss) | $ | 3,668,000 | $ | 147,000 | $ | 120,000 | $ | (3,044,000 | ) | $ | 891,000 | |||||||||
Current assets | $ | 3,086,000 | $ | 5,439,000 | $ | 3,407,000 | $ | 4,922,000 | $ | 16,854,000 | ||||||||||
Fixed assets | 512,000 | 582,000 | 97,000 | 76,000 | 1,267,000 | |||||||||||||||
Intangible assets and goodwill | 119,000 | 4,310,000 | 6,976,000 | 258,000 | 11,663,000 | |||||||||||||||
Other non-current assets | 191,000 | 13,000 | 789,000 | 6,000 | 999,000 | |||||||||||||||
Total assets | $ | 3,908,000 | $ | 10,344,000 | $ | 11,269,000 | $ | 5,262,000 | 30,783,000 | |||||||||||
2008 | ||||||||||||||||||||
Revenue | $ | 6,363,000 | $ | 6,082,000 | $ | 27,582,000 | $ | - | $ | 40,027,000 | ||||||||||
Direct operating expenses | 2,810,000 | 3,681,000 | 22,563,000 | - | 29,054,000 | |||||||||||||||
Selling, general and administrative expenses | 1,213,000 | 2,046,000 | 3,536,000 | 2,901,000 | 9,696,000 | |||||||||||||||
Depreciation and amortization | 101,000 | 1,580,000 | 374,000 | 169,000 | 2,224,000 | |||||||||||||||
Operating income (loss) | $ | 2,239,000 | $ | (1,225,000 | ) | $ | 1,109,000 | $ | (3,070,000 | ) | $ | (947,000 | ) | |||||||
Current assets | $ | 2,064,000 | $ | 5,829,000 | $ | 2,903,000 | $ | 1,219,000 | $ | 12,015,000 | ||||||||||
Fixed assets | 643,000 | 825,000 | 72,000 | 29,000 | 1,569,000 | |||||||||||||||
Intangible assets and goodwill | 130,000 | 39,362,000 | 7,626,000 | 527,000 | 47,645,000 | |||||||||||||||
Other non-current assets | 45,000 | 24,000 | 459,000 | 6,000 | 534,000 | |||||||||||||||
Total assets | $ | 2,882,000 | $ | 46,040,000 | $ | 11,060,000 | $ | 1,781,000 | $ | 61,763,000 |
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Consolidating Statement of Operations (unaudited)
Three months ended June 30,
Ticketing | Exhibit | Live | Corporate | Consolidated | ||||||||||||||||
Services | Merchandising | Entertainment | Expenses | and Combined | ||||||||||||||||
2009 | ||||||||||||||||||||
Revenue | $ | 4,670,000 | $ | 2,321,000 | $ | 19,593,000 | $ | - | $ | 26,584,000 | ||||||||||
Direct operating expenses | 1,729,000 | 1,398,000 | 18,283,000 | - | 21,410,000 | |||||||||||||||
Selling, general and administrative expenses | 904,000 | 642,000 | 1,140,000 | 1,232,000 | 3,918,000 | |||||||||||||||
Depreciation and amortization | 61,000 | 297,000 | 198,000 | 70,000 | 626,000 | |||||||||||||||
Operating income (loss) | $ | 1,976,000 | $ | (16,000 | ) | $ | (28,000 | ) | $ | (1,302,000 | ) | $ | 630,000 | |||||||
2008 | ||||||||||||||||||||
Revenue | $ | 3,368,000 | $ | 2,979,000 | $ | 10,517,000 | $ | - | $ | 16,864,000 | ||||||||||
Direct operating expenses | 1,281,000 | 1,804,000 | 9,238,000 | - | 12,323,000 | |||||||||||||||
Selling, general and administrative expenses | 613,000 | 1,207,000 | 1,510,000 | 1,528,000 | 4,858,000 | |||||||||||||||
Depreciation and amortization | 52,000 | 794,000 | 187,000 | 69,000 | 1,102,000 | |||||||||||||||
Operating income (loss) | $ | 1,422,000 | $ | (826,000 | ) | $ | (418,000 | ) | $ | (1,597,000 | ) | $ | (1,419,000 | ) |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
“Tix” (which may be referred to as the “Company”,“we”, “us” or “our”) means Tix Corporation and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report.
Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the Securities and Exchange Commission, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, and the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “project,” “seek,” “predict” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth under Item 1A. — Risk Factors in both our 2008 Form 10-K and this quarterly report, as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We do not intend to update these forward-looking statements, except as required by applicable law.
Executive Overview
During the second quarter of 2009, we continued to execute our strategy to improve and build our operations comprised of Tix4Tonight, Exhibit Merchandising (EM) and Tix Productions, Inc. (TPI). The highlights for each of our segments for the six months ended June 30, 2009 were as follows:
Tix4Tonight
· | For the three and six months ended June 30, 2009, Tix4Tonight sold 341,000 tickets and 659,000 tickets, respectively. These ticket sales represented an increase of 88,000 and 184,000 tickets over the prior year’s comparable three and six month periods and reflected a 35% and 39% increase over the prior year’s ticket sales. |
· | For the three and six months ended June 30, 2009, Tix4Tonight sold tickets with a value of $19.5 million and $37.1 million, respectively. The value of the tickets sold represented an increase of $6.7 million and $13.8 million over prior year’s comparable three and six month periods, and reflected a 53% and 59% increase over the prior year’s ticket sales. |
· | For the three and six months ended June 30, 2009, Tix4Tonight’s Tix4Dinner business sold dinner reservations with a value of $321,000 and $603,000, respectively. These reservation sales represented an increase of $101,000 and $212,000 over prior year’s comparable three and six month periods, and reflected a 46% and 54% increase over prior year’s dinner reservations revenue. |
· | In February 2009, Tix4Tonight launched its website Tix4Members in conjunction with an agreement with Costco. To date, the revenues have not been meaningful. |
Exhibit Merchandising
· | Returned to profitability in the first quarter of 2009 and was profitable for the six months ended June 30, 2009. |
· | Negotiated a royalty agreement with exhibition producers reducing our royalty rate by 25%, which we estimate is a savings of $30,000 per month. |
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Live Entertainment
· | TPI’s subscription series shows are presently selling slower than anticipated; however offsetting the decline in revenues from our subscription series are stronger than anticipated sales of shows such as Walking with Dinosaurs. |
· | Shows that are produced or presented by TPI such as David Copperfield, Rain, and Lord of the Dance continue to perform in line with expectations. |
Critical Accounting Policies and Estimates:
The preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates its earlier estimates and judgments. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
The following narrative describes the critical accounting policies that affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.
Revenue Recognition and Presentation:
The Company has several streams of income, each of which is required under GAAP to be recognized in varying ways. The following is a summary of our revenue recognition policies:
The Company’s Las Vegas discount show ticketing business recognizes as revenue the commissions and related transaction fees earned from the sale of Las Vegas show tickets at the time the tickets are paid for and delivered to the customers. The Company’s commissions are calculated based on the face value of the show tickets sold. The Company’s transaction fees are charged on a per-ticket basis. With certain exceptions, ticket sales are generally non-refundable, although same-day exchanges of previously sold tickets are permitted. Claims for ticket refunds, which are generally received and paid the day after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. The Company does not have accounts receivable associated with its sales transactions, as payment is collected at the time of sale.
The Company’s Tix4Members.com recognizes as revenue the commissions and the related transaction fees earned when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. Claims for ticket refunds, which are generally received and paid the day after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. Tix4Members.com does not have any accounts receivable associated with sales transactions to individual customers, as payment is collected at the time of sale.
Tix4Dinner offers reservations for discounted dinners at various restaurants on the Las Vegas strip with dining at specific times on the same day as the sale or in some cases as much as 7 days after the day of the sale. Tix4Dinner recognizes as revenue the transaction fees earned from the purchaser of the dinner reservations at the time that the reservations are made and a subsequent nominal fee from the restaurant at the time the reservation is used. At this time, the Company has immaterial amounts of accounts receivable and does not have any accounts payable associated with the Tix4Dinner operations because the Company collects the transaction fee at the time that the reservation is made and the dinner payment is collected directly by the restaurant.
Tix4Golf recognizes as revenue the difference between how much it charges its customers for tee-times and how much it pays golf courses for tee-times. The revenue per tee-time, as well as the cost per tee-time, varies depending on the desirability of the golf course and tee-time, weather, time of year and several other factors. Revenue per tee-time is significantly higher when tee-times are guaranteed or pre-bought in large quantities. Tee-times are generally sold the day before or the day of the tee-time, however, tee-times may be booked in advance. Revenue is not recognized until the day of the tee-time. The Company does not have any accounts receivable associated with this business, as all transactions are paid for at the time of purchase.
Tix4AnyEvent (AnyEvent) recognizes as revenue the gross amount from the sale of tickets that it owns. AnyEvent bears the risk of economic loss if the tickets are not sold by the date that the event is scheduled to occur. Revenue is considered earned when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. AnyEvent does not have any accounts receivable associated with sales transactions to individual customers, as payment is collected at the time of sale. However, sales transactions with other ticket brokers may be conducted on a credit basis, which would generate accounts receivable.
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Exhibit Merchandising recognizes retail store sales at the time the customer takes possession of the merchandise. All sales are net of discounts and returns and exclude sales tax. For online sales, revenue is recognized free on board ("FOB") origin where title and risk of loss pass to the buyer when the merchandise leaves the Company's distribution facility at the time of shipment, which we refer to as the date of purchase by the customer. Sales are recognized net of merchandise returns, which are reserved for based on historical experience. Shipping and handling revenues from sales are included as a component of net sales. Conversely, shipping and handling costs are a component of direct costs of revenues, pursuant to EITF 00-10. The Company does not have any accounts receivable associated with this business because all transactions are done by cash or credit card.
Tix Productions, Inc. recognizes revenue from the presentation and production of an event after the performance occurs upon settlement of the event; however any profits related to these tours is recognized after minimum revenue thresholds, if any have been achieved. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the tour’s season or the term of the contract. We account for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction to revenue.
Stock-Based Compensation:
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees using SFAS No. 123R effective January 1, 2006, for all share-based payments granted based on the requirements of SFAS No. 123R for all awards granted to employees. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Impairment of Long-Lived Asset:
Our long-lived assets, such as property and equipment, are reviewed for impairment when events and circumstances indicate that depreciable or amortizable long lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current value.
We use various assumptions in determining the current fair value of these assets, including future expected cash flows and discount rates, as well as other fair value measures. Our impairment loss calculations require us to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results.
Intangible Assets and Goodwill:
The Company accounts for intangibles and goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit.
The Company evaluates intangible assets and goodwill for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. There were no indications of impairment based on management’s assessment at June 30, 2009. At December 31, 2008, we recorded an impairment charge of $33.1 million related to goodwill and intangible assets acquired from our acquisition of EM. As of June 30, 2009, we have $11.7 million of remaining goodwill and intangible assets related to our acquisitions of John’s Tickets, LLC, EM, Magic and NewSpace. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business, and significant negative industry or economic trends. If current economic conditions worsen causing decreased revenues and increased costs, we may have further goodwill impairments.
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Recent Accounting Pronouncements:
References to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC Staff Accounting Bulletin”, respectively.
In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-4, Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly (“FSP 157-4”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP provides guidance for estimating fair value when the volume and level of market activity for an asset or liability have significantly decreased and determining whether a transaction was orderly. This FSP applies to all fair value measurements when appropriate. The Company does not expect the adoption of this statement will have a significant impact on its financial statements based on current market conditions.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 115-2 amends existing guidance for determining whether an other than temporary impairment of debt securities has occurred. Among other changes, the FASB replaced the existing requirement that an entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert (a) it does not have the intent to sell the security, and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company has not determined the impact of the adoption of FSP 115-2 on its financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 107-1 requires an entity to provide the annual disclosures required by FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, in its interim financial statements. The Company has provided the additional disclosures as required by FSP 107-1 in its quarterly report on Form 10-Q for the period ended June 30, 2009.
In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009. The codification does not change current U.S. GAAP, but is intended to simplify user access to authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all accounting literature not included in the codification will be considered nonauthoritative. The codification is effective for the Company’s financial statements issued beginning in the quarter ending September 30, 2009. The Company does not expect the adoption of the codification to have an impact on its consolidated financial statements.
Consolidated Results of Operations –
Three and Six Months Ended June 30, 2009 compared to the Three and Six Months Ended June 30, 2008:
Consolidated Results of Operations - Three and Six Months ended June 30,
% change | % change | |||||||||||||||||||||||
Three Months Ended June 30, | 2009 v | Six Months Ended June 30, | 2009 v | |||||||||||||||||||||
2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |||||||||||||||||||
Revenue | $ | 26,584,000 | $ | 16,864,000 | 58 | % | $ | 46,754,000 | $ | 40,027,000 | 17 | % | ||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Direct operating expenses | 21,410,000 | 12,323,000 | 74 | % | 36,336,000 | 29,054,000 | 25 | % | ||||||||||||||||
Selling, general and administrative expenses | 2,686,000 | 3,330,000 | -19 | % | 5,376,000 | 6,795,000 | -21 | % | ||||||||||||||||
Depreciation and Amortization | 626,000 | 1,102,000 | -43 | % | 1,247,000 | 2,224,000 | -44 | % | ||||||||||||||||
Corporate expenses | 1,232,000 | 1,528,000 | -19 | % | 2,904,000 | 2,901,000 | 0 | % | ||||||||||||||||
Operating Income (Loss) | 630,000 | (1,419,000 | ) | 144 | % | 891,000 | (947,000 | ) | 194 | % | ||||||||||||||
Operating Margin | 2 | % | -8 | % | 2 | % | -2 | % | ||||||||||||||||
Interest expense | (3,000 | ) | (4,000 | ) | (7,000 | ) | (10,000 | ) | ||||||||||||||||
Interest income | 9,000 | 11,000 | 22,000 | 45,000 | ||||||||||||||||||||
Other income (expense) - net | 129,000 | 164,000 | 154,000 | 208,000 | ||||||||||||||||||||
Income (loss) before income taxes | 765,000 | (1,248,000 | ) | 1,060,000 | (704,000 | ) | ||||||||||||||||||
Income tax expense (benefit) | 106,000 | (82,000 | ) | 106,000 | - | |||||||||||||||||||
Net income (loss) | $ | 659,000 | $ | (1,166,000 | ) | $ | 954,000 | $ | (704,000 | ) |
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Three Months Ended June 30, 2009 and 2008:
Revenues
The Company earns fee revenues from the sales of discounted tickets from purchasers of the tickets and commissions from the entertainment supplier, as well as revenues from the sale of premium tickets to sporting and other entertainment events. Through our discounted ticket venues we also offer discount dinner reservations and golf tee times. From Exhibit Merchandising, LLC “EM”, we earn revenues from the management of retail outlets associated with the sale of merchandise related to touring exhibits, such as “Tutankhamun and The Golden Age of the Pharaohs.” Through our live entertainment segment, we earn revenues from the presentation and production of events, as well as sponsorship and ancillary revenues. Our revenues for the three months ended June 30, 2009 and 2008 were $26.6 million and $16.9 million, respectively. Our revenues increased $9.7 million, or 58%, during the three months ended June 30, 2009 as compared to the same period of the prior year. The increase in revenues was primarily the result of a $9.1 million increase in Live Entertainment revenues and a $1.3 million increase in Ticketing Services revenues, which was offset in part by a $658,000 million decline in revenues from our Merchandising segment.
More detailed explanations of the three months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Direct Operating Expenses
Direct operating expenses include payroll and related costs, rents, cost of tickets and goods sold, artist fees, show related marketing costs and advertising expenses along with other related costs of promoting and producing live entertainment. Direct costs of revenues for the three months ended June 30, 2009 and 2008 were $21.4 million and $12.3 million, respectively. Our operating expenses increased $9.1 million or 74% during the three months ended June 30, 2009 as compared to the same period of the prior year. The increase in direct operating expenses is reflective of the higher overall revenues earned in Live Entertainment and its higher direct cost of goods and services than our other operations.
More detailed explanations of the three months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Operating Segment Selling, General and Administrative Expenses
Operating segment selling, marketing and administrative expenses include advertising and promotional costs related to the Company’s business activities. Our operating segment selling, marketing and administrative expenses for the three months ended June 30, 2009 and 2008 were $2.7 million and $3.3 million, respectively. Our selling, general and administrative expenses decreased $644,000 or 19% during the three months ended June 30, 2009 as compared to the same period of the prior year due to a $370,000 and $565,000 decline in selling and general and administrative expenses in our Live Entertainment segment and Exhibit Merchandising segment, respectively. This decline was offset in part by a $291,000 increase in selling, general and administrative expenses at our Ticketing Services segment.
More detailed explanations of the three months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Corporate Expenses
Corporate expenses are expenses that relate to activities at or directed by our executive offices. Significant components of corporate expenses consist of corporate personnel and personnel-related costs, insurance, legal and accounting fees, consulting and advisory fees, merchant fees and corporate occupancy costs. Corporate expenses for the three months ended June 30, 2009 and 2008 were $1.2 million and $1.5 million, respectively. Corporate expenses decreased $296,000 for the three months ended June 30, 2009, as compared to same period of the prior year. This decrease in corporate expenses is the result of a decrease in employee costs associated with stock option expense and, lower local tax expense and regulatory costs, which were offset in part by $110,000 higher board of director expenses primarily associated with stock option grants.
Depreciation and Amortization
Our depreciation and amortization was $626,000 and $1.1 million for the three months ended June 30, 2009 and 2008 respectively. The decrease of $476,000 in depreciation and amortization expense in 2009 primarily is the result of the $7.7 million impairment of intangible assets we recorded at December 31, 2008, which reduced future amortization expense by $500,000 a quarter.
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Other Income and (Expense)
Other Income and Expense was $129,000 for the three months ended June 30, 2009, and was the result of miscellaneous box office revenues, such as patron club income and season handling fees, earned by our Live Entertainment segment Tix Productions.
Interest Income
Interest income was immaterial for all periods presented. Fluctuations in interest income were due primarily to fluctuations in our cash balances.
Income Tax Expense
The provision for income taxes was $106,000 for the three months ended June 30, 2009 compared with a benefit of $82,000 for the three months ended June 30, 2008. The provision for income taxes for the three months ended June 30, 2009 and 2008 were determined using our effective rate estimated for the entire fiscal year. We have provided valuation allowances related to any benefits from income taxes resulting from the application of a statutory tax rate to our net operating losses generated in previous periods, as a result of our history of losses from operations.
Six Months Ended June 30, 2009 and 2008:
Revenues
Our revenues for the six months ended June 30, 2009 and 2008 were $46.7 million and $40 million, respectively. Our revenues increased $6.7 million, or 17%, during the six months ended June 30, 2009 as compared to the same period of the prior year. The increase in revenues was primarily the result of a $5.2 million increase in Live Entertainment revenues and a $2.5 million increase in Ticketing Services revenues, which was offset in part by a $1.0 million decline in revenues from our Merchandising segment.
More detailed explanations of the six months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Direct Operating Expenses
Direct operating expenses include payroll and related costs, rents, cost of tickets and goods sold, artist fees, show related marketing costs and advertising expenses along with other related costs of promoting and producing live entertainment. Direct costs of revenues were $36.3 million for the six months ended June 30, 2009 as compared to $29.1 million for the six months ended June 30, 2008. Our operating expenses increased $7.2 million or 25% during the six months ended June 30, 2009 as compared to the same period of the prior year. The increase in direct operating expenses is reflective of the 17% higher overall revenues earned and the 19% higher revenues earned in our Live Entertainment segment, which has higher direct cost of goods and services than our other operating segments.
More detailed explanations of the six months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Operating Segment Selling, General and Administrative Expenses
Operating segment selling, marketing and administrative expenses include advertising and promotional costs related to the Company’s business activities. Our operating segment selling, marketing and administrative expenses were $5.4 million and $6.8 million for the six months ended June 30, 2009 and 2008, respectively. Our selling, general and administrative expenses decreased $1.4 million or 21% during the six months ended June 30, 2009 as compared to the same period of the prior year due to a $1.2 million and $779,000 decline in selling and general and administrative expenses in our Live Entertainment segment and Merchandising segment, respectively. This decline was offset in part by a $562,000 increase in selling, general and administrative expenses at our Ticketing Services segment.
More detailed explanations of the six months ended June 30, 2009 and 2008 changes are included in the applicable segment discussions following.
Corporate Expenses
Corporate expenses are expenses that relate to activities at or directed by our executive offices. Significant components of corporate expenses consist of corporate personnel and personnel-related costs, insurance, legal and accounting fees, consulting and advisory fees, merchant fees and corporate occupancy costs. Corporate expenses for the six months ended June 30, 2009 and 2008 were $2.9 million. No single expense category resulted in an expense savings or increase that was individually significant.
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Depreciation and Amortization
Our depreciation and amortization was $1.2 million and $2.2 million for the six months ended June 30, 2009 and 2008 respectively. The decrease of $1 million in depreciation and amortization expense in 2009 primarily reflects a $1 million decrease in amortization expense. The decrease in amortization expense is the result of the $7.7 million impairment of intangible assets we recorded at December 31, 2008, which reduced future amortization expense by $500,000 a quarter.
Other Income and (Expense)
Other Income and Expense was $154,000 for the six months ended June 30, 2009, and was the result of miscellaneous box office revenues, such as patron club income and season handling fees, earned by our Live Entertainment segment Tix Productions.
Interest Income
Interest income was immaterial for all periods presented.
Income Tax Expense
The provision for income taxes was $106,000 for the six months ended June 30, 2009 compared with no provision for the six months ended June 30, 2008. The provision for income taxes for the six months ended June 30, 2009 and 2008 were determined using our effective rate estimated for the entire fiscal year. We have provided valuation allowances related to any benefits from income taxes resulting from the application of a statutory tax rate to our net operating losses generated in previous periods, as a result of our history of losses from operations.
Ticketing Services:
Our Ticketing Services segment operating results were as follows:
Segment Reporting – Ticketing Services
% Change | % Change | |||||||||||||||||||||||
Three Months Ended June 30, | 2009 vs. | Six Months Ended June 30, | 2009 vs. | |||||||||||||||||||||
2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |||||||||||||||||||
Revenue | $ | 4,670,000 | $ | 3,368,000 | 39 | % | $ | 8,825,000 | $ | 6,363,000 | 39 | % | ||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Direct operating expenses | 1,729,000 | 1,281,000 | 35 | % | 3,263,000 | 2,810,000 | 16 | % | ||||||||||||||||
Selling, general and administrative expenses | 904,000 | 613,000 | 47 | % | 1,775,000 | 1,213,000 | 46 | % | ||||||||||||||||
Depreciation and amortization | 61,000 | 52,000 | 17 | % | 119,000 | 101,000 | 18 | % | ||||||||||||||||
Operating income (loss) | $ | 1,976,000 | $ | 1,422,000 | 39 | % | $ | 3,668,000 | $ | 2,239,000 | 64 | % | ||||||||||||
Operating margin | 42 | % | 42 | % | 0 | % | 42 | % | 35 | % | 18 | % |
Three months ended June 30, 2009 and 2008:
Revenues
Ticketing Services has three operating units:
· Tix4Tonight, our discount ticket seller
· Tix4AnyEvent (AnyEvent or AE), our premium ticket operation
· Tix4Members, our membership group ticket sales program
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The Ticketing Services segment earns fee revenues from the sales of discounted tickets from purchasers of the tickets and commissions from the entertainment supplier, as well as revenues from the sale of premium tickets to sporting and other entertainment events. Through our discounted ticket venues, we also offer discount dinner reservations and golf tee times. Ticketing Services revenues were $4.7 million for the three months ended June 30, 2009 as compared to $3.4 million for the three months ended June 30, 2008. Our revenues increased $1.3 million, or 39%, during the three months ended June 30, 2009 as compared to the same period of the prior year. The increase in Ticketing Service revenues is the result of a $1.3 million increase in Tix4Tonight revenues and a $93,000 increase in ancillary revenues i.e. the sale of dinner reservations and tee times, offset by a $121,000 decline in premium ticket revenues. Revenues earned through Tix4Members were not meaningful.
Tix4Tonight:
Tix4Tonight revenues for the three months ended June 30, 2009 and 2008 were $4.5 million and $3.1 million, which is an increase of $1.4 million or 47% in 2009 as compared to the same period in 2008. The increase reflects a greater demand for discount tickets as well as an increase in the average selling price per ticket in 2009 as compared to 2008. The average selling price per ticket in 2009 was $57.38 per ticket, which represented an increase of $6.69 per ticket or 13% as compared to $50.69 per ticket in 2008. Tix4Tonight discount tickets sold increased by 88,000 tickets or 35% to 341,000 discounted show tickets for the three months ended June 30, 2009. The gross sales value of show tickets sold to customers plus commissions and fees earned were $19.5 million for the three months ended June 30, 2009, as compared to $12.8 million for the three months ended June 30, 2008, or a 53% increase. Lastly, during the three months ended June 30, 2009, revenues from miscellaneous sources of income including discount golf, and dinner reservations increased by $93,000, to $334,000 or 39%.
AnyEvent:
AnyEvent sells premium tickets to concerts, theatre shows and sporting events. AnyEvent’s revenues are dependent in part on sporting events and special concerts occurring, such as boxing matches and reunion tours, as well as our ability to obtain tickets to these events. AnyEvent revenues for the three months ended June 30, 2009 and 2008 were $196,000 and $317,000 respectively. The $121,000 decline in revenues is the result of management making the decision to change from a retail ticket seller to the public to a wholesaler of tickets, that is, our clients are national retail brokers. As a result of this change, we are assuming less risk and have been able to reduce our overhead and increase the likelihood of profitability. Management expects that AnyEvent’s revenues will be relatively stable in 2009 as compared to 2008, but expects its net income to be greater with the reduction of risk and a more measured approach in participating in the sale and distribution of premium tickets to concerts, theatre shows and sporting events.
Tix4Members:
Tix4Members.com is our internet based ticketing operation that was launched in February 2009 in conjunction with Costco Wholesale Corporation (Costco). Tix4Members sells discount tickets to concerts, live theater and sporting events to membership group members through co-branded websites. As with our Tix4Tonight operation in Las Vegas, Tix4Members.com offers a marketing channel for producers, presenters, artists, arenas and theaters nationwide to take advantage of our strong position in the discounted ticket sales and live entertainment industry. Tix4Members.com operates in a manner similar to Tix4Tonight with a few key differences. Instead of relying on physical ticket booth facilities for direct sales, Tix4Members uses the internet as its customer interface, and instead of offering only discounted day of show tickets, it has expanded the date range of its ticket availability of discount tickets to concerts, theatre shows and sporting events. Tix4Members’ revenues are dependent in part on sporting events and special concerts occurring, such as boxing matches and reunion tours, as well as our ability to obtain tickets to these events. Tix4Members revenues for the three months ended June 30, 2009 were not meaningful.
Direct Operating Expenses
Direct operating expenses include payroll and related costs, rents, and cost of tickets sold. Direct costs of revenues for the three months ended June 30, 2009 and 2008 were $1.7 million and $1.3 million, respectively, which represented an increase in direct operating expenses of $448,000 or 35%, which is reflective of a 39% increase in revenues. The direct operating expenses for the three months ended June 30, 2009 and 2008, as a percentage of revenues were comparable at 37% and 38%, respectively.
Selling, General and Administrative Expenses
Marketing and administrative expenses include advertising and promotional costs related to our business activities, as well as the segment cost of management. Selling, general and administrative expenses for the three months ended June 30, 2009 and 2008 were $904,000 and $613,000, respectively. Our selling, marketing and general and administrative expenses increased $291,000 or 47%, during the three months ended June 30, 2009 as compared to 2008. Selling, marketing and administrative expenses were comparable at 19% percent of revenues during the three months ended June 30, 2009 as compared to 18% during the three months ended June 30, 2008.
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Depreciation and Amortization
Depreciation and amortization expense incurred during the three months ended June 30, 2009 and 2008 were $61,000 and $52,000, respectively. We expect to incur a similar level of depreciation and amortization for the foreseeable future.
Six months ended June 30, 2009 and 2008:
Revenues
Ticketing Services revenues were $8.8 million and $6.4 million for the six months ended June 30, 2009 and 2008, respectively. Our revenues increased $2.4 million, or 39%, during the six months ended June 30, 2009 as compared to the same period of the prior year. The increase in Ticketing Service revenues is the result of a $2.7 million increase in Tix4Tonight revenues and a $197,000 increase in ancillary revenues i.e. the sale of dinner reservations and tee times, offset by a $491,000 decline in premium ticket revenues. Revenues earned through Tix4Members were not meaningful.
Tix4Tonight:
Tix4Tonight revenues for the six months ended June 30, 2009 and 2008 were $7.9 million and $5.2 million, which is an increase of $2.7 million or 53% in 2009 as compared to the same period in 2008. The increase reflects a greater demand for discount tickets as well as an increase in the average selling price per ticket in 2009 as compared to 2008. The average selling price per ticket in 2009 was $56.35 per ticket, which represented an increase of $7.13 per ticket or 14% as compared to $49.22 per ticket in 2008. Tix4Tonight discount tickets sold increased by 184,000 tickets or 39% to 659,000 discounted show tickets for the six months ended June 30, 2009. The gross sales value of show tickets sold to customers plus commissions and fees earned were $37.1 million for the six months ended June 30, 2009, as compared to $23.4 million for the six months ended June 30, 2008, or a 59% increase. Lastly, during the six months ended June 30, 2009, revenues from miscellaneous sources of income including discount golf, and dinner reservations increased by $197,000, to $632,000 or 45%.
AnyEvent:
AnyEvent revenues for the six months ended June 30, 2009 and 2008 were $255,000 and $746,000 respectively. The $491,000 decline in revenues is the result of management making the decision to change from a retail ticket seller to the public to a wholesaler of tickets, that is, our clients are national retail brokers. As a result of this change, we are assuming less risk and have been able to reduce our overhead and increase the likelihood of profitability. Management expects that AnyEvent’s revenues will be relatively stable in 2009 as compared to 2008, but expects its net income to be greater with the reduction of risk and a more measured approach in participating in the sale and distribution of premium tickets to concerts, theatre shows and sporting events.
Tix4Members:
Tix4Members.com is our internet based ticketing operations that was launched in February 2009. As with our Tix4Tonight operation in Las Vegas, Tix4Members.com offers a marketing channel for producers, presenters, artists, arenas and theaters nationwide to take advantage of our strong position in the discounted ticket sales and live entertainment industry. Tix4Members.com operates in a manner similar to Tix4Tonight with a few key differences. Instead of relying on physical ticket booth facilities for direct sales, Tix4Members uses the internet as its customer interface, and instead of offering only deeply discounted day of show tickets, it has expanded the date range of its ticket availability of discount tickets to concerts, theatre shows and sporting events. Tix4Members’ revenues are dependent in part on sporting events and special concerts occurring, such as boxing matches and reunion tours, as well as our ability to obtain tickets to these events. Tix4Members revenues for the six months ended June 30, 2009 were immaterial.
Direct Operating Expenses
Direct operating expenses include payroll and related costs, rents, and cost of tickets sold. Direct Costs of revenues for the six months ended June 30, 2009 and 2008 were $3.3 and $2.8 million, respectively, which represented an increase in direct operating expenses of $453,000 or 16%, which was the result of 39% increase in revenues. The direct operating expenses for the six months ended June 30, 2009 and 2008, as a percentage of revenues were 37% and 44%, respectively. The decline in direct operating expenses as a percentage of revenues in 2009 as compared to 2008 is reflective of the fixed nature of these expenses.
Selling, General and Administrative Expenses
Marketing and administrative expenses include advertising and promotional costs related to our business activities, as well as the segment cost of management. Selling, general and administrative expenses for the six months ended June 30, 2009 and 2008 were $1.8 million and $1.2 million, respectively. Our selling, marketing and general and administrative expenses increased $562,000 or 46%, during the six months ended June 30, 2009 as compared to 2008. The increase in selling, general and administrative expenses is reflective of the 39% increase in revenue activity at Tix4Tonight. Selling, marketing and administrative expenses were 20% percent of revenues during the six months ended June 30, 2009 as compared to 19% during the six months ended June30, 2008.
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Depreciation and Amortization
Depreciation and amortization expense incurred during the six months ended June 30, 2009 and 2008 were $119,000 and $101,000, respectively. We expect to incur a similar level of depreciation and amortization for the foreseeable future.
Exhibit Merchandising:
Our Exhibit Merchandising segment operating results were as follows:
Segment Reporting - Exhibit Merchandising
�� | % Change | % Change | ||||||||||||||||||||||
Three Months Ended June 30, | 2009 vs. | Six Months Ended June 30, | 2009 vs. | |||||||||||||||||||||
2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |||||||||||||||||||
Revenue | $ | 2,321,000 | $ | 2,979,000 | -22 | % | $ | 5,110,000 | $ | 6,082,000 | -16 | % | ||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Direct operating expenses | 1,398,000 | 1,804,000 | -23 | % | 3,103,000 | 3,681,000 | -16 | % | ||||||||||||||||
Selling, general and administrative expenses | 642,000 | 1,207,000 | -47 | % | 1,267,000 | 2,046,000 | -38 | % | ||||||||||||||||
Depreciation and amortization | 297,000 | 794,000 | -63 | % | 593,000 | 1,580,000 | -62 | % | ||||||||||||||||
Operating income (loss) | $ | (16,000 | ) | $ | (826,000 | ) | -98 | % | $ | 147,000 | $ | (1,225,000 | ) | 112 | % | |||||||||
Operating margin | -1 | % | -28 | % | -98 | % | 3 | % | -20 | % | -114 | % |
Three Months Ended June 30, 2009 and 2008:
Revenues
EM provides retail specialty stores for touring museum exhibitions and touring theatrical productions. EM provides a complete turn-key retail store with commercially available and extensive custom-branded product for sale. It operates the stores in space rented in conjunction with the exhibit. During the three months ended June 30, 2009 and 2008, EM generated $2.3 million and $3.0 million in revenues, respectively. Revenue is derived from the Company’s retail outlets associated with the sale of merchandise related to touring exhibits, primarily derived from “Tutankhamun and The Golden Age of the Pharaohs.” EM is subject to revenue fluctuations as a result of the exhibits that it represents moving from one location to another. The move of an exhibit from one location to another generally results in the exhibit being closed from four to six weeks. The length of time an exhibit is closed is dependent upon the type of exhibit, the distance the exhibit is to be shipped, as well as any special needs that may be required in re-setting the exhibit. “Tutankhamun and The Golden Age of the Pharaohs” and “Tutankhamun the Golden King and the Great Pharaohs” are currently booked in museums through July 2011 and December 2012, respectively. The $660,000 decline in revenues during the second quarter of 2009 is due to the move of the exhibits, “Tutankhamun and The Golden Age of the Pharaohs” from Dallas to San Francisco, and “Tutankhamun the Golden King and the Great Pharaohs” from Atlanta to Indianapolis, which caused the exhibits to be closed for approximately 45 days for which there was no corresponding closure in 2008. As a result, visitor attendance declined 39% for these two exhibits. This decrease was offset in part by an increase of 82% in visitor attendance at the small exhibits for which we support which were open for approximately 30 more days than in 2008.
Direct Operating Expenses
EM’s operating expenses include payroll and related costs, rents, and cost of goods sold. Direct operating expenses for the three months ended June 30, 2009 and 2008 were $1.4 million and $1.8 million, respectively and as a percent of revenues were 60% and 61%, respectively.
Selling, Marketing and Administrative Expenses
EM’s selling, marketing and administrative expenses include advertising and promotional costs related to our business activities, as well as the segment’s cost of management. For the three months ended June 30, 2009 and 2008, EM’s selling, marketing and administrative expenses were $642,000 or 28% of revenues and $1.2 million or 41% of revenues, respectively. The decline in selling, marketing and administrative expenses reflects the lower cost of operating domestic stores as compared to operating stores abroad. In 2009, the exhibits for which EM provides merchandising services were all domestic shows, whereas in 2008, all of the shows were located abroad.
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Depreciation and Amortization
Depreciation and amortization expense incurred during the three months ended June 30, 2009 and 2008 was $297,000 and $794,000, respectively, and relates primarily to the amortization of the intangible assets that were created as a result of EM being acquired in August 2007. The decrease in amortization expense relates to the $7.7 million impairment of intangible assets we recorded at December 31, 2008, thereby reducing the annual amortization charge by approximately $2.0 million or $500,000 quarterly. We expect the current level of depreciation and amortization to continue through 2010.
Six Months Ended June 30, 2009 and 2008:
Revenues
During the six months ended June 30, 2009 and 2008, EM generated $5.1 million and $6.1 million in revenues, respectively. Revenue is derived from the Company’s retail outlets associated with the sale of merchandise related to touring exhibits, primarily derived from “Tutankhamun and The Golden Age of the Pharaohs.” EM is subject to revenue fluctuations as a result of the exhibits that it represents moving from one location to another. The move of an exhibit from one location to another generally results in the exhibit being closed from four to six weeks. The length of time an exhibit is closed is dependent upon the type of exhibit, the distance the exhibit is to be shipped, as well as any special needs that may be required in re-setting the exhibit. “Tutankhamun and The Golden Age of the Pharaohs” and “Tutankhamun the Golden King and the Great Pharaohs” are currently booked in museums through July 2011 and December 2012, respectively. The $1 million decline in revenues during the six months ended June 30, 2009 is due to the move of the exhibit, “Tutankhamun and The Golden Age of the Pharaohs” from Dallas to San Francisco which caused the exhibit to be closed for approximately 45 days for which there was no corresponding closure in 2008. As a result, visitor attendance declined 49% for this exhibit. This decrease was offset in part by a 107% increase in visitor attendance at the small exhibits for which we support which were open for approximately 100 more days than in 2008.
Direct Operating Expenses
EM’s operating expenses include payroll and related costs, rents, and cost of goods sold. Direct operating expenses for the six months ended June 30, 2009 and 2008 were $3.1 million and $3.7 million, respectively and were 61% of revenues.
Selling, Marketing and Administrative Expenses
EM’s selling, marketing and administrative expenses include advertising and promotional costs related to our business activities, as well as the segment’s cost of management. For the six months ended June 30, 2009 and 2008, EM’s selling,marketing and administrative expenses were $1.3 million or 25% of revenues and $2.0 million or 34% of revenues, respectively. The decline in selling, marketing and administrative expenses reflect the lower cost of operating domestic stores as compared to operating stores abroad. In 2009, the exhibits for which EM provides merchandising services were all domestic shows, whereas in 2008, all of the shows were located abroad.
Depreciation and Amortization
Depreciation and amortization expense incurred during the six months ended June 30, 2009 and 2008 was $593,000 and $1.6 million, respectively, and relates primarily to the amortization of the intangible assets that were created as a result of EM being acquired in August 2007. The decrease in amortization expense relates to the $7.7 million impairment of intangible assets we recorded at December 31, 2008, thereby reducing the annual amortization charge by approximately $2.0 million or $500,000 quarterly. We expect the current level of depreciation and amortization to continue through 2010.
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Live Entertainment:
Our Live Entertainment segment operating results were as follows:
Segment Reporting- Tix Productions
% Change | % Change | |||||||||||||||||||||||
Three Months Ended June 30, | 2009 vs. | Six Months Ended June 30, | 2009 vs. | |||||||||||||||||||||
2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |||||||||||||||||||
Revenue | $ | 19,593,000 | $ | 10,517,000 | 86 | % | $ | 32,819,000 | $ | 27,582,000 | 19 | % | ||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Direct operating expenses | 18,283,000 | 9,238,000 | 98 | % | 29,970,000 | 22,563,000 | 33 | % | ||||||||||||||||
Selling, general and administrative expenses | 1,140,000 | 1,510,000 | -25 | % | 2,334,000 | 3,536,000 | -34 | % | ||||||||||||||||
Depreciation and amortization | 198,000 | 187,000 | 6 | % | 395,000 | 374,000 | 6 | % | ||||||||||||||||
Operating income (loss) | $ | (28,000 | ) | $ | (418,000 | ) | -93 | % | $ | 120,000 | $ | 1,109,000 | -89 | % | ||||||||||
Operating margin | 0 | % | -4 | % | -96 | % | 0 | % | 4 | % | -91 | % |
Tix Productions, Inc., the Company’s Live Entertainment segment, does business under the names Magic Arts & Entertainment (Magic) and NewSpace Entertainment (NewSpace). We acquired Magic and NewSpace operations effective January 2, 2008. Both Magic and NewSpace are independent presenters and producers of live theater and concerts with a history of working together. Combining the operations of these two companies under a single entity, we have better leveraged our resources, and gained operating efficiencies.
As a live entertainment presenter, we book touring theatrical and concert presentations with a history of successful commercial appeal as well as participate in the development and roll out of new theatrical and concert presentations often originating on Broadway in New York or the West End in London. We use a wide variety of marketing channels to sell tickets to these programs including our substantial subscriber-based businesses in eleven US cities, our Salt Lake City based group and corporate sales team, standard marketing tools including print, radio, television, outdoor and, most recently we have been developing new e-marketing tools. In addition, we invest in shows or productions in advance of their initial tour to obtain favorable touring and distribution rights.
Three Months Ended June 30, 2009:
Revenues
During the three months ended June 30, 2009 and 2008, revenues from our Live Entertainment operations were $19.6 million and $10.5 million, respectively. The $9.1 million increase in revenues is due to several factors including:
· | In the second quarter of 2009, we presented or produced 182 show dates as compared to 193 show dates in the second quarter of 2008. In 2009, several shows that were presented were in arenas where ticket prices and number of attendees are greater than the community theaters, where many of our shows generally play. As a result of these arena plays, our show revenues increased by $9.1 million while show count declined slightly. |
· | In 2008, tours of live entertainment companies began earlier and later in the year to avoid the presidential campaign season (July through October) when advertising prices were at their highest and audience attention at its lowest. As a result, Live Entertainment revenues in 2008 were higher than normal for the first and fourth quarters and lower than normal in the second and third quarters. In addition, in 2008, many productions that Tix was associated with toured Canada during the election cycle which, due to a strong Canadian dollar and economy, resulted in unusually strong profits. These combined factors resulted in an unusually large number of productions in the first and fourth quarters that under normal circumstances would have naturally fallen in the second or third quarters. |
Revenues from live entertainment are a function of a number of elements: tickets sold, ticket prices and ancillary revenue streams including sponsorships and revenues generated through premium ticketing opportunities. In instances where the Company acts as the primary obligor with suppliers, assumes credit risk, directs the pricing of the tickets and purchases the advertising, the Company records these revenues at gross. In other instances where we only receive a fee and are not the principal obligors to vendors, we record these revenues at net. It is management’s belief that this is consistent with EITF abstract 99-19 “Reporting Revenues Gross as Principal Versus Net as an Agent.” Revenues from our Live Entertainment operations are seasonal with the first and fourth quarters being traditionally the strongest.
Opportunities for growth in the Live Entertainment unit revolve around our expanding ownership of intellectual content, for example our producing role in the new 101 Dalmatians-The Musical project, which gives us first rights to present these shows and provides us the ability to direct ticket sales and branded merchandising to our other operating segments. In addition, we see growth opportunities to present in major marketplaces where competition has diminished due to industry consolidation such as Detroit and Milwaukee, and even more opportunities in smaller markets where individual promoters and competitors have left the market.
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Direct Operating Expenses
During the three months ended June 30, 2009 and 2008, direct operating expenses were $18.3 million and $9.2 million and represented 93% and 88% of revenues, respectively. The higher direct operating cost as a percentage of revenues reflects the greater number of tickets that have been discounted in 2009 as compared to 2008, as a strategic response to lower demand due to the poor economic climate. Expenses that are direct operating expenses include the show guarantees, profit sharing and royalties paid directly to the touring productions; direct expenses of the theater which include staffing, rent and box office charges; marketing costs and production costs which include equipment rentals, stagehands and the cost of our production and settlement manager to attend the production. Live Entertainment productions typically have large back-end sharing relationships with the productions involved and, as a result, significant increases in presentation revenue do not typically result in comparable increases in operating income as much of that goes to the production at hand. On the other hand, significant decreases in presentation revenue do have a comparable impact on operating income as the largest burden of risk in these presentations lies with the promoter. In instances where the Company acts as the primary obligor with suppliers, assumes credit risk, directs the pricing of the tickets and purchases the advertising, the Company records these expenses at gross.
Selling, Marketing and Administrative Expenses
Live Entertainment’s selling, marketing and administrative expenses include advertising and promotional costs related to its business activities, as well as the segment cost of management. For the three months ended June 30, 2009 and 2008, Live Entertainment’s administrative expenses were $1.1 million or 6% of revenues, and $1.5 million or 14% of revenues, respectively.
Depreciation and Amortization
Depreciation and amortization expense incurred during the three months ended June 30, 2009 and 2008 was $198,000 and $187,000, and primarily relates to amortization of the intangible assets that resulted from the acquisitions of Magic and NewSpace. We expect to incur a similar level of depreciation and amortization for the remainder of 2009.
Six Months Ended June 30, 2009:
Revenues
During the six months ended June 30, 2009 and 2008, revenues from our Live Entertainment operations were $32.8 million and $27.6 million, respectively. The $5.2 million increase in revenues is due to several factors including:
· | During the six months ended June 30, 2009, we presented or produced 397 show dates as compared to 440 show dates in the six months ended June 30, 2008. In 2009, several shows that were presented were in arenas where ticket prices and number of attendees are greater than the community theaters, where many shows generally play. As a result of these, our show revenues increased by $5.2 million. |
· | In 2008, tours of live entertainment companies began earlier and later in the year to avoid the presidential campaign season (July through October) when advertising prices were at their highest and audience attention at its lowest. As a result, Live Entertainment revenues in 2008 were higher than normal for the first and fourth quarters and lower than normal in the second and third quarters. In addition, in 2008, many productions that Tix was associated with toured Canada during the election cycle which, due to a strong Canadian dollar and economy, resulted in unusually strong profits. These combined factors resulted in an unusually large number of productions in the first and fourth quarters that under normal circumstances would have naturally fallen in the second or third quarters. |
Revenues from live entertainment are a function of a number of elements: tickets sold, ticket prices and ancillary revenue streams including sponsorships and revenues generated through premium ticketing opportunities. In instances where the Company acts as the primary obligor with suppliers, assumes credit risk, directs the pricing of the tickets and purchases the advertising, the Company records these revenues at gross. In other instances where we only receive a fee and are not the principal obligors to vendors, we record these revenues at net. It is management’s belief that this is consistent with EITF abstract 99-19 “Reporting Revenues Gross as Principal Versus Net as an Agent.” Revenues from our Live Entertainment operations are seasonal with the first and fourth quarters being traditionally the strongest.
Direct Operating Expenses
During the six months ended June 30, 2009 and 2008, direct operating expenses were $30 million and $22.6 million and represented 91% and 82% of revenues, respectively. The higher direct operating cost as a percentage of revenues reflects the greater number of tickets that have been discounted in 2009 as compared to 2008, due to the poor economic climate. Expenses that are direct operating expenses include the guarantees, profit sharing and royalties paid directly to the touring productions; direct expenses of the theater which include staffing, rent and box office charges; marketing costs and production costs which include equipment rentals, stagehands and the cost of our production and settlement manager to attend the production. Live Entertainment productions typically have large back-end sharing relationships with the productions involved and, as a result, significant increases in presentation revenue do not typically result in comparable increases in operating income as much of that goes to the production at hand. On the other hand, significant decreases in presentation revenue do have a comparable impact on operating income as the largest burden of risk in these presentations lies with the promoter. In instances where the Company acts as the primary obligor with suppliers, assumes credit risk, directs the pricing of the tickets and purchases the advertising, the Company records these expenses at gross.
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Selling, Marketing and Administrative Expenses
Live Entertainment’s selling, marketing and administrative expenses include advertising and promotional costs related to its business activities, as well as the segment cost of management. For the six months ended June 30, 2009 and 2008, Live Entertainment’s administrative expenses were $2.3 million or 7% of revenues, and $3.5 million or 13% of revenues, respectively.
Depreciation and Amortization
Depreciation and amortization expense incurred during the six months ended June 30, 2009 and 2008 was $395,000 and $374,000, and primarily relates to amortization of the intangible assets that resulted from the acquisitions of Magic and NewSpace. We expect to incur a similar level of depreciation and amortization for the remainder of 2009.
Liquidity and Capital Resources:
Summary of consolidated cash flows:
For The Six Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net cash provided by operating activities | $ | 4,353,000 | $ | 2,470,000 | ||||
Net cash used in investing activities | $ | (98,000 | ) | $ | (3,562,000 | ) | ||
Net cash provided by (used in) financing activities | $ | (517,000 | ) | $ | 32,000 | |||
Effect of exchange rate on cash | $ | 14,000 | $ | (36,000 | ) | |||
Change in cash: | ||||||||
Net increase (decrease) | 3,752,000 | (1,096,000 | ) | |||||
Balance at beginning of period | 9,192,000 | 7,417,000 | ||||||
Balance at end of period | $ | 12,944,000 | $ | 6,321,000 |
At June 30, 2009, we had cash of $12.9 million and total assets of $30.8 million compared to $9.2 million and $28.8 million, respectively, at December 31, 2008. Our working capital totaled $10.0 million at June 30, 2009, compared to $8.0 million at December 31, 2008. We had no debt for the six months ended June 30, 2009 and the year ended December 31, 2008.
Our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, are funded from operations or from the selling of equity securities and to a much lesser extent upon proceeds received upon the exercise of options and warrants. We will need to incur debt or issue equity to make other strategic acquisitions. We currently do not have any lines of credit available to us. We have no commitments from third parties to provide us with any additional future financing, and may not be able to obtain future financing on favorable terms.
We generally receive cash related to the sale of discount tickets and merchandise at the time of purchase and for Live Entertainment at the time of the settlement of revenues and expenses of the show, which is generally on the last date of the show. In certain instances, but not all, the sale of premium tickets occurs before the event. In these instances, the sale is recorded as deferred revenue until the event occurs. We pay the majority of event related expenses at the time of or after the event occurs.
Our revenues and cash fluctuate based upon the seasonality of our various businesses. Examples of seasonality of our businesses include Ticketing Services, which reports slightly greater revenues in the third and fourth quarters than those reported in the first half of the year. Our Live Entertainment segment expects to record the majority of its revenues in the fourth quarter. Exhibit Merchandising and AnyEvent are not subject to seasonal fluctuation. Exhibit Merchandising is subject to revenue fluctuations as a result of exhibits that it represents moving from one location to another. Moving an exhibit from one location to another generally results in the exhibit being closed from four to six weeks. The length of time an exhibit is closed is dependent upon the type of exhibit, the distance the exhibit is to be shipped, as well as any special needs that may be required in re-setting the exhibit. AnyEvent revenues are not subject to seasonal fluctuation, but depend on our ability to obtain tickets for events. We expect cash flows from operations and other financing alternatives, to satisfy working capital, and capital expenditures for at least the succeeding year.
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Operating Activities:
Cash flows from operations were $4.4 million for the six months ended June 30, 2009, compared to $2.5 million for the six months ended June 30, 2008. The $1.9 million increase in cash flows provided from operations was the result of a $1.7 million increase in net income in 2009, and adjustments for non-cash items and changes in accounts reflecting operating activities. Significant items adjusting net income in 2009 were $1.2 million in depreciation and amortization expense, $685,000 of fair value of common stock options issued for services, a $1.1 million decrease in inventory, a $243,000 decrease in prepaid expenses and other current assets, and a $324,000 increase in accounts payable and accrued expenses, which were offset by a $456,000 increase in capitalized theatrical costs, deposits and other assets. Significant items adjusting net loss in 2008 were a $578,000 increase in accounts receivable, a $461,000 increase in capitalized theatrical costs, deposits and other assets which was offset by a $381,000 increase in accounts payable, a $320,000 decrease in prepaid expenses and other current assets, $2.2 million of amortization and depreciation expense and $1.2 million of fair value of common stock issued for services. The remaining amounts relate to operating accounts that are reflective of the level and timing of activity that occurred during the period, e.g., accrued liabilities.
Cash Flows from Investing Activities:
During the six months ended June 30, 2009 and 2008, we used $98,000 and $3.6 million related to investing activities.
Acquisitions
Effective January 2, 2008, we acquired Magic and NewSpace. As consideration for the acquisition of Magic, the Company paid $2.0 million, net of cash acquired and issued 476,190 shares of stock that had market value of $2.3 million, which approximated the fair market value of the shares at the time of issuance. As consideration for the acquisition of NewSpace, the Company paid $1.3 million, net of cash acquired and issued 571,428 shares of stock that had market value of $2.7 million, which approximated the fair market value of the shares at the time of issuance.
Other
During the six months ended June 30, 2009 and 2008, we purchased fixed assets with a value of $98,000 and $336,000 respectively.
Cash Flows from Financing Activities:
During the six months ended June 30, 2009, we used $517,000 related to financing activities. During the six months ended June 30, 2009, financing activities provided $32,000. During 2009, cash used by financing activities included the repurchase of 273,000 shares of our common stock with a fair value of $443,000, $46,000 related to the exercise of options and warrants, and $28,000 related to capital leases. During 2008, cash generated by financing activities was the result of the receipt of proceeds from the exercise of options and warrants of $54,000, offset by a minor amount of payments for capital leases.
Summary
Our primary short-term liquidity needs are to fund general working capital requirements while our long-term liquidity needs are primarily acquisition related. Our primary source of funds for our short-term needs will be cash flows from operations, while our long-term sources of funds will be from operations and debt or equity financing. We have sufficient cash on hand and are generating sufficient cash from operations to meet our current operating needs.
Earnings before interest, income taxes, depreciation and amortization or EBITDA:
The following includes the financial measure of performance earnings before interest, income taxes, depreciation and amortization, or EBITDA, that is a commonly used measure of performance in the entertainment industry. EBITDA is not a measure of performance calculated in accordance with accounting principles generally accepted in United States of America or GAAP. Management has historically evaluated the operating performance of management of Tix Productions, Tix4AnyEvent and Exhibit Merchandising based upon this non-GAAP measure.
EBITDA is presented solely as a supplemental disclosure because (1) management believes it enhances an overall understanding of its past and current performance; (2) management believes it is a useful tool for investors to assess the operating performance of the business in comparison to other entertainment businesses since EBITDA excludes certain items that may not be indicative of management’s operating results; (3) measures that are comparable to EBITDA are often used as an important basis for the valuation of entertainment companies; and (4) management uses EBITDA internally to evaluate its operating performance in comparison to its competitors.
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The use of EBITDA has certain limitations. EBITDA should be considered in addition to, not as a substitute for or superior to any GAAP financial measure including net income as an indicator of management’s performance, or cash flows provided by operating activities as an indicator of the Company’s liquidity, nor should it be considered as an indicator of management’s overall performance. Management’s calculation of EBITDA may be different from the calculation of EBITDA or other similarly titled measurements used by other entertainment companies, and therefore comparability may be limited. EBITDA eliminates certain substantial recurring items from net income, such as depreciation, amortization, interest expense and income taxes. Each of these items has been incurred in the past, will continue to be incurred in the future and should be considered in the overall evaluation of the Company’s results. We compensate for these limitations by providing the relevant disclosure of depreciation and amortization, interest expense and income taxes that are excluded in the calculation of EBITDA both in the reconciliation to the GAAP financial measure of net income (loss) and in the consolidated financial statements and related footnotes, all of which should be considered when evaluating the Company’s results. Management strongly encourages readers to review our financial information in its entirety and not to rely on a single measure. A reconciliation of EBITDA to net income (loss) follows:
Three months ended | Three months ended | |||||||||||||||
June 30, 2009 | June 30, 2008 | |||||||||||||||
Net income (loss) | $ | 659,000 | $ | (1,166,000 | ) | |||||||||||
Interest income | $ | 9,000 | $ | 11,000 | ||||||||||||
Interest expense | (3,000 | ) | (4,000 | ) | ||||||||||||
Net interest income (expense) | $ | 6,000 | 6,000 | $ | 7,000 | 7,000 | ||||||||||
Depreciation | 133,000 | 121,000 | ||||||||||||||
Amortization | 493,000 | 981,000 | ||||||||||||||
Income taxes | 106,000 | (82,000 | ) | |||||||||||||
EBITDA | $ | 1,385,000 | $ | (153,000 | ) | |||||||||||
Six months ended | Six months ended | |||||||||||||||
June 30, 2009 | June 30, 2008 | |||||||||||||||
Net income (loss) | $ | 954,000 | $ | (704,000 | ) | |||||||||||
Interest income | $ | 22,000 | $ | 45,000 | ||||||||||||
Interest expense | (7,000 | ) | (10,000 | ) | ||||||||||||
Net interest income (expense) | $ | 15,000 | 15,000 | $ | 35,000 | 35,000 | ||||||||||
Depreciation | 264,000 | 237,000 | ||||||||||||||
Amortization | 983,000 | 1,987,000 | ||||||||||||||
Income Taxes | 106,000 | - | ||||||||||||||
EBITDA | $ | 2,292,000 | $ | 1,485,000 |
Principal Commitments:
Lease Commitments:
The Company leases office space for its corporate headquarters in Studio City, California. Additionally, the Company’s wholly-owned subsidiaries, Tix4Tonight, LLC, Tix Productions, LLC and Exhibit Merchandising, lease space. Tix4Tonight leases its six ticket facilities and its administrative offices in Las Vegas, Nevada, for various periods ranging from one year to five years. Tix Production, LLC leases office space in Salt Lake City, Utah and Aurora, Ohio. Exhibit Merchandising leases warehouse and office space in Streetsboro, Ohio.
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Many of the Company’s operating leases contain predetermined fixed increases in the minimum rental rate during the initial lease term and/or rent holiday periods. For these leases, the Company recognizes the related rent expense on a straight-line basis beginning on the effective date of the lease. The Company records the difference between the amounts charged to expense and the rent paid as deferred rent on the Company’s balance sheet.
The aggregate minimum future rental payments under non-cancelable operating leases for facilities in operation at June 30, 2009, excluding operating expenses, annual rent escalation provisions, and contingent rental payments based on achieving certain pre-determined sales levels, are as follows:
Payments due by Fiscal Years Ending December 31, | ||||||||||||||||||||||||
Total | 2009 | 2010 | 2011 | 2012 | 2013 and beyond | |||||||||||||||||||
Employment agreements | $ | 3,712,000 | $ | 1,060,000 | $ | 1,886,000 | $ | 679,000 | $ | 87,000 | $ | - | ||||||||||||
Capital lease obligations | 117,000 | 30,000 | 67,000 | 9,000 | 8,000 | 3,000 | ||||||||||||||||||
Operating lease obligations | 8,462,000 | 1,288,000 | 2,458,000 | 1,817,000 | 1,558,000 | 1,341,000 | ||||||||||||||||||
Total contractual cash obligations | $ | 12,291,000 | $ | 2,378,000 | $ | 4,411,000 | $ | 2,505,000 | $ | 1,653,000 | $ | 1,344,000 |
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Employment Agreements:
The Company has employment agreements with its President and Chief Executive Officer, as well as several of its key officers and employees that are for varying periods of one to three years.
Retirement Plan:
The Company has a 401(k) retirement plan which covers substantially all employees. Under the plan, participants may defer the receipt of up to 75% percent of their annual compensation, but not to exceed the maximum amount as determined by the Internal Revenue Code. The amount of the employer matching contribution is equal to 100% of the first 3% withheld and 50% for the next 2% withheld. The Company may make additional matching contributions as determined and approved by the Board of Directors. Total 401(k) retirement plan expense amounted to $76,000 and $50,000 for the six months ended June 30, 2009 and 2008, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As substantially all of our investments are in short-term bank deposits, our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three- or six month periods ended June 30, 2009, it would not have had a material effect on our results of operations or cash flows for that period.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
In addition, our management with the participation of our Principal Executive Officer and Principal Financial Officer have determined that no change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) occurred during or subsequent to the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any pending or threatened legal proceedings.
ITEM 1A. RISK FACTORS
There are no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s 2008 Annual Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Common stock repurchases made in the quarter
In the six months ended June 30, 2009, we paid $443,000 for the purchase of 272,630 of our common shares in the open market for the recipients of our 2009 common stock grants.
2008 Repurchase Program |
Maximum number | |||||||||||
Total number of | of shares that may | ||||||||||
Average | shares purchased as | yet be purchased | |||||||||
price | part of publicly | under a publicly | |||||||||
Total number of | paid per | announced plan or | announced plan or | ||||||||
Period | shares purchased | share | program | program | |||||||
January 2009 | 91,300 | $ | 1.99 | 823,670 | 176,330 | ||||||
February 2009 | 83,600 | $ | 1.60 | 907,270 | 92,730 | ||||||
March 2009 | 50,900 | $ | 1.25 | 958,170 | 41,830 | ||||||
Q1 2009 | 225,800 | 1.68 | 958,170 | 41,830 | |||||||
April 2009 | 28,482 | $ | 1.30 | 986,652 | 13,348 | ||||||
May 2009 | 11,100 | $ | 1.29 | 997,752 | 2,248 | ||||||
June 2009 | 2,248 | $ | 1.85 | 1,000,000 | - | ||||||
Q2 2009 | 41,830 | 1.32 | 1,000,000 | - | |||||||
Total | 267,630 | $ | 1.62 | 1,000,000 | - |
2009 Repurchase Program | |||||||||||
Maximum number | |||||||||||
Total number of | of shares that may | ||||||||||
shares purchased as | yet be purchased | ||||||||||
part of publicly | under a publicly | ||||||||||
Total number of | Average price | announced plan or | announced plan or | ||||||||
Period | shares purchased | paid per share | program | program | |||||||
June 2009 | 5,000 | $ | 1.91 | 5,000 | 995,000 | ||||||
Total | 5,000 | $ | 1.91 | 5,000 | 995,000 |
On March 15, 2009, the Company issued 50,000 shares of common stock pursuant to an agreement with a consultant for services rendered. Should the agreement be terminated by the company during the first six months, any unvested shares will be returned to the company. Therefore, the shares of common stock are recorded as general and administrative expense at their fair market value as they vest monthly over the six month agreement. The shares were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company’s Annual Meeting of Stockholders was held on Wednesday, July 8, 2009, in Studio City, California, at which the following matters were submitted to a vote of the Stockholders:
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I.
Votes regarding the election of the persons named below as Directors for a term expiring in 2010 were as follows:
For | Against | Abstentions | ||||||||||
Mitch Francis | 27,220,796 | - | 1,000 | |||||||||
Benjamin Frankel | 27,220,650 | - | 1,146 | |||||||||
Norman Feirstein | 27,218,002 | - | 3,794 | |||||||||
Sam Georges | 27,221,796 | - | 0 | |||||||||
Andrew Pells | 27,220,796 | - | 1,000 | |||||||||
Joseph Marsh | 27,211,180 | - | 10,616 |
II.
Votes on a proposal regarding the Tix 2009 Equity Incentive Plan were as follows:
For | Against | Abstentions | Broker Non-votes | |||||||||
24,697,378 | 2,438,512 | 113,230 | 5,557,299 |
III.
Votes on a proposal regarding an amendment to the Tix 2004 Directors Stock Option Plan to increase the number of shares of common stock under the Plan from 100,000 to 1,000,000 were as follows:
For | Against | Abstentions | Broker Non-votes | |||||||||
18,816,762 | 70,521 | 1,040 | 13,918,096 |
IV.
Votes regarding ratification of the appointment of Weinberg & Co., P.A. as independent registered public accounting firm for the Corporation for the fiscal year ending December 31, 2009 were as follows:
For | Against | Abstentions | Broker Non-votes | |||||||||
27,009,321 | 260,657 | - | 5,536,441 |
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TIX CORPORATION (Registrant) | ||
Date: August 6, 2009 | By: | /s/Mitch Francis |
Mitch Francis | ||
Chief Executive Officer | ||
Date: August 6, 2009 | By: | /s/ Matthew Natalizio |
Matthew Natalizio | ||
Chief Financial Officer (On behalf of the registrant and Principal Financial and Accounting Officer) |
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INDEX TO EXHIBITS
10.1 | Employment Agreement dated as of March 1, 2009 between Mitch Francis and the Company. (1) | |
31.1 | Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2009.
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