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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER
0-22582
TBA ENTERTAINMENT CORPORATION
(Exact Name of Registrant as specified in its Charter)
DELAWARE 62-1535897
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
16501 VENTURA BOULEVARD
ENCINO, CALIFORNIA 91436
(Address of principal executive offices) (Zip Code)
(818) 728-2600
(Registrant's telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes [X] No [ ]
As of August 3, 2001, the Registrant had outstanding 7,352,300 shares of Common
Stock, par value $.001 per share.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets........................... 3
Consolidated Statements of Operations................. 4
Consolidated Statements of Cash Flows................. 5
Notes to Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K...................... 15
Signatures...................................................... 16
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 3,186,600 $ 3,751,100
Accounts receivable, net of allowance for doubtful
accounts of $173,000 and $182,400,
respectively ...................................... 6,921,500 3,973,000
Deferred charges and other current assets ............. 3,738,900 2,266,400
Net current assets of discontinued operations ......... -- 91,600
------------ ------------
Total current assets ........................ 13,847,000 10,082,100
Property and equipment, net .............................. 2,336,200 2,441,700
Other assets, net:
Goodwill .............................................. 25,221,100 23,834,800
Other ................................................. 577,200 527,200
Net long-term assets of discontinued operations .......... 2,441,500 2,531,100
------------ ------------
Total assets ............................... $ 44,423,000 $ 39,416,900
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .............. $ 9,365,000 $ 4,433,900
Deferred revenue ...................................... 3,304,300 2,317,300
Notes payable and current portion of long-term debt ... 3,144,400 3,049,600
Net current liabilities of discontinued operations .... 371,900 --
------------ ------------
Total current liabilities ................... 16,185,600 9,800,800
Long-term debt, net of current portion ................... 4,687,800 4,373,600
------------ ------------
Total liabilities ........................... 20,873,400 14,174,400
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000
shares, 2,200 of Series A convertible
preferred stock issued and outstanding, liquidation
preference $100 ...................................... 100 100
Common stock, $.001 par value; authorized 20,000,000
shares, 7,352,300 shares outstanding, 8,857,100 shares
issued ............................................... 8,900 8,900
Additional paid in capital ............................. 30,600,700 30,600,700
Retained (deficit) earnings ............................ (938,800) 133,500
Less treasury stock, at cost, 1,504,800
and 1,349,500 shares, respectively ................... (6,121,300) (5,500,700)
------------ ------------
Total stockholders' equity .................. 23,549,600 25,242,500
------------ ------------
Total liabilities and stockholders' equity .. $ 44,423,000 $ 39,416,900
============ ============
See notes to consolidated financial statements.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues ......................................... $ 22,330,200 $ 16,492,900 $ 36,230,600 $ 33,196,700
Costs related to revenue ......................... 14,698,700 10,915,600 24,156,100 22,349,600
------------ ------------ ------------ ------------
Gross profit margin ............................ 7,631,500 5,577,300 12,074,500 10,847,100
Selling, general and administrative expenses ..... 5,616,800 4,482,100 11,032,700 8,778,600
Depreciation and amortization expense ............ 729,900 594,800 1,406,100 1,155,900
Other income ..................................... (127,200) -- (294,900) --
Interest expense, net ............................ 124,800 56,900 272,000 103,900
------------ ------------ ------------ ------------
Income (loss) from continuing operations before
income taxes ................................... 1,287,200 443,500 (341,400) 808,700
Income tax provision ............................. 643,000 256,800 115,000 436,800
------------ ------------ ------------ ------------
Income (loss) from continuing operations ......... 644,200 186,700 (456,400) 371,900
Discontinued operations:
Loss from discontinued operations, net of
income tax benefit of $317,000 and $37,800,
respectively, for the three months ended
June 30, and $410,000 and $90,800,
respectively, for the six months
ended June 30 ................................ (475,700) (35,900) (615,900) (77,200)
------------ ------------ ------------ ------------
Net income (loss) ................................ $ 168,500 $ 150,800 $ (1,072,300) $ 294,700
============ ============ ============ ============
Earnings per common share -- basic:
Income (loss) from continuing operations ....... $ 0.09 $ 0.02 $ (0.06) $ 0.05
Loss from discontinued operations .............. (0.07) -- (0.09) (0.01)
------------ ------------ ------------ ------------
Net income (loss) per common share - basic ....... $ 0.02 $ 0.02 $ (0.15) $ 0.04
============ ============ ============ ============
Earnings per common share -- diluted:
Income (loss) from continuing operations ....... $ 0.09 $ 0.02 $ (0.06) $ 0.05
Loss from discontinued operations .............. (0.07) -- (0.09) (0.01)
------------ ------------ ------------ ------------
Net income (loss) per common share - diluted ..... $ 0.02 $ 0.02 $ (0.15) $ 0.04
============ ============ ============ ============
See notes to consolidated financial statements.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income (loss) ........................................ $ (1,072,300) $ 294,700
------------ ------------
Adjustments to reconcile net income
(loss) to net cash provided
by continuing operations:
Loss from discontinued operations .................... 615,900 77,200
Depreciation and amortization ........................ 1,406,100 1,155,900
Changes in assets and liabilities:
(Increase) in accounts receivable .............. (2,971,200) (1,082,700)
(Increase) in deferred charges
and other current assets ...................... (1,595,700) (3,748,500)
(Increase) in other assets ...................... (70,800) (87,300)
Increase in accounts payable and
accrued liabilities ........................... 5,235,500 1,531,300
Increase in advance deposits and deferred
revenue ....................................... 1,029,600 9,076,100
------------ ------------
Total adjustments ........................ 3,649,400 6,922,000
------------ ------------
Net cash provided by continuing operations 2,577,100 7,216,700
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired .......... (1,514,800) (4,653,700)
Expenditures for property and equipment .................. (255,100) (383,100)
------------ ------------
Net cash used in investing activities .... (1,769,900) (5,036,800)
------------ ------------
Cash flows from financing activities:
Net borrowings on credit lines ......................... 500,000 325,000
Repurchase of common stock ............................. (620,500) (1,152,600)
Repayments of long-term debt ........................... (1,251,200) (1,467,800)
------------ ------------
Net cash used in financing activities .... (1,371,700) (2,295,400)
------------ ------------
Net decrease in cash and cash equivalents .................... (564,500) (115,500)
Cash and cash equivalents - beginning of period .............. 3,751,100 12,935,900
------------ ------------
Cash and cash equivalents - end of period .................... $ 3,186,600 $ 12,820,400
============ ============
Cash paid for interest ....................................... $ 242,800 $ 167,700
------------ ------------
Cash paid for income taxes ................................... $ 217,000 $ 449,400
------------ ------------
See notes to consolidated financial statements.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION:
TBA Entertainment Corporation and subsidiaries (collectively, the
"Company") is a strategic communications and entertainment company that
creates, develops and produces comprehensive programs to reach and engage its
clients' target audiences. The Company produces a broad range of innovative
business communications programs, develops and produces integrated
entertainment marketing and special events programs, develops content and
entertainment programs for a nationwide network of fairs and festivals and
develops and implements career strategies and corporate partnerships for our
artist clients. The Company was incorporated in Tennessee in June 1993 and
reincorporated in Delaware in September 1997.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
year-end financial statements. The accompanying consolidated financial
statements should be read in conjunction with the more detailed financial
statements and related footnotes included in the Company's Form 10-K for the
year ended December 31, 2000.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation of the
financial position of the Company as of June 30, 2001, the results of its
operations for the three and six month periods ended June 30, 2001 and 2000,
respectively, and its cash flows for the six month periods ended June 30,
2001 and 2000 have been included. Operating results for the three and six
months ended June 30, 2001, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2001.
Reclassification
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently approved two statements:
SFAS No. 141. "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets," which provide guidance on the accounting for business
combinations, requires all future business combinations to be accounted for
using the purchase method, discontinues amortization of goodwill, defining
when and how other intangible assets are amortized, and requires an annual
impairment test for goodwill. We plan to adopt these statements effective
January 1, 2002. We are currently reviewing these standards to determine the
impact on our results of operation and financial position. The most
significant potential effect on our financial statement of adoption would be
discontinuing goodwill amortization and the possible recording of goodwill
impairment loss measured as of the date of adoption.
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2. NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the unaudited computations of basic and
diluted earnings per common share from continuing operations:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Basic earnings (loss) per common share:
Income (loss) from continuing operations ... $ 644,200 $ 186,700 $ (456,400) $ 371,900
Weighted average common stock outstanding .. 7,352,300 8,177,500 7,363,600 8,259,000
----------- ----------- ----------- -----------
Basic earnings (loss) per common share ..... $ 0.09 $ 0.02 $ (0.06) $ 0.05
=========== =========== =========== ===========
Diluted earnings per common share:
Income (loss) from continuing operations ... $ 644,200 $ 186,700 $ (456,400) $ 371,900
----------- ----------- ----------- -----------
Weighted average common stock outstanding .. 7,352,300 8,177,500 7,363,600 8,259,000
Additional common stock resulting
from dilutive securities:
Preferred stock .......................... 2,200 2,200 -- 2,200
Shares issuable for stock options and
warrants ............................... 2,100 8,100 -- 18,300
----------- ----------- ----------- -----------
Common stock and dilutive securities
outstanding ............................. 7,356,600 8,187,800 7,363,600 8,279,500
----------- ----------- ----------- -----------
Diluted earnings (loss) per common share ... $ 0.09 $ 0.02 $ (0.06) $ 0.05
=========== =========== =========== ===========
Options and warrants to purchase 1,375,800 and 3,101,500 shares of common
stock in 2001 and 2000, respectively, were not considered in calculating
diluted earnings per share for the three month periods as their inclusion
would have been anti-dilutive.
3. BUSINESS ACQUISITIONS
On February 6, 2001, the Company acquired 100% of the common stock of Moore
Entertainment, Inc. ("Moore"), for a maximum purchase price of $2,200,000
plus acquisition costs, totaling approximately $52,400. The purchase price
paid at closing included a cash payment of $1,100,000 and the issuance of a
promissory note totaling $1,100,000. The principal amount of the promissory
note is subject to reduction based on the earnings of Moore during each of
the years 2001 through 2004. The promissory note accrues interest at 8% and
is scheduled for four principal and interest payments, with amounts
calculated as determined in the related promissory note, commencing as early
as May 1, 2002.
The acquisition of Moore was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the
date of acquisition. Substantially the entire aggregate purchase price has
been allocated to goodwill, as the net tangible assets of Moore were not
significant at the date of acquisition. The goodwill is being amortized over
10 years.
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4. DISCONTINUED OPERATIONS
During the first quarter of 2001, the Company approved a formal plan to sell
its merchandising operations in order to better focus on its core business as
a strategic communications and entertainment company. The disposition of the
merchandising operations represents the disposal of a business segment under
Accounting Principles Board ("APB") Opinion No. 30. Accordingly, this segment
is accounted for as a discontinued operation and amounts in the financial
statements and related notes for all periods shown have been restated to
reflect discontinued operations accounting. Management currently believes
that it will be able to recover its net investment in discontinued operations
and that it will not experience a material loss on discontinued operations
between July 1, 2001 and the disposal date, which is not expected to exceed
twelve months from the measurement date.
The unaudited operating results of discontinued operations are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues ...................................... $ 1,216,800 $ 2,475,000 $ 3,089,900 $ 6,073,200
Net loss from discontinued operations before
income taxes ............................... (792,700) (73,700) (1,025,900) (168,000)
Income tax benefit ............................ 317,000 37,800 410,000 90,800
----------- ----------- ----------- -----------
Net loss from discontinued operations ......... $ (475,700) $ (35,900) $ (615,900) $ (77,200)
=========== =========== =========== ===========
The components of assets and liabilities of discontinued operations are as
follows:
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
Current assets:
Cash and cash equivalents ................. $ 442,200 $ --
Accounts receivable ....................... 174,600 504,000
Inventories ............................... 122,800 401,000
Other current assets ...................... 123,600 47,300
Current liabilities:
Accounts payable and accrued liabilities .. (659,100) (486,800)
Current portion of long-term debt
and line of credit ...................... (576,000) (373,900)
----------- -----------
Net current (liabilities) assets ............. $ (371,900) $ 91,600
=========== ===========
Long-term assets:
Property and equipment, net ............... $ 617,200 $ 671,200
Other assets, net ......................... 1,843,400 1,915,700
Long-term liabilities:
Long-term debt, net of current portion .... (19,100) (55,800)
----------- -----------
Net long-term assets ......................... $ 2,441,500 $ 2,531,100
=========== ===========
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5. Business Segment and Geographic Information
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." The
Company classifies its continuing operations according to four major client
groups within the entertainment services industry: corporate clients,
entertainment marketing clients, artist clients and fairs & festivals
clients. For corporate clients, the Company creates innovative business
communications programs delivered via a broad range of business
communications, meeting production, entertainment and event production
services. For entertainment marketing clients, the Company develops and
executes integrated entertainment marketing and special event initiatives
including music tours, television broadcasts and syndicated radio specials.
For artist clients, the Company manages the negotiation of recording,
touring, merchandising and performance contracts, and the development of
long-term career strategies for music industry artists. For fairs & festivals
clients, the Company develops content and entertainment programs for its
nationwide network of fairs and festivals. Substantially all revenues and
long-lived assets of the Company as of and for the three and six month
periods ended June 30, 2001 and 2000, were derived from United States based
companies.
The Company does not internally report separate identifiable assets by client
group. The Company evaluates performance of each segment based on several
factors, of which the primary financial measure is EBITDA, including other
income. EBITDA is defined as earnings before interest, taxes, depreciation,
and amortization. Summarized financial information concerning the Company's
reportable segments (and excluding discontinued operations discussed in Note
4) is shown in the following table for the three-month and six-month periods
ended June 30 (in thousands):
ENTERTAINMENT FAIRS &
CORPORATE MARKETING ARTIST FESTIVALS
CLIENTS CLIENTS CLIENTS CLIENTS CORPORATE TOTAL
--------- ------------- ------- --------- --------- --------
THREE MONTHS ENDED
JUNE 30,
2001:
Revenues $ 16,803 $ 3,091 $ 1,094 $ 1,342 $ -- $ 22,330
======== ======= ======= ======= ======= ========
EBITDA, including other income $ 2,462 $ 362 $ 319 $ (63) $ (938) $ 2,142
Depreciation and amortization (300) (85) (160) (106) (79) (730)
Net interest income (expense) (2) 10 (2) (9) (122) (125)
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before
income taxes $ 2,160 $ 287 $ 157 $ (178) $(1,139) $ 1,287
======== ======= ======= ======= ======= ========
2000:
Revenues $ 13,079 $ 1,269 $ 834 $ 1,311 $ -- $ 16,493
======== ======= ======= ======= ======= ========
EBITDA $ 1,626 $ (54) $ 301 $ 66 $ (843) $ 1,096
Depreciation and amortization (279) (14) (134) (141) (27) (595)
Net interest income (expense) 57 54 (4) (7) (157) (57)
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before
income taxes $ 1,404 $ (14) $ 163 $ (82) $(1,027) $ 444
======== ======= ======= ======= ======= ========
SIX MONTHS ENDED
JUNE 30,
2001:
Revenues $ 29,805 $ 3,392 $ 1,635 $ 1,399 $ -- $ 36,231
======== ======= ======= ======= ======= ========
EBITDA, including other income $ 3,594 $ 40 $ 213 $ (416) $(2,094) $ 1,337
Depreciation and amortization (581) (163) (321) (212) (129) (1,406)
Net interest income (expense) 5 10 (3) (12) (272) (272)
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before
income taxes $ 3,018 $ (113) $ (111) $ (640) $(2,495) $ (341)
======== ======= ======= ======= ======= ========
2000:
Revenues $ 27,480 $ 2,715 $ 1,660 $ 1,342 $ -- $ 33,197
======== ======= ======= ======= ======= ========
EBITDA $ 3,622 $ (336) $ 612 $ (134) $(1,695) $ 2,069
Depreciation and amortization (571) (71) (267) (193) (54) (1,156)
Net interest income (expense) 105 78 (9) (9) (269) (104)
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before
income taxes $ 3,156 $ (329) $ 336 $ (336) $(2,018) $ 809
======== ======= ======= ======= ======= ========
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of the following discussion and analysis is to explain the major
factors and variances between periods of the Company's financial condition and
results of operations. The following discussion of the Company's financial
condition and results of operations should be read in conjunction with the
historical consolidated financial statements and notes thereto included in the
Company's 2000 Form 10-K for the fiscal year ended December 31, 2000.
Introduction
The Company is a strategic communications and entertainment company that
creates, develops and produces comprehensive programs to reach and engage its
clients' target audiences. The Company produces a broad range of innovative
business communications programs, develops and produces highly integrated
entertainment marketing and special events programs, develops content and
entertainment programs for a nationwide network of fairs and festivals and
develops and implements career strategies and corporate partnerships for our
artist clients.
The Company has built this comprehensive communications and entertainment
business model through a combination of internal growth and strategic
acquisitions. Since April 1997, the Company has completed 10 strategic
acquisitions and has built a comprehensive network of 14 offices to serve its
growing client base. In 2000, the Company completed the acquisitions of Romeo
Entertainment Group ("Romeo") (January) and EJD Concert Services ("EJD") (April)
(collectively, the "2000 Acquisitions"). In February 2001, the Company completed
the acquisition of Moore Entertainment ("Moore"). The results of operations of
the 2000 Acquisitions and the Moore acquisition are included from the
corresponding acquisition dates.
General
In accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," the Company classifies it operations according to four
major client groups. The Company currently derives a majority of its revenues
(82% and 83% of total revenue for the six month periods ended June 30, 2001 and
2000, respectively) from the production of innovative business communications
programs to help corporate clients reach and engage their target audiences. The
Company helps businesses effectively communicate their message via a broad range
of business communications, meeting production, and entertainment production
services. The Company receives a fee for providing these services, which may
include developing creative content, providing comprehensive project management
and arranging for live entertainment and related production services. Revenue is
recognized when the services are completed for each event. Costs of producing
the events are also deferred until the event occurs.
The remainder of the Company's revenues are generated from its roster of artist
clients (5% of total revenues for both six month periods ended June 30, 2001 and
2000), entertainment marketing clients (9% and 8% of total revenues for the six
months ended June 30, 2001 and 2000, respectively) and fairs and festivals
clients (4% of total revenues for both six month periods ended June 30, 2001 and
2000). Revenues from these three clients groups are subject to seasonal
variations, with significantly more revenues generated in the second and third
calendar quarters. Commissions received from artists' earnings are recognized in
the period during which the artist earns the revenue. There are generally only
minimal direct costs associated with generating revenue from artist clients.
Entertainment marketing revenues and cost of revenues are recognized when the
services are completed for each program or, for those programs with multiple
events, apportioned to each event and recognized as each event occurs. Fairs and
festivals also recognize revenue and cost of revenues when the services are
completed for each program.
Discontinued Operations
During the first quarter of 2001, the Company approved a formal plan to sell its
merchandising operations in order to better focus on its core business as a
strategic communications and entertainment company. The disposition of the
merchandising operations represents the disposal of a business segment under
Accounting Principles Board ("APB") Opinion No. 30. Accordingly, this segment is
accounted for as a discontinued operation and amounts in the financial
statements and related notes for all periods shown have been restated to reflect
discontinued operations accounting. Management currently believes that it will
be able to recover its net investment in discontinued operations and that it
will not experience a material loss on discontinued operations between July 1,
2001 and the disposal date, which is not expected to exceed twelve months from
the measurement date.
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RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Results of operations of the Moore acquisition and each of the 2000 Acquisitions
are included from the corresponding acquisition dates.
Revenues increased $3,033,900, or 9%, to $36,230,600 in the 2001 period from
$33,196,700 in the 2000 period. Of the increase, $2,325,000 was attributable to
the corporate client group. The Company continues to aggressively pursue larger
corporate client events with Fortune 1000 companies. Due, in part, to two major
events, which were produced during the second quarter of 2001, the average
revenue per event increased to $175,300 in the 2001 period from $121,100 in the
2000 period. In the 2001 period, the Company produced 23 corporate client events
with revenues in excess of $250,000 compared to 17 such events in the 2000
period. The increase in revenues due to the increase in the average revenue per
event was partially offset by a decrease in the total number of corporate
client events to 170 in the 2001 period from 227 in the 2000 period.
Entertainment marketing revenues increased $676,700, or 25%, to $3,339,900 for
the 2001 period from $2,715,200 for the 2000 period. The increase is due to a
major entertainment marketing project delivered during the second quarter of
2001, which was partially offset by an entertainment marketing program not
pursued in 2001, which was produced during the first quarter of 2000 as part of
its continuing obligations under a joint venture agreement that terminated in
December 1999. Revenues from artist clients and fairs and festivals clients
remained relatively constant between the 2001 and 2000 periods.
Cost of revenues increased $1,806,500, or 8%, to $24,156,100 for the 2001 period
from $22,349,600 for the 2000 period. The overall increase is due to the
increase in revenues from 2000 to 2001. Cost of revenues, as a percentage of
revenues, remained constant at 67% between periods.
Selling, general and administrative expenses increased $2,254,100, or 26%, to
$11,032,700 for the 2001 period from $8,778,600 for the 2000 period. The
increase results primarily from increased personnel and related operating
expenses added during the second half of 2000 associated with the increased
levels of business from corporate clients, as well as incremental selling,
general and administrative expenses associated with the EJD (in April 2000) and
Moore (in February 2001) acquisitions. After factoring in the impact of the
Moore acquisition in 2001, selling, general and administrative expenses in the
2001 period remained relatively consistent on a sequential basis from the level
incurred during the second half of 2000.
Depreciation and amortization expense increased $250,200, or 22%, to $1,406,100
for the 2001 period from $1,155,900 for the 2000 period. The increase results
primarily from the amortization of goodwill associated with the EJD and Moore
acquisitions as well as increased depreciation of property and equipment.
Other income of $294,900 in 2001 is comprised primarily of income from an
agreement with Earth Escapes LLC, which was entered into during April 2000 and
which provided for the Company to receive a percentage of gross revenues, as
defined.
Net interest expense increased $168,100, or 62%, to $272,000 for the 2001 period
compared to $103,900 for the 2000 period. The change is primarily attributable
to increased interest expense associated with the additional outstanding debt
related to the 2000 Acquisitions and the Moore acquisition as well as lower
interest income on decreased average cash balances in the 2001 period.
The income tax provision for the 2001 period is $115,000 on a loss from
continuing operations before income taxes of $341,400 compared to a tax
provision of 54%, or $436,800, for the 2000 period on income from continuing
operations before income taxes of $808,700. The tax provisions reflect statutory
tax rates adjusted for estimated book/tax differences and reflect the impact of
nondeductible amortization of goodwill for certain of the Company's
acquisitions.
Net income (loss) from continuing operations decreased $828,300 to a $456,400
net loss for the 2001 period from $371,900 net income for the 2000 period due to
the reasons described above.
Net loss from discontinued operations increased $538,700, to $615,900 for the
2001 period compared to $77,200 for the 2000 period. The change is primarily
attributable to a $2,983,200 reduction in revenues (and resultant gross profit
margin) between periods as well as non-recurring costs incurred during the
second quarter of 2001 relating to the termination of certain division
employees.
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COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
Results of operations of the Moore acquisition and the EJD acquisition are
included from the corresponding acquisition dates.
Revenues increased $5,837,300, or 35%, to $22,330,200 in the 2001 quarter from
$16,492,900 in the 2000 quarter. Of the increase, $3,724,000 was attributable to
the corporate client group. The Company continues to aggressively pursue larger
corporate client events with Fortune 1000 companies. Due, in part, to two major
events, which were produced during the 2001 quarter, versus one such major event
produced during the 2000 quarter, the average revenue per event increased to
$202,400 in the 2001 period from $115,700 in the 2000 quarter. In the 2001
quarter, the Company produced 9 corporate client events with revenues in excess
of $250,000 compared to 6 such events in the 2000 period. The increase in
revenues due to the increase in the average revenue per event was partially
offset by a decrease in the total number of corporate client events to 83 in the
2001 period from 113 in the 2000 period.
Entertainment marketing revenues increased $1,821,600, or 143%, to $3,090,400
for the 2001 quarter from $1,268,800 for the 2000 quarter. The increase is
primarily due to a major entertainment marketing project delivered during the
2001 quarter, which did not take place during the 2000 quarter. Revenues from
artist clients increased $259,900, or 31%, primarily due to an increase in the
Company's artist roster and a successful national tour by one of the Company's
artist clients. Revenues from festivals clients remained relatively constant
between the 2001 and 2000 periods.
Cost of revenues increased $3,783,100, or 35%, to $14,698,700 for the 2001
quarter from $10,915,600 for the 2000 quarter. The overall increase is due to
the increase in revenues from 2000 to 2001. Cost of revenues, as a percentage of
revenues, remained constant at 66% between periods.
Selling, general and administrative expenses increased $1,134,700, or 25%, to
$5,616,800 for the 2001 quarter from $4,482,100 for the 2000 quarter. The
increase results primarily from increased personnel and related operating
expenses added during the second half of 2000 associated with the increased
levels of business from corporate clients, as well as incremental selling,
general and administrative expenses associated with the Moore acquisition (in
February 2001). After factoring in the impact of the Moore acquisition in 2001,
selling, general and administrative expenses in the second quarter of 2001
remained relatively consistent on a sequential basis from the levels incurred
during each of the preceding three quarters.
Depreciation and amortization expense increased $135,100, or 23%, to $729,900
for the 2001 quarter from $594,800 for the 2000 quarter. The increase results
primarily from the amortization of goodwill associated with the Moore
acquisition as well as increased depreciation of property and equipment.
Other income of $127,200 in 2001 is comprised primarily of income from an
agreement with Earth Escapes LLC, which was entered into during April 2000 and
which provided for the Company to receive a percentage of gross revenues, as
defined.
Net interest expense increased $67,900, or 19%, to $124,800 for the 2001 quarter
compared to $56,900 for the 2000 quarter. The change is primarily attributable
to increased interest expense associated with the additional outstanding debt
related to the Moore acquisition as well as lower interest income on decreased
average cash balances in the 2001 quarter.
The tax provision, as a percentage of income before income taxes, is $643,000,
or 50%, for the 2001 period compared to a tax provision of $256,800, or 58%, for
the 2000 period. The tax provisions reflect statutory tax rates adjusted for
estimated book/tax differences and reflect the impact of nondeductible
amortization of goodwill for certain of the Company's acquisitions.
Net income from continuing operations increased $457,500 to $644,200 for the
2001 quarter from $186,700 for the 2000 quarter due to the reasons described
above.
Net loss from discontinued operations increased $439,800, to $475,700 for the
2001 quarter compared to $35,900 for the 2000 quarter. The change is primarily
attributable to a $1,258,200 reduction in revenues (and resultant gross profit
margin) between quarters as well as non-recurring costs incurred during the 2001
quarter relating to the termination of certain division employees.
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13
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to fund acquisitions and working capital needs out of
operating cash flow for the six months ended June 30, 2001. At June 30, 2001,
the Company had cash and cash equivalents of $3,186,600 and a working capital
deficit of $2,338,600, which included $3,144,400 of short-term borrowings and
the current portion of long-term debt. Cash provided by continuing operations
was $2,577,100 for the first six months of 2001 compared to cash provided by
continuing operations of $7,216,700 for the first six months of 2000. The
decrease in cash provided by continuing operations between the 2001 and 2000
periods primarily reflects the combined impact of the net loss generated in the
2001 period, the decrease in deferred revenue due to the comparative timing of
receipt of advance deposits from clients, and the increase in accounts
receivable, which was partially offset by the increase in accounts payable and
accrued liabilities in 2001. As of June 30, 2001, the Company had increased
accounts receivable and accrued expenses associated with a major entertainment
marketing project delivered during June 2001. As of June 30, 2000, the Company
had received substantial advance deposits on two entertainment marketing events
which took place during the third quarter of 2000 and which are not taking place
during 2001.
Cash used in investing activities for the first six months of 2001 was
$1,769,900, resulting primarily from the Moore acquisition. Cash used in
investing activities for the first six months of 2000 was $5,036,800, resulting
primarily from cash used for the Romeo and EJD acquisitions.
Cash used in financing activities for the first six months of 2001 was
$1,371,700, resulting primarily from the repurchase of 155,300 shares of the
Company's common stock and the repayment of long-term debt, offset in part, by
drawings on credit lines. Cash used in financing activities for the first six
months of 2000 was $2,295,400, resulting primarily from the repayment of
long-term debt and the repurchase of the Company's common stock.
The Company has pursued an aggressive growth strategy since its formation in
1993. From the Company's inception through December 31, 1997, the Company
acquired and operated certain businesses that were sold in 1998. The Company
relied on external sources of funds, including public offerings of its common
stock and bank borrowings, to finance the acquisition of these businesses and to
fund the general operations of the Company. In 1998, the Company realized net
proceeds of $19,393,800 from the sale of discontinued operations, after
repayment of borrowings associated with these businesses and applicable
transaction costs. In 1999, the Company received the final $3,000,000 of net
proceeds from the sale of discontinued operations.
The Company has used the proceeds from the sale of these operations to fund part
of the 10 strategic acquisitions completed since 1997, excluding discontinued
operations. The remainder of the purchase prices of these acquisitions was
funded through the issuance of common stock of the Company and the issuance of
acquisition notes payable. The acquisition notes are payable in various
installments of principal plus accrued interest at 8% through April 2006.
Subsequent to quarter end, the Company obtained an extension of the due date of
its term note from June 30, 2001 to October 1, 2001. The principal balance at
June 30, 2001 was $823,300. In addition, the Company has lines of credit
totaling $1,059,000 due at various times during fiscal 2001.
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. The Company anticipates that future
business acquisitions made by the Company will be completed through a
combination of cash, issuance of notes payable to the sellers and the potential
issuance of the Company's common stock to the sellers.
The Company recognizes that its artist management, entertainment marketing and
fairs and festivals operations are subject to seasonal variations, with
significantly more revenues and cash provided by such operations typically
generated during the second and third calendar quarters. Although the Company
has incurred a net loss during the first six months of 2001 and has negative
working capital at June 30, 2001, it provided $3,240,500 in net cash from
continuing operations during the second quarter of 2001. Accordingly, management
believes that cash flow from future operations and current cash reserves are
adequate to meet its current and future working capital requirements. In
addition, to provide any additional funds necessary for the continued pursuit of
the Company's growth strategies, the Company may issue additional equity and
debt securities and may incur, from time to time, additional short- and
long-term bank indebtedness. The availability and attractiveness of any outside
sources of financing will depend on a number of factors, some of which relate to
the financial condition and performance of the Company, and some of which will
be beyond the Company's control, such as prevailing interest rates and general
economic conditions. There can be no assurance that such additional financing
will be available or, if available, will be on terms acceptable to the Company.
To the extent that the Company is able to finance its growth through internal
and external sources of capital, the Company intends to continue to grow its
operations through additional acquisitions. There can be no assurance that the
Company will be able to acquire any additional businesses, that any businesses
that are acquired will be or will become profitable or that the Company will be
able to effectively integrate any such businesses into its existing operations.
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14
Forward Looking Statements
The foregoing discussion may contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are intended to be covered by
the safe harbors created by such provisions. These statements include the plans
and objectives of management for future growth of the Company, including plans
and objectives related to the acquisition of certain businesses and the
consummation of future private and public issuances of the Company's equity and
debt securities. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives of the Company will be achieved.
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15
PART II
OTHER INFORMATION
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 TBA Entertainment Corporation Employee Stock Purchase Plan
(incorporated by reference to the same exhibit number in
Registrant's Registration Statement on Form S-8 (Registration
Number 333-62284)).
b) Reports on Form 8-K
None for the quarterly period ended June 30, 2001
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16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in the cities of Hickory Valley,
Tennessee and Encino, California, on the 14th day of August 2001.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
------------------------------------
Thomas Jackson Weaver III
Chairman of the Board and Chief
Executive Officer
By: /s/ Bryan J. Cusworth
------------------------------------
Bryan J. Cusworth
Executive Vice President, Chief
Financial Officer and
Treasurer (Principal Accounting
and Financial Officer)
16