1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file number 0-22582
TBA ENTERTAINMENT CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 62-1535897
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
402 Heritage Plantation Way, Hickory Valley, Tennessee 38042
(Address of Principal Executive Offices)
(901) 764-2300
(Registrant's Telephone Number, Including Area Code)
Nashville Country Club, Inc.
(Former Name if Changed Since Last Report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 November 10, 1998, the Registrant had outstanding 8,831,480 shares of
Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-QSB
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 or Plan of Operation.......... 12
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K................................... 17
Signatures.................................................................. 18
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ...................................... $ 978,600 $ 16,382,600
Accounts receivable ............................................ 507,600 1,777,500
Prepaid expenses and other current assets ...................... 292,600 1,724,400
------------ ------------
Total current assets ..................................... 1,778,800 19,884,500
Property and equipment, net ....................................... 137,800 675,500
Investment in Joint Venture ....................................... 15,100 418,500
Other assets, net:
Net long-term assets of discontinued operations ................ 22,399,800 3,502,000
Goodwill ....................................................... 3,306,200 12,784,500
Other .......................................................... 29,600 95,200
------------ ------------
Total assets ...................................................... $ 27,667,300 $ 37,360,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ....................... $ 698,100 $ 2,104,400
Advance deposits and deferred revenue .......................... 756,300 3,030,500
Notes payable to stockholders .................................. 500,000 --
Net current liabilities of discontinued operations ............. 2,392,500 374,400
Current portion of long-term debt .............................. 563,300 607,700
------------ ------------
Total current liabilities ................................ 4,910,200 6,117,000
Long-term debt, net of current portion ............................ 2,036,700 3,795,000
------------ ------------
Total liabilities ................................................. 6,946,900 9,912,000
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares,
334,300 and 70,000 of Series A convertible preferred stock
issue and outstanding, respectively, $10,000 and $2,100
liquidation preference ................................... 10,000 2,100
Common stock, $.001 par value; authorized 20,000,000 shares,
7,190,400 and 8,570,700 shares issued and outstanding,
respectively ............................................. 7,200 8,600
Additional paid - in capital ................................... 24,892,200 29,874,800
Accumulated deficit ............................................ (4,164,800) (1,733,100)
Less treasury stock, at cost, 4,800 and 169,800 shares
respectively ............................................. (24,200) (704,200)
------------ ------------
Total stockholders' equity ........................................ 20,720,400 27,448,200
------------ ------------
Total liabilities and stockholders' equity ........................ $ 27,667,300 $ 37,360,200
============ ============
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(SEE NOTE 1)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
Revenues .............................................. $ 1,830,500 $ 8,671,500 $ 3,321,900 $ 15,787,800
Costs related to revenue .............................. 1,369,400 5,943,200 2,475,100 10,773,700
------------ ------------ ------------ ------------
Gross profit margin .......................... 461,100 2,728,300 846,800 5,014,100
General and administrative expenses ................... 432,400 1,778,500 1,148,900 4,003,400
Depreciation and amortization expense ................. 103,800 187,900 182,400 342,200
Equity in income of Joint Venture ..................... (72,800) (22,700) (497,100) (403,500)
Minority interest ..................................... -- -- -- (36,000)
Interest expense (income), net ........................ 18,800 (141,100) 46,800 (47,700)
------------ ------------ ------------ ------------
Income (loss) from continuing operations .............. (21,100) 925,700 (34,200) 1,155,700
------------ ------------ ------------ ------------
Discontinued operations (Notes 5 and 6):
Income (loss) from operations, including income
tax benefit of $189,900 for the nine months ended
September 30, 1998 .............................. 320,200 (250,300) 1,245,800 30,600
Gain on disposition of discontinued operations .... -- -- -- 1,245,400
------------ ------------ ------------ ------------
Income (loss) from discontinued operations ........ 320,200 (250,300) 1,245,800 1,276,000
------------ ------------ ------------ ------------
Net income ............................................ $ 299,000 $ 675,400 $ 1,211,600 $ 2,431,700
============ ============ ============ ============
Earnings per common share -- basic:
Income (loss) from continuing operations......... $ -- $ .11 $(.01) $ .15
Income (loss) from discontinued operations....... .05 (.03) .24 .17
----- ----- ----- -----
Net income ............................................ $ .05 $ .08 $ .23 $ .32
===== ===== ===== =====
Earnings per common share -- diluted:
Income (loss) from continuing operations ........ $ -- $ .11 $(.01) $ .14
Income (loss) from discontinued operations....... .04 (.03) .22 $ .16
----- ----- ----- -----
Net income ............................................ $ .04 $ .08 $ .21 $ .30
===== ===== ===== =====
See notes to financial statements.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1998
---------- -----------
Cash flows from operating activities:
Net income.................................................................... $1,211,600 $ 2,431,700
---------- -----------
Adjustments to reconcile net income to net cash provided by continuing
operations:
Income from discontinued operations.................................. (1,245,800) (1,276,000)
Depreciation and amortization........................................ 182,400 342,200
Undistributed earnings of Joint Venture.............................. (350,000) (403,500)
Changes in assets and liabilities:
(Increase) in accounts receivable............................... (578,600) (339,800)
(Increase) decrease in other current assets..................... 12,100 (745,900)
(Increase) in other assets...................................... (63,800) (51,000)
Increase in accounts payable and accrued liabilities........... 536,500 189,600
Increase in advance deposits and deferred revenue............. 141,300 787,600
---------- -----------
Total adjustments.............................................. (1,365,900) (1,496,800)
---------- -----------
Net cash (used in) provided by continuing operations........ (154,300) 934,900
---------- -----------
Cash flows from financing activities:
Proceeds from dispositions of businesses, net of transaction
costs ..................................................................... -- 18,519,900
Acquisition of businesses, net of cash acquired............................... 159,500 (2,023,500)
Expenditures for property and equipment....................................... (51,900) (242,900)
---------- -----------
Net cash provided by investing activities..................... 107,600 16,253,500
---------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs................... 8,129,000 --
Purchase of treasury stock.................................................. -- (680,000)
Repayments of borrowing..................................................... -- (950,100)
---------- -----------
Net cash provided by (used in) financing activities........... 8,129,000 (1,630,100)
---------- -----------
Net cash used in discontinued operations.......................................... (8,036,700) (154,300)
---------- -----------
Net increase in cash and cash equivalents......................................... 45,600 15,404,000
Cash and cash equivalents -- beginning of period.................................. 182,100 978,600
---------- -----------
Cash and cash equivalents -- end of period........................................ $ 227,700 $16,382,600
========== ===========
Cash paid during the period for interest.......................................... $ -- $ 240,900
========== ===========
Supplemental disclosure of non-cash investing and financing activities:
The Company issued notes payable totaling $2,480,000 in connection
with the acquisition of AEG in April 1997.
In May 1998, the Company issued 445,400 shares of common stock valued at
$1,781,600 in connection with the acquisition of AEG.
In July 1998, holders of preferred stock of the Company converted 264,300 shares
of preferred stock into 264,300 shares of common stock.
The Company issued 21,600 shares of common stock valued at $97,000 and 75,000
warrants to purchase common stock of the Company valued at $112,800 in
connection with the sale of the Breckenridge Resort.
The Company issued 175,000 shares of common stock valued at $754,700
in June 1998 in connection with the acquisition of TSA, 413,900 shares
of common stock valued at $2,000,000 in August 1998 in connection with the
acquisition of CPI, and 60,100 shares of common stock valued at $230,000
in September 1998 in connection with the acquisition of Image.
The Company issued $1,550,000 in aggregate amount of notes payable to the
sellers in connection with the acquisition of CPI in August 1998, and a
$458,000 note payable to the seller in connection with the acquisition of
Image in September 1998.
See notes to financial statements.
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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of TBA Entertainment Corporation, a Delaware corporation, and its
wholly owned subsidiaries including Avalon Entertainment Group, Inc. ("AEG"),
which the Company acquired on April 21, 1997, Eric Chandler Merchandising, Inc.
which the Company acquired 51% on July 31, 1997 and 49% on May 13, 1998, Titley
Spalding and Associates, LLC which the Company acquired on June 18, 1998,
Corporate Productions, Inc. which the Company acquired on August 11, 1998, and
Image Entertainment Productions, Inc. which the Company acquired on September
15, 1998 (collectively, the "Company").
In May 1998, the Company sold its 51% interest in a group of entities
collectively referred to as Avalon West Coast ("AWC"), which the Company
acquired on July 31, 1997 (Note 5). In May 1998, the Company also entered into a
contract to sell the real estate and equipment associated with a restaurant the
Company operated until November 1997 in Nashville, Tennessee (Note 6). On August
12, 1998, the Company sold 100% of the outstanding common stock of Village at
Breckenridge Acquisition Corp., Inc. ("VABAC"), a wholly owned subsidiary that
acquired the Breckenridge Resort in April 1996 (Note 6). The sale of these
businesses has resulted in the reclassification of the operating results of
these businesses to discontinued operations for all periods presented. In
addition, the assets and liabilities of the Nashville restaurant have been
reclassified to net long-term assets of discontinued operations and net
short-term liabilities of discontinued operations as of September 30, 1998.
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
10(b) of Regulation S-B under the Securities Exchange Act of 1934. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-KSB
for the year ended December 31, 1997 (the "1997 Form 10-KSB").
Certain prior period amounts have been reclassified to conform with the 1998
presentation. Such reclassifications had no impact on the Company's 1997 net
income.
2. NET INCOME PER COMMON SHARE
In February 1997, Statement of Financial Accounting standards No, 128, "Earnings
Per Share" ("SFAS 128") was issued. Under SFAS 128, basic earnings per share
("basic EPS") is computed by dividing net income by the weighted average number
of shares of common stock outstanding during the period. SFAS 128 replaces fully
diluted EPS with EPS assuming dilution ("diluted EPS"). SFAS 128 did not impact
the Company's previously reported earnings per share. The Company calculates
diluted EPS assuming all securities or other contracts to issue common stock are
exercised or converted into common stock at the beginning of the year (or the
time of issuance, if later). The following table reconciles the computation of
basic EPS to diluted EPS.
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
Basic earnings per common share:
Income (loss) from continuing operations......... $ (21,100) $ 925,700 $ (34,200) $1,155,700
Weighted average common stock outstanding ....... 6,319,000 8,243,300 5,173,000 7,643,300
---------- ---------- ---------- ----------
Basic earnings (loss) per common share .......... $ -- $ .11 $ (.01) $ .15
========== ========== ========== ==========
Diluted earnings per common share:
Income (loss) from continuing operations ........ $ (21,100) $ 925,700 $ (34,200) $1,155,700
---------- ---------- ---------- ----------
Weighted average common stock outstanding ....... 6,319,000 8,243,300 5,173,000 7,643,300
Additional common stock resulting from dilutive
securities:
Preferred stock................................ 334,300 158,100 334,300 275,600
Weighted average common stock issued in
connection with AEG transaction ........... 445,400 -- 265,900 218,600
---------- ---------- ---------- ----------
Common stock and dilutive securities
outstanding ................................ 7,098,700 8,401,400 5,773,200 8,137,500
---------- ---------- ---------- ----------
Diluted earnings (loss) per common share ........ $ -- $ .11 $ (.01) $ .14
========== ========== ========== ==========
Options and warrants to purchase 2,264,000 and 2,589,000 shares of common stock
in 1997 and 1998, respectively, were not considered in calculating diluted
earnings per share as their inclusion would have been anti-dilutive.
3. AVALON ENTERTAINMENT GROUP, INC. ACQUISITION
Effective April 21, 1997, the Company acquired 100% of the common stock of
Avalon Entertainment Group, Inc. The purchase price included a cash payment of
$400,000 and the issuance of $2,480,000 of promissory notes ("AEG Notes") as of
April 21, 1997, and a future contingent payment, to be paid in shares of common
stock of the Company, based on the 1997 earnings of AEG. The aggregate purchase
price for AEG was not to exceed $7,200,000. In contemplation of the payment of
the future contingent amount, the Company placed 809,800 shares of the Company's
common stock into escrow on April 21, 1997. In May 1998, the Company and the
sellers agreed upon the amount of the future contingent payment on a basis
different than that set forth in the original purchase agreement. On May 13,
1998, 445,400 shares were released from escrow to the sellers with the balance
of the common stock returned to the Company. The release of the 445,400 shares
to the sellers resulted in the recognition of additional purchase price for the
acquisition of AEG of $1,781,600.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the final purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the date of
acquisition. The excess of the aggregate purchase price over fair market value
of net liabilities assumed of $5,182,700, was recorded as goodwill and is being
amortized over 20 years.
4. INVESTMENT IN WARNER/AVALON JOINT VENTURE
AEG owns a 50% interest in a joint venture with Warner Custom Music Corp. The
joint venture, Warner/Avalon, develops and coordinates live, sponsored music
entertainment marketing tours and programs, and related projects, and generates
revenues primarily from third party corporate sponsorships. Warner/Avalon
recognizes revenue by amortizing the contract sponsorship funds over the life of
the related programs, which may range from single day events to tours lasting
several months.
AEG accounts for the investment using the equity method of accounting. Summary
unaudited statements of operations data of Warner/Avalon used to determine the
equity in income of Joint Venture, included in the accompanying statements of
operations for the three and nine months ended September 30, 1997 and 1998,
respectively, are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
Revenues .............. $ 1,872,000 $ 4,110,000 $10,265,000 $ 8,676,000
Net (loss) income ..... (21,000) 45,000 890,000 807,000
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Summary unaudited balance sheet data of Warner/Avalon consists of the following
as of September 30, 1998:
AS OF
SEPTEMBER 30, 1998
------------------
(unaudited)
Current assets ................................... $1,475,000
Non-current assets ............................... 280,700
Current liabilities .............................. 917,900
Partners' capital ................................ 837,800
5. AVALON WEST COAST ACQUISITION AND DISPOSITION
Effective July 31, 1997, the Company acquired a 51% controlling interest in AWC,
a group of entities affiliated with AEG. The remaining 49% of AWC was owned by a
group of individuals who became officers and stockholders of the Company. The
purchase price included a $7 million cash payment with proceeds from the
Company's 1997 stock offering. Including acquisition costs, the total purchase
price for AWC was $7,862,900. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the assets acquired and the liabilities assumed based on their estimated fair
values on the date of acquisition.
On May 13, 1998 the Company sold its 51% controlling interest in certain of the
AWC businesses to an unaffiliated third party (the "buyer") for $9,915,000 in
cash before applicable transaction expenses. The individuals that owned the
remaining 49% of AWC also sold their interest in these businesses to the buyer.
The Company recognized a one-time pre-tax gain in the nine months ended
September 30, 1998 of $1,445,000 as a result of the sale of its interest in
these businesses.
Net operations attributable to those business of AWC included in the sale to the
buyer from the July 31, 1997 acquisition date through the May 13, 1998 sale
date, are shown as discontinued operations in the accompanying consolidated
statements of operations. The following is a summary of the revenue and expenses
related to these businesses for the nine months ended September 30, 1997 and
1998.
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1998
----------- -----------
(unaudited)
Revenues ................................. $ 6,162,900 $ 2,462,800
Operating expenses ....................... 4,480,500 3,579,000
Depreciation and amortization ............ 115,800 261,600
Interest expense, net .................... 18,400 36,600
Income tax benefit ....................... -- (189,800)
Minority interest in net income (loss)
of AWC ................................. 1,134,700 (552,100)
----------- -----------
Net income (loss) from discontinued
operations attributable to the Company.. $ 413,500 $ (672,500)
=========== ===========
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6. 1998 ACQUISITIONS
Titley Spalding & Associates LLC
--------------------------------
On June 18, 1998 the Company acquired 100% of the membership interest of Titley
Spalding & Associates, LLC ("TSA") for cash, stock and future contingent
consideration. The maximum purchase price is approximately $7,500,000. TSA
operates primarily in the artist management business. At closing the Company
paid $1,000,000 cash and issued 175,000 shares of the Company's stock valued at
$754,700. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on their estimated fair values on the
date of acquisition. Substantially all of the purchase price has been recorded
as goodwill and is being amortized over a 10 year period.
During the remainder of 1998 and continuing through a portion of 2003 (the
"Earnout Period"), the sellers of TSA will be paid additional sales price
consideration based on the earnings of TSA during each of the years in the
Earnout Period, up to a maximum of $5,755,000 additional purchase price. In
1998, the additional purchase price will be paid entirely in cash. Subsequent to
1998, the additional purchase price will be paid 60% in cash and 40% in notes
payable which are payable in semi-annual installments with 8% interest over a 5
year period. Additional consideration paid during the Earnout Period will be
recorded as goodwill and amortized over the remaining period of the original 10
year amortization period which commenced on the acquisition date. Each of the
principals has entered into an employment agreement with the Company.
Corporate Productions, Inc. Acquisition
---------------------------------------
On August 11, 1998 the Company acquired 100% of the common stock of Corporate
Productions, Inc. ("CPI"), for a maximum aggregate purchase price of
approximately $5,000,000. CPI is engaged in the corporate communications and
entertainment business. The purchase price paid at closing included a cash
payment of $1,450,000, the issuance of 414,000 shares of common stock of the
Company valued at $2,000,000 and the issuance of $1,550,000 in aggregate amount
of promissory notes ("CPI Notes"). The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the date of acquisition. The excess of the purchase
price over fair value of net assets acquired of approximately $4,550,000, was
recorded as goodwill and is being amortized over 20 years.
The principal amount of the CPI Notes are subject to reduction based on the
earnings of CPI during each of the years 1998 through 2000. The CPI Notes, as
adjusted, accrue interest at 8% per annum and are payable in three equal annual
installments of principal plus accrued interest, commencing August 2001. The CPI
Notes are secured by a pledge of the CPI common stock owned by the Company. The
three principals of CPI have entered into employment agreements with the
Company.
Image Entertainment Productions, Inc.
-------------------------------------
On September 15, 1998, the Company acquired 100% of the common stock of Image
Entertainment Productions, Inc. ("Image"), for a maximum aggregate purchase
price of approximately $1,375,000. Image is also engaged in the corporate
communications and entertainment business. The purchase price paid at closing
included a cash payment of $687,000, the issuance of 60,000 shares of common
stock of the Company valued at $230,000 and the issuance of a $458,000
promissory note ("Image Note"). The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the date of acquisition. Substantially all the
purchase price was recorded as goodwill and is being amortized over 10 years.
The principal amount of the Image Note is subject to reduction based on the
earnings of Image during each of the years 1999 through 2000. The Image Note, as
adjusted, accrues interest at 8% per annum and is payable in two installments of
principal plus accrued interest equal to 65% of the Image Note on March 31, 2000
and the remainder on March 31, 2001. The former owner of Image has entered into
an employment agreement with the Company.
Magnum Communications, Inc.
---------------------------
On October 15, 1998, the Company acquired 100% of the common stock of Magnum
Communications, Inc. ("Magnum"), for $3,260,000. Magnum is engaged in the
corporate communications and entertainment business. The purchase price paid at
closing included a cash payment of $1,273,000 the issuance of 307,000 shares of
common stock of the Company valued at $1,087,000 and the issuance of $900,000 in
aggregate amount of promissory notes ("Magnum Notes"). The Magnum Notes accrue
interest at 8% per annum and are payable in quarterly installments of interest
only commencing December 31, 1998, and in quarterly installments of principal
and interest commencing December 31, 1999. The principals of Magnum have entered
into employment agreements with the Company.
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6. 1998 DISPOSITIONS
Breckenridge Resort
-------------------
In July 1998, VABAC, a wholly owned subsidiary of the Company and owner and
operator of the Breckenridge Resort, entered into an agreement with an
unaffiliated third party developer (the "Development Agreement"). Pursuant to
the Development Agreement, VABAC agreed to sell a portion of the assets
comprising the Breckenridge Resort to the Developer for $10,000,000. The sale is
contingent upon the developer receiving approval of the development plan. The
sale of these assets is expected to close in 1999.
In a simultaneous transaction, the Company entered into an agreement to sell
100% of the common stock of VABAC to Vail Summit Resorts, Inc. ("Vail") for
$34,000,000. Vail, by virtue of its acquisition of VABAC, also acquired the
rights and obligations of the Development Agreement. The sale of the common
stock of VABAC was consummated on August 12, 1998. The proceeds from the sale
were distributed as follows: $19,762,300 to repay indebtedness at the
Breckenridge Resort, $3,000,000 to an escrow account, $11,013,170 to the Company
and the remainder to pay closing costs. The Company will be entitled to the
$3,000,000 held in escrow upon the sale of the assets pursuant to the
Development Agreement. As of September 30, 1998, the Company recorded a
receivable for a portion of the escrow amount, totaling $1,964,400 which amount
represented the Company's remaining investment in VABAC after receipt of the
August 12, 1998 sale proceeds. This amount is reflected in "net long-term assets
of discontinued operations" in the accompanying consolidated balance sheets.
Upon receipt of the entire $3,000,000 held in escrow in 1999, the Company
expects to recognize a one-time pre-tax gain as a result of the sale of VABAC.
Nashville Country Club Restaurant
---------------------------------
The Company has entered into an agreement to sell substantially all of the
assets of the Nashville restaurant to an unaffiliated third party for
$3,450,000. The assets include the Company's leasehold interest in land on which
the Nashville restaurant is located, the building and equipment and an adjacent
parking structure. In contemplation of the sale the Company has entered into an
agreement to acquire the parking structure for $1,225,000. The Company will also
exercise its option to acquire the leasehold interest as of the closing date for
approximately $733,000. The closing of these transactions is expected to occur
in the fourth quarter of 1998.
As a result of the sale of the Breckenridge Resort on August 12, 1998 and the
Company's decision to sell substantially all of the assets of the Nashville
restaurant, together which previously comprised the Company's Resort Division,
the operations of the Resort Division have been reclassified to discontinued
operations for all periods presented. In addition, the assets and liabilities of
the Nashville restaurant have been reclassified to net long-term assets of
discontinued operations and net short-term liabilities of discontinued
operations. The following is a summary of the revenue and expenses related to
the Resort Division for the nine months ended September 30, 1997 and 1998:
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1998
----------- -----------
(unaudited)
Revenues ....................... $18,221,000 $16,358,900
Operating expenses ............. 15,457,800 13,906,200
Depreciation and amortization .. 690,800 691,000
Interest expense, net .......... 1,240,100 1,058,600
----------- -----------
Net income from discontinued
operations ................... $ 832,300 $ 703,100
=========== ===========
The components of the net assets and liabilities of the Nashville restaurant
included in discontinued operations are as follows:
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SEPTEMBER 30, 1998
------------------
(unaudited)
Current assets ........................................ $ 31,000
Less current liabilities .............................. 132,800
----------
Net short-term liabilities of discontinued
operations .......................................... $ 101,800
==========
Long-term assets:
Property and equipment, net .................. $2,168,100
Other assets, net ................................. 102,300
Less long-term debt, net of current portion........ 733,000
----------
Net long-term assets of discontinued of operations ......... $1,537,400
==========
7. COMMON STOCK REPURCHASE PROGRAM
In August 1998, the board of directors authorized the repurchase, at
management's discretion, of up to 1,000,000 shares of the Company's common stock
until August 1999. The Company's repurchases of shares of common stock are
recorded as treasury stock and result in a reduction of stockholders' equity. As
of September 30, 1998 the Company had repurchased 122,000 shares of common stock
for total consideration of $473,900, pursuant to the stock repurchase program.
8. LOAN TO OFFICER
In August 1998, the Company made a $250,000 loan to an officer of the Company.
The loan accrues interest at 6% and is secured by a pledge of common stock of
the Company owned by the officer. The principal balance, plus accrued interest
is due August 1999.
9. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Comprehensive Income -- In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". This Statement, which is effective for all reporting
periods beginning in 1998, requires the prominent disclosure of all components
of Comprehensive Income, as defined. The Company currently does not have any
operations that would give rise to any elements of comprehensive income.
Segment Reporting -- In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement redefines
the way publicly held companies report information about segments. This
Statement is effective for fiscal years beginning after December 15, 1997 and
need not be applied to interim financial statements in the initial year of its
application. The Company will apply this standard in the December 31, 1998
Annual Report to Shareholders.
Employers' Disclosures About Pensions -- In February 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". This statement, which is effective for financial periods ending
after December 15, 1998, requires full disclosure of all pension plans and
other postretirement benefit plans. The Company does not currently have any
pensions or other postretirement benefit plans.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The purpose of the following discussion and analysis is to explain the major
factors and variances between periods of the Company's 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 1997 Form 10-KSB.
Introduction
The Company is a diversified communications and entertainment company that
produces a broad range of business communications, meeting production and
entertainment services for corporate meetings, develops and produces integrated
music marketing programs and special events, manages music artists and develops
and executes merchandising programs for large-scale entertainment and sporting
events. The Company's current operations are conducted through Avalon
Entertainment Group, Inc., acquired on April 21, 1997, Eric Chandler
Merchandising, Inc. ("ECM"), 51% of which was acquired on July 31, 1997 and the
remaining 49% on May 13, 1998, Titley Spalding & Associates, LLC ("TSA"),
acquired on June 18, 1998, Corporate Productions Inc. ("CPI"), acquired on
August 11, 1998, and Image Entertainment Productions, Inc. ("Image"), acquired
on September 15, 1998.
In July 1997, the Company acquired a 51% controlling interest in another group
of entertainment companies involved in concert promotion and amphitheater
operations. In May 1998, the Company sold these operations to SFX Entertainment,
Inc. Accordingly, the operations of these businesses are reported as
discontinued operations for all periods presented.
The Company was also previously engaged in the Resort business through the
operation of a restaurant in Nashville, Tennessee and the Village at
Breckenridge Resort (the "Breckenridge Resort"). The Nashville restaurant opened
in November 1994 and closed in November 1997. The Company has entered into a
agreement to sell the Nashville restaurant, which sale is expected to close in
the fourth quarter of 1998. The Breckenridge Resort was acquired on April 29,
1996. On August 12, 1998, the Company sold the Resort to a subsidiary of Vail
Resorts, Inc. Accordingly, the operations of the Nashville restaurant and the
Breckenridge Resort are reported as discontinued operations for all periods
presented.
General
The majority of the Company's revenues are derived from the production of
corporate meetings and entertainment events. Generally, revenue is recognized
when the services are completed for the corporate meeting or event. Costs of
individual corporate event productions are deferred and expensed as revenue is
recognized. The Company also derives revenue in the form of commissions earned
from the management of artists and from merchandising activities.
Comparison of the nine months ended September 30, 1998 and 1997
The 1997 period includes the results of operations for AEG from the April 21,
1997, acquisition date, to September 30, 1997, whereas the 1998 period includes
the results of operations for AEG from January 1, 1998 to September 30, 1998.
Results of operations of TSA, CPI and Image are included from the corresponding
acquisition dates in 1998.
Revenues increased $12,465,900, or 375%, to $15,787,800 for the 1998 period from
$3,321,900 for the 1997 period. $11,098,200 of the increase resulted from the
production of 140 additional corporate entertainment and meeting production
events, to 198 events in the 1998 period compared to 58 events produced in the
1997 period. The increase in the number of shows is primarily attributable to an
increase in the Company's sales force, the addition of corporate meeting event
services in the 1998 period and the acquisitions of CPI and Image in the third
quarter of 1998. In the 1997 period, the company produced primarily corporate
entertainment events. The average revenue per event increased to $72,800 for the
1998 period versus $54,200 for the 1997 period. The Company is aggressively
pursuing larger corporate entertainment and meeting events with Fortune 1000
companies. In the 1998 period, the Company produced 10 events with revenues in
excess of $250,000, versus one such event in the 1997 period. Revenue from the
artist management division increased $867,000 for the 1998 period
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from the 1997 period. The Company contracted with one well known new artist in
1997 which began producing significant revenue in 1998. Additionally, in
June 1998, the Company acquired TSA, an artist management company with
three artists currently under management. The remaining increase in revenue
results from the addition of merchandising activities through the acquisition
of ECM and CPI. The Company is also aggressively pursuing additional
merchandising opportunities.
Cost of revenues increased $8,298,600, or 335%, to $10,773,700 for the 1998
period from $2,475,100 for the 1997 period. The increase resulted primarily from
the production of additional corporate entertainment and meeting planning events
and the addition of merchandising activities discussed above. Cost of revenues
as a percentage of revenues decreased to 68% for the 1998 period from 75% for
the 1997 period. The decrease was primarily due to improved profit margins
related to corporate entertainment and meeting planning events for the 1998
period as compared to the 1997 period. The decrease is further explained by the
increased revenues for artist management which typically have minimal direct
costs as a percentage of revenue.
General and administrative expenses increased $2,854,500, or 248%, to $4,003,400
for the 1998 period from $1,148,900 for the 1997 period. The increase results
primarily from increased personnel and related operating expenses associated
with the increased number of corporate entertainment and meeting planning
events, as well as general and administrative expenses associated with the
acquisitions of TSA, CPI and Image in the 1998 period. The increase is further
explained by increased personnel and related expenses incurred to develop an
administrative and accounting infrastructure to manage the Company's growth
during the past year.
Depreciation and amortization expense increased $159,800, or 88%, to $342,200
for the 1998 period from $182,400 for the 1997 period. The increase results
primarily from the amortization of goodwill associated with the acquisitions of
AEG, TSA, CPI and Image.
Equity income from AEG's 50% joint venture interest in Warner/Avalon decreased
$93,600, or 19%, to $403,500 for the 1998 period from $497,100 for the 1997
period. Revenues for Warner/Avalon decreased $1,589,000, or 15%, to $8,676,000
for the 1998 period from $10,265,000 for the 1997 period. Operating costs of
Warner/Avalon decreased $1,506,000, or 16%, to $7,869,000 for the 1998 period
from $9,375,000 for the 1997 period. The decrease results primarily from a
reduction in the size of entertainment marketing programs produced in the 1998
period as compared to the 1997 period. Operating costs as a percentage of
revenues remained relatively constant at 91% between periods.
For the 1998 period, net interest income was $47,700 versus net interest
expense of $46,900 for the 1997 period. The change is attributable primarily to
interest earned on increased cash balances resulting from proceeds from the sale
of AWC and the Breckenridge Resort, offset by increased outstanding debt
associated with the CPI and Image acquisitions.
Net income (loss) from continuing operations increased $1,189,900, to net income
of $1,155,700 for the 1998 period from a net loss of $34,200 for the 1997 period
due to the reasons described above.
Comparison of the Three Months Ended September 30, 1998 and 1997
The 1997 period includes the results of operations for AEG, whereas the 1998
period includes the results of operations for AEG and TSA for the entire three
month period, and CPI from the August 11, 1998 acquisition date, and Image from
the September 15, 1998 acquisition date.
Revenues increased $6,841,000, or 374%, to $8,671,500 for the 1998 period from
$1,830,500 for the 1997 period. $5,761,400 of the increase resulted from the
production of 42 additional corporate entertainment and meeting production
events to 72 events in the 1998 period compared to 30 events produced in the
1997 period. The increase in the number of shows is primarily attributable to an
increase in the Company's sales force, the addition of corporate meeting event
services in the 1998 period and the acquisitions of CPI and Image in the third
quarter of 1998. In the 1997 period, the Company produced primarily corporate
entertainment events. The average revenue per event increased to $105,800 for
the 1998 period versus $58,500 for the 1997 period. The Company is aggressively
pursuing larger corporate entertainment and meeting events
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with Fortune 1000 companies. In the 1998 period, the Company produced 6 events
with revenues in excess of $250,000, versus one such event in the 1997 period.
Revenue from the artist management division increased $671,500 for the 1998
period from the 1997 period. The Company contracted with one well known new
artist in 1997 which began producing significant revenue in 1998. Additionally,
in June 1998, the company acquired TSA, an artist management company with three
artists currently under management. The remaining increase in revenue results
from the addition of merchandising activities through the acquisition of ECM and
CPI. The Company is also aggressively pursuing additional merchandising
opportunities.
Cost of revenues increased $4,573,800, or 334%, to $5,943,200 for the 1998
period from $1,369,400 for the 1997 period. The increase resulted primarily from
the production of additional corporate entertainment and meeting planning events
and the addition of merchandising activities discussed above. Cost of revenues
as a percentage of revenues decreased to 69% for the 1998 period from 75% for
the 1997 period. The decrease was primarily due to improved profit margins
related to corporate entertainment and meeting planning events for the 1998
period as compared to the 1997 period. The decrease is further explained by the
increased revenues for artist management, which typically have minimal direct
costs as a percentage of revenue.
General and administrative expenses increased $1,346,100, or 311%, to $1,778,500
for the 1998 period from $432,400 for the 1997 period. The increase results
primarily from increased personnel and related operating expenses associated
with the increased number of corporate entertainment and meeting planning
events, as well as general and administrative expenses associated with the
acquisitions of TSA, CPI and Image in the 1998 period. The increase is further
explained by increased personnel and related expenses incurred to develop an
administrative and accounting infrastructure to manage the Company's growth
during the past year.
Depreciation and amortization expense increased $84,100, or 81%, to $187,900 for
the 1998 period from $103,800 for the 1997 period. The increase results
primarily from the amortization of goodwill associated with the acquisitions of
AEG, TSA, CPI and Image.
Equity income from AEG's 50% joint venture interest in Warner/Avalon decreased
$50,100, or 69%, to $22,700 for the 1998 period from $72,800 for the 1997
period. Revenues for Warner/Avalon increased $2,238,000, or 120%, to $4,110,000
for the 1998 period from $1,872,000 for the 1997 period. Operating expenses from
Warner/Avalon increased $2,172,000, or 115%, to $4,065,000 for the 1998 period
from $1,893,000 for the 1997 period. The increase results primarily from the
production of 3 large events in the 1998 period versus one large event in the
1997 period. Operating costs as a percentage of revenues remained relatively
constant between periods.
For the 1998 period, net interest income was $141,100, versus net interest
expense of $18,800 for the 1997 period. The change is attributable primarily to
interest earned on increased cash balances resulting from proceeds received from
the sale of AWC and the Breckenridge Resort, offset by increased outstanding
debt associated with the CPI and Image acquisitions.
Net income (loss) from continuing operations increased $946,800 to net income of
$925,700 for the 1998 period from a net loss of $21,100 for the 1997 period due
to the reasons described above.
Discontinued Operations
On May 13, 1998, the Company sold its 51% interest in certain of the AWC
businesses. The individuals that owned the remaining 49% of AWC also sold their
interest in these businesses. On August 12, 1998, the Company sold its interest
in the Breckenridge Resort and has also decided to sell substantially all of the
assets related to the Nashville restaurant. In accordance with generally
accepted accounting principles, the operations of these businesses have been
classified as discontinued operations in the consolidated financial statements.
Operating results, net short-term liabilities, net long-term assets and other
information for discontinued operations appear in the notes to financial
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statements captioned "Avalon West Coast Acquisition (Note 5) and "1998
Dispositions" (Note 7).
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents of
$16,382,600 and working capital of $14,141,900, excluding the net working
capital deficit of discontinued operations of $374,400 and including $607,700 of
current portion of long-term debt. Cash provided by continuing operations was
$934,900 for the nine months ended September 30, 1998 compared to cash used in
continuing operations of $154,300 for the nine months ended September 30, 1997.
The primary reasons for improved cash flows from continuing operations are
improved net income in the 1998 period, substantially increased deposits for
future corporate entertainment and meeting events and increased accounts payable
and accrued liabilities, offset by increased accounts receivable and deferred
costs associated with future entertainment and meeting events.
Cash provided by investing activities for the nine months ended September 30,
1998 was $16,253,500 resulting primarily from the proceeds received from the
sale of AWC and the Breckenridge Resort, offset by cash used to acquire CPI and
Image and the purchase of property and equipment. Cash provided by investing
activities for the nine months ended September 30, 1997 was $107,600 and
resulted primarily from cash acquired in the acquisition of AEG.
Cash used in financing activities for the nine months ended September 30, 1998
was $1,630,100, resulting from the repayment of borrowings and the purchase of
treasury shares pursuant to the Company's stock repurchase program, which was
approved in August 1998. Cash provided by financing activities for the nine
months ended September 30, 1997 was $8,129,000, resulting from an offering of
2,600,000 shares of common stock of the Company for $9,100,000, less offering
costs of $971,000. The proceeds of this offering were used to acquire AWC and
for working capital purposes.
In April 1997, the Company acquired AEG for aggregate consideration of
$3,211,000, including transaction related costs, plus future contingent
consideration payable in common stock of the Company. The primary sources of
funds for the AEG acquisition were operating cash flows and the issuance of
$2,480,000 of notes payable to the sellers of AEG ("AEG Notes") (See Note 3). In
November 1997, the Company borrowed $2,600,000 from a bank, the proceeds from
which were used to repay $1,980,000 of the AEG Notes in 1997. The remaining
$500,000 of AEG Notes were repaid in January 1998. In May 1998, the amount of
the future contingent consideration was determined and 445,400 shares of common
stock of the Company, having an aggregate value of $1,782,000, were issued.
In July 1997, the Company acquired a 51% interest in a group of entities
comprising Avalon West Coast ("AWC") for aggregate consideration of $7,863,000,
including transaction related costs. To fund this acquisition, the Company
completed a public offering of 2,600,000 shares of common stock generating net
proceeds of $8,129,000. The remaining net proceeds from this offering were used
for working capital purposes. On May 13, 1998, the Company sold its 51%
controlling interest in certain of the AWC businesses for $9,915,000 in cash
before applicable transaction expenses (See Note 5).
In November 1997, the Company ceased operations at the Nashville Restaurant. The
Company has entered into an agreement to sell substantially all of the assets
related to the Nashville restaurant to an unaffiliated third party for
$3,450,000. Of this amount, approximately $733,000 will be remitted to the
Landlord in order to exercise the purchase option provided for in NCCI's lease
and $1,225,000 will be paid to an unaffiliated third party to acquire a parking
garage adjacent to the Nashville restaurant. The remaining amount will be paid
to TBA. The sales agreement is contingent upon the purchaser's ability to obtain
the necessary zoning rights to complete additional construction which the
purchaser plans to undertake. Based upon the current sales price, the Company
expects to realize a loss on the disposition of NCCI's assets of approximately
$200,000, which amount was accrued in the nine months ended September 30, 1999.
In June 1998 the Company acquired 100% of the membership interests of Titley
Spalding & Associates, LLC ("TSA") for a combination of cash, stock and future
contingent cash and note payments. TSA operates primarily in the artist
management business. The Company paid $1,000,000 cash and 175,000 shares of
common stock of the Company stock valued at $755,000. During the remainder of
1998 through a portion of 2003 the sellers of TSA will be paid additional
purchase price in cash and notes based on the operating results of TSA.
In August 1998, the Company sold 100% of the stock of VABAC to a subsidiary of
Vail Resorts, Inc. for $34,000,000. The proceeds from the sale were distributed
as follows: $19,762,300 to repay indebtedness at the Breckenridge Resort,
$3,000,000 to an escrow account, $11,013,170 to the Company and the remainder to
pay closing costs. Prior to the sale of the Breckenridge Resort, the Company
entered into a development agreement with a third-party developer. Pursuant to
the development agreement, the developer will acquire certain assets of the
Breckenridge Resort, which acquisition is expected to occur in 1999. Vail by
virtue of its acquisition of the Breckenridge Resort, also acquired the rights
and obligations related to the development agreement. The Company will be
entitled to the $3,000,000 held in escrow when the transaction contemplated by
the development agreement has been consummated. Upon
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receipt of the $3,000,000 held in escrow, the Company expects to
recognize a one-time pre-tax gain as a result of the sale of the
Breckenridge Resort.
In August 1998, the Company acquired 100% of the common stock of CPI and
acquired 100% of the common stock of Image. The Company acquired CPI for
approximately $5,000,000 which was paid with $1,450,000 in cash, 414,000 shares
of the Company's stock valued at $2,000,000 and notes payable in the original
amount of $1,550,000 ("CPI Notes"). The CPI Notes will be reduced if certain
earnings targets are not achieved by CPI. The CPI Notes accrue interest at 8%
and are payable over three years beginning in August 2001. The Company acquired
IMAGE for approximately $1,375,000 which was paid with $687,000 in cash, 60,000
shares of the Company's common stock valued at $230,000 and a note payable in
the original amount of $458,000 ("Image Note"). The Image Note will be reduced
if certain earnings targets are not achieved by Image. The Image Note accrues
interest at 8% and is payable over two years beginning in March 2000.
The Company expects to continue its aggressive growth strategy in certain
sectors of the entertainment industry. In October 1998, the Company acquired
100% of the common stock of Magnum Communications, Inc. For $3,260,000, which
was paid with $1,273,000 in cash, 307,300 shares of the Company's common stock
valued at $1,087,000 and notes payable in the aggregate amount of $900,000
("Magnum Notes"). Magnum Notes accrue interest at 8% and are payable over three
years beginning December 1999.
The Company anticipates that other business acquisitions made by the Company
will also be completed through a combination of cash, notes payable issued to
the sellers and the issuance of common stock of the Company to the Sellers.
Management believes that cash flow from operations and proceeds from the sale of
AWC, the Breckenridge Resort and the Nashville restaurant, will be adequate to
fund the operations and expansion plans of the Company in 1999.
Year 2000
The Company has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. Based on existing operations, the
company does not expect this issue to have any material effect on its business.
To date the Company has not incurred any costs to address this issue and does
not expect to in the future.
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 judgements 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-QSB 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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TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
Exhibit 27 Financial Data Schedule
(B) Form 8-K's filed during the quarterly period ended September 30,
1997:
1. Form 8-K filed September 1, 1998 with respect to the
Registrant's acquisition of Titley Spalding &
Associates, LLC, a Tennessee limited liability
company, including financial statements of Titley
Spalding & Associates, LLC.
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Hickory Valley, Tennessee, on the 14th day of November, 1997.
TBA ENTERTAINMENT CORPORATION
By: /s/ Thomas Jackson Weaver III
-------------------------------------
Thomas Jackson Weaver III Chairman
of the Board, Chief Executive Officer
and President
By: /s/ Bryan J. Cusworth
-------------------------------------
Bryan J. Cusworth, Chief Financial
Officer
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