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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
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Commission File Number 000-21949
TICKETS.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1424841
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
555 Anton Boulevard, 12th Floor, Costa Mesa, California 92626
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code) (714) 327-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2000, there were 59,128,899 shares of the Registrant's Common
Stock, par value $0.000225 per share, outstanding.
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
TICKETS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
JUNE 30, DECEMBER 31
2000 1999
--------- -----------
(unaudited
ASSETS
Current assets:
Cash and cash equivalents $ 50,448 $ 94,173
Accounts receivables, net of allowances of
$707 and $439 respectively 8,272 7,780
Prepaid expenses and other current assets 17,982 20,506
--------- ---------
Total current assets 76,702 122,459
Property and equipment, net 14,518 11,163
Goodwill and intangible assets, net 52,818 86,838
Other assets 19,912 15,320
--------- ---------
Total assets $ 163,950 $ 235,780
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,722 $ 18,250
Accrued liabilities 10,359 5,358
Current portion of long-term debt
and capital lease obligations 2,210 2,115
Deferred revenue and other
current liabilities 3,434 4,418
--------- ---------
Total current liabilities 29,725 30,141
Long-term debt and capital lease
obligations, net of current portion 1,745 2,117
Other liabilities 1,921 2,128
Minority interest 351 317
Stockholders' equity:
Common stock, $.000225 par value; 270,000
shares authorized; 58,645 and 57,082 shares
issued and outstanding, respectively 13 13
Additional paid-in capital 323,069 317,378
Deferred compensation (302) (350)
Accumulated deficit (192,472) (115,944)
Cumulative other comprehensive loss (100) (20)
--------- ---------
Total stockholders' equity 130,208 201,077
--------- ---------
Total liabilities and stockholders' equity $ 163,950 $ 235,780
========= =========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
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TICKETS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
Revenues:
Ticketing services $ 8,695 $ 7,976 $ 16,876 $ 13,046
Software services and other 6,064 4,724 11,955 6,232
-------- -------- -------- --------
Total revenues 14,759 12,700 28,831 19,278
-------- -------- -------- --------
Cost of services:
Ticketing services 6,516 5,246 13,777 8,971
Software services and other 3,169 2,821 6,312 3,571
-------- -------- -------- --------
Total cost of services 9,685 8,067 20,089 12,542
-------- -------- -------- --------
Gross profit 5,074 4,633 8,742 6,736
Operating expenses:
Sales and marketing 10,551 6,149 22,987 9,068
Technology development 3,852 2,980 8,587 4,793
General and administrative 8,471 4,584 15,184 6,827
Amortization of goodwill and intangibles 2,491 2,207 4,899 2,576
Restructuring charges 35,124 -- 35,124 --
Purchased in-process research and development -- 5,340 -- 5,340
-------- -------- -------- --------
Total operating expenses 60,489 21,260 86,781 28,604
-------- -------- -------- --------
Loss from operations (55,415) (16,627) (78,039) (21,868)
Other (income) expense:
Other (income) expense (670) 511 (1,654) 1,302
Minority interest 64 135 34 146
-------- -------- -------- --------
Total other (income) expense (606) 646 (1,620) 1,448
-------- -------- -------- --------
Loss before provision for income taxes (54,809) (17,273) (76,419) (23,316)
Provision for income taxes 84 14 110 17
-------- -------- -------- --------
Net loss $(54,893) $(17,287) $(76,529) $(23,333)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.94) $ (1.52) $ (1.32) $ (2.64)
======== ======== ======== ========
Weighted average common shares outstanding 58,333 11,357 58,018 8,841
======== ======== ======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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TICKETS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED
JUNE 30,
----------------------
2000 1999
-------- --------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(76,529) $(23,333)
Adjustments to reconcile net loss to net cash
used in operating activities:
Restructuring charges 35,124 --
Purchased in-process research and development -- 5,340
Depreciation 2,788 1,745
Amortization of goodwill and intangibles 4,899 2,576
Noncash interest expense -- 177
Noncash marketing expense (1) 3,034 --
Noncash compensation expense 48 25
Minority interest 34 146
Changes in operating assets and liabilities:
Accounts receivable (504) 198
Prepaid expenses and other assets (662) (2,238)
Accounts payable (4,504) 1,335
Accrued liabilities 582 (492)
Deferred revenue and other liabilities (1,270) 119
-------- --------
Net cash used in operating activities (36,960) (14,402)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,562) (943)
Equity investments in strategic partners (1,500) --
Change in restricted cash (7) 168
Acquisitions, net of cash acquired (1,429) (3,847)
-------- --------
Net cash used in investing activities (7,498) (4,622)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit -- 250
Principal payments on long-term debt (1,011) (3,226)
Net proceeds from issuance of preferred stock -- 29,949
Proceeds from issuance of common stock 1,744 233
-------- --------
Net cash provided by financing activities 733 27,206
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (43,725) 8,182
CASH AND CASH EQUIVALENTS, beginning of period 94,173 11,956
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 50,448 $ 20,138
======== ========
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TICKETS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
------- ------
(unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 174 $2,085
======= ======
Income taxes paid $ 110 $ 3
======= ======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Accretion on redeemable common stock and warrants $ -- $ 255
======= ======
Capital lease obligations entered into for equipment $ 816 $ 555
======= ======
Warrant issued in connection with the Major League
Baseball agreement $ 4,100 $ --
======= ======
- -------------------
(1) Non-cash marketing expense represent marketing expenses prepaid in 1999 to
Excite@Home and certain affiliates for advertising, promotional and related
products and services to be provided over a three-year period. The total
prepaid amount was $25 million and is expected to be used through December
2002.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS
Tickets.com, Inc. (formerly, Advantix, Inc.) and its wholly-owned
subsidiaries Bay Area Seating Service, Inc. ("BASS"), ProTix, Inc. ("ProTix"),
TicketsLive Corporation ("TicketsLive"), dataCulture, Ltd. ("dataCulture") and
Lasergate Systems, Inc. ("Lasergate"), collectively ("we", "us" or
"Tickets.com"), is a leading provider of entertainment ticket sales, event
information, and related products and services. We sell tickets and provide
these services through the Internet, telephone sales centers, interactive voice
response systems, and retail outlets. We provide automated ticketing solutions
to entertainment organizations such as stadiums, performing arts centers,
museums and professional sports franchises. The www.tickets.com web site enables
consumers to obtain information on entertainment organizations, sports and
entertainment events and performances and purchase tickets from multiple
sources. We also develop, license and support proprietary ticketing software.
We were originally organized as The Entertainment Express, Inc. under
the laws of the State of Delaware on January 25, 1995. We commenced operations
in May 1996 with the acquisition of Hill Arts and Entertainment Systems, Inc.
which had developed a proprietary ticketing software system utilized primarily
by performing arts centers, theater groups and regional ticketing service
providers. In December 1996, we acquired the call center and ticketing
operations of an Ohio-based performing arts center and ticketing services
provider, at which time we changed our name to Advantix, Inc. In August 1997, we
acquired the assets of Fantastix Ticketing Company, LLC, a regional ticketing
services provider located in Buffalo, New York, and in September 1997 we
completed the acquisition of all of the outstanding stock of BASS, a ticketing
services provider in Northern California and Nevada. In October 1998, we
acquired all the outstanding common stock of ProTix, a ticketing services
provider and ticketing software developer based in Madison, Wisconsin. In April
1999, we acquired all the outstanding capital stock of California Tickets.com,
Inc. ("CA Tickets.com"), a web-based ticketing service provider, and
TicketsLive, a ticketing software developer based in Syracuse, New York. We then
changed our name to Tickets.com, Inc. These acquisitions were followed by the
purchase, in August 1999, of all the outstanding common stock of dataCulture, a
ticketing software developer located in the United Kingdom and in December 1999,
we completed our acquisition of all the outstanding capital stock of Lasergate,
a ticketing software developer located in Clearwater, Florida.
2. RESTRUCTURE CHARGES
On June 5, 2000, the board of directors approved a restructuring plan
for Tickets.com to be executed over the next 15 months. The plan will redirect
our business strategy, requiring a focus on our core ticketing business. This
focus entails taking advantage of the efficiencies of the Internet while
emphasizing the relationship with our clients rather than with consumers. This
is partially accomplished through an emphasis on the clients' web site ahead of
our own. This strategy is an exit from our original Internet ticketing portal
strategy. The portal strategy relied on high cost branding efforts to drive high
volume traffic to our www.tickets.com web site which would in turn support other
Internet related revenues such as web advertising, travel and merchandise sales.
In addition, our software operations will focus on consolidating the software
code lines. Achieving these goals will require an integration of all previous
acquisitions, a reduction in workforce and a consolidation of offices including
telephone sales centers.
In connection with the new strategy and the exit from the Internet
portal strategy and related products, we recorded restructuring charges of $35.1
million. The restructuring charges comprise $30.7 million related to the
write-off of certain intangible assets, $2.8 million related to the
consolidation of facilities, $1.2 million of involuntary termination benefits
and $400,000 related to the termination of existing contracts. The write-off of
certain intangible assets represents a noncash impairment charge of long-lived
assets relating to the acquisitions of CA Tickets.com and Lasergate Systems,
Inc. CA Tickets.com was acquired in April 1999. At the time of acquisition its
business model supported an Internet ticketing portal strategy through its
domain name www.tickets.com. The strategy required building a brand name around
the web site to drive consumer traffic to support purchases of tickets, travel
and merchandise and other Internet revenue including web advertising sales. The
restructuring plan calls for a departure from this strategy and these products
and a focus on client relationships and building Internet transactions through
our clients web sites and to a lesser extent the www.tickets.com site. Lasergate
Systems, Inc. was a regional ticketing software company acquired for its
software products and client base. Through the consolidation of software code
lines initiative its products will be phased out. The described restructure of
our company prompted us to assess the carrying value of the long-lived assets
associated with both of these acquisitions. Using a model that determines
impairment in accordance with SFAS 121, we assessed the anticipated future cash
flows and
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determined that certain of the intangible assets resulting from the acquisitions
of CA Tickets.com and Lasergate Systems, Inc. were impaired. Accordingly, we
have reduced the carrying value of the related long-lived assets to their
estimated fair value, determined based upon a discounted cash flow method. We
also reviewed the estimated lives of certain of our long-lived assets which
resulted in shortened lives and the acceleration of amortization expense for
certain intangible assets. The remaining carrying value of the www.tickets.com
domain name and the goodwill related to CA Tickets.com and Lasergate will be
amortized over a three year period.
The consolidation of facilities will reduce the current space we occupy
as a company by approximately 30%. The consolidation process began in July 2000
and will continue through September 2001. The involuntary termination benefits
represent a plan to reduce the workforce by approximately 180 people. As of June
30, 2000 approximately 30 employees had been terminated representing
approximately $500,000 in paid termination benefits.
3. RECENT ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities Exchange Commission ("SEC") staff
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", as
amended by SAB No. 101A and 101B, to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
explains the SEC staff's general framework for revenue recognition, stating that
certain criteria need to be met in order to recognize revenue. SAB No. 101 also
addresses general disclosures of revenues at gross compared to net presentations
as well as financial statement and Management's Discussion & Analysis ("MD&A")
disclosures related to revenue recognition practices. Accounting under the
provisions of SAB 101 is required to be adopted in the fourth quarter of this
year. We believe the impact of adopting SAB No. 101 will be to net certain
revenue sharing costs against revenue and will not have a material impact on our
results of operations, cash flows or financial position.
4. BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared in
accordance with United States' generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by the United
States' generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been reflected in these condensed consolidated financial statements. Operating
results for the quarter are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Tickets.com's Annual Report on Form 10-K for the year ended December 31, 1999.
5. USE OF ESTIMATES
The preparation of financial statements in conformity with the United
States' generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
6. NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or result in the issuance of
common stock that would then share in Tickets.com's earnings. Potentially
dilutive securities are excluded from our calculation of diluted loss per share
since their inclusion would be antidilutive.
7. LITIGATION
On July 23, 1999, Ticketmaster Corporation and Ticketmaster
Online-CitySearch filed a lawsuit against us in the United States District Court
for the Central District of California seeking unspecified damages and a court
order to prohibit us from, among other things, linking Internet consumers to
internal pages within Ticketmaster's web site. In addition, the suit alleges
that we have engaged in other wrongful acts, such as breach of contract,
trespass, providing false and misleading information on our web site regarding
the availability of tickets and related information on the Ticketmaster web site
and taking copyrighted information from the Ticketmaster web site for use on the
Tickets.com web site. The suit seeks an injunction to prohibit us from further
engaging in any alleged unlawful
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activity, treble damages, attorneys' fees and other unspecified damages.
Ticketmaster Corporation and Ticketmaster Online-CitySearch have also filed a
Motion for Preliminary Injunction seeking an order precluding us from, among
other things, providing links to Ticketmaster pages. We filed an opposition and
the Court held a hearing July 31, 2000. The Court has not issued its final order
on this motion.
In May 2000 we filed a counterclaim against Ticketmaster Corporation and
Ticketmaster Online-CitySearch alleging that they have engaged in certain acts
and practices that are an unlawful restraint of trade, unlawful monopolization
and attempted monopolization in violation of federal and state antitrust laws
and violation of state unfair competition law and interference with economic
advantage. Our claim seeks treble damages, punitive damages and declaratory and
injunctive relief. Ticketmaster and Ticketmaster Online have filed a motion to
dismiss our counterclaim and a hearing is scheduled for September 25, 2000.
8. STOCKHOLDERS' EQUITY
In 1997, we entered into an agreement with our senior lender to issue a
warrant for the purchase of our common stock at $0.0225 per share. In accordance
with the agreement, a warrant to purchase 177,778 shares was issued. The warrant
was subject to certain antidilution provisions and as a result of this provision
436,648 additional shares became issuable over the term of the agreement. In
1999, the senior lender sold its warrant to a third party. In November 1999,
concurrent with the completion of our initial public offering ("IPO"), the
holder of the warrant notified us of their intent to exercise the warrant
subject to the approval by both parties of the calculation of the number of
shares to be issued. On January 21, 2000, 614,426 shares of Tickets.com common
stock were issued to the holder of the warrant.
In January 2000, we issued 34,089 shares in conjunction with our
Employee Stock Purchase Plan. The issuance represented $362,000 in participant
contributions. Additionally, through June 30, 2000, 564,611 shares of common
stock were issued, excluding those warrants discussed above, to employee and
non-employee holders of options and warrants.
In June 2000, we signed an agreement with Major League Baseball ("MLB")
to provide ticketing e-commerce infrastructure and back-end systems to all MLB
clubs, as their current online ticketing agreements expire, through the 2003 MLB
season. In connection with this agreement we issued MLB a warrant to purchase 2
million shares of Tickets.com common stock at an exercise price equal to $3.806
per share. The warrant is fully vested and is first exercisable one year after
the date of issuance or within six months from date of issuance if certain
conditions are met. The warrant was valued at $4.1 million and will be amortized
on a straight-line basis over the three-year life of the contract.
9. SEGMENT INFORMATION
The operating segments below reflect the segmentation of our business
under which management evaluates financial data internally to make operating
decisions and assess performance. We have sales to external customers only.
There have been no intersegment sales. We evaluate the performance of our
operating segments and allocate resources based on gross profit and therefore,
segment information has been provided at that level. Additionally, assets are
not allocated to specific products and accordingly cannot be reported by
segment.
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------
TICKETING SERVICES SOFTWARE SERVICES OTHER TOTAL
------------------ ----------------- ------ -------
Revenues $8,695 $5,406 $658 $14,759
Gross profit 2,179 2,293 602 5,074
FOR THE THREE MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------
TICKETING SERVICES SOFTWARE SERVICES OTHER TOTAL
------------------ ----------------- ------ -------
Revenues $7,976 $4,494 $230 $12,700
Gross profit 2,730 1,613 290 4,633
FOR THE SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------
TICKETING SERVICES SOFTWARE SERVICES OTHER TOTAL
------------------ ----------------- ------ -------
Revenues $16,876 $10,416 $1,539 $28,831
Gross profit 3,099 4,485 1,158 8,742
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------
TICKETING SERVICES SOFTWARE SERVICES OTHER TOTAL
------------------ ----------------- ------ -------
Revenues $13,046 $6,002 $230 $19,278
Gross profit 4,075 2,371 290 6,736
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10. FIRST CALL INTERNATIONAL
In July 2000, due to changing market conditions, we decided not to
proceed with our plan to acquire First Call International, Ltd. The decision
resulted in the write-off of approximately $1.0 million of abandoned-acquisition
costs, consisting primarily of legal fees.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q, including information incorporated
herein by reference, contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward looking statements include risks and
uncertainties and relate to expectations concerning matters that are not
historical facts. Words such as "projects," "believes," "anticipates," "plans,"
"expects," "intends," and similar words and expressions are intended to identify
forward-looking statements. Although Tickets.com believes that such
forward-looking statements are reasonable, it cannot assure you that such
expectations will prove to be correct. Important language regarding factors that
could cause actual results to differ materially from such expectations are
disclosed herein. All forward-looking statements are expressly qualified in
their entirety by such language. Tickets.com does not undertake any obligation
to update any forward-looking statements. You are also urged to carefully review
and consider the various disclosures made by Tickets.com which describe certain
factors which affect Tickets.com's business, including the risk factors that
follow.
OVERVIEW
Tickets.com is a leading source of entertainment tickets, event
information, and related products and services. We sell tickets and provide
these services through the Internet, telephone sales centers, interactive voice
response systems and retail stores. We provide automated ticketing solutions to
over 4,500 entertainment organizations and venues such as stadiums, performing
arts centers, museums and professional sports franchises. We have two operating
segments, (1) ticketing services and (2) software services and other. We also
develop, license and support proprietary ticketing software.
SOURCES OF REVENUE
Ticketing Services
We primarily generate ticketing services revenue from per ticket service
fees charged directly to consumers who purchase tickets through the Internet,
telephone sales centers, interactive voice response systems and retail stores.
In addition, we charge a per order handling fee to consumers for all tickets
which we package and ship to the consumer. This typically includes all sales
other than through retail stores and sales for our licensees who are connected
to the internet. The sale of the tickets for an event often commences several
months prior to the scheduled date of the event. Ticketing services revenues
relating to these sales are recognized when the tickets are sold. If an event is
cancelled, an allowance is established for potential refunds; however, our
clients are responsible for funding the refund of the price of tickets. The
amount of the service fees we charge varies from client to client, depending
upon a number of factors, including the nature of the services to be rendered to
the client, the amount and cost of equipment to be installed in the client's box
office, the amount of advertising and promotional allowances provided, the type
of event and the distribution channels used. The service fee for each client is
determined by us and our clients through arms-length negotiations during the
contract process. We generally do not purchase these tickets from our clients
for resale to the public. In the event that we do purchase the tickets for
resale, or guarantee the sale of a certain amount of tickets, we recognize the
entire sales price of those tickets we purchased and sold or guaranteed as
revenue.
In 1999 we began to enable several of our software licensees to sell
tickets over the Internet. This technology allows our licensees to sell their
tickets on either their own web site or the www.tickets.com web site. We
generate revenues on the sale of tickets to events for these Internet enabled
licensees from service fees on a per ticket basis, similar to our traditional
ticketing services clients. We generally are not involved in the delivery of
these tickets and therefore we do not generate revenue from handling fees for
these ticket sales.
Our ticketing services clients determine all face values for tickets
sold through our services. These clients also generally determine when tickets
for their events will be sold to the public and the number and type of tickets
that will be available for sale through us. We
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usually sell only a portion of our clients' total tickets. The number of tickets
that our clients sell in-house varies from client to client and varies as to any
single client from year to year. Tickets allocated by our clients to us are sold
to the public directly through our distribution network. For outsourcing
services clients and software licensees who are enabled to sell tickets on the
Internet, their entire ticket inventory is generally available on the clients'
web site and the www.tickets.com web site.
If an event is cancelled, we will refund the per ticket convenience fee
directly to consumers. However, our outsourcing services clients are responsible
for funding all refunds of ticket prices for a cancelled event. To the extent
that the funds we are holding on behalf of a client are insufficient to cover
all refunds, the client is contractually required to provide us with additional
funds within a specified period of time, typically within 24 to 72 hours, of
cancellation. Historically, our clients have fulfilled these obligations.
We have also generated ticketing services revenues through the auction
of tickets on our web site. In 1999 we entered into arrangements with several
performers to provide online ticket auctions for their live concerts. Under
these arrangements, the performer's tickets were allocated to us for auction on
our web site and certain amounts collected above face value were donated to a
charity of the performer's choice. Under these types of arrangements, we had
agreed generally to purchase, at face value, any unsold tickets that were
allocated to us for auction. If we were unable to sell tickets that we had
agreed to purchase, or sell them at less than face value, we would incur losses
on the tickets purchased. The gross value of the sale of these tickets was
recorded as revenues. The amount paid for the tickets, the amount donated to
charity and the cost of delivering the tickets to the consumers were recognized
as cost of services for the related auction ticketing services. As of May 2000,
we no longer offer auctions of performer tickets for charity.
Software Services and Other
We generate a portion of our revenue from license and support fees
charged to licensees of our in-house systems products. We recognize these
revenues in accordance with the contracts we enter into with our licensees when
they license our in-house systems and purchase maintenance and other support
services. We generally recognize our license revenues when our software is
installed and accepted by our licensees. Support and maintenance are recognized
over the term of the contract. Our support and maintenance contracts have terms
ranging from one to five years with automatic one-year renewals. Our licensees
generally pay a one-time license fee for the right to use our software and
annual fees for support and maintenance. We also provide custom programming for
certain clients with special ticketing needs. The revenue and costs associated
with these long-term custom programming contracts are generally recognized on
the percentage of completion method.
We also generate revenues from advertising on our web site,
consumer-to-consumer auctions and travel and package sales, which may include
travel, hotel, tickets to an event and related merchandise. Revenues for
advertising are recognized when the ads are placed on our web site.
Consumer-to-consumer auction revenues are derived from a fee paid by the seller
and are recognized when the transactions are complete. The majority of our
travel revenues are commissions received from our travel services provider.
Packages are purchased for sale in advance or are sold through our travel
service provider. Sales of packages purchased in advance or packages which we
retain full risk of return, are recognized at the gross sales value of the
package when the package is sold; therefore, if a package is left unsold or
sells for less than the aggregate cost of the package, we incur losses on those
packages. We receive commissions for packages sold through our travel service
provider. As of August 2000, we no longer offer consumer-to-consumer auctions,
travel or packages through our travel service provider, on our website,
www.tickets.com.
During December 1999 we entered into a long-term barter transaction
whereby we provide various products and services in exchange for a cash payment
and sponsorship. Revenues and expenses from this barter transaction are valued
at the fair market value based on the amount that would be charged on a cash
basis for similar products and services. Revenues and expenses from barter
transactions are recognized in accordance with the established guidelines
related to the type of the underlying revenue or expense.
COST STRUCTURE
Cost of Services. Cost of services associated with ticketing services
primarily includes expenses related to the distribution and delivery of tickets.
These expenses include primarily telephone sales center and distribution
payroll, telecommunications and data communications, commissions paid on tickets
distributed through outlets and our clients' share of service fees. In the event
that we purchase tickets for sale or guarantee the sale of a certain amount of
tickets, the face value of those tickets purchased or guaranteed are recorded as
a cost of ticketing services revenues. Ticket auction costs of services are
comprised of the face value of the ticket and the cost of processing the orders
and delivery of the ticket. In addition, under arrangements with performers, the
costs of ticket auctions also include certain amounts, above the face value of
the tickets, that are donated to a charity of the performer's choice. Cost of
services associated with software services and other primarily includes costs
related to the installation and support of our in-house systems mainly
consisting of payroll and travel services related costs, the cost of hardware
and software that we resell to our licensees and the cost of packages purchased
for resale which may include hotel costs, merchandise costs and the face value
of the event tickets.
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Operating Expenses. Our operating expenses are comprised of three
primary categories: sales and marketing, technology development and general and
administrative expenses. Sales and marketing expenses are expensed as incurred
and consist principally of personnel expenses, consulting fees, advertising,
trade shows and conventions, and promotional expenditures. Technology
development expenditures are generally expensed as incurred and consist
primarily of personnel and related compensation costs, contract labor to support
software development, configuration and implementation of our ticketing systems,
telecommunications, web site and connectivity and support system infrastructure.
General and administrative expenses consist of personnel expenses for
management, accounting and administrative personnel, recruiting, professional
services, facilities and other administrative expenses. Amortization of goodwill
and intangibles is recorded on a straight-line basis over various estimated
useful lives primarily ranging from three to 25 years. Covenants not to compete
are amortized on a straight-line basis over the corresponding contract period.
Our corresponding intangibles consist primarily of the portion of the purchase
price of businesses acquired allocated to existing technology, client
relationships, tradenames, assembled workforce and covenants not to compete.
Goodwill represents the excess of cost over the fair value of identified net
assets acquired in business combinations accounted for under the purchase
method.
SEASONALITY
Our operations and revenues from ticketing services are largely seasonal
in nature, with second and third quarter revenues generally being higher than
first and fourth quarter revenues. Several of our largest clients are outdoor
venues or promoters of musical concerts, which schedule a significant number of
events during the summer months and typically do not generate substantial
activities in the late fall, winter and early spring. Therefore, the seasonality
of our business causes a significant variation in our quarterly operating
results. To the extent we do not broaden our revenue base to offset seasonality,
we expect that this seasonality will continue to cause significant variations in
our future quarterly operating results.
RESULTS OF OPERATIONS
General
Our historical operations consist primarily of (1) the provision of
outsourcing and related services to clients such as performing arts centers,
amphitheaters, professional sports franchises, and concert promoters and (2) the
licensing, maintenance and support of our proprietary in-house systems.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Revenues
Ticketing Services. Revenues from ticketing services increased 9% to
$8.7 million for the three months ended June 30, 2000 from $8.0 million for the
three months ended June 30, 1999. The increase in revenues was due to ticket
sales related to the successful Wango Tango event in Los Angeles and to new
clients, including Internet enabled software licensees. These increases were
partially offset by lost revenues related to a client who terminated its
contract with us effective December 31, 1999. The termination resulted in a loss
of approximately $1.4 million in revenues for the second quarter of 2000
compared to the same period in the prior year. The client termination also
resulted in a decrease in the number of tickets sold by 19% to 1.3 million for
the three months ended June 30, 2000 from 1.6 million for the three months ended
June 30, 1999.
Software Services and Other. Revenues from software services and other
increased 28% to $6.1 million for the three months ended June 30, 2000 from $4.7
million for the three months ended June 30, 1999. Revenues from acquisitions
occurring subsequent to the second quarter of 1999 contributed approximately
$700,000 of the increase while the remaining increase resulted from increases in
Internet product revenues, including web advertising and package sales. Due to
the exiting of our business strategy away from an Internet portal, including the
abandonment of travel and consumer-to-consumer auctions, we expect a decrease of
Internet related revenues with growth driven by our core software business in
future periods.
Cost of Services
Ticketing Services. Costs of ticketing services increased 24% to $6.5
million for the three months ended June 30, 2000 from $5.2 million for the three
months ended June 30, 1999. The increase was primarily attributable to the cost
of guaranteed tickets for the
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Wango Tango event, partially offset by a decline in our client's share of
service fees consistent with the decline in volume. As a percentage of ticketing
services revenues, total cost of ticketing services increased to 75% from 66%,
primarily due to the cost of tickets for the Wango Tango event. We expect gross
profit margins on ticketing services to improve as we concentrate on our core
ticketing business and move away from high cost of service ticketing products.
Software Services and Other. Costs of software services and other
increased 12% to $3.2 million for the three months ended June 30, 2000 from $2.8
for the three months ended June 30, 1999. The increase was primarily caused by
costs of sales from our acquired subsidiaries. As a percentage of software
services and other revenues, costs of software services and other decreased to
52% from 60% for the same quarter in the prior year. The decrease in costs of
sales as a percentage of revenues was primarily attributable to the increase in
high margin Internet product revenues such as web advertising. As the high
margin Internet product revenues decrease as a result of the restructuring, we
expect the gross profit margins on software services and other to also decrease
slightly.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 72% to $10.6
million for the three months ended June 30, 2000 from $6.1 million for the three
months ended June 30, 1999. As a percentage of total revenues, sales and
marketing expenses increased to 71% from 48%. Since the prior year quarter, we
have increased our sales and marketing expenses significantly in an effort to
expand our sales and marketing infrastructure, to develop the Tickets.com brand
in support of our growth plans and to increase consumer awareness. We have
increased advertising, promotions and trade show expenses by $2.5 million and
personnel and related expenses including facilities and travel by $1.5 million.
Our new strategy focuses on our clients instead of consumers, as such we expect
our sales and marketing expenses to decrease while we redirect our effort from
high cost branding to combined client-driven advertising and promotions. The new
strategy has already began to impact our results demonstrated by a 15% decline
in sales and marketing expenses from the first to the second quarter of fiscal
year 2000.
Technology Development. Technology development expenses increased 29% to
$3.9 million for the three months ended June 30, 2000 from $3.0 million for the
three months ended June 30, 1999. As a percentage of total revenues, technology
development expenses increased to 26% from 23%. We invested approximately
$900,000 to develop and enhance our web site as well as expand the scalability
of our infrastructure. This investment is reflected by increased computer
related expenses of $435,000 and personnel and related costs of $305,000. We
will continue to expand our technology development to enhance system
functionality and broaden reporting capabilities and service delivery methods.
Additionally, we have developed an aggressive schedule to complete the Internet
connections for our software licensees to enable them to sell tickets on our web
site as well as their own web sites. Technology development expenses are
expected to decrease in the future periods as we consolidate software code lines
enabling us to reduce the development costs necessary to support multiple code
lines while we focus our efforts on improving and expanding our core ticketing
system.
General and Administrative. General and administrative expenses
increased 85% to $8.5 million for the three months ended June 30, 2000 from $4.6
million for the three months ended June 30, 1999. As a percentage of revenues,
general and administrative expenses increased to 57% from 36%. The increase was
primarily due to increased payroll and related expenses, including facilities,
travel, supplies and equipment of $1.4 million due to our continued investment
in our managerial and administrative infrastructure commensurate with and to
facilitate our growth. The second quarter of the current year also includes a
write-off of approximately $1.0 million of acquisition costs related to the
abandoned merger with First Call International, Ltd.. Excluding expenses related
to First Call, professional services increased by $800,000 related primarily to
legal fees. We anticipate general and administrative expenses to decline as we
integrate the back-end operations of previous acquisitions, including
consolidation of administration functions and reduction in office space.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased 13% to $2.5 million for the three months ended June 30,
2000 from $2.2 million for the three months ended June 30, 1999. The increase
was due to acquisitions that occurred after the second quarter of 1999. We
expect amortization expense to continue at current levels as the benefit from
the reduction in the carrying value of intangibles due to the restructuring will
be offset by the acceleration of the amortization period for those same assets.
Restructuring Charges. On June 5, 2000, the board of directors approved
a restructure plan for Tickets.com to be executed over the next 15 months. The
plan will redirect our business strategy, requiring a focus on our core
ticketing business. This focus entails taking advantage of the efficiencies of
the Internet while emphasizing the relationship with our clients rather than
with consumers. This is partially accomplished through an emphasis on the
clients' web site ahead of our own. This strategy is an exit from our original
Internet ticketing portal strategy. The portal strategy relied on high cost
branding efforts to drive high volume traffic to our
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www.tickets.com web site which would in turn support other Internet related
revenues such as web advertising, travel and merchandise sales. In addition, our
software operations will focus on consolidating the software code lines.
Achieving these goals will require an integration of all previous acquisitions,
a reduction in workforce and a consolidation of offices including telephone
sales centers.
In connection with the new strategy we recorded restructuring charges of
$35.1 million. The restructure charges comprise $30.7 related to the write-off
of certain intangible assets, $2.8 million related to the consolidation of
facilities, $1.2 million of involuntary termination benefits and $400,000
related to terminated contracts. The write-off of certain intangible assets
represents a noncash impairment charge. Due to the abandonment of the ticketing
portal strategy and the planned reduction in code lines, we determined certain
intangible assets, related to the acquisitions of CA Tickets.com and Lasergate
Systems, Inc., met the test for impairment. Accordingly, we have reduced the
carrying value of the related long-lived assets to their estimated fair value,
determined based upon a discounted cash flow method. We also reviewed the
estimated lives of certain of our long-lived assets which resulted in shortened
lives and the acceleration of amortization expense for certain intangible
assets. The impairment charge had no impact on our year-to-date cash flows or
our ability to generate cash flows in the future. In conjunction with the review
for impairment, the remaining estimated lives of some long-lived assets were
shortened, offsetting the benefit to amortization expense of a reduced carrying
value.
We anticipate the restructure strategy will result in an acceleration in
our achievement of financial profitability. Although the growth rate of revenues
will be slightly reduced, profit margins should improve as high cost product
lines such as auctions are abandoned. As the company integrates its acquisitions
by consolidating software code lines, administrative functions and facilities
operating expenses, including technology development and general and
administrative, are expected to decrease significantly. In addition, we expect a
reduction in advertising spending as we move away from the high cost branding
associated with a consumer focus to an emphasis on client relationships in the
sales and marketing area.
Other (Income) Expense
Other (Income) Expense. Other (income) expense consists principally of
interest income and interest expense. Interest income is generated primarily
from cash and cash equivalents held in interest bearing accounts. Interest
income increased 239% to $781,000 for the three months ended June 30, 2000 from
$230,000 for the three months ended June 30, 1999. The increase is mainly due to
higher cash balances that resulted from our financing activities. Interest
expense decreased 84.9% to $112,000 for the three months ended June 30, 2000
from $741,000 for the three months ended June 30, 1999, reflecting the reduction
of our long-term debt in connection with our initial public offering in November
1999.
Net Loss
For the three months ended June 30, 2000, our net loss excluding the
non-recurring items of restructuring charges and $1.0 million of
abandoned-acquisition costs was $18.8 million or $0.32 per share. For the three
months ended June 30, 1999, our net loss excluding a non-recurring charge for
purchased in-process research and development was $11.9 million or $1.05 per
share. For the three months ended June 30, 2000, our net loss was $54.9 million
or $0.94 per share. For the three months ended June 30, 1999, our net loss was
$17.3 million or $1.52 per share. The increase in the net loss was primarily due
to:
- Restructuring charges of $35.1 million;
- Increased operating expenses, most significantly:
- Personnel and related expenses of $3.2 million;
- Advertising, public relations and trade show expenses of $2.5
million related to increased promotions and the development of our
brand;
- Professional services expenses of $1.3 million; and
- Abandoned acquisition costs of $1.0 million.
- Offset by:
- Increased net benefit of $1.3 million in other (income) expense; and
- $5.3 million of purchased in-process research and development in the
prior year second quarter.
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The decrease in the net loss per share reflects an increase in our basic
and diluted weighted average shares of 47.0 million. This increase is due
primarily to the conversion of our preferred shares to 29.6 million shares of
common stock and our initial public offering totaling 7.6 million common shares
that was completed in November 1999. Potentially dilutive securities (including
stock options) were antidilutive and therefore were excluded from the
calculation of diluted loss per share.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Revenues
Ticketing Services. Revenues from ticketing services increased 29% to
$16.9 million for the six months ended June 30, 2000 from $13.0 million for the
six months ended June 30, 1999. The increase in revenues was driven by the
successful Wango Tango event in Los Angeles and the revenues related to our
performer charity ticket auctions. In addition, revenues increased due to new
clients, including internet enabled software licensees. The increase in revenues
is partially offset by lost revenue related to a client who terminated its
contract with us effective December 31, 1999. The termination resulted in a loss
of approximately $2.0 million in revenues for the six months ended June 30, 2000
compared to the six months ended June 30, 1999. The number of tickets sold
decreased by 3.3% to 2.6 million for the six months ended June 30, 2000 from 2.7
million for the six months ended June 30, 1999. The decrease in volume reflects
the tickets lost with the client termination, partially offset by new clients.
Software Services and Other. Revenues from software services and other
increased 92% to $12.0 million for the six months ended June 30, 2000 from $6.2
million for the six months ended June 30, 1999. The revenues from our 1999
acquisitions contributed approximately $4.5 million of the increase. The
remaining increase was driven by an increase in Internet product revenues,
including web advertising sales and packages and growth in software license and
support fees.
Cost of Services
Ticketing Services. Costs of ticketing services increased 54% to $13.8
million for the six months ended June 30, 2000 from $9.0 million for the six
months ended June 30, 1999. The increase was mainly attributable to the cost of
guaranteed tickets for the Wango Tango event and costs related to the charity
ticket auctions. These costs are partially offset by a decline in our clients'
share of service fees consistent with the decline in volume. As a percentage of
ticketing services revenues, total cost of ticketing services increased to 82%
from 69%, primarily due to the high cost of services related to the tickets for
the Wango Tango event and our charity ticket auctions.
Software Services and Other. Costs of software services and other
increased 77% to $6.3 million for the six months ended June 30, 2000 from $3.6
for the six months ended June 30, 1999. The increase was primarily caused by
costs of sales from our acquired subsidiaries. As a percentage of software
services and other revenues, costs of software services and other decreased to
53% from 57% for the six months in the prior year. The decrease in costs of
sales as a percentage of revenues was primarily attributable to the increase in
high margin Internet product revenue.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 153% to
$23.0 million for the six months ended June 30, 2000 from $9.1 million for the
six months ended June 30, 1999. Sales and marketing expenses attributable to
acquired companies accounted for $1.4 million of the increase. As a percentage
of total revenues, sales and marketing expenses increased to 80% from 47%. In an
effort to continue the development of our sales and marketing infrastructure, to
develop the Tickets.com brand in support of our growth plans and to increase
consumer awareness, we have increased our sales and marketing expenses
significantly. Excluding acquisitions, we have increased advertising, promotions
and trade show expenses by $8.0 million, professional services by $2.4 million
and personnel and related expenses including facilities and travel by $1.9
million.
Technology Development. Technology development expenses increased 79% to
$8.6 million for the six months ended June 30, 2000 from $4.8 million for the
six months ended June 30, 1999. Of this increase, $748,000 was related to
technology development costs from our acquired subsidiaries. As a percentage of
total revenues, technology development expenses increased to 30% from 25%. We
invested approximately $3.0 million to develop and enhance our web site as well
as expand the scalability of our
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infrastructure. This investment is reflected by increased personnel and related
costs of $2.4 million and professional services of $270,000. We will continue to
expand our technology development to enhance system functionality and broaden
reporting capabilities and service delivery methods. Additionally, we have
developed an aggressive schedule to complete the Internet connections for our
software licensees to enable them to sell tickets on our web site as well as
their own web sites.
General and Administrative. General and administrative expenses
increased 122% to $15.2 million for the six months ended June 30, 2000 from $6.8
million for the six months ended June 30, 1999. General and administrative
expenses associated with acquired companies accounted for $1.7 million of the
increase. As a percentage of revenues, general and administrative expenses
increased to 53% from 35%. Excluding acquisitions, the increase was primarily
due to increased payroll and related expenses, including facilities, travel,
supplies and equipment of $2.7 million due to our continued investment in our
managerial and administrative infrastructure commensurate with and to facilitate
our growth. In addition, professional services increased by $2.3 million related
primarily to legal and consulting fees including $1.0 million of abandoned
acquisition costs related to the decision not to proceed with the merger of
First Call International, Ltd.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased 90% to $4.9 million for the six months ended June 30, 2000
from $2.6 million for the six months ended June 30, 1999. The increase was due
to acquisitions that occurred after the first quarter of 1999.
Other (Income) Expense
Interest (Income) Expense. Other (income) expense consists principally
of interest income and interest expense. Interest income is generated primarily
from cash and cash equivalents held in interest bearing accounts. Interest
income increased 394% to $1.9 million for the six months ended June 30, 2000
from $379,000 for the six months ended June 30, 1999. The increase is mainly due
to higher cash balances that resulted from our financing activities. Interest
expense decreased 87.1% to $217,000 for the six months ended June 30, 2000 from
$1.7 million for the six months ended June 30, 1999, reflecting the reduction of
our long-term debt in connection with our initial public offering in November
1999.
Net Loss
For the six months ended June 30, 2000, our net loss excluding the
non-recurring items of restructuring charges and $1.0 million of
abandoned-acquisition costs was $40.4 million or $0.70 per share. For the six
months ended June 30, 1999, our net loss excluding a non-recurring charge for
purchased in-process research and development was $18.0 million or $2.04 per
share. For the six months ended June 30, 2000, our net loss was $76.5 million or
$1.32 per share. For the six months ended June 30, 1999, our net loss was $23.3
million or $2.64 per share. The increase in the net loss was primarily due to:
- Restructuring charges of $35.1 million;
- Increased amortization expense of $2.3 million;
- Increased operating expenses net of acquisitions, most significantly:
- Personnel and related expenses of $7.0 million;
- Advertising, public relations and trade show expenses of $8.1
million related to increased promotions and the development of our
brand; and
- Professional service expenses of $5.0 million, including $1.0
million of abandoned-acquisition costs;
- Losses from acquired subsidiaries of $2.1 million;
- Offset by $5.3 million of purchased in-process research and
development recorded in the prior year period.
The decrease in the net loss per share reflects an increase in our basic
and diluted weighted average shares of 51.4 million. This increase is due
primarily to the conversion of our preferred shares to 29.6 million shares of
common stock, the issuance of 8.4 million common shares related to 1999
acquisitions and our initial public offering totaling 7.6 million common shares
that was completed in November 1999. Potentially dilutive securities (including
stock options) were antidilutive and therefore were excluded from the
calculation of diluted loss per share.
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LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000 our cash and cash equivalents
decreased by $43.7 million to $50.4 million from December 31, 1999. The decrease
resulted primarily from net cash used in operating activities of $37.0 million,
purchases of property and equipment of $4.6 million, equity investments in
strategic partners of $1.5 million, acquisitions of $1.4 million and payments on
long-term debt and leases of $1.0 million. These uses were offset by proceeds
from issuance of common stock of $1.7 million. Cash used in operating activities
was primarily in connection with the funding of losses before depreciation,
amortization, restructuring charges and certain non-cash marketing expenses of
$30.7 million and decreases in accounts payable of $4.5 million and in deferred
revenue and other liabilities of $1.3 million.
From December 31, 1998 to June 30, 1999, cash and cash equivalents
increased by $8.2 million. The increase mainly resulted from $29.9 million in
proceeds from the issuance of 5,925,926 shares of Series D convertible preferred
stock, net of issuance costs. The increase in cash was primarily offset by cash
used in operating activities of $14.4 million, principal payments on long term
debt of $3.2 million and purchases of property and equipment of $943,000. Cash
used in operating activities was primarily for funding of the losses before
depreciation, amortization and purchased in-process research and development of
$13.7 million.
We believe that cash on hand and the funds currently available through
our credit facilities with our bank as of June 30, 2000 will be sufficient to
fund operations and meet debt and other obligations through at least the next 12
months. However, under our credit facilities, we expect to be out of compliance
with a certain covenant as of September 30, 2000. Based on our current
projections, we will need to draw on the line of credit in the second quarter of
fiscal year 2001. We are negotiating with our bank to amend or restructure our
credit lines. If a mutually satisfactory agreement cannot be reached, we may
have to pursue other alternatives for financing. If additional funds are raised
through the issuance of equity securities, the percentage ownership of our
stockholders will be reduced and stockholders may experience additional dilution
in net book value per share, or such equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
There can be no assurance that we will be able to obtain additional financing
when needed on favorable terms, if at all. If adequate funds are not available
on acceptable terms, we may be unable to take advantage of future opportunities
or respond to competitive pressures or unanticipated requirements, or meet our
obligations as they become due, any of which could have a material adverse
effect on our business, financial condition and results of operations.
RISK FACTORS
Before deciding to invest in our company or to maintain or increase your
investment, you should carefully consider the risks described below, in addition
to the other information in this report and our other filings with the SEC,
including our annual report on form 10-K and subsequent reports on forms 10-Q
and 8-K. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect our business operations. If
any of these risks actually occur, there could be serious harm to our business,
financial condition or results of operations. In that event, the market price
for our common stock could decline and you may lose all or part of your
investment.
Because Of Our Limited Operating History And Limited Internet
Experience, Our Revenues Are Unpredictable, Which May Cause Significant
Fluctuations In Our Operating Results. Our limited operating history makes it
difficult for us to predict future results of operations and difficult for you
to evaluate us or our prospects. We believe that period-to-period comparisons of
our operating results are not meaningful and that the results for any period
should not be relied upon as an indication of future performance. Our operating
results may fall below the expectations of market analysts or investors in some
future quarter. If this occurs, the price of our common stock would likely
decrease. The emerging nature of the markets in which we compete makes
forecasting more difficult and potentially unreliable. Our current and future
expense levels are based predominantly on our operating plans and estimates of
future revenues, and are to a large extent fixed. We may be unable to adjust
spending in a timely manner to compensate for any unexpected shortfall in
revenues. Accordingly, if our revenues in any particular quarter are lower than
anticipated, our operating results would likely fall short of market
expectations.
The Seasonality Of The Live Entertainment Industry Could Cause Our
Quarterly Operating Results To Fall Below The Expectations Of Market Analysts
And Investors, Which Could Adversely Affect The Market Price Of Our Common
Stock. Many popular live entertainment events are held during the warm weather
months. In addition, ticket sales for such events generally commence several
months prior to the event date. Because of these factors, our business generally
has lower revenues in the first and fourth fiscal quarters. These seasonality
issues could cause our quarterly operating results to fall below market
expectations, and
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adversely affect the market price of our common stock. Other related seasonality
issues that could cause our quarterly operating results to fluctuate in the
future include:
- the dates event tickets are released for sale by our clients;
- the decisions of one or more clients to cancel or postpone events;
- the timing of large, nonrecurring events; and
- the concentration of events in any given quarter.
If We Fail To Retain Clients, We May Experience A Loss Of Revenue. In
order to achieve our intended growth and market presence, we must satisfy our
current clients' needs, as well as the needs of clients of acquired companies.
If we fail to do so, we may lose significant clients and the revenue we generate
from those clients.
We May Lose Key Personnel, Which Could Adversely Affect Our
Relationships With Major Clients Or Strategic Partners And Impair The
Effectiveness Of Our Operations. Key personnel may choose not to continue their
employment with us for reasons including compensation, location, and the
perception of career opportunities with us, our competitors, or in other
industries. If we lose key personnel, our relationships with major clients or
strategic partners who had close relationships with these personnel may be
impaired. In addition, if we are unable to replace any key personnel that we may
lose, we may suffer a disruption of operations and a decline in revenue.
Because We Have A Limited Operating History As A Consolidated Business,
We Have An Unproven Business Model That Requires A Substantial Move Into
E-Commerce. Since 1996, we have completed eleven acquisitions of companies with
diverse backgrounds in the ticketing industry. We have a limited history
operating as a consolidated business, and accordingly, an unproven business
model that is substantially dependent on the growth of revenues from increased
ticket sales on the Internet. To date, our revenues generated from Internet
sales have not been significant. Internet related revenues comprised 25.4% and
23.5% of the second and first quarter of fiscal year 2000 total revenues,
respectively. We cannot be certain that we will be successful in increasing our
Internet sales in future periods. If we are not, our revenues will not grow in
accordance with our business model and may fall short of expectations of market
analysts and investors, which could negatively affect the price of our common
stock.
We Have Limited Experience In Offering E-Commerce Services To Consumers
And May Not Be Able To Generate Substantial Revenues From Internet Sales. We
began online ticket sales in the third quarter of 1997. Historically, we have
sold tickets primarily through retail stores and telephone sales centers. In
order to generate substantial revenues from online ticket sales, we must
significantly increase the number of clients who use our online ticketing
services. We cannot be certain that a substantial number of our clients will be
able or choose to use our online ticketing services. The majority of our clients
license our in-house systems for internal use and do not use any of our other
outsourcing services. These clients generally use software systems that do not
enable ticket sales over the Internet without a specific software upgrade. To
date, only a portion of our clients are able to use our Internet ticketing
services.
As More Of Our Clients Use Our Online Services, We May Encounter
Technological Difficulties That Could Impair Our Ability To Increase Online
Revenues. In order for most of our clients to use our online ticketing
capabilities, we must develop and install additional software to make their
systems compatible with ours. This process can be a difficult one and we may
encounter technological difficulties that may inhibit us from servicing our
clients online, which may cause one or more of our clients to terminate or fail
to renew its contract with us. Because we have a broad portfolio of in-house
systems products, we must either create separate Internet interfaces for each of
these products or consolidate our in-house systems products. We may experience
difficulties in consolidating our portfolio of in-house systems products into a
few comprehensive in-house systems and in developing links from our clients'
various software and hardware systems to our ticketing systems and databases.
Due to these potential technological difficulties, some clients may be averse to
change and may require a lengthy sales cycle before they will upgrade to
Internet ticketing on our system.
Ticketmaster Corporation And Ticketmaster Online-CitySearch Have Filed A
Lawsuit Against Us Which Could Impair Our Ability To Implement Our Business
Model And Result In Substantial Payments To Them. The Ticketmaster suit could
result in limitations on how we implement our e-commerce strategy, delays and
costs associated with payments to Ticketmaster Corporation and Ticketmaster
Online-CitySearch. In addition, the litigation could result in significant
expenses and diversion of our management's time and other resources (see Note 7
in Item 1 "Financial Statements").
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Infringement Or Other Claims Could Adversely Affect Our Ability To
Market Our Products, Limit Our Rights To Certain Technology And Harm Our Results
Of Operations. Although we believe we have valid proprietary rights to all of
our intellectual property, we could be subject to claims of alleged trademark,
patent or other infringement as a result of our actions or the actions of our
licensees. For example, as in the Ticketmaster claim, we may in the future be
sued because we link consumers directly to an internal page within other ticket
sellers' web sites and have included the trademarks of these ticket sellers on
our web site. Any litigation over intellectual property rights or business
practices could result in:
- payment by us of substantial damages;
- injunctive or other equitable relief that could block our ability to
market or license our products; and
- the loss of rights to technologies necessary to operate portions of
our business.
Any litigation, regardless of the outcome, could result in substantial
costs and diversion of managerial and other resources.
Our Proprietary Technology And Intellectual Property May Be Inadequately
Protected, Which Could Harm Our Competitive Position. We regard our proprietary
technology and other intellectual property as critical to our success. We rely
on trademark, trade secret and copyright law to protect our technology and our
brand. We also rely on confidentiality and/or license and other agreements with
employees, customers, and others to protect our proprietary rights. We have no
patents. Despite our efforts to control access to our proprietary information,
it may be possible for a third party to copy or otherwise obtain and use our
products, technologies or other intellectual property without authorization. In
addition, effective copyright, trademark, trade secret and patent protection may
be unavailable or limited in foreign countries that do not offer protection
comparable to that provided by United States laws. Internet technologies are
evolving rapidly, and third parties may also develop similar or superior
technologies independently. Any unauthorized use of our proprietary information
could result in costly and time-consuming litigation to enforce our proprietary
rights. In addition, any third party development of similar or superior
technologies could impede our ability to compete effectively in the ticketing
industry.
Ineffective Protection Of Our Trademarks And Service Marks Could Reduce
The Value Of Our Brands. We are depending on the broad recognition of our
"Tickets.com" and "1-800-TICKETS" brands for our business to grow. We cannot be
certain that the steps we have taken and will take to protect our brands will be
adequate, and such steps may require considerable expenditures. Nor can we be
certain that third parties will not infringe upon or misappropriate the
copyrights, trademarks, trade dress and similar proprietary rights that
currently protect our brands. Ineffective protection of these rights could
reduce the value of our brands. We have applied to register the tradename
"Tickets.com" and the stylized trademark "1.800.TICKETS" and we have registered
the service mark "Advantix" and other trademarks in the United States. We have
also applied to register the tradenames "Tickets.com" in various foreign
countries. Effective trademark, service mark, copyright and trade secret
protection will not be available or sought in every country in which our
products and services are available online or by telephone. We may not be able
to obtain effective trademark or service mark registration until the prolonged
use of our marks has generated secondary meaning for purposes of trademark and
service mark law. In addition, there are other parties who have corporate names
or brand names very similar to ours, and whose names may also include the term
"tickets," and who may, as a result, bring claims against us for trademark
infringement or challenge our rights to register the tradename "Tickets.com,"
the stylized trademark "1.800.TICKETS," or both.
Our Licensees Could Diminish The Quality Of Our Brands And Adversely
Affect Our Reputation. We have licensed in the past, and expect to license in
the future, proprietary rights such as trademarks or copyrighted material to
third parties. While we attempt to ensure that the quality of our brands is
maintained by these licensees, we cannot be certain that these licensees will
not take actions that might materially and adversely affect the value of our
proprietary rights or reputation.
If We Are Not Able To Preserve Our Domain Names We May Not Be Able To
Compete Effectively On The Internet. We currently hold the Internet domain names
"tickets.com," "ProTix.com," "bass-tix.com," "basstickets.com," "fantastix.com"
and others. We may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights. Any such inability could impair our
ability to compete effectively on the Internet. The acquisition and maintenance
of domain names generally is regulated by governmental agencies and their
designees. The regulation of domain names in the United States and in foreign
countries is subject to change. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, there can be no assurance
that we will be able to acquire or maintain relevant domain names in all
countries in which we conduct or intend to
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conduct business. In addition, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear.
Online Security Breaches Could Result In A Loss Of Consumer Confidence
In E-Commerce, Which Could Impair Our Ability To Implement Our Business Model.
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in our services. Any
publicized security problems affecting us or other e-commerce companies could
inhibit the growth of e-commerce and, accordingly, the growth of our Internet
sales revenue as contemplated in our business model. We rely on licensed
encryption and authentication technology to effect secure transmission of
confidential information, including credit card numbers. We cannot be certain
that our security measures will prevent security breaches, including break-ins,
viruses or disruptions by consumers or others. A party that is able to
circumvent our security systems could steal proprietary information, damage our
database or communications lines or otherwise cause interruptions in our
operations. Security breaches also could damage our reputation and expose us to
a risk of loss or litigation and possible liability. Our insurance policies
carry coverage limits that may not be adequate to reimburse us for losses caused
by security breaches.
System Failures Could Damage Our Reputation And Result In The Loss Of
Customers And Clients. Our business is almost entirely dependent on our
telephone sales centers, computer systems and telecommunications systems. Heavy
stress placed on our systems during peak periods could cause our systems to
operate at unacceptably low speeds or fail altogether. Any significant
degradation or failure of our systems or any other systems in the ticketing
process, including telephone or telecommunications services, even for a short
time, could cause consumers to suffer delays in ticket purchases. The resulting
inconvenience to consumers could damage our reputation with the public, cause
consumers to purchase tickets from other sources and deter repeat customers.
Delays in services could also cause substantial losses for clients, which could
result in claims against us. These delays could also result in the termination
or non-renewal of our existing service agreements.
In the future, increased volume due to growth, if any, may require us to
expend substantial funds to expand and further upgrade our technology,
transaction processing systems and network infrastructure. Any inability to add
additional software and hardware on a timely basis to accommodate increased
traffic on our web site may cause unanticipated system disruptions and result in
slower response times. In addition, substantially all of our server equipment is
currently located in California in areas that are susceptible to earthquakes. We
do not presently have fully redundant systems, a formal disaster recovery plan
or alternative providers of hosting services, nor do we carry sufficient
business interruption insurance to compensate us for all of the possible losses
that we may incur. In addition, our clients' in-house systems also may be
subject to failures and degradations that could interrupt ticket sales both
through clients' systems and on our web site. Unanticipated problems may cause a
significant system outage or data loss, and result in the loss of clients.
The Process Of Integrating Technologies From Our Current and Future
Acquisitions Could Disrupt Our Ticketing Systems And Damage Our Relationships
With Our Clients. The process of integrating the various technologies of
acquired companies into one interactive system has caused, and may in the future
cause, system downtime and other system disruptions. We expect to integrate and
consolidate several of our in-house systems over the next several years. We may
experience system failures in the future as a result of this integration, which
could impair our relationships with our clients. For example, in connection with
the conversion of the information and telecommunications systems of Bay Area
Seating Service to our system, our Concord, California telephone sales center
experienced a number of system failures during the first half of 1998. Each of
these system failures resulted in the temporary interruption of ticketing
functions for entertainment organizations serviced by that telephone sales
center. Any system failures could cause one or more of our clients to terminate
its contract or fail to renew its contract with us.
We May Not Be Able To Maintain Or Improve Our Competitive Position
Because Of The Intense Competition In The Ticketing Industry. Intense
competition in the ticketing industry presents significant challenges to
management, marketing and technical personnel. We believe competition will
become more challenging as the market for tickets expands and technology
advances. Our primary competitors on a national level are Ticketmaster
Corporation and Ticketmaster Online-CitySearch, Inc., which have operations in
multiple locations throughout the United States. Ticketmaster Online-CitySearch
has an exclusive license to do all of the online ticketing for Ticketmaster
Corporation. Ticketmaster Corporation has a widely recognized brand name in the
live event ticketing business, a longer operating history in the ticketing
industry generally and in Internet ticketing specifically, more extensive
ticketing inventory and greater financial and other resources than we do. We
commenced our operations in May 1996 and did not begin to sell tickets on the
Internet until October 1997. Because of our limited operating history, we have
not yet gained the same level of brand recognition or accumulated as broad a
ticketing inventory as Ticketmaster Corporation and Ticketmaster
Online-CitySearch. In addition, because we have developed through the
acquisition of smaller, regional outsourcing services providers and in-house
systems developers, we are still in the early stages of developing a strong
national presence.
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Our competitors also include:
- a number of smaller, regional outsourcing services providers;
- international and national in-house systems providers;
- entertainment organizations that handle their own ticket sales and
distribution through online and other distribution channels;
- international, national and local outsourcing services providers,
which may or may not currently offer online transactional
capabilities.
Many of these competitors have greater brand recognition, longer
operating histories and a greater number of well-established client
relationships than we do in the geographic regions in which they operate.
Because of our relatively short operating history and presence in a limited
number of geographic regions prior to our move into e-commerce, we have not yet
established a significant competitive position in a number of geographic areas.
In Order To Maintain Our Competitive Position In The Ticketing Industry,
We Must Be Able To Attract New Clients And Ticket Inventory, And We Cannot Be
Certain That We Will Be Able To Do So. If we cannot attract new clients and
ticket inventory, or if we lose clients to other outsourcing services providers
or otherwise, we may not be able to maintain our competitive position in the
ticketing industry. In recent years, the live entertainment industry has been
moving toward consolidation. As a result, contracts for outsourcing services are
often negotiated on a multi-venue basis, and large ticket inventories are
concentrated in the hands of a few entertainment conglomerates. Because
outsourcing services contracts are often multi-year contracts and there are
fewer potential new clients, competition for their business is especially
intense. Historically, we have grown our business primarily through
acquisitions. Industry consolidation has reduced the number of viable
acquisition candidates and, accordingly, limited future acquisition
opportunities. In order to increase our client base and ticket inventory, we may
need to attract clients who currently have relationships with other outsourcing
services providers. At the same time, other outsourcing services providers will
likely attempt to attract our current clients to use their outsourcing services.
In addition, our clients may terminate their contracts for a variety of reasons,
or may not renew their contracts at the end of their terms.
Our Reliance On Third Party Software And Hardware Makes Us Vulnerable To
Changes In Our Suppliers' Products And Services, Which Could Adversely Affect
Our Ability To Service Our Clients In A Timely Manner. Our automated ticketing
solutions incorporate software products and use computer hardware and equipment
developed by other entities. Our reliance on third party software and hardware
makes us vulnerable to changes in our suppliers' products and services and any
such changes may impair our ability to provide adequate outsourcing services and
in-house systems to our clients in a timely manner. For example, we cannot be
certain that all of our suppliers will remain in business or will continue to
support the product lines that we use. Nor can we be certain that their product
lines will remain viable or will otherwise continue to be available to us. Our
current suppliers could significantly alter their pricing in a manner adverse to
us. If any of these entities ceases to do business, abandons or fails to enhance
a particular product line, or significantly raises its prices, we may need to
seek other suppliers. We cannot be certain that other suppliers will be able to
provide us with necessary products at favorable prices, or at all.
We Depend On Retail Stores To Reach Consumers, And If We Cannot Maintain
These Relationships And Establish New Relationships, Our Ticket Sales Would Be
Adversely Affected. A significant portion of our ticket sales are generated
through arrangements with retail stores. Our contracts with these retail stores
are generally for a one-year term, and subject to periodic negotiations
regarding sales commissions, customer service and other matters. These stores
cater to consumers who are likely to purchase tickets for sporting and
entertainment events, and are attractive to other ticketing services. If we
cannot maintain good retail relationships and continue to establish new
relationships, our ability to reach consumers and generate sufficient ticket
sales could be materially and adversely affected.
We May Become Subject To More Restrictive E-Commerce Regulation That
Could Adversely Affect Our Ability To Increase Internet Sales. We are subject to
regulations applicable to businesses generally and laws or regulations
applicable to e-commerce directly. Currently we believe that there are few laws
and regulations directly applicable to the Internet and online ticketing
services. It is likely, however, that a number of laws and regulations may be
adopted with respect to the Internet or commercial online services that could
affect our online ticketing services. Any new legislation or regulation, or the
application of existing laws and regulations to the Internet and commercial
online services could restrict our ability to grow our business according to our
plan.
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Laws regulating e-commerce might cover matters such as, among other
things, user privacy and the use of our consumer database for email marketing
purposes, limitations on ticket service fees, the content of our web site,
taxation by states where we sell tickets, copyright protection for us and
competing ticketing services, distribution, direct linking, antitrust and
consumer protection laws.
In addition, the applicability of a variety of existing laws in various
jurisdictions to the Internet and commercial online services may take years to
resolve. These issues may include property ownership, sales and other taxes,
libel and personal privacy, among others. For example, tax authorities in a
number of states currently are reviewing the appropriate tax treatment of
companies engaged in e-commerce. New state tax regulations may subject us to
additional state sales and income taxes.
We May Be Affected By Changes In Laws And Standards Relating To Data
Collection And Use Practices And The Privacy Of Internet Users. Recent growing
public concern regarding privacy and the collection, distribution and use of
information about Internet users has led to increased federal and state scrutiny
and legislative and regulatory activity concerning data collection and use
practices. Various federal and state governments and agencies have recently
proposed limitations on the collection and use of information regarding Internet
users. In October 1998, the European Union adopted a directive that limits the
collection and use of information regarding Internet users in Europe. In
addition to government activity, a number of industry and privacy advocacy
groups are considering various new, additional or different self-regulatory
standards. This focus, and any legislation, regulations or standards
promulgated, may impact us. Although our compliance with applicable federal and
state laws, regulations and industry guidelines has not had a material adverse
effect on us, governments, trade associations and industry self-regulatory
groups may enact more burdensome laws, regulations and guidelines, including
consumer privacy laws, affecting us and our customers. Since many of the
proposed laws or regulations are just being developed, and a consensus on
privacy and data usage has not been reached, we cannot yet determine the impact
these regulations may have on our business. However, these regulations and
guidelines could adversely affect our business.
Factors which may inhibit us from meeting our expectations related to
decreased costs of services are outlined below.
We May Become Subject To State Regulation Of Ticket Sales, Which Could
Impose Restrictions On The Manner And Pricing Of Our Ticket Sales. Many states
and municipalities have adopted statutes regulating ticketing transactions
within their jurisdictions. We cannot be certain whether any of these laws and
regulations may be determined to be applicable to our business or whether new
laws and regulations potentially adverse to our business will be adopted. If we
become subject to additional laws and regulations, the manner and pricing of our
ticket sales may be restricted, which could have an adverse effect on our
revenues. Some states and municipalities require that ticket sellers obtain a
resellers license. One or more states or municipalities could take the position
that a telephonic or electronic ticket sale to one of their residents is a
sufficient basis for application of that jurisdiction's reseller statute.
Because we believe these statutes to be inapplicable to our activities, we may
not be in compliance with these statutes. Governmental agencies or authorities
could also argue that other state or local licensing or "ticket scalping"
statutes apply to our activities. These statutes, among other things, limit the
amount of service charges and other fees that may be charged in connection with
ticket sales. Other state and local regulations establish maximum service fees
on tickets for certain sporting and other events.
Risks that may impede our ability to stabilize and decrease our
operating costs are outlined below.
If We Cannot Effectively Integrate Our Numerous Recent Acquisitions, We
May Experience Increased Costs, Operating Inefficiencies, System Disruptions And
The Loss Of Clients. The integration of acquired companies into a cohesive
business requires the combination of different business models, financial,
accounting and other internal systems, varied technologies and personnel who
have dissimilar expertise and backgrounds. It also requires the management of
companies or operating units that are geographically dispersed throughout the
United States and internationally. We cannot be certain that we will be able to
successfully integrate the operations, personnel or systems of these acquired
companies in a timely fashion, if at all. If we fail to integrate operations and
personnel effectively, we will experience duplication of costs and operating
inefficiencies. If we are unable to integrate technologies successfully, we may
experience system disruptions or failures that could result in the
dissatisfaction or loss of clients. We also cannot be certain that we will
achieve value from our acquisitions commensurate with the consideration paid. If
we are unable to generate sufficient revenue from any acquired companies, we
will experience an unanticipated shortfall in revenue and may fail to meet the
expectations of investors. If this occurs, the market price of our common stock
would likely decline.
The process of integrating our recent acquisitions has placed and will
continue to place a significant burden on our management team. Integration is
complex, and presents numerous risks and uncertainties in addition to those set
forth above, including the following:
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If We Cannot Attract And Retain Qualified Personnel In A Cost Effective
And Timely Manner, We May Not Be Able To Execute Our Growth Strategy. The
significant growth of our business over the past two years due to our
acquisition of eight companies has placed substantial demands on our management
and other personnel. Our future growth, if any, will depend in part on our
ability to attract, motivate and retain skilled technical, sales, management and
marketing personnel. Competition for these personnel is intense, and we expect
it to increase as e-commerce expands. We cannot be certain that we will be able
to retain our existing personnel or attract additional qualified personnel in
the future. In addition, a significant portion of our workforce is comprised of
telephone sales representatives. We compete with telemarketing firms, among
others, for telephone sales personnel and sometimes must pay premium hourly
wages to attract and retain them. In addition, their high turnover rate
increases our recruiting and training costs. We cannot be certain that we will
be able to continue to hire and retain qualified personnel to support our
planned growth in a cost effective or timely manner. If we cannot, our ability
to execute our growth strategy could be impaired.
The Loss Of Personnel Could Require Us To Provide Costly Severance
Packages, Which Could Adversely Affect Our Operating Results. Although we have
employment agreements with several of our executive officers, including our
Chief Executive Officer and our President, our executive officers and key
employees may terminate their employment at any time for any reason. In some
circumstances, termination of their employment could result in substantial
payments by us for severance benefits under these employment agreements. In June
2000, in conjunction with the refocus of our strategy, we recorded restructuring
charges which included $1.2 million of involuntary termination benefits.
Acquisitions Will Create Charges To Earnings That Could Adversely Affect
Our Operating Results And, Accordingly, The Market Price Of Our Common Stock. As
a result of past acquisitions, we have recorded a significant amount of goodwill
that will adversely affect our operating results for the foreseeable future. As
of June 30, 2000, we had goodwill and other intangible assets of $52.8 million,
which must be amortized in the future and will result in a reduction of our
earnings. If the amount of recorded goodwill or other intangible assets is
increased or we have future losses and are unable to demonstrate our ability to
recover the amount of goodwill, the amount of amortization could be increased or
the period of amortization could be shortened. This would increase annual
amortization charges or result in a write-off of goodwill in a one-time non-cash
charge, which could be significant based on our acquisitions to date.
We May Face Liability For Online Content That May Not Be Covered By Our
Insurance. Because we are disseminating information, we may face liability for
the nature and content of the materials on our web site or on sites to which we
have links. These liability claims could include, among others, claims for
defamation, negligence, indecency, fraud from secondary sales, and copyright,
patent and trademark infringement. These claims have been brought, and sometimes
successfully pressed, against online services. Although we intend to maintain
general liability insurance coverage, it may not cover claims of these types. It
also may not be adequate to indemnify us for any liability that may be imposed.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could have a material adverse
effect on our reputation and our ability to effectively operate our web site.
We Expect To Continue To Incur Significant Net Operating Losses. We
incurred net operating losses of approximately $55.4 million for the six months
ended June 30, 2000. At June 30, 2000, we had an accumulated deficit of
approximately $192.5 million. We expect to continue to incur significant losses
on a quarterly and annual basis at least for the next 12 months, and we cannot
be certain that we will achieve or sustain profitability. To the extent that our
expenses grow faster than our revenues, our operating results will be adversely
affected and anticipated net losses in a given quarter may be greater than
expected. If this occurs, the market price of our common stock is likely to
decline. Because we expect to continue to experience negative cash flow, we may
need additional financing in the future, which may not be available or may
require us to issue additional equity securities that could lead to substantial
dilution to our stockholders. We have experienced negative cash flow from
operations since our inception. We expect to continue to experience significant
negative cash flow from consolidated operations in the future. We may have to
raise additional financing if we experience unanticipated revenue shortfalls or
can not borrow under our current credit facilities. We cannot be certain that
additional financing will be available on acceptable terms if and when we need
it. If financing is not available when required or is not available on
acceptable terms, we may be unable to develop new services or enhance our
present services, take advantage of business opportunities or respond to
competitive pressures or meet our obligations as they become due. If additional
funds are raised through the issuance of equity securities, our stockholders may
experience significant dilution. If we cannot obtain additional financing on
satisfactory terms when we need it, our results of operations could be
materially and adversely affected.
Further factors which put our liquidity and capital resources at risk
are as follows:
Our Stock Price Is Likely To Be Very Volatile, Which May Make Us A
Target Of Securities Class Action Litigation. The market price of our common
stock has been and is likely to continue to be highly volatile and could be
subject to wide fluctuations. In the
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past, securities class action litigation often has been brought against
companies following periods of volatility in the market price of their
securities. In the future we may be the target of similar litigation. Securities
litigation could result in substantial costs and divert our management's
attention and other resources.
Other factors, some of which are beyond our control, that could cause
the market price of our common stock to fluctuate include:
- operating results that vary from the expectations of securities
analysts and investors;
- changes in securities analysts' and investors' expectations as to our
future financial performance;
- changes in market valuations of other Internet or online services
companies;
- announcements by us or our competitors of technological innovations,
new services, significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- loss of a major venue or client;
- announcements by third parties of significant claims or proceedings
against us or developments in those proceedings; and
- future sales of our common stock.
We Face Risks From International Operations That Could Adversely Affect
Our Cash Flow And Licensing Revenues. We have only recently commenced operations
in a number of international markets and a key component of our strategy is to
expand our business internationally. Our plans to expand internationally are
subject to inherent risks, including:
- Adverse Fluctuations In Currency Exchange Rates Could Expose Us To
Losses Because Some Of Our Contracts And Liabilities Are Payable In
Foreign Currencies. Payments due to our acquisition of dataCulture
Ltd. are payable in pounds sterling over 12 equal quarterly
installments. In addition, we are also exposed to foreign currency
exchange rate risks inherent in our assets and liabilities denominated
in currencies other than the United States dollar. If the United
States dollar becomes weaker against foreign currencies these payments
will be greater in dollar terms and our cash flow would be adversely
affected.
- If We Cannot Adequately Enforce Our Intellectual Property Rights
Internationally, We May Lose Licensing Revenues. Many of our foreign
business relationships involve the licensing of our software products.
If we are unable to enforce our intellectual property rights because
they are not recognized under foreign laws, our customers could
duplicate or modify our software products without our consent and
deprive us of licensing revenues.
YEAR 2000 READINESS
As of July 31, 2000 we have not experienced any significant disruptions
as a result of the rollover from 1999 to 2000. However, the success to date of
our Year 2000 efforts cannot guarantee that a Year 2000 problem affecting third
parties, upon which we rely, will not become apparent in the future that could
harm our operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are not exposed to material market risks related to fluctuations in
interest rates on our fixed and variable rate debt. Currently, we do not utilize
interest rate swaps, forward or option contracts on foreign currencies or
commodities, or other types of derivative financial instruments.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On July 23, 1999, Ticketmaster Corporation and Ticketmaster
Online-CitySearch filed a lawsuit against us in the United States District Court
for the Central District of California seeking unspecified damages and a court
order to prohibit us from, among other things, linking Internet consumers to
internal pages within Ticketmaster's web site. In addition, the suit alleges
that we have engaged in other wrongful acts, such as breach of contract,
trespass, providing false and misleading information on our web site regarding
the
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availability of tickets and related information on the Ticketmaster web site and
taking copyrighted information from the Ticketmaster web site for use on the
Tickets.com web site. The suit seeks an injunction to prohibit us from further
engaging in any alleged unlawful activity, treble damages, attorneys' fees and
other unspecified damages. Ticketmaster Corporation and Ticketmaster
Online-CitySearch have also filed a Motion for Preliminary Injunction seeking an
order precluding us from, among other things, providing links to Ticketmaster
pages. We filed an opposition and the Court held a hearing on July 31, 2000. The
Court has not issued its final order on this motion.
In May 2000 we filed a counterclaim against Ticketmaster Corporation and
Ticketmaster Online-CitySearch alleging that they have engaged in certain acts
and practices that are an unlawful restraint of trade, unlawful monopolization
and attempted monopolization in violation of federal and state antitrust laws
and violation of state unfair competition law and interference with economic
advantage. Our claim seeks treble damages, punitive damages and declaratory and
injunctive relief. Ticketmaster and Ticketmaster Online have filed a motion to
dismiss our counterclaim and a hearing is scheduled for September 25, 2000.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
As of June 30, 2000 Tickets.com had remaining proceeds of $23.7 million
from its initial public offering of shares of common stock registered under the
Securities Act of 1933, as amended, pursuant to its Registration Statement on
Form S-1 (Reg. No. 333-79709), declared effective by the SEC on November 3,
1999. Subsequent to February 29, 2000, $1.1 million of proceeds were used to
acquire the assets of the Alaska-based CarrsTix ticketing company and the
remaining proceeds were used for working capital and general corporate purposes.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 1, 2000, we held our Annual Meeting of Stockholders. At the
meeting, the stockholders elected Nicholas E. Sinacori as a director to serve
for a three-year term ending in 2003 or until his successor is duly elected and
qualified, with 32,549,494 affirmative votes, 4,659,921 votes withheld, and no
abstentions or broker non-votes.
ITEM 6: EXHIBITS
Exhibit 27.1 -- Financial Data Schedule (filed electronically)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TICKETS.COM, INC.
(Registrant)
Date: August 14, 2000 By: /s/ W. Thomas Gimple
---------------------------------
W. Thomas Gimple
Co-Chairman of the Board and
Chief Executive Officer
Date: August 14, 2000 By: /s/ Tim Kelly
---------------------------------
Tim Kelly
President
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule (filed electronically)