FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 | ||
| OR | ||
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER
0-22582
TBA ENTERTAINMENT CORPORATION
| DELAWARE | 62-1535897 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
|
| 16501 VENTURA BOULEVARD, SUITE 601 ENCINO, CALIFORNIA |
91436 | |
| (Address of principal executive offices) | (Zip Code) |
(818) 728-2600
Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ]
As of August 2, 2002, the Registrant had outstanding 7,365,800 shares of Common Stock, par value $.001 per share.
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
| PART I — Financial Information | ||||||||
| Item 1. |
Consolidated Financial Statements | |||||||
| Consolidated Balance Sheets | 3 | |||||||
| Consolidated Statements of Operations | 4 | |||||||
| Consolidated Statements of Cash Flows | 5 | |||||||
| Notes to Consolidated Financial Statements | 6 | |||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||||||
| PART II — Other Information | ||||||||
| Item 6. |
Exhibits and Reports on Form 8-K | 19 | ||||||
| Signatures | 20 | |||||||
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| JUNE 30, | DECEMBER 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (UNAUDITED) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 592,300 | $ | 2,151,200 | ||||||||
Accounts receivable, net of allowance for doubtful
accounts of $158,100 and $398,400, respectively |
2,746,200 | 1,574,300 | ||||||||||
Deferred charges and other current assets |
3,003,400 | 2,709,500 | ||||||||||
Total current assets |
6,341,900 | 6,435,000 | ||||||||||
Property and equipment, net |
1,631,900 | 2,006,100 | ||||||||||
Other assets, net: |
||||||||||||
Goodwill |
25,668,700 | 25,668,700 | ||||||||||
Other |
359,300 | 249,900 | ||||||||||
Net long-term assets of discontinued operations |
— | 48,000 | ||||||||||
Total assets |
$ | 34,001,800 | $ | 34,407,700 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable and accrued liabilities |
$ | 5,424,900 | $ | 3,905,400 | ||||||||
Deferred revenue |
2,515,600 | 3,335,600 | ||||||||||
Notes payable and current portion of long-term debt |
4,432,500 | 1,830,000 | ||||||||||
Net short-term liabilities from discontinued operations |
213,200 | 276,200 | ||||||||||
Total current liabilities |
12,586,200 | 9,347,200 | ||||||||||
Long-term debt, net of current portion |
4,777,500 | 7,340,600 | ||||||||||
Total liabilities |
17,363,700 | 16,687,800 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.001 par value; authorized 1,000,000 shares,
2,000 shares of Series A convertible
preferred
stock issued and outstanding, liquidation
preference $100 |
100 | 100 | ||||||||||
Common stock, $.001 par value; authorized 20,000,000
shares; 7,365,800 and 7,362,400 shares outstanding,
respectively; 8,857,200 issued |
8,900 | 8,900 | ||||||||||
Additional paid-in capital |
30,583,400 | 30,589,300 | ||||||||||
Accumulated deficit |
(7,887,500 | ) | (6,797,900 | ) | ||||||||
Less
treasury stock, at cost, 1,491,400 and 1,494,800
shares, respectively |
(6,066,800 | ) | (6,080,500 | ) | ||||||||
Total stockholders’ equity |
16,638,100 | 17,719,900 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 34,001,800 | $ | 34,407,700 | ||||||||
See notes to consolidated financial statements.
3
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues |
$ | 12,844,100 | $ | 22,330,200 | $ | 20,814,900 | $ | 36,230,600 | ||||||||||
Costs related to revenue |
8,070,400 | 14,698,700 | 13,242,700 | 24,156,100 | ||||||||||||||
Gross profit margin |
4,773,700 | 7,631,500 | 7,572,200 | 12,074,500 | ||||||||||||||
Selling, general and administrative expenses |
4,058,800 | 5,616,800 | 8,329,900 | 11,032,700 | ||||||||||||||
Depreciation and amortization expense |
174,300 | 729,900 | 363,200 | 1,406,100 | ||||||||||||||
Other income |
— | (127,200 | ) | — | (294,900 | ) | ||||||||||||
Interest expense, net |
209,400 | 124,800 | 360,700 | 272,000 | ||||||||||||||
Income (loss) from continuing operations before income taxes |
331,200 | 1,287,200 | (1,481,600 | ) | (341,400 | ) | ||||||||||||
Income tax provision (benefit) |
88,000 | 643,000 | (392,000 | ) | 115,000 | |||||||||||||
Income (loss) from continuing operations |
243,200 | 644,200 | (1,089,600 | ) | (456,400 | ) | ||||||||||||
Discontinued operations: |
||||||||||||||||||
Loss from discontinued operations, net of income tax benefit
of $317,000
and $410,000 for the three and six months ended June 30, 2001,
respectively |
— | (475,700 | ) | — | (615,900 | ) | ||||||||||||
Net income (loss) |
$ | 243,200 | $ | 168,500 | $ | (1,089,600 | ) | $ | (1,072,300 | ) | ||||||||
Earnings per common share — basic: |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.03 | $ | 0.09 | $ | (0.15 | ) | $ | (0.06 | ) | ||||||||
Loss from discontinued operations |
— | (0.07 | ) | — | (0.09 | ) | ||||||||||||
Net income (loss) per common share — basic |
$ | 0.03 | $ | 0.02 | $ | (0.15 | ) | $ | (0.15 | ) | ||||||||
Earnings per common share — diluted: |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.03 | $ | 0.09 | $ | (0.15 | ) | $ | (0.06 | ) | ||||||||
Loss from discontinued operations |
— | (0.07 | ) | — | (0.09 | ) | ||||||||||||
Net income (loss) per common share — diluted |
$ | 0.03 | $ | 0.02 | $ | (0.15 | ) | $ | (0.15 | ) | ||||||||
See notes to consolidated financial statements.
4
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| SIX MONTHS ENDED | ||||||||||||
| JUNE 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (1,089,600 | ) | $ | (1,072,300 | ) | ||||||
Adjustments to reconcile net loss to net cash (used in) provided by
continuing operations: |
||||||||||||
Loss from discontinued operations |
— | 615,900 | ||||||||||
Loss on disposal of fixed assets |
20,400 | — | ||||||||||
Depreciation and amortization |
363,200 | 1,406,100 | ||||||||||
Minority interest in loss of consolidated subsidiary |
(39,300 | ) | — | |||||||||
Changes in assets and liabilities: |
||||||||||||
Increase in accounts receivable |
(1,171,900 | ) | (2,971,200 | ) | ||||||||
Increase in deferred charges and other current assets |
(134,100 | ) | (1,595,700 | ) | ||||||||
Decrease (increase) in other assets |
221,800 | (70,800 | ) | |||||||||
Increase in accounts payable and accrued liabilities |
1,660,900 | 5,235,500 | ||||||||||
(Decrease) increase in deferred revenue |
(820,000 | ) | 1,029,600 | |||||||||
Net cash (used in) provided by continuing operations |
(988,600 | ) | 2,577,100 | |||||||||
Cash flows from investing activities: |
||||||||||||
Acquisition
of and investment in businesses, net of cash acquired |
(585,300 | ) | (1,514,800 | ) | ||||||||
Expenditures for property and equipment |
(9,300 | ) | (255,100 | ) | ||||||||
Net cash used in investing activities |
(594,600 | ) | (1,769,900 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Net borrowings on credit lines |
771,400 | 500,000 | ||||||||||
Proceeds from borrowings |
1,000,000 | — | ||||||||||
Repurchase of common stock |
— | (620,500 | ) | |||||||||
Repayments
of borrowings |
(1,732,100 | ) | (1,251,200 | ) | ||||||||
Net cash provided by (used in) financing activities |
39,300 | (1,371,700 | ) | |||||||||
Net cash used in discontinued operations |
(15,000 | ) | — | |||||||||
Net decrease in cash and cash equivalents |
(1,558,900 | ) | (564,500 | ) | ||||||||
Cash and cash equivalents — beginning of period |
2,151,200 | 3,751,100 | ||||||||||
Cash and cash equivalents — end of period |
$ | 592,300 | $ | 3,186,600 | ||||||||
Cash paid for interest |
$ | 189,100 | $ | 242,800 | ||||||||
Cash paid for income taxes |
$ | 42,000 | $ | 217,000 | ||||||||
See notes to consolidated financial statements.
5
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | THE COMPANY AND BASIS OF PRESENTATION: |
| TBA Entertainment Corporation and subsidiaries (collectively, the “Company”) is a strategic communications and entertainment company that creates, develops and produces comprehensive programs to reach and engage its clients’ target audiences. The Company produces a broad range of innovative business communications programs, develops and produces integrated entertainment marketing and special events programs, develops content and entertainment programs for a nationwide network of fairs and festivals and develops and implements career strategies and corporate partnerships for its artist clients. The Company was incorporated in Tennessee in June 1993 and reincorporated in Delaware in September 1997. | |
| The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete year-end financial statements. The accompanying consolidated financial statements should be read in conjunction with the more detailed financial statements and related footnotes included in the Company’s Form 10-K for the year ended December 31, 2001. | |
| In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of the financial position of the Company as of June 30, 2002, and the results of its operations and cash flows for the three and six-month periods ended June 30, 2002 and 2001, respectively, have been included. Operating results for three and six months ended June 30, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. | |
| Reclassification | |
| Certain prior period amounts have been reclassified to conform to the current period presentation. | |
| Recently Issued Accounting Standards | |
| In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections”. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on the Company’s consolidated financial statements. | |
| In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. |
6
| Commitments | |
| Future minimum annual commitments under bank and other debt agreements and non-cancelable operating leases as of June 30, 2002 are as follows: |
| 2002 | 2003 | 2004 | 2005 | 2006 | After | Total | |||||||||||||||||||||||
| Six Months | |||||||||||||||||||||||||||||
Bank and other debt |
$ | 1,913,000 | $ | 3,342,800 | $ | 2,832,600 | $ | 837,200 | $ | 221,100 | $ | 63,300 | $ | 9,210,000 | |||||||||||||||
Operating leases |
553,000 | 1,045,700 | 880,400 | 494,800 | 244,900 | — | 3,218,800 | ||||||||||||||||||||||
Total |
$ | 2,466,000 | $ | 4,388,500 | $ | 3,713,000 | $ | 1,332,000 | $ | 466,000 | $ | 63,300 | $ | 12,428,800 | |||||||||||||||
| Capital expenditures will be focused on equipment replacements and are not expected to be significant. | |
| Critical Accounting Policies | |
| In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” the Company identified the most critical accounting principles upon which its financial status depends. The Company determined the critical accounting principles to be related to revenue recognition and impairment of intangibles and other long-lived assets. The Company states these accounting policies in the Notes to its Consolidated Financial Statements and in relevant sections in this management’s discussion and analysis, including the Recent Accounting Pronouncements discussed below. | |
| 2. | GOODWILL AND OTHER INTANGIBLE ASSETS – ADOPTION OF SFAS 142 |
| In July 2001, the FASB issued SFAS No. 142 “Goodwill and Other Intangible Assets,” which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. The Company adopted SFAS No. 142 beginning with the first quarter of 2002. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but, instead, tested at least annually for impairment while intangible assets that have finite useful lives continue to be amortized over their respective useful lives. Accordingly, the Company ceased amortization of all goodwill, which is its only intangible asset with an indefinite useful life, on January 1, 2002. The Company has no other identified intangible assets. | |
| SFAS No. 142 requires that goodwill and other intangibles be tested for impairment using a two-step process. The first step is to determine the fair value of the reporting unit and compare this value to its carrying value. If the fair value exceeds the carrying value, no further work is required and no impairment loss would be recognized. If the carrying value exceeds the fair value, a second step is required to measure the amount of the impairment. The second step is an allocation of the fair value of the reporting unit to all of the reporting unit’s assets and liabilities under a hypothetical purchase price allocation. Based on the first step evaluation performed to adopt SFAS No. 142, using a discounted cash flow methodology, the Company did not identify any goodwill impairment, except for goodwill associated with its fairs and festivals group. The Company is required to complete its step two analysis by December 31, 2002. The resulting charge will be reported as a cumulative effect of accounting change when recognized. | |
| The following table presents the carrying amount of goodwill by reporting unit as of June 30, 2002 and December 31, 2001 (in thousands): |
Corporate Client Group |
$ | 10,768 | |||
Entertainment Marketing Client Group |
2,975 | ||||
Artist Client Group |
5,246 | ||||
Fairs and Festivals Client Group |
6,680 | ||||