TBA ENTERTAINMENT CORP - 10-Q Quarterly Report

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 MARCH 31, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER
0-22582

TBA ENTERTAINMENT CORPORATION

(Exact Name of Registrant as specified in its Charter)


DELAWARE		62-1535897
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)

16501 VENTURA BOULEVARD, SUITE 601
ENCINO, CALIFORNIA		91436
(Address of principal executive offices)		(Zip Code)

(818) 728-2600
(Registrant’s telephone number, including area code)

Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of May 3, 2003, the Registrant had outstanding 7,370,800 shares of Common Stock, par value $.001 per share.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2

TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


	PART I - Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
	PART II - Other Information
Item 1.	Legal Proceedings	*
Item 2.	Changes in Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Submission of Matters to a Vote of Security Holders	*
Item 5.	Other Information	*
Item 6.	Exhibits and Reports on Form 8-K	16
Signatures		17

* No reportable information under this item.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			MARCH 31,			DECEMBER 31,
			2003			2002

			(UNAUDITED)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,339,700		$	1,527,800
	Accounts receivable, net of allowance for doubtful accounts of $378,900 for both periods			2,116,600			1,993,800
	Asset held for sale			—			548,700
	Deferred charges and other current assets			1,722,900			1,105,800

		Total current assets		5,179,200			5,176,100
Property and equipment, net				561,800			653,600
Other assets, net:
	Goodwill			21,847,000			21,706,100
	Other			280,500			272,000

		Total assets	$	27,868,500		$	27,807,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		$	4,264,800		$	3,289,600
	Deferred revenue			4,128,900			3,560,200
	Notes payable and current portion of long-term debt			1,253,700			1,617,200
	Net short-term liabilities from discontinued operations			211,800			211,800

		Total current liabilities		9,859,200			8,678,800
Long-term debt, net of current portion				3,356,900			3,562,300

		Total liabilities		13,216,100			12,241,100

Stockholders’ equity:
	Preferred stock, $.001 par value, authorized 1,000,000 shares, 2,000 shares of Series A convertible preferred stock outstanding, liquidation preference $100			100			100
	Common stock, $.001 par value, authorized 20,000,000 shares, 8,857,200 issued, 7,370,800 and 7,368,100 shares outstanding, respectively			8,900			8,900
	Additional paid in capital			30,568,000			30,577,200
	Accumulated deficit			(9,878,000	)		(8,961,900	)
	Less treasury stock, at cost, 1,486,400 and 1,489,200 shares, respectively			(6,046,600	)		(6,057,600	)

		Total stockholders’ equity		14,652,400			15,566,700

		Total liabilities and stockholders’ equity	$	27,868,500		$	27,807,800

See notes to consolidated financial statements.

TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


			THREE MONTHS ENDED
			MARCH 31,

			2003			2002

Revenues			$	8,029,700		$	7,970,900
Costs related to revenue				5,405,000			5,172,300

		Gross profit margin		2,624,700			2,798,600
Selling, general and administrative expenses				3,328,700			4,320,800
Depreciation and amortization expense				97,400			188,900
Other income				—			(49,700	)
Interest expense, net				114,700			151,300

Loss before income taxes and cumulative effect of change in accounting principle				(916,100	)		(1,812,700	)
Income tax benefit				—			480,000

Loss before cumulative effect of change in accounting principle				(916,100	)		(1,332,700	)
Cumulative effect of change in accounting principle				—			(1,988,600	)

Net loss			$	(916,100	)	$	(3,321,300	)

Earnings per common share – basic:
	Loss before cumulative effect of change in accounting principle		$	(0.12	)	$	(0.18	)
	Cumulative effect of change in accounting principle			—			(0.27	)

Net loss per common share – basic			$	(0.12	)	$	(0.45	)

Earnings per common share – diluted:
	Loss before cumulative effect of change in accounting principle		$	(0.12	)	$	(0.18	)
	Cumulative effect of change in accounting principle			—			(0.27	)

Net loss per common share – diluted			$	(0.12	)	$	(0.45	)

See notes to consolidated financial statements.

TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


				THREE MONTHS ENDED
				MARCH 31,

				2003			2002

Cash flows from operating activities:
	Net loss			$	(916,100	)	$	(3,321,300	)

	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Cumulative effect of change in accounting principle			—			1,988,600
		Depreciation and amortization			97,400			188,900
		Minority interest in loss of consolidated subsidiary			(17,000	)		(27,300	)
		Changes in assets and liabilities:
			Increase in accounts receivable		(122,800	)		(817,300	)
			Increase in deferred charges and other current assets		(579,900	)		(398,700	)
			Increase in other assets		(8,600	)		(52,600	)
			Increase in accounts payable and accrued liabilities		1,000,600			282,900
			Increase (decrease) in deferred revenue		568,700			(766,400	)

			Net cash provided by (used in) operating activities		22,300			(2,923,200	)

Cash flows from investing activities:
	Additional investment in businesses				(141,000	)		—
	Expenditures for property and equipment				(5,600	)		(2,300	)
	Sale of Dallas building and land				503,300			—

			Net cash provided by (used in) investing activities		356,700			(2,300	)

Cash flows from financing activities:
		Net (repayments) borrowings on credit lines			(92,500	)		1,271,400
		Repayments of long-term debt			(474,600	)		(175,400	)

			Net cash (used in) provided by financing activities		(567,100	)		1,096,000

Net cash used in discontinued operations					—			(15,000	)

Net decrease in cash and cash equivalents					(188,100	)		(1,844,500	)
Cash and cash equivalents – beginning of period					1,527,800			2,151,200

Cash and cash equivalents – end of period				$	1,339,700		$	306,700

Cash paid for interest				$	61,500		$	45,100

Cash paid for income taxes				$	10,600		$	19,000

See notes to consolidated financial statements.

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 diversified communications and entertainment company that produces a broad range of business communications, meeting productions and entertainment services for corporate meetings, develops and produces integrated music marketing programs, manages music industry artists and develops content and entertainment programs for its nationwide network of fairs and festivals. The Company was incorporated in Tennessee in June 1993 and reincorporated in Delaware in September 1997. The Company primarily operates in the United States of America.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America 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, 2002.

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 March 31, 2003, and the results of its operations and cash flows for the three-month periods ended March 31, 2003 and 2002, respectively, have been included. Operating results for the three months ended March 31, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003.

Recently Issued Accounting Standards

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 (“FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which disclosures are effective for financial statements issued after December 15, 2002. The Company adopted the disclosure requirements of FIN 45 as of December 31, 2002. The adoption of the measurement requirements of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

In December 2002, FASB issued Statement No.148 (SFAS No. 148). “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock – Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 did not have a material effect on the Company’s financial position or results of operations.

Certain prior year balances have been reclassified to conform to the current period presentation.

2. EARNINGS PER COMMON SHARE

The following table sets forth the unaudited computations of basic and diluted earnings per common share before cumulative effect of change in accounting principle:


		THREE MONTHS ENDED
		MARCH 31,

		2003			2002

Basic earnings per common share:
Loss before cumulative effect of change in accounting principle		$	(916,100	)	$	(1,332,700	)
Weighted average common stock outstanding			7,368,100			7,362,400

Net loss per common share – basic		$	(0.12	)	$	(0.18	)

Diluted earnings per common share:
Loss before cumulative effect of change in accounting principle		$	(916,100	)	$	(1,332,700	)

Weighted average common stock outstanding			7,368,100			7,362,400
Additional common stock resulting from dilutive securities:
	Preferred stock		—			—
	Shares issuable for stock options and warrants		—			—

Weighted average common stock and dilutive securities outstanding			7,368,100			7,362,400

Net loss per common share – diluted		$	(0.12	)	$	(0.18	)

Options and warrants (only for 2002 period) to purchase 904,100 shares of common stock for the three months ended March 31, 2003 and 1,414,600 shares of common stock for the comparable period in 2002 were not considered in calculating diluted earnings per share as their inclusion would have been anti-dilutive.

3. DEBT

In October 2001, the Company entered into a bank credit facility, which provided for maximum borrowings of up to $4,050,000, comprised of a $1,050,000 term loan and a revolving credit line of up to $3,000,000. The credit facility was initially secured by all accounts receivable (see below) and bears interest, payable monthly, at the Company’s choice of an interest rate based upon LIBOR or the bank’s prime rate, plus an incremental percentage margin, as defined in the loan agreement.

The Company was not in compliance with certain required financial ratios, specifically a debt/EBITDA ratio, a fixed charge ratio and a minimum net worth ratio, as of December 31, 2001. Pursuant to an April 2002 restructuring agreement with the bank, the Company was granted a temporary waiver of the financial covenant events of default provisions under the original loan agreement and the bank’s forbearance from exercising its available remedies, which extended through January 2, 2003. In addition, new financial covenants were established and the Company granted the bank additional security for the entire restructured bank credit facility in the form of a pledge of the shares of certain of the Company’s subsidiaries and a first lien deed of trust on the Company’s land and building located in Dallas, Texas, which was sold in February 2003 with the bank’s consent (see Note 5). The maturity date for both the term loan and revolving credit line was extended to April 30, 2003.

Although the Company has maintained its sales improvement efforts, the Company was in technical noncompliance with the revised financial covenants under the restructured bank credit facility as of December 31, 2002. In February 2003, the bank required the Company to use the proceeds from the sale of its Dallas facility (see Note 5), to repay the outstanding balance of the term loan ($393,700) and a portion of the revolving credit line ($92,500). After this repayment, $2,248,000 of unpaid principal remained outstanding under the revolving credit line. In April 2003, the Company and the bank negotiated a further restructuring of the bank credit facility (“2003 Restructuring”). Pursuant to the 2003 Restructuring, the Company was granted a new waiver of the financial covenant events of default and the bank’s continued forebearance from exercising its available remedies, which now extends through January 1, 2004. In addition, the Company was granted the right to re-borrow up to $750,000 under the revolving credit line through May 31, 2003, for the purpose of making scheduled principal and interest payments and additional earn-out payments under certain acquisition notes as well as for working capital purposes. Subsequent to May 31, 2003, the then outstanding balance of the revolving credit line will be converted to a term loan (“2003 Term Loan”) and the Company will be required to make seven equal monthly principal payments from June 30, 2003 through December 31, 2003. The total amount to be repaid will equal the greater of the amount re-borrowed through May 31, 2003 or that amount which will cause the Company to be in compliance with the financial covenants contained in the October 2001 credit agreement. Interest will continue to be paid

monthly. All remaining amounts outstanding under the 2003 Term Loan will be due April 30, 2004. The 2003 Restructuring provided for new financial covenants and reporting requirements and included provisions for an accelerated maturity date upon the occurrence of certain events including, among other things, an Event of Default (as defined) or the sale or change of control of a material amount of the Company’s assets. In consideration for entering into the 2003 Restructuring and for providing the first $500,000 of re-borrowings, the Company will pay the bank a fee of $40,000, payable $20,000 in each of August and October of 2003, and issued 177,645 warrants to purchase shares of common stock of the Company at an exercise price of $0.75 per share. If the 2003 Term Loan is repaid on or before December 31, 2003 and there has been no sale of the Company within the six month period prior to repayment, the bank will return to the Company the lesser of (i) the unexercised warrants on such date and (ii) 88,822 warrants. If the Company re-borrows the remaining $250,000 available through May 31, 2003, the Company will issue additional warrants to the bank to purchase common stock of the Company at the rate of one warrant for every two dollars borrowed and at an exercise price of $0.01 per share. As of May 15, 2003, the Company had re-borrowed $225,000 pursuant to the 2003 Restructuring.

4. STOCKHOLDER’S EQUITY

Accounting for Stock Options

The Company has adopted the intrinsic value method of accounting for employee stock options as permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (SFAS No. 123) and as amended by SFAS No. 148. It discloses the pro forma effect on loss before cumulative effect of change in accounting principle and loss per share as if the fair value based method had been applied. For equity instruments, including stock options, issued to non-employees, the fair value of the equity instruments or the fair value of the consideration received, whichever is more readily determinable, is used to determine the value of services or goods received and the corresponding charge to operations.

The following table illustrates the effect on loss before cumulative effect of change in accounting principle and loss per share as if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation.


	THREE MONTHS ENDED
	MARCH 31,

	2003			2002

Loss before cumulative effect of change in accounting principle: As reported	$	(916,100	)	$	(1,332,700	)
Add: Total stock based employee compensation expense determined under fair value method for all awards		(35,900	)		(35,900	)

Pro forma loss before cumulative effect of change in accounting principle	$	(952,000	)	$	(1,368,600	)

Loss per share basic and diluted:
As reported	$	(0.12)		$	(0.18)
Pro forma	$	(0.13)		$	(0.19)

5. ASSET HELD FOR SALE

In the third quarter of 2002, the Company decided to close its Dallas office and to sell the land and building in which the Dallas office operated. The land and building was sold in February 2003 with the bank’s consent and the net proceeds totaling $503,300 were used to repay the outstanding term loan from the bank and a portion of the revolving credit line (see Note 3). The asset was disclosed as being held for sale at December 31, 2002.

6. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

Segment information has been prepared in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.” The Company classifies its operations according to four major client groups within the entertainment services industry: corporate clients, entertainment marketing clients, artist clients and fairs & festivals clients. For corporate clients, the Company creates innovative business communications programs delivered via a broad range of business communications, meeting production, entertainment and event production services. For entertainment marketing clients, the Company develops and executes integrated entertainment marketing and special event initiatives including music tours, television broadcasts and syndicated radio specials. For artist clients, the Company manages the negotiation of recording, touring, merchandising and performance contracts, and the development of long-term career strategies for music industry artists. For fairs

& festivals clients, the Company develops content and entertainment programs for its nationwide network of fairs and festivals. Substantially all revenues and long-lived assets of the Company as of and for the three month periods ended March 31, 2003 and 2002, were derived from United States based companies.

The Company does not internally report separate identifiable assets by client group. The Company evaluates performance of each segment based on several factors, of which the primary financial measure is EBITDA, including other income. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Unaudited summarized financial information concerning the Company’s reportable segments is shown in the following table for the three-month periods ended March 31, 2003 and 2002 (in thousands):

ENTERTAINMENT

FAIRS &

CORPORATE

MARKETING

ARTIST

FESTIVALS

CLIENTS

CORPORATE

TOTAL

THREE MONTHS ENDED MARCH 31,

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1.		THE COMPANY AND BASIS OF PRESENTATION:

		TBA Entertainment Corporation and subsidiaries (collectively, the “Company”) is a diversified communications and entertainment company that produces a broad range of business communications, meeting productions and entertainment services for corporate meetings, develops and produces integrated music marketing programs, manages music industry artists and develops content and entertainment programs for its nationwide network of fairs and festivals. The Company was incorporated in Tennessee in June 1993 and reincorporated in Delaware in September 1997. The Company primarily operates in the United States of America.

		The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America 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, 2002.

		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 March 31, 2003, and the results of its operations and cash flows for the three-month periods ended March 31, 2003 and 2002, respectively, have been included. Operating results for the three months ended March 31, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003.

		Recently Issued Accounting Standards

		In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 (“FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which disclosures are effective for financial statements issued after December 15, 2002. The Company adopted the disclosure requirements of FIN 45 as of December 31, 2002. The adoption of the measurement requirements of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

		In December 2002, FASB issued Statement No.148 (SFAS No. 148). “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock – Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 did not have a material effect on the Company’s financial position or results of operations.

		Certain prior year balances have been reclassified to conform to the current period presentation.

2.		EARNINGS PER COMMON SHARE

		The following table sets forth the unaudited computations of basic and diluted earnings per common share before cumulative effect of change in accounting principle:

		Options and warrants (only for 2002 period) to purchase 904,100 shares of common stock for the three months ended March 31, 2003 and 1,414,600 shares of common stock for the comparable period in 2002 were not considered in calculating diluted earnings per share as their inclusion would have been anti-dilutive.

3.		DEBT

		In October 2001, the Company entered into a bank credit facility, which provided for maximum borrowings of up to $4,050,000, comprised of a $1,050,000 term loan and a revolving credit line of up to $3,000,000. The credit facility was initially secured by all accounts receivable (see below) and bears interest, payable monthly, at the Company’s choice of an interest rate based upon LIBOR or the bank’s prime rate, plus an incremental percentage margin, as defined in the loan agreement.

		The Company was not in compliance with certain required financial ratios, specifically a debt/EBITDA ratio, a fixed charge ratio and a minimum net worth ratio, as of December 31, 2001. Pursuant to an April 2002 restructuring agreement with the bank, the Company was granted a temporary waiver of the financial covenant events of default provisions under the original loan agreement and the bank’s forbearance from exercising its available remedies, which extended through January 2, 2003. In addition, new financial covenants were established and the Company granted the bank additional security for the entire restructured bank credit facility in the form of a pledge of the shares of certain of the Company’s subsidiaries and a first lien deed of trust on the Company’s land and building located in Dallas, Texas, which was sold in February 2003 with the bank’s consent (see Note 5). The maturity date for both the term loan and revolving credit line was extended to April 30, 2003.

		Although the Company has maintained its sales improvement efforts, the Company was in technical noncompliance with the revised financial covenants under the restructured bank credit facility as of December 31, 2002. In February 2003, the bank required the Company to use the proceeds from the sale of its Dallas facility (see Note 5), to repay the outstanding balance of the term loan ($393,700) and a portion of the revolving credit line ($92,500). After this repayment, $2,248,000 of unpaid principal remained outstanding under the revolving credit line. In April 2003, the Company and the bank negotiated a further restructuring of the bank credit facility (“2003 Restructuring”). Pursuant to the 2003 Restructuring, the Company was granted a new waiver of the financial covenant events of default and the bank’s continued forebearance from exercising its available remedies, which now extends through January 1, 2004. In addition, the Company was granted the right to re-borrow up to $750,000 under the revolving credit line through May 31, 2003, for the purpose of making scheduled principal and interest payments and additional earn-out payments under certain acquisition notes as well as for working capital purposes. Subsequent to May 31, 2003, the then outstanding balance of the revolving credit line will be converted to a term loan (“2003 Term Loan”) and the Company will be required to make seven equal monthly principal payments from June 30, 2003 through December 31, 2003. The total amount to be repaid will equal the greater of the amount re-borrowed through May 31, 2003 or that amount which will cause the Company to be in compliance with the financial covenants contained in the October 2001 credit agreement. Interest will continue to be paid

		monthly. All remaining amounts outstanding under the 2003 Term Loan will be due April 30, 2004. The 2003 Restructuring provided for new financial covenants and reporting requirements and included provisions for an accelerated maturity date upon the occurrence of certain events including, among other things, an Event of Default (as defined) or the sale or change of control of a material amount of the Company’s assets. In consideration for entering into the 2003 Restructuring and for providing the first $500,000 of re-borrowings, the Company will pay the bank a fee of $40,000, payable $20,000 in each of August and October of 2003, and issued 177,645 warrants to purchase shares of common stock of the Company at an exercise price of $0.75 per share. If the 2003 Term Loan is repaid on or before December 31, 2003 and there has been no sale of the Company within the six month period prior to repayment, the bank will return to the Company the lesser of (i) the unexercised warrants on such date and (ii) 88,822 warrants. If the Company re-borrows the remaining $250,000 available through May 31, 2003, the Company will issue additional warrants to the bank to purchase common stock of the Company at the rate of one warrant for every two dollars borrowed and at an exercise price of $0.01 per share. As of May 15, 2003, the Company had re-borrowed $225,000 pursuant to the 2003 Restructuring.

4.		STOCKHOLDER’S EQUITY

		Accounting for Stock Options

		The Company has adopted the intrinsic value method of accounting for employee stock options as permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (SFAS No. 123) and as amended by SFAS No. 148. It discloses the pro forma effect on loss before cumulative effect of change in accounting principle and loss per share as if the fair value based method had been applied. For equity instruments, including stock options, issued to non-employees, the fair value of the equity instruments or the fair value of the consideration received, whichever is more readily determinable, is used to determine the value of services or goods received and the corresponding charge to operations.

		The following table illustrates the effect on loss before cumulative effect of change in accounting principle and loss per share as if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation.

5.		ASSET HELD FOR SALE

		In the third quarter of 2002, the Company decided to close its Dallas office and to sell the land and building in which the Dallas office operated. The land and building was sold in February 2003 with the bank’s consent and the net proceeds totaling $503,300 were used to repay the outstanding term loan from the bank and a portion of the revolving credit line (see Note 3). The asset was disclosed as being held for sale at December 31, 2002.

6.		BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

		Segment information has been prepared in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.” The Company classifies its operations according to four major client groups within the entertainment services industry: corporate clients, entertainment marketing clients, artist clients and fairs & festivals clients. For corporate clients, the Company creates innovative business communications programs delivered via a broad range of business communications, meeting production, entertainment and event production services. For entertainment marketing clients, the Company develops and executes integrated entertainment marketing and special event initiatives including music tours, television broadcasts and syndicated radio specials. For artist clients, the Company manages the negotiation of recording, touring, merchandising and performance contracts, and the development of long-term career strategies for music industry artists. For fairs

		& festivals clients, the Company develops content and entertainment programs for its nationwide network of fairs and festivals. Substantially all revenues and long-lived assets of the Company as of and for the three month periods ended March 31, 2003 and 2002, were derived from United States based companies.

		The Company does not internally report separate identifiable assets by client group. The Company evaluates performance of each segment based on several factors, of which the primary financial measure is EBITDA, including other income. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Unaudited summarized financial information concerning the Company’s reportable segments is shown in the following table for the three-month periods ended March 31, 2003 and 2002 (in thousands):