*
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 SEPTEMBER 30, 2003
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 (State or other jurisdiction of incorporation or organization) |
62-1535897 (I.R.S. employer identification no.) |
| 16501 VENTURA BOULEVARD, SUITE 601 ENCINO, CALIFORNIA (Address of principal executive offices) |
91436 (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 October 31, 2003, the Registrant had outstanding 7,374,900 shares of Common Stock, par value $.001 per share.
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 | 16 | ||
| Item 4. | Controls and Procedures | 16 | ||
| PART II - Other Information | ||||
| Item 1. | Legal Proceedings | * | ||
| Item 2. | Changes in Securities and Use of Proceeds | * | ||
| Item 3. | Defaults Upon Senior Securities | 17 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | * | ||
| Item 5. | Other Information | * | ||
| Item 6. | Exhibits and Reports on Form 8-K? | 17 | ||
| Signatures | 18 |
* No reportable information under this item.
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| SEPTEMBER 30, | DECEMBER 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (UNAUDITED) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 653,800 | $ | 1,527,800 | ||||||||
Accounts receivable, net of allowance for doubtful
accounts of $246,800 and $378,900, respectively |
4,459,000 | 1,993,800 | ||||||||||
Asset held for sale |
— | 548,700 | ||||||||||
Deferred charges and other current assets |
4,194,800 | 1,105,800 | ||||||||||
Total current assets |
9,307,600 | 5,176,100 | ||||||||||
Property and equipment, net |
432,500 | 653,600 | ||||||||||
Other assets, net: |
||||||||||||
Goodwill |
22,211,400 | 21,706,100 | ||||||||||
Other |
223,500 | 272,000 | ||||||||||
Total assets |
$ | 32,175,000 | $ | 27,807,800 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable and accrued liabilities |
$ | 4,099,800 | $ | 3,289,600 | ||||||||
Deferred revenue |
7,466,100 | 3,560,200 | ||||||||||
Notes payable and current portion of long-term debt |
4,307,500 | 1,617,200 | ||||||||||
Net short-term liabilities from discontinued operations |
211,800 | 211,800 | ||||||||||
Total current liabilities |
16,085,200 | 8,678,800 | ||||||||||
Long-term debt, net of current portion |
556,900 | 3,562,300 | ||||||||||
Total liabilities |
16,642,100 | 12,241,100 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.001 par value; authorized 1,000,000 shares;
2,000 shares of Series A convertible preferred stock issued
and outstanding, liquidation preference $100 |
100 | 100 | ||||||||||
Common stock, $.001 par value; authorized 20,000,000
shares; 8,857,200 issued, 7,374,900 and 7,368,100
shares outstanding, respectively |
8,900 | 8,900 | ||||||||||
Additional paid-in capital |
30,690,100 | 30,577,200 | ||||||||||
Accumulated deficit |
(9,136,400 | ) | (8,961,900 | ) | ||||||||
Less treasury stock, at cost, 1,482,300 and 1,489,200
shares, respectively |
(6,029,800 | ) | (6,057,600 | ) | ||||||||
Total stockholders’ equity |
15,532,900 | 15,566,700 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 32,175,000 | $ | 27,807,800 | ||||||||
See notes to consolidated financial statements.
3
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| THREE MONTHS ENDED | NINE MONTHS ENDED | ||||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenues |
$ | 15,355,100 | $ | 18,923,200 | $ | 33,726,700 | $ | 39,738,100 | |||||||||
Costs related to revenue |
10,399,300 | 12,904,400 | 22,971,300 | 26,147,100 | |||||||||||||
Gross profit |
4,955,800 | 6,018,800 | 10,755,400 | 13,591,000 | |||||||||||||
Selling, general and administrative expenses |
3,848,200 | 3,869,500 | 10,408,300 | 12,199,400 | |||||||||||||
Depreciation expense |
73,000 | 162,800 | 263,900 | 526,000 | |||||||||||||
Other income |
— | (364,800 | ) | (70,700 | ) | (364,800 | ) | ||||||||||
Interest expense (income), net |
101,300 | (27,100 | ) | 366,900 | 333,600 | ||||||||||||
Income (loss) before income taxes and cumulative effect of change in
accounting principle |
933,300 | 2,378,400 | (213,000 | ) | 896,800 | ||||||||||||
Income tax (benefit) provision |
(38,400 | ) | 752,000 | (38,400 | ) | 360,000 | |||||||||||
Income (loss) before cumulative effect of change in accounting principle |
971,700 | 1,626,400 | (174,600 | ) | 536,800 | ||||||||||||
Cumulative effect of change in accounting principle |
— | — | — | (1,988,600 | ) | ||||||||||||
Net income (loss) |
$ | 971,700 | $ | 1,626,400 | $ | (174,600 | ) | $ | (1,451,800 | ) | |||||||
Earnings (loss) per common share – basic and diluted: |
|||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle |
$ | 0.13 | $ | 0.22 | $ | (0.02 | ) | $ | 0.07 | ||||||||
Cumulative effect of change in accounting principle |
— | — | — | (0.27 | ) | ||||||||||||
Net earnings (loss) per common share – basic and diluted |
$ | 0.13 | $ | 0.22 | $ | (0.02 | ) | $ | (0.20 | ) | |||||||
See notes to consolidated financial statements.
4
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| NINE MONTHS ENDED | ||||||||||||
| SEPTEMBER 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (174,600 | ) | $ | (1,451,800 | ) | ||||||
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities: |
||||||||||||
Cumulative effect of change in accounting principle |
— | 1,988,600 | ||||||||||
Loss on disposal of fixed assets |
4,500 | 20,400 | ||||||||||
Depreciation |
263,900 | 526,000 | ||||||||||
Minority interest in loss of consolidated subsidiary |
(18,200 | ) | (42,700 | ) | ||||||||
Amortization of loan fees and discount of debt |
195,100 | — | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Increase in accounts receivable |
(2,465,200 | ) | (1,535,600 | ) | ||||||||
(Increase) decrease in deferred charges and other current assets |
(3,046,200 | ) | 2,137,800 | |||||||||
Decrease in other assets |
7,400 | 403,800 | ||||||||||
Increase in accounts payable and accrued liabilities |
1,310,500 | 1,262,200 | ||||||||||
Increase in deferred revenue |
3,904,800 | 106,000 | ||||||||||
Net cash (used in) provided by operating activities |
(18,000 | ) | 3,414,700 | |||||||||
Cash flows from investing activities: |
||||||||||||
Additional investment in businesses |
(712,300 | ) | (1,585,500 | ) | ||||||||
Expenditures for property and equipment and other assets |
(77,600 | ) | (14,700 | ) | ||||||||
Proceeds from sale of Dallas building and land |
503,300 | — | ||||||||||
Net cash used in investing activities |
(286,600 | ) | (1,600,200 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Net (repayments) borrowings on credit lines |
(92,500 | ) | 612,000 | |||||||||
Proceeds from borrowings |
752,000 | 1,000,000 | ||||||||||
Repayments of long-term debt |
(1,228,900 | ) | (2,000,400 | ) | ||||||||
Net cash used in financing activities |
(569,400 | ) | (388,400 | ) | ||||||||
Net cash used in discontinued operations |
— | (15,000 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents |
(874,000 | ) | 1,411,100 | |||||||||
Cash and cash equivalents - beginning of period |
1,527,800 | 2,151,200 | ||||||||||
Cash and cash equivalents - end of period |
$ | 653,800 | $ | 3,562,300 | ||||||||
Supplemental cash flow information: |
||||||||||||
Cash paid for interest |
$ | 182,600 | $ | 308,600 | ||||||||
Cash paid for income taxes |
$ | 112,500 | $ | 52,300 | ||||||||
Non-cash investing and financing transactions: |
||||||||||||
Goodwill reduced against reversal of acquisition notes |
$ | — | $ | 3,518,400 | ||||||||
See notes to consolidated financial statements.
5
TBA ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 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 consolidated 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 September 30, 2003, and the results of its operations and cash flows for the three and nine-month periods ended September 30, 2003 and 2002, respectively, have been included. Operating results for the three and nine months ended September 30, 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 May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in the balance sheets. Previously, many of those financial instruments were classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s results of operations and financial condition. | ||
| In January 2003, the FASB issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No 51, “Consolidated Financial Statements” to those entities defined as “Variable Interest Entities” (more commonly referred to as special purpose entities) in which equity investors do not have the characteristics of a “controlling financial interest” or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to all Variable Interest Entities created after January 31, 2003 and by the beginning of the first interim or annual reporting period commencing after June 25, 2003 for Variable Interest Entities created prior to February 1, 2003. On October 9, 2003, the FASB issued FASB Saff Position 46-6 (“FSP 46-6”) deferring the effective date for applying the provisions of FIN 46 for public entities with variable interest in entities created before February 1, 2003, until the end of the first interim or annual period ending after December 15, 2003. The Company has no variable interest in entities. | ||
| Reclassifications | ||
| Certain prior period balances have been reclassified to conform to the current period presentation. |
6
| Guarantees | ||
| Under its Bylaws and its Certificate of Incorporation, the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has a directors and officers liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. Accordingly, the Company believes that any resulting liability from these indemnification agreements is minimal and has no liability recorded for these agreements as of September 30, 2003. | ||
| In addition, the Company enters into contracts in the normal course of business which may include certain indemnifications under which it may be required to make payments in relation to certain transactions. These indemnities primarily include mutual indemnities by both parties of the contract for claims, actions, causes of action and liabilities which may be asserted by third parties arising out of the performance of either party’s obligations pursuant to their agreement. Also, these indemnities generally do not limit the future payments the Company could be obligated to make. Since the Company has not experienced such a claim or action, it has not recorded any liability for such an indemnity in the accompanying financial statements. | ||
| Goodwill | ||
| The Company acquired five businesses in prior years that provide for additional sales price consideration based on the earnings of those businesses during each respective earn out period. During the nine-month period ended September 30, 2003, the Company paid $505,400 of additional sales price consideration, which amount has been recorded as additional goodwill on the accompanying consolidated balance sheets. | ||
| 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 | NINE MONTHS ENDED | ||||||||||||||||
| SEPTEMBER 30, 2003 | SEPTEMBER 30, 2003 | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Basic earnings per common share: |
|||||||||||||||||
Income (loss) before cumulative effect of change
in accounting principle |
$ | 971,700 | $ | 1,626,400 | $ | (174,600 | ) | $ | 536,800 | ||||||||
Weighted average common stock outstanding |
7,373,600 | 7,365,800 | 7,370,800 | 7,364,000 | |||||||||||||
Income (loss) before cumulative effect of change
in accounting principle per
common share – basic |
$ | 0.13 | $ | 0.22 | $ | (0.02 | ) | $ | 0.07 | ||||||||
Diluted earnings per common share: |
|||||||||||||||||
Income (loss) before cumulative effect of change
in accounting principle |
$ | 971,700 | $ | 1,626,400 | $ | (174,600 | ) | $ | 536,800 | ||||||||
Weighted average common stock outstanding |
7,373,600 | 7,365,800 | 7,370,800 | 7,364,000 | |||||||||||||
Additional common stock resulting from
dilutive securities: |
|||||||||||||||||
Preferred stock |
2,000 | 2,000 | — | 2,000 | |||||||||||||
Shares issuable for stock options and
warrants |
123,200 | — | — | 3,800 | |||||||||||||
Weighted average common stock and dilutive
securities outstanding |
7,498,800 | 7,367,800 | 7,370,800 | 7,369,800 | |||||||||||||
Income (loss) before cumulative effect of change
in accounting principle per
common share – diluted |
$ | 0.13 | $ | 0.22 | $ | (0.02 | ) | $ | 0.07 | ||||||||
| Options and warrants to purchase 1,081,700 and 1,206,700 shares of common stock for the three and nine months ended September 30, 2003, respectively and 1,354,100 and 1,329,100 shares of common stock for the comparable periods in 2002, were not considered in calculating diluted earnings per share as their inclusion would have been anti-dilutive. |
7
| 3. | DEBT | |
| Long-term debt of the Company consists of the following as of September 30, 2003 and December 31, 2002: |
| September 30, | December 31, | ||||||||
| 2003 | 2002 | ||||||||
Acquisition notes payable, interest at 8% and 10% due in periodic
installments through 2008, $1,215,000 secured by pledges of the
common stock acquired, remaining $804,000 unsecured |
$ | 2,019,000 | $ | 2,445,200 | |||||
Note payable to a bank, interest at the bank’s prime rate or the 30, 60,
or 90 day LIBOR plus 2.00% (3.86% at September 30, 2003 and 4.51% at
December 31, 2002), monthly installments of $107,100 plus interest due
through December 31, 2003, remaining principal due in April 2004 |
2,845,400 | 393,700 | |||||||
Revolving credit line, interest at bank’s prime rate or the 30,60 or 90 day
Libor plus 2.00% (4.51% at December 31, 2002), converted to note payable
to a bank in May 2003 |
— | 2,340,600 | |||||||