-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DjDH5vLEoxdi2MOK+ofZxTU7xoBQK94oTqcA0wBgvhLmRpjPDW5AjJ3dgG8eKbo2 yyHsFA1dapz8qT/oO3F9cw== 0001095811-01-502332.txt : 20010516 0001095811-01-502332.hdr.sgml : 20010516 ACCESSION NUMBER: 0001095811-01-502332 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETS COM INC CENTRAL INDEX KEY: 0001038083 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 061424841 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27893 FILM NUMBER: 1639632 BUSINESS ADDRESS: STREET 1: 555 ANTON BLVD 12TH FL STREET 2: 714-862-5400 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 9498625400 MAIL ADDRESS: STREET 1: 4675 MACARTHUR CT STREET 2: SUITE 1400 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FORMER COMPANY: FORMER CONFORMED NAME: ADVANTIX INC DATE OF NAME CHANGE: 19990202 10-Q 1 a72642e10-q.txt FORM 10-Q PERIOD END MARCH 31, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 March 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From 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 (I.R.S. Employer Incorporation or Organization) Identification No.) 555 Anton Boulevard, 11th Floor, Costa Mesa, California 92626 (Address of principal executive offices) (714) 327-5400 Registrant's Telephone Number, Including Area Code 555 Anton Boulevard, 12th Floor, Costa Mesa, California 92626 (Former name, former address and former fiscal year, if changed since last report) 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 April 30, 2001, there were approximately 59,395,623 shares of the Registrant's Common Stock, par value $0.000225 per share, outstanding. 2 TICKETS.COM, INC FORM 10-Q TABLE OF CONTENTS
ITEM DESCRIPTION PAGE NO. - ---- ----------- -------- PART I Item 1. Financial Statements....................................................... 1 Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2001 and December 31, 2000.................................................. 1 Condensed Consolidated Statements of Operations (unaudited) -- Three Months Ended March 31, 2001 and 2000................................... 2 Condensed Consolidated Statements of Cash Flows (unaudited) --Three Months Ended March 31, 2001 and 2000................................... 3 Notes to Condensed Consolidated Financial Statements (unaudited)....... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 20 PART II Item 1. Legal Proceedings.......................................................... 20 Item 2. Changes in Securities and Use of Proceeds ................................. 20 Item 3. Defaults Upon Senior Securities............................................ 20 Item 4. Submission of Matters to a Vote of Security Holders........................ 21 Item 5. Other Information.......................................................... 21 Item 6. Exhibits and Reports on Form 8-K........................................... 21
i 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TICKETS.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31 DECEMBER 31 2001 2000 ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .............................................. $ 16,439 $ 20,026 Accounts receivable, net of allowances of $2,342 and $1,996 ........... 8,612 11,021 Prepaid expenses and other current assets .............................. 13,654 20,004 --------- --------- Total current assets ........................................... 38,705 51,051 Property and equipment, net .............................................. 16,647 16,920 Goodwill and intangible assets, net ...................................... 46,567 48,604 Other assets ............................................................. 4,956 14,841 --------- --------- $ 106,875 $ 131,416 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ....................................................... $ 13,432 $ 11,713 Accrued liabilities .................................................... 10,958 8,970 Current portion of long-term debt and capital lease obligations ........ 2,471 2,634 Deferred revenue and other current liabilities ......................... 3,447 2,758 --------- --------- Total current liabilities ...................................... 30,308 26,075 Long-term debt and capital lease obligations, net of current portion ..... 870 1,406 Other liabilities ........................................................ 1,341 1,589 --------- --------- Total liabilities .............................................. 32,519 29,070 Minority interest ........................................................ 327 327 Stockholders' equity: Common stock, $.000225 par value; 270,000 shares authorized; 59,393 and 59,278 shares issued and outstanding, respectively .......... 13 13 Paid-in capital ........................................................ 323,084 323,036 Accumulated deficit .................................................... (248,848) (220,856) Accumulated other comprehensive loss ................................... (220) (174) --------- --------- Stockholders' equity ........................................... 74,029 102,019 --------- --------- $ 106,875 $ 131,416 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 4 TICKETS.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ----------------------- 2001 2000 -------- -------- Revenue ............................................................ $ 15,075 $ 14,072 Cost of services ................................................... 9,728 10,404 -------- -------- Gross profit ....................................................... 5,347 3,668 -------- -------- Operating expenses: Sales and marketing .............................................. 5,630 12,436 Technology development ........................................... 2,505 4,735 General and administrative ....................................... 7,539 6,713 Amortization of goodwill and intangibles ......................... 2,360 2,408 Impairment of assets ............................................. 15,434 -- -------- -------- Total operating expenses ................................. 33,468 26,292 -------- -------- Loss from operations ............................................... (28,121) (22,624) -------- -------- Other income, net: Other income, net ................................................ 129 985 Minority interest ................................................ -- 29 -------- -------- Total other income, net .................................. 129 1,014 -------- -------- Loss before provision for income taxes ............................. (27,992) (21,610) Provision for income taxes ....................................... -- 26 -------- -------- Net loss ........................................................... $(27,992) $(21,636) ======== ======== Earnings per share: Basic and diluted net loss per share ............................. $ (0.47) $ (0.37) ======== ======== Weighted average common shares outstanding basic and diluted ..... 59,352 57,720 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 5 TICKETS.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ----------------------- 2001 2000 -------- -------- Cash flows from operating activities: Net loss ..................................................... $(27,992) $(21,636) Adjustments to reconcile net loss to net cash used in operating activities: Impairment of assets ....................................... 15,434 -- Depreciation and amortization .............................. 4,261 3,799 Allowance for bad debt ..................................... 600 754 Noncash expenses ........................................... 661 1,563 Minority interest .......................................... -- (29) Changes in operating assets and liabilities: Accounts receivable ........................................ 1,849 (803) Prepaid expenses and other assets ......................... 55 (130) Accounts payable ........................................... 1,719 129 Accrued liabilities ........................................ 1,663 370 Deferred revenue and other liabilities ..................... 443 (1,041) -------- -------- Net cash used in operating activities ................... (1,307) (17,024) -------- -------- Cash flows from investing activities: Purchases of property and equipment ........................ (1,630) (3,145) Equity investment .......................................... -- (1,500) Increase in restricted cash and investments ................ -- (7) -------- -------- Net cash used in investing activities ................... (1,630) (4,652) -------- -------- Cash flows from financing activities: Principal payments on long-term debt ....................... (698) (539) Proceeds from exercise of stock options .................... 48 1,240 -------- -------- Net cash (used in) provided by financing activities ..... (650) 701 -------- -------- Net decrease in cash and cash equivalents .................... (3,587) (20,975) Cash and cash equivalents, beginning of period ............... 20,026 94,173 -------- -------- Cash and cash equivalents, end of period ..................... $ 16,439 $ 73,198 ======== ======== Supplemental disclosures of cash flow information: Interest paid .............................................. $ 75 $ 82 ======== ======== Income tax paid ............................................ $ 18 $ 26 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 6 TICKETS.COM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. DESCRIPTION OF BUSINESS Tickets.com, 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 (the "Company", "Tickets.com", "we", or "us"), is a leading business-to-business ticketing solutions provider for live events. The Company facilitates the sale of tickets by enabling venues and entertainment organizations with proprietary and cutting edge software, call centers, interactive voice response systems and retail outlets. The Company builds private label ticketing gateways to enable live entertainment organizations with an e-commerce distribution platform. The Company's automated ticketing solution is used by thousands of entertainment organizations such as leading performing art centers, professional sport organizations and various stadiums and arenas in the U.S., Canada, Europe, Australia and Latin America. 2. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the condensed consolidated balance sheets as of March 31, 2001 and December 31, 2000, the consolidated statements of earnings for the three months ended March 31, 2001 and 2000 and the statements of cash flows for the three months ended March 31, 2001 and 2000. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, they have been condensed and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results of operations for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K/A for the year ended December 31, 2000. We expect to begin to generate positive cash flows from operations by the end of calendar 2001. However, existing cash balances are not expected to cover our requirements until that time by approximately $6.5 million. In addition, our present cash balances will only be sufficient to pay ongoing cash expenses until approximately the end of the second quarter of 2001. On May 1, 2001, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with certain investors (the "Investors"). Pursuant to the Purchase Agreement, we will sell an aggregate of 25,000,000 shares of our Series F Senior Cumulative Redeemable Preferred Stock (the "Shares") to the Investors at a price of $0.60 per share, which will result in total gross proceeds of $15,000,000 (before deducting fees and expenses) to us. The purchase of the Shares by the Investors is to be effected in two closings of $6.5 million and $8.5 million, respectively, each of which is subject to specific conditions specified in the Purchase Agreement. The second closing is subject to the obtaining of all regulatory approvals and stockholder consent as may be necessary for us and the Investors to complete the transaction. No assurance can be given that such conditions will be satisfied or that such regulatory approvals and stockholder consent will be obtained. Any failure to raise this, or alternative, additional funding in a timely manner will place us in significant financial jeopardy. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with 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. Comprehensive Loss Differences between the Company's net loss as reported and comprehensive loss are related to foreign currency translation. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Long-lived Assets Property and Equipment. Property and equipment is stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of three to five years or, for leasehold improvements, 4 7 over the term of the lease if shorter. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed and any gain or loss is reflected in results of operations. Goodwill and Intangible Assets. Intangible assets consist primarily of the portion of the purchase price of businesses acquired allocated to existing technology, customer relationships, tradenames, assembled workforce, and noncompete agreements. Goodwill represents the excess of cost over the fair value of net identified assets acquired in business combinations accounted for under the purchase method. Impairment of Assets. The Company assesses the recoverability of its assets on an annual basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, impairment is recognized to reduce the carrying value of the assets to the estimated fair value. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. Additionally, in conjunction with the review for impairment, the remaining estimated lives of certain of the Company's assets are assessed. (See Note 4.) Revenue Recognition The Company primarily generates revenue from per ticket service fees charged directly to consumers who order tickets through the Company's web site, call centers, interactive voice response or retail outlets, net of revenue sharing agreements. In addition, the Company charges a handling fee to consumers for all tickets sold by the Company, other than through retail outlets. The Company recognizes service fee and handling fee revenue from ticket sales at the time the sale is made. Additionally, the Company generates revenue from license and support fees charged to licensees of its in-house systems products. Revenue is recognized on sales contracts when the following conditions are met: a signed contract is obtained, delivery has occurred, the total sales price is fixed and determinable, collectibility is probable, and any uncertainties with regard to customer acceptance are resolved. Deferred revenue consists primarily of deferred software license revenue related to the license of the Company's software, and related fees under maintenance and support contracts. Deferred maintenance and support revenue is recognized as it is earned, over the term of the related agreement. Revenues and expenses from transactions involving the exchange of services for non-cash consideration are valued at the fair market value based on the amount that would be charged on a cash basis and by comparing such amounts to what other third parties pay for such services. Revenues and expenses from these transactions are recognized in accordance with the established guidelines related to the type of the underlying revenue or expense. The Company additionally generated ticketing services revenues through the auction of venues' and performers' tickets on the Company's web site. Under those types of arrangements, the Company generally purchased, at face value, any unsold tickets that were allocated for auction on the Company's web site. If the Company was unable to sell these tickets, or sell them at less than face value, losses were incurred on the tickets purchased. The gross value of the sale of these tickets was recorded as revenues. The amount paid for the tickets, amounts paid to performers venues or charities, and the costs of delivering the tickets to the consumers were recognized as cost of services. Pursuant to current ticket auction contracts with certain entertainers, certain amounts collected above the face value were donated to a charity of the performer's choice, the amounts donated are also included as cost of services. As of May 2000, the Company no longer provided auction services. Cost of Services Cost of services includes expenses related to the distribution and delivery of tickets. These expenses include primarily payroll related to call centers and distribution personnel, telecommunications, data communications, commissions paid on tickets distributed through retail outlets. 5 8 Additionally, cost of services includes costs related to the installation and support of the Company's in-house systems mainly consisting of payroll and travel services related costs, the cost of hardware and software that the Company resells to its licensees. Income Taxes The Company applies the asset and liability method in recording income taxes, under which deferred income tax assets and liabilities are determined, based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Additionally, deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Net Loss Per Share Basic 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 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 the earnings of the Company. Potentially dilutive securities are excluded from the Company's calculation of diluted loss per share since their inclusion would be antidilutive. 4. IMPAIRMENT OF ASSETS In the three months ended March 31, 2001, the Company recorded a charge of $15.4 million for the impairment of various assets. This charge consisted primarily of the write-down of investments that are no longer core to the Company's business. Management believes the online marketing relationship with Excite@Home will not be realized and was written down by $13.9 million. Additionally, the Company wrote-off the strategic investment of two Internet based companies for $1.5 million. This resulted in a decrease of current assets of $7.5 million and other long-term assets of $7.9 million. 6 9 5. BUSINESS SEGMENT REPORTING The operating segments below reflect the segmentation of the business under which management evaluates financial data to make operating decisions and assess performance. The Company is organized into four reportable operating segments: Ticketing Services Group ("TSG"), Internet Ticketing Group ("ITG"), International Group, and Other. TSG focuses on delivering outsourcing solutions. ITG focuses on providing online ticketing solutions to its domestic clients. The International Group focuses on providing online ticketing solutions to its international clients. Segment performance measurement is based on operating income before other corporate expenses, amortization of intangibles, assets impairments, interest income and expense and income taxes. Other corporate expenses principally consists of unallocated administrative support and technology functions. There have been no inter-segment sales. Assets are not allocated to specific products and accordingly cannot be reported by segment. The business segment information for the prior year has been restated.
THREE MONTHS ENDED MARCH 31 ----------------------- 2001 2000 -------- -------- (unaudited) (in thousands) Revenue TSG ............................... $ 9,093 $ 8,307 ITG ............................... 4,415 3,303 International ..................... 1,212 1,581 Other ............................. 355 881 -------- -------- Total Segment Revenues ................. 15,075 14,072 -------- -------- Gross Profit TSG ............................... 2,841 938 ITG ............................... 1,561 1,398 International ..................... 651 776 Other ............................. 294 556 -------- -------- Total Gross Profit ..................... 5,347 3,668 -------- -------- Operating income/(loss) TSG ............................... (1,205) (4,293) ITG ............................... (1,518) (246) International ..................... (96) (1,134) Other ............................. (951) (7,433) -------- -------- Total Segment Operating Loss ........... (3,770) (13,106) -------- -------- Unallocated administrative support and technology functions ............... (6,557) (7,110) Amortization of intangibles ............ (2,360) (2,408) Impairment of assets ................... (15,434) -- -------- -------- Loss from operations ................. $(28,121) $(22,624) ======== ========
6. LITIGATION On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a lawsuit against the Company in the United States District Court for the Central District of California seeking unspecified damages and a court order to prohibit the Company from, among other things, linking Internet consumers to internal pages within Ticketmaster's web site and using the Ticketmaster name on the Company's web site. In addition, the suit alleges that the Company has engaged in other wrongful acts, such as providing false and misleading information on its 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 Company's web site. The suit originally sought (i) an injunction to prohibit the Company from further engaging in any alleged unlawful activity, (ii) treble damages, (iii) attorneys' fees and other unspecified damages. On September 15, 1999 the Company filed a motion to dismiss the lawsuit. A hearing on the motion to dismiss had been scheduled for January 2000. On January 7, 2000, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a First Amended Complaint, which modified their previous allegations and added two claims for unfair competition and alleged violations of the Lanham Act. 7 10 We filed a motion to dismiss the Amended Complaint and on March 27, 2000, the Court dismissed four (4) of the six (6) claims in the Amended Complaint. Ticketmaster Corporation and Ticketmaster Online-CitySearch also filed a Motion for Preliminary Injunction seeking an order precluding us from, among other things, providing links to Ticketmaster pages. On August 10, 2000, the Court denied 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 on September 25, 2000 the Court denied this motion. On February 12, 2001 we were scheduled to mediate this dispute before a retired judge with respect to potential settlement. Three days prior to the mediation, Ticketmaster Corporation and Ticketmaster Online refused to participate in the mediation. We are currently preparing to file a motion for an order to compel Ticketmaster Corporation to participate in the mediation or in the alternative, a settlement conference. As of this date, no trial date has been set in this matter. On April 26, 2001 the United States District Court, Central District of California, Western Division issued an order establishing the appropriate framework within which to conduct discovery in this matter including but not limited to interrogatories, depositions and document production. The court indicated that it will soon be issuing a second order concerning the timetables for completion of discovery as well as a discovery cut-off deadline. As of this date, no trial date has been set in this matter. The Company has not recorded a provision for these matters in its financial statements. 7. NON-MONETARY AGREEMENT In December 1999, the Company entered into an agreement with the Salt Lake Organizing Committee ("SLOC") to be the Official Ticketing Services Supplier for the 2002 Olympic and Paralympic Winter Games ("Games'). Under the terms of the agreement, the Company is the exclusive provider of ticketing services for the Games, including Internet, mail and telephone orders as well as the operation of the local and regional ticket retail outlets. Association with SLOC is expected to generate significant brand awareness for the Company via a specifically designed website, advertising as an "official supplier", billboards during the Olympics, an onsite presence at the Games as well as online ticket advertising. SLOC and the Company reached an agreement that the ticketing services to be delivered by the Company are based on a fixed price contract, consisting of cash payments for $3.4 million and the consideration for the marketing rights to advertise as an official suppler of the Games. The estimated market value of this agreement is $6.5 million. In accordance with the requirements under Accounting Principles Board Opinion 29, "Accounting for Nonmonetary Transactions" and Emerging Issues Task Force Issue 99-17, "Accounting for Advertising Barter Transactions", the non-cash portion of this agreement represents a barter agreement. The Company recorded revenue of $812,000 and recognized non-cash advertising expense of $55,000 relating to the barter portion of this transaction for the three months ended March 31, 2001. 8. SUBSEQUENT EVENTS 8 11 On May 1, 2001, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") by and among the Company and General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar LLC, and International Capital Partners, Inc., Profit Sharing Trust (the "Investors"). Pursuant to the Purchase Agreement, the Company will sell an aggregate of 25,000,000 shares of its Series F Senior Cumulative Redeemable Preferred Stock (the "Shares") to the Investors at a price of $0.60 per share, which will result in total gross proceeds of $15,000,000 (before deducting fees and expenses) to the Company. The purchase of the Shares by the Investors is to be effected in two closings, each of which is subject to specific conditions specified in the Purchase Agreement. The second closing is subject to the obtaining of all regulatory approvals and stockholder consent as may be necessary for the Company and the Investors to complete the transaction. 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, Inc. 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 is disclosed herein. All forward-looking statements are expressly qualified in their entirety by such language. Tickets.com, Inc. 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, Inc. which describe certain factors which affect Tickets.com business, including the risk factors that follow. OVERVIEW We are a leading business-to-business ticketing solutions provider for live events. We facilitate the sale of tickets by enabling venues and entertainment organizations with proprietary and cutting edge software, through an integrated distribution network that includes the Internet, call centers, interactive voice response systems and retail outlets. We build private label ticketing gateways to enable live entertainment organizations with an e-commerce distribution platform. Our automated ticketing solution is used by thousands of entertainment organizations such as leading performing arts centers, professional sports organizations and various stadiums and arenas in the U.S., Canada, Europe, Australia and Latin America. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 Revenues Ticketing Services Group. Revenues from TSG increased 9.6% to $9.1 million for the three months ended March 31, 2001 from $8.3 million for the three months ended March 31, 2000. The increase for the quarter was due to an increase in the number of high profile performances such as U2, NSync, Dave Mathews Band, WWF events, and various full-service Major League Baseball clients, relative to the same quarter last year. These on-sales increased our revenues from fees related to ticket sales. Internet Ticketing Group. Revenues from ITG increased 33.3% to $4.4 million for the three months ended March 31 2001 from $3.3 million for the three months ended March 31, 2000. The increase was the result of increased ticket volume from our Internet enabled software licensees and additional new clients added subsequent to March 31, 2000. Included in ITG's revenue for the three months ended March 31, 2001 was $0.4 million relating to the non-monetary portion of the SLOC agreement. International. International revenues decreased 25.0% to $1.2 million for the three months ended March 31 2001 from $1.6 million for the three months ended March 31, 2000. The decrease reflects a drop in software license fee revenue and third party hardware sales revenue. The decrease in hardware sales was due to the increased competition in hardware sales in the United Kingdom market. 9 12 COST OF SERVICES Ticketing Services Group. Cost of services for TSG decreased 14.9% to $6.3 million for the three months ended March 31, 2001 from $7.4 million for the three months ended March 31, 2000. As a percentage of TSG revenues, total cost of services for TSG decreased to 69.2% from 89.2%. The decrease was mainly attributable to successful implementation of cost reduction plans to contain our telecommunication and call center expenses. Internet Ticketing Group. Cost of services for ITG increased 52.6% to $2.9 million for the three months ended March 31, 2001 from $1.9 million for the three months ended March 31, 2000. The current quarter includes cost of services related to the growth in our license and support business, including services for SLOC. As a percentage of ITG revenue, cost of services increased to 65.9% from 57.6%. The percentage of ITG revenue to ITG cost of services fluctuates due to a high proportion of direct fixed costs in association with revenue recognition. International. Cost of services for International decreased 25.0% to $0.6 million for the three months ended March 31, 2001 from $0.8 million for the three months ended March 31, 2000. The decrease was primarily related to the decrease in international service revenue. As a percentage of International revenue, cost of services remained unchanged at 50.0%. OPERATING EXPENSES Sales and Marketing. Sales and marketing expenses decreased 54.8% to $5.6 million for the three months ended March 31, 2001 from $12.4 million for the three month ended March 31, 2000. As a percentage of total revenues, sales and marketing expenses decreased to 37.1% from 87.9%. The decrease is mainly attributable to the decline in professional services, reflecting the issuance of warrants to performers in the prior year as well as termination of our relationship with an advertising agency in the year ended December 31, 2000. The decrease also reflects the elimination of the periodic expense related to the asset impairment for the online marketing relationship with Excite@Home, for the three months ended March 31, 2001. In addition, the decrease also reflects a reduction in advertising expenses as we continue to focus our efforts on our clients instead of building our brand. We expect to continue to direct our effort from high cost branding to combine client-driven advertising and promotions, a strategy that emphasizes our client relationships. Technology Development. Technology development expenses decreased 46.8% to $2.5 million for the three months ended March 31, 2001 from $4.7 million for the three months ended March 31 2000. As a percentage of total revenues, technology development expenses decreased to 16.6% from 33.3%. This decrease was related to a reduction of duplicated efforts stemming from the subsidiaries we acquired in prior years. The decrease reflects our efforts to consolidate software code lines, resulting in reduced costs to support fewer software products. As we continue our efforts to improve and expand our core ticketing system, we expect a greater stabilization of our expenses and additional benefits from consolidation to reduce our development efforts to a support function for a single ticketing system. General and Administrative. General and administrative expenses increased 11.9% to $7.5 million for the three months ended March 31, 2001 from $6.7 million for the three months ended March 31, 2000. As a percentage of total revenue, general and administrative expenses increased to 49.7% from 47.5%. We anticipate general and administrative expenses will decline as we continue to integrate operations of our acquired subsidiaries, including consolidation of administration functions and reduction in office space. Impairment of Assets. In the three months ended March 31, 2001, the Company recorded a charge of $15.4 million for the impairment of various assets. Impairment of assets is 102.0% of total revenue. This charge consisted primarily of the write-down of investments that are no longer core to the Company's business. Management believes the online marketing relationship with Excite@Home will not be realized and was written down by $13.9 million. Additionally, the Company wrote-off the strategic investment of two Internet based companies for $1.5 million. This resulted in a decrease of current assets of $7.5 million and other long-term assets of $7.9 million. OTHER INCOME, NET 10 13 Other Income, net. Other income, net 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 decreased 83.3% to $0.2 million for the three months ended March 31, 2001 from $1.2 million for the three months ended March, 31 2000. The decrease is mainly due to lower cash balances that resulted from our cash used in operating and investing activities. Interest expense decreased 50.0% to $0.1 million for the three months ended March 31, 2001 from $0.2 million for the three months ended March 31 2000. The decrease reflects the reduction of our long-term debt in connection with our initial public offering in November 1999. NET LOSS Net Loss. For the three months ended March, 31 2001, our net loss was $ 28.0 million or $0.47 per share. For the three months ended March 31, 2000, our net loss was $21.6 million or $0.37 per share. The increase in the net loss was primarily due to the charge for impairment of assets of $15.4 million and was partially offset by the decrease in other operating expenses. LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents decreased by $3.6 million to $16.4 million as of March 31, 2001 from $20.0 million as of December 31, 2000. The decrease resulted primarily from net cash used in operating activities of $1.3 million, purchases of property and equipment of $1.6 million and payments on long-term debt and leases of $0.7 million. Cash used in operating activities was primarily for the funding of losses before non-cash items such as depreciation, amortization, allowance for bad debt and impairment of assets. The decrease in cash due to operating losses were partially offset by increases in current liabilities of $3.8 million and decreases in current assets of $1.9 million. We expect to begin to generate positive cash flows from operations by the end of calendar 2001. However, existing cash balances are not expected to cover our requirements until that time by approximately $6.5 million. In addition, our present cash balances will only be sufficient to pay ongoing cash expenses until approximately the end of the second quarter of 2001. On May 1, 2001, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with certain investors (the "Investors"). Pursuant to the Purchase Agreement, we will sell an aggregate of 25,000,000 shares of our Series F Senior Cumulative Redeemable Preferred Stock (the "Shares") to the Investors at a price of $0.60 per share, which will result in total gross proceeds of $15,000,000 (before deducting fees and expenses) to us. The purchase of the Shares by the Investors is to be effected in two closings of $6.5 million and $8.5 million, respectively, each of which is subject to specific conditions specified in the Purchase Agreement. The second closing is subject to the obtaining of all regulatory approvals and stockholder consent as may be necessary for us and the Investors to complete the transaction. No assurance can be given that such conditions will be satisfied or that such regulatory approvals and stockholder consent will be obtained. Any failure to raise this, or alternative, additional funding in a timely manner will place us in significant financial jeopardy. FORWARD LOOKING INFORMATION UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. The Act was designed to encourage companies to provide prospective information about themselves without fear of litigation. The prospective information must be identified as forward looking and must be accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements. The statements about our plans, strategies, intentions, expectations and prospects contained throughout the document are based on current expectations. These statements are forward looking and actual results may differ materially from those predicted as of the date of this report in the forward looking statements, which involve risks and uncertainties. In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends. Tickets.com, Inc. does not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. FORWARD LOOKING INFORMATION REGARDING REVENUE GROWTH AND EXECUTION OF OUR BUSINESS PLAN Outlined below are certain factors that may preclude us from meeting our revenue expectations and fulfilling our business strategy. We Need Additional Funding To Continue Our Operations And May Not Be Able To Obtain It In A Timely Fashion Or On Satisfactory Terms. We are operating with very limited cash resources and need to obtain additional funds to continue our planned operations. If we do not receive the additional funding in the near future, we will have to modify our business plan, reduce or discontinue some or all of our operations, seek a buyer for substantially all of our assets or seek bankruptcy protection. Our short-term and long-term ability to meet our liquidity requirements and to continue operations will depend on our ability to raise additional funding. Although we have entered into a purchase agreement for the sale of our Series F Senior Cumulative Redeemable Preferred Stock which would satisfy our funding needs, there can be no assurance that the conditions to the closing of such sale will be satisfied. 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, 11 14 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 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. 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. 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 and expanding our client base. We cannot be certain that we will be successful in increasing our Internet sales in future periods as well as increase our client base. 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 and Efficiencies 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 and efficiencies from online ticket sales, we must significantly increase the number of clients who use our online ticketing services. These clients generally use software systems that do not enable ticket sales over the Internet without a specific software upgrade. We cannot guarantee continued acceptance of our clients to Internet enable their 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 difficult we may encounter technological difficulties that may inhibit us from servicing our clients online, which may cause 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, we must either create separate Internet interfaces for each of these products or consolidate our in-house systems. We may experience difficulties in further consolidating our portfolio of in-house systems 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 Has 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 12 15 how we implement our e-commerce strategy, delays and costs associated with payments to Ticketmaster Corporation. In addition, the litigation could result in significant expenses and diversion of our management's time and other resources. 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. Our Proprietary Technology And Intellectual Property May Be Inadequately Protected, Which Could Harm Our Competitive Position. 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 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 registered the tradename "Tickets.com" and the stylized trademark "1.800.TICKETS", 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 are 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," 13 16 "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 are generally 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 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 call 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. 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. 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 competitor on a national level is Ticketmaster Corporation, which has operations in multiple locations throughout the United States. Ticketmaster Corporation has 14 17 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. 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 stages of developing a strong national presence. 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. 15 18 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. 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. Because Of Our Limited Operating History And Limited Internet Experience 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 our prospects or us. 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. FORWARD LOOKING INFORMATION REGARDING COST OF SERVICES 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 16 19 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. FORWARD LOOKING INFORMATION REGARDING OPERATING EXPENSES If We Cannot Effectively Integrate Our Numerous 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: 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 and management 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, 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. 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 March 31, 2001, we had goodwill and other intangible assets of $46.6 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 17 20 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. FORWARD LOOKING INFORMATION REGARDING LIQUIDITY AND CAPITAL RESOURCES We May Be Delisted From The Nasdaq National Market. On December 15, 2000, Nasdaq sent us a deficiency notice, informing us that we had failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive trading days as required by Nasdaq Marketplace Rules and that we would be provided 90 calendar days to regain compliance. As of March 15, 2001, we failed to increase our bid price to at least $1.00, for a minimum of 10 consecutive days. On March 21, 2001, Nasdaq provided us with written notification of the staff's determination to delist our common stock. We appealed the delisting determination and a Nasdaq hearing was held on May 10, 2001. Nasdaq indicated that they would render a decision within two to four weeks. If Nasdaq is not satisfied with our response to their concerns, then Nasdaq may delist our common stock at any time without further notice to us. If Nasdaq delists our common stock, then our common stock may be traded on the OTC Bulletin Board or the "pink sheets," or not traded at all. Many institutional and other investors refuse to invest in stocks that are traded at levels below the Nasdaq National Market which could make our effort to raise capital more difficult. In addition, the firms that currently make a market for our common stock could discontinue that role. OTC Bulletin Board and "pink sheet" stocks are often lightly traded or not traded at all on any given day. Any reduction in liquidity or active interest on the part of the investors in our common stock could have adverse consequences on our holders either because of reduced market prices or a lack of a regular, active trading market for our common stock. Our Stock Price Has Been And May Continue 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 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 18 21 - future sales of our 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. INFLATION AND FOREIGN CURRENCY RISK Inflation has not had a significant impact on our operations during the periods covered by the accompanying consolidated financial statements. Additionally, we are not presently subject to significant foreign exchange risk as international operations currently constitute a minor part of our operations. However, some of the recent companies we have acquired have operations internationally that could subject us to inflation and foreign currency risks in the future. If we are affected by inflation or foreign currency fluctuations in the countries where we will have operations, our business, financial condition and results of operations could be adversely affected. EFFECT OF RECENT ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and 138, which is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 as amended, establishes accounting and reporting standards for derivative instruments. The statement requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value, and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. We do not have any derivative instruments as of December 31, 2000 or 1999. The adoption of SFAS No. 133 as amended, did not have a material effect on our consolidated financial statements. In December 1999, the Securities Exchange Commission staff released Staff Accounting Bulletin 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. This 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 the question of gross vs. net revenue presentation and financial statement and Management's Discussion & Analysis ("MD&A") disclosures related to revenue recognition. For the three months ended March, 31 2001 the Company recorded $1.5 million of revenue share costs as an offset to revenues. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB 25. This Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 became effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that 19 22 occur after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 does not have a material effect on our financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are not exposed to material market risks related to fluctuations in interest rates. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. Some of our contracts and liabilities are payable in foreign currencies. Accordingly, we are subject to exposure from adverse movement in foreign currency exchange rates. This exposure is primarily related to revenue and operating expenses in the United Kingdom and denominated in the respective local currency. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a lawsuit against the Company in the United States District Court for the Central District of California seeking unspecified damages and a court order to prohibit the Company from, among other things, linking Internet consumers to internal pages within Ticketmaster's web site and using the Ticketmaster name on the Company's web site. In addition, the suit alleges that the Company has engaged in other wrongful acts, such as providing false and misleading information on its 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 Company's web site. The suit originally sought (i) an injunction to prohibit the Company from further engaging in any alleged unlawful activity, (ii) treble damages, (iii) attorneys' fees and other unspecified damages. On September 15, 1999 the Company filed a motion to dismiss the lawsuit. A hearing on the motion to dismiss had been scheduled for January 2000. On January 7, 2000, Ticketmaster Corporation and Ticketmaster Online-CitySearch filed a First Amended Complaint, which modified their previous allegations and added two claims for unfair competition and alleged violations of the Lanham Act. We filed a motion to dismiss the Amended Complaint and on March 27, 2000, the Court dismissed four (4) of the six (6) claims in the Amended Complaint. Ticketmaster Corporation and Ticketmaster Online-CitySearch also filed a Motion for Preliminary Injunction seeking an order precluding us from, among other things, providing links to Ticketmaster pages. On August 10, 2000, the Court denied this motion. In May 2000, we filed a counter claim 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 on September 25, 2000 the Court denied this motion. On February 12, 2001 we were scheduled to mediate this dispute before Judge Eugene Lynch (ret.) with respect to potential settlement. Three days prior to the mediation, Ticketmaster Corporation and Ticketmaster Online refused to participate in the mediation. We are currently preparing to file a motion for an order to compel Ticketmaster Corporation to participate in the mediation or in the alternative, a settlement conference. As of this date, no trial date has been set in this matter. On April 26, 2001 the United States District Court, Central District of California, Western Division issued an order establishing the appropriate framework within which to conduct discovery in this matter including but not limited to interrogatories, depositions and document production. The court indicated that it will soon be issuing a second order concerning the timetables for completion of discovery as well as a discovery cut-off deadline. As of this date, no trial date has been set in this matter. We currently are not party to any material litigation, nor are we aware of any pending or threatened litigation that would have a material adverse effect on us or our business. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS As of March 31, 2001, Tickets.com had remaining proceeds of $11.4 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 November 14, 2000, proceeds were used for working capital and general corporate purposes. ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20 23 None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K (a) Exhibits None. (b) On May 9, 2001, the Company filed a Current Report on Form 8-K reporting under Item 5 the execution of a Stock Purchase Agreement by and among the Company and General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar LLC, and International Capital partners, Inc., Profit Sharing Trust providing for the sale by the Company of its Series F Senior Cumulative Redeemable Preferred Stock. 21 24 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 thereto duly authorized. Tickets.com, Inc. (Registrant) Dated: May 14, 2001 /s/ W. THOMAS GIMPLE ----------------------------- W. Thomas Gimple Co-Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Dated: May 14, 2001 /s/ ERIC P. BAUER ----------------------------- Eric P. Bauer Chief Financial Officer (Principal Financial and Accounting Officer) 22 -----END PRIVACY-ENHANCED MESSAGE-----