Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 9, 2010)
  • 10-Q (May 10, 2010)
  • 10-Q (Nov 9, 2009)
  • 10-Q (Aug 10, 2009)
  • 10-Q (May 6, 2009)
  • 10-Q (Nov 12, 2008)

 
8-K

 
Other

TIX CORP 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
Unassociated Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2009

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-24592

Tix Corporation
(Exact name of small business issuer as specified in its charter)

Delaware
95-4417467
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)

12001 Ventura Place, Suite 340, Studio City, California 91604
(Address of principal executive offices)

 (818) 761-1002
(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period that the Registrant was required to submit and post such reports).  Yes ¨      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).  Yes ¨      No x

Number of shares of Tix Corporation common stock, $.08 par value, issued and outstanding as of July 30, 2009: 32,428,626, exclusive of treasury shares.

 
 

 

Special Note Regarding Forward-Looking Statements:
 
This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements that include the words “believes”, “expects”, “anticipates”, “intends”, “plans”, “may”, “will” or similar expressions that are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements may include, among others, statements concerning the Company's expectations regarding its business, growth prospects, revenue trends, operating costs, working capital requirements, facility expansion plans, competition, results of operations and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 involve known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to differ materially from those expressed in or implied by the forward-looking statements contained herein.

Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning the Company and its business made throughout this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, as well as other public reports filed with the United States Securities and Exchange Commission. Investors should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. Except as required by applicable law or regulation, the Company undertakes no obligation to update or revise any forward-looking statement contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, whether as a result of new information, future events or otherwise.

 
 

 

Tix Corporation and Subsidiaries

Index
 
   
Page No.
 
       
PART I. FINANCIAL INFORMATION
     
       
Item 1. Financial Statements
     
       
Condensed Consolidated Balance Sheets –June 30, 2009 (Unaudited) and December 31, 2008
 
  1
 
       
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - Three months ended June 30, 2009 and 2008
 
  2
 
       
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - Six months ended June 30, 2009 and 2008
 
  3
 
       
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Six months ended June 30, 2009
 
  4
 
       
Condensed Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2009 and 2008
 
  5-6
 
       
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
  7
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
  21
 
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
  38
 
       
Item 4. Controls and Procedures
 
  38
 
       
PART II. OTHER INFORMATION
     
       
Item 1. Legal Proceedings
 
  38
 
       
Item 1A. Risk Factors
 
  38
 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
  39
 
       
Item 3. Defaults upon Senior Securities
 
  39
 
       
Item 4. Submission of Matters to a Vote of Security Holders
 
  39
 
       
Item 5. Other Information
 
  40
 
       
Item 6. Exhibits
 
  40
 
       
SIGNATURES
 
  40
 

 
 

 

TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
June 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Assets
           
Current assets:
           
Cash
  $ 12,944,000     $ 9,192,000  
Accounts receivable, including show revenues earned but not billed
    1,038,000       1,104,000  
Inventory, net
    2,248,000       3,320,000  
Prepaid expenses and other current assets
    624,000       867,000  
Total current assets
    16,854,000       14,483,000  
                 
Property and equipment:
               
Office equipment and furniture
    1,913,000       1,816,000  
Equipment under capital lease
    408,000       408,000  
Leasehold improvements
    365,000       364,000  
Property and equipment, cost basis
    2,686,000       2,588,000  
Less accumulated depreciation
    (1,419,000 )     (1,155,000 )
Total property and equipment, net
    1,267,000       1,433,000  
                 
Other assets:
               
Intangible assets:
               
Goodwill
    5,895,000       5,639,000  
Intangibles, net
    5,768,000       6,751,000  
Total intangible assets
    11,663,000       12,390,000  
Capitalized theatrical costs
    815,000       459,000  
Deposits and other assets
    184,000       83,000  
Total other assets
    12,662,000       12,932,000  
Total assets
  $ 30,783,000     $ 28,848,000  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 4,101,000     $ 4,822,000  
Accrued expenses
    2,559,000       1,515,000  
Current portion of capital lease obligations
    63,000       51,000  
Deferred revenue
    80,000       100,000  
Income taxes payable
    106,000       -  
Total current liabilities
    6,909,000       6,488,000  
                 
Non-current liabilities:
               
Capital lease obligations, less current portion
    39,000       78,000  
Deferred rent
    52,000       85,000  
Total non-current liabilities
    91,000       163,000  
                 
Commitments and contingencies
               
Stockholders' equity:
               
Preferred stock, $.01 par value; 500,000 shares authorized; none issued
               
Common Stock, $.08 par value; 100,000,000 shares authorized; 32,437,626 shares outstanding net of 1,005,000 treasury shares, and 32,345,863 shares outstanding net of 732,370 treasury shares at June 30, 2009 and December 31, 2008 respectively
    2,676,000       2,646,000  
Additional paid-in capital
    89,093,000       88,062,000  
Cost of shares held in treasury (1,005,000 shares at June 30, 2009 and 732,370 shares at December 31, 2008 respectively)
    (2,541,000 )     (2,098,000 )
Accumulated deficit
    (65,430,000 )     (66,384,000 )
Accumulated other comprehensive loss
    (15,000 )     (29,000 )
Total stockholders' equity
    23,783,000       22,197,000  
Total liabilities and stockholders' equity
  $ 30,783,000     $ 28,848,000  

See accompanying notes to condensed consolidated financial statements.

 
1

 

TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended June 30,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
 
Revenues
  $ 26,584,000     $ 16,864,000  
Operating expenses:
               
Direct costs of revenues
    21,410,000       12,323,000  
Selling and marketing expenses
    581,000       799,000  
General and administrative expenses, including non-cash equity-based costs of $438,000 and $594,000 in 2009 and 2008, respectively (including $303,000 and $415,000 for officers, directors and employees in 2009 and 2008, respectively)
    3,337,000       4,059,000  
Depreciation and amortization
    626,000       1,102,000  
Total costs and expenses
    25,954,000       18,283,000  
Operating Income (Loss)
    630,000       (1,419,000 )
Other:
               
Other income
    129,000       164,000  
Interest income
    9,000       11,000  
Interest expense
    (3,000 )     (4,000 )
Other income, net
    135,000       171,000  
Net income (loss) before income tax expense
    765,000       (1,248,000 )
Current income tax expense (benefit)
    106,000       (82,000 )
Net income (loss)
    659,000       (1,166,000 )
Other comprehensive income (loss)
               
Foreign currency translation adjustments
    9,000       (44,000 )
Comprehensive income (loss)
  $ 668,000     $ (1,210,000 )
Net income (loss) per common share -
               
Basic
  $ 0.02     $ (0.04 )
Diluted
  $ 0.02     $ (0.04 )
Weighted average common shares outstanding -
               
Basic
    32,361,325       31,805,228  
Diluted
    32,645,364       31,805,228  

See accompanying notes to the condensed consolidated financial statements.

 
2

 
 
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

   
Six Months Ended June 30,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
 
Revenues
  $ 46,754,000     $ 40,027,000  
Operating expenses:
               
Direct costs of revenues
    36,336,000       29,054,000  
Selling and marketing expenses
    1,187,000       2,175,000  
General and administrative expenses, including non-cash equity-based costs of $851,000 and $1,196,000 in 2009 and 2008, respectively (including $693,000 and $829,000 for officers, directors and employees in 2009 and 2008, respectively)
    7,093,000       7,521,000  
Depreciation and amortization
    1,247,000       2,224,000  
Total costs and expenses
    45,863,000       40,974,000  
Operating Income (Loss)
    891,000       (947,000 )
Other:
               
Other income
    154,000       208,000  
Interest income
    22,000       45,000  
Interest expense
    (7,000 )     (10,000 )
Other income, net
    169,000       243,000  
Net income (loss) before income tax expense
    1,060,000       (704,000 )
Current income tax expense
    106,000       -  
Net income (loss)
    954,000       (704,000 )
Other comprehensive income (loss)
               
Foreign currency translation adjustments
    14,000       (44,000 )
Comprehensive income (loss)
  $ 968,000     $ (748,000 )
Net income (loss) per common share -
               
Basic
  $ 0.03     $ (0.02 )
Diluted
  $ 0.03     $ (0.02 )
Weighted average common shares outstanding -
               
Basic
    32,332,963       31,224,025  
Diluted
    32,592,125       31,224,025  

See accompanying notes to the condensed consolidated financial statements.

 
3

 

TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)

               
 
   
 
         
Accumulated
   
 
 
               
Additional
   
 
         
Other
   
Total
 
   
Common Stock
   
Paid In
   
Accumulated
   
Treasury
   
Comprehensive
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Stock
   
Loss
   
Equity
 
                                           
Balance, December 31, 2008
    32,345,863     $ 2,646,000     $ 88,062,000     $ (66,384,000 )   $ (2,098,000 )   $ (29,000 )   $ 22,197,000  
                                                         
Issuance of common stock to consultants
    29,166       3,000       47,000                               50,000  
                                                         
Issuance of common stock to officers and employees
    38,194       3,000       5,000                               8,000  
                                                         
Issuance of common stock on exercise of warrants and options
    106,557       9,000       (55,000 )                             (46,000 )
                                                         
Fair value of options issued to employees and directors
                    685,000                               685,000  
                                                         
Issuance of common stock related to acquisition of Magic Arts & Entertainment
    190,476       15,000       241,000                               256,000  
                                                         
Fair value of warrants issued to outside consultants
    -       -       108,000                               108,000  
                                                         
Net Income
                            954,000                       954,000  
                                                         
Foreign currency translation adjustment
                                            14,000       14,000  
                                                         
Cost of Treasury Stock
    (272,630 )                             (443,000 )             (443,000 )
                                                         
Balance, June 30, 2009
    32,437,626     $ 2,676,000     $ 89,093,000     $ (65,430,000 )   $ (2,541,000 )   $ (15,000 )   $ 23,783,000  

See accompanying notes to the condensed consolidated financial statements.  

 
4

 

TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Six Month Ended June 30,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
 
Cash flows from operating activities:
           
Net income (loss)
  $ 954,000     $ (704,000 )
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation
    264,000       237,000  
Amortization of intangible assets
    983,000       1,987,000  
Fair valued common stock issued for services to employees
    8,000       24,000  
Fair valued common stock issued for services to consultants
    50,000       367,000  
Fair value of options issued to employees and directors
    685,000       805,000  
Fair value of warrants issued to consultants
    108,000       -  
Change in allowance of inventory
    (2,000 )     60,000  
(Increase) decrease in:
               
Accounts receivable
    66,000       (578,000 )
Inventory
    1,073,000       104,000  
Prepaid expenses and other current assets
    243,000       320,000  
Capitalized theatrical costs, deposits and other assets
    (456,000 )     (461,000 )
Increase (decrease) in:
               
Accounts payable and accrued expenses
    324,000       381,000  
Income taxes payable
    106,000       -  
Deferred revenue
    (20,000 )     2,000  
Deferred rent
    (33,000 )     (74,000 )
Net cash provided by operating activities
    4,353,000       2,470,000  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (98,000 )     (336,000 )
Purchase of Magic Arts & Entertainment, net of cash acquired
    -       (1,972,000 )
Purchase of NewSpace Entertainment, net of cash acquired
    -       (1,254,000 )
Net cash used in investing activities
    (98,000 )     (3,562,000 )
                 
Cash flows from financing activities:
               
Cost of Treasury Stock
    (443,000 )     -  
Payments on capital lease obligations
    (28,000 )     (22,000 )
Net proceeds from exercise of options and warrants
    (46,000 )     54,000  
Net cash provided by (used in) financing activities
    (517,000 )     32,000  
                 
Effect of exchange rate changes on cash
    14,000       (36,000 )
                 
Change in Cash:
               
Net increase (decrease)
    3,752,000       (1,096,000 )
Balance at beginning of period
    9,192,000       7,417,000  
Balance at end of period
  $ 12,944,000     $ 6,321,000  

(Continued)

 
5

 
 
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

   
Six Month Ended June 30,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
 
Supplemental disclosures of cash flow information:
           
             
Cash paid for:
           
Income taxes
  $ -     $ -  
Interest
  $ 7,000     $ 10,000  
                 
Non-cash investing activities:
               
Issuance of earn-out shares of 190,476 and originally issued 476,190 shares of common stock in conjunction with the acquisition of Magic Arts & Entertainment - Florida, Inc. in 2009 and 2008 respectively.
  $ 256,000     $ 2,257,000  
Issuance of 571,428 shares of common stock in conjunction with the acquisition of NewSpace Entertainment, Inc.
  $ -     $ 2,595,000  

See accompanying notes to the condensed consolidated financial statements.

 
6

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Nature of Business

Tix Corporation (the “Company”) was incorporated in Delaware in April 1993. The Company is a diversified integrated entertainment company providing ticketing services, event merchandising and the production and promotion of live entertainment. We operate three complementary business units: Ticketing Services (Tix4Tonight) provides discount, premium and membership group sales; Exhibit Merchandising (EM) provides our exhibit and event merchandise sales and services; and Tix Productions Inc. (TPI), provides the production and promotion of live entertainment.
 
Preparation of Interim Financial Statements
 
The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that its disclosures are sufficiently presented to prevent this information from being misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for a full year. The financial statements contained herein should be read in conjunction with the consolidated and combined financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K and interim financial statements and information reported on Forms 8-K and 10-Q.
 
Note 2 - Summary of Significant Accounting Policies

Revenue Recognition, Presentation and Concentrations:
 
The Company has several streams of income, each of which is required under Generally Accepted Accounting Principles (GAAP) to be recognized in varying ways. The following is a summary of our revenue recognition policies.
 
The Company’s Las Vegas discount show ticketing business recognizes as revenue the commissions and related transaction fees earned from the sale of Las Vegas show tickets at the time the tickets are paid for and delivered to the customers. The Company’s commissions are calculated based on the face value of the show tickets sold. The Company’s transaction fees are charged on a per-ticket basis. With certain exceptions, ticket sales are generally non-refundable, although same-day exchanges of previously sold tickets are permitted. Claims for ticket refunds, which are generally received and paid the day after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. The Company does not have accounts receivable associated with its sales transactions, as payment is collected at the time of sale.

The Company’s Tix4Members.com recognizes as revenue the commissions and related transaction fees from the sale of tickets when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. Claims for ticket refunds, which are generally received and paid the week after the show date, are charged back to the respective shows and are recorded as a reduction to the Company’s commissions and fees at the time that such refunds are processed. Presently, Tix4Members.com does not have any accounts receivable associated with sales transactions to individual customers because payment is collected at the time of sale.
 
Tix4Dinner offers reservations for discounted dinners at various restaurants surrounding the Las Vegas strip and downtown with dining at specific times on the same day as the sale. Tix4Dinner recognizes as revenue the transaction fees earned from the booking of dinner reservations at the time the reservations are made. At this time, the Company has minor accounts receivable and no accounts payable associated with the Tix4Dinner operations, as the Company collects the transaction fee at the time the reservation is made, and the dinner payment is collected directly by the restaurant. The restaurants pay the Company a fee for each reservation.
 
Tix4Golf recognizes as revenue the difference between how much it charges its customers for tee-times and how much it pays golf courses for tee-times. The revenue per tee-time, as well as the cost per tee-time, varies, depending on the desirability of the golf course, tee-time, weather, time of year and several other factors. Revenue per tee-time is significantly higher when tee-times are guaranteed or pre-bought in large quantities. Tee-times are generally sold the day before or the day of the tee-time, however, tee-times may be booked in advance. Revenue is not recognized until the day of the tee-time. The Company does not have any accounts receivable associated with this business because all transactions are paid for at the time of purchase.
 
Tix4AnyEvent (AnyEvent) recognizes as revenue the gross amount from the sale of tickets that it owns. AnyEvent bears the risk of economic loss if the tickets are not sold by the date the event is scheduled to occur. Revenue is considered earned when the related event has occurred. Refunds are only issued if the event is canceled or postponed. Payments for such ticket sales received prior to the event are recorded as deferred revenue. AnyEvent does not have any accounts receivable associated with sales transactions to retail customers because payment is collected at the time of sale. However, sales transactions to other ticket brokers may be conducted on a credit basis, which would generate accounts receivable.

 
7

 
 
Exhibit Merchandising recognizes retail store sales at the time the customer takes possession of the merchandise. Sales are recorded net of discounts and returns and exclude sales tax. Discounts are estimated based upon historical experience. For online sales, revenue is recognized free on board (“FOB”) origin where title and risk of loss pass to the buyer when the merchandise leaves the Company's distribution facility at the time of shipment, which we refer to as the date of purchase by the customer. Sales are recognized net of merchandise returns, which are reserved for based on historical experience. Shipping and handling revenues from sales are included as a component of net sales. Conversely, shipping and handling costs are a component of direct cost of revenues. The Company does not have any accounts receivable associated with this business as transactions are done by cash or credit card.
 
On January 1, 2008, the Company began its live entertainment business. Revenue from the presentation and production of an event is recognized after the performance occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the tour’s season or the term of the contract. We account for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction to revenue.

Tix Productions Inc.’s (TPI) operating units Magic Arts & Entertainment and NewSpace act as both presenters and promoters of productions, as well as agent.  TPI’s revenues from live entertainment where it is acting as the producer or promoter are a function of a number of elements; revenue is a direct reflection of tickets sold times ticket prices plus ancillary revenue streams including sponsorships and revenues generated through premium ticketing opportunities. In instances where the Company acts as the presenter or promoter it:

 
·
selects the suppliers or approves the selection of the supplier,
 
·
is the primary obligor with suppliers,
 
·
assumes credit risk,
 
·
directs the pricing of the tickets, and
 
·
purchases the advertising.

The above are indicators of ownership and would be evidence that revenues and related expenses should be recorded at gross.  As the Company is acting as the principal in the transaction, i.e., it has the risks and rewards of ownership and has recorded the related revenues and expenses at gross. In other instances where we only receive a fee and are not the principal obligors to vendors we record these revenues at net.
 
Consolidation:
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
 
 Stock-Based Compensation:
 
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees using Statement of Financial Accounting Standards (SFAS) No. 123R effective January 1, 2006, for all share-based payments granted based on the requirements of SFAS No. 123R for all awards granted to employees. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
 
Intangible Assets and Goodwill:
 
The Company accounts for intangible assets and goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit. The Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

 
8

 

Impairment of Long-Lived Assets:
 
Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), established guidelines regarding when impairment losses on long-lived assets, which include property and equipment, should be recognized, and how impairment losses should be measured. SFAS No. 144 also provided a single accounting model for long-lived assets to be disposed of and significantly changed the criteria that would have to be met to classify an asset as held-for-sale.

Management regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs quarterly, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, then management prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. Management believes that the accounting estimate related to impairment of its property and equipment is a “critical accounting estimate” because: (1) it is highly susceptible to change from period to period because it requires management to estimate fair value, which is based on assumptions about cash flows and discount rates; and (2) the impact that recognizing an impairment would have on the assets reported on the Company’s balance sheet, as well as net income, could be material. Management’s assumptions about cash flows and discount rates require significant judgment because actual revenues and expenses have fluctuated in the past and are expected to continue to do so. There were no indications of impairment based on management’s assessment at June 30, 2009.  At December 31, 2008, we recorded an impairment charge of $33.1 million related to the goodwill and intangible assets from our acquisition of EM.  As of June 30, 2009, we have $11.7 million of remaining goodwill and intangible assets related to our acquisitions of John’s Tickets, LLC, EM, Magic and NewSpace. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business, and significant negative industry or economic trends.  If current economic conditions worsen causing decreased revenues and increased costs, we may have further goodwill impairments. 

Income Taxes:
 
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial reporting and tax basis of assets and liabilities. The Company considers future taxable income and ongoing, prudent and feasible tax planning strategies, in assessing the value of its deferred tax assets. If the Company determines that it is more likely than not that these assets will not be realized, the Company will reduce the value of these assets to their expected realizable value, thereby decreasing net income. Evaluating the value of these assets is necessarily based on the Company’s judgment. If the Company subsequently determines that the deferred tax assets, which were written down, would be realized in the future, the value of the deferred tax assets would be increased, thereby increasing net income in the period when that determination was made.
 
The Company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 prescribes a recognition threshold and a measurement attributable for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likelihood of being realized.
 
Fair Value of Financial Instruments:
 
The carrying amounts of financial instruments, including cash, accounts and other receivables, accounts payable and accrued liabilities, and short-term loans approximate fair value because of their short maturity. The carrying amounts of capital lease obligations approximate fair value because the related effective interest rates on these instruments approximate the rates currently available to the Company.
 
Cash Concentrations: 
 
The Company's cash balances on deposit with banks in savings accounts in the United States (US) are guaranteed up to $250,000 by the Federal Deposit Insurance Corporation (the “FDIC”). The Company may periodically be exposed to risk for the amount of funds held in one bank in excess of the insurance limit. In order to control the risk, the Company's policy is to maintain cash balances with high quality financial institutions. At June 30, 2009, the Company’s aggregate cash in excess of the FDIC insured amount was $11.4 million. In addition, the Company had aggregate cash balances in Austria and The United Kingdom of $107,000 and $14,000, respectively, which are within these respective countries’ equivalent of the US FDIC guarantee. 

Foreign Currency:
 
Results of foreign operations are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those operations are translated into U.S. dollars using the exchange rates at the balance sheet date. The realized and unrealized exchange losses and gains were minor in the three and six months ending June 30, 2009. The related translation adjustments are recorded in a separate component of stockholders’ equity in accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in the results of operations.

 
9

 

Accounting Estimates:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
  
Advertising Costs:
 
Advertising costs are charged to operations as selling and marketing expenses at the time the costs are incurred. For the three and six months ended June 30, 2009 and 2008, advertising costs were $576,000 and $1.2 million, and $1.6 million and $3.8 million, respectively.  

Recent Accounting Pronouncements:
 
References to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC Staff Accounting Bulletin”, respectively.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-4, Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly (“FSP 157-4”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP provides guidance for estimating fair value when the volume and level of market activity for an asset or liability have significantly decreased and determining whether a transaction was orderly. This FSP applies to all fair value measurements when appropriate. The Company does not expect the adoption of this statement will have a significant impact on its financial statements based on current market conditions.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 115-2 amends existing guidance for determining whether an other than temporary impairment of debt securities has occurred. Among other changes, the FASB replaced the existing requirement that an entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert (a) it does not have the intent to sell the security, and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company has not determined the impact of the adoption of FSP 115-2 on its financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), which is effective for the Company for the quarterly period beginning April 1, 2009. FSP 107-1 requires an entity to provide the annual disclosures required by FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, in its interim financial statements. The Company provides the additional disclosures as required by FSP 107-1 in its quarterly report on Form 10-Q for the period ended June 30, 2009.

In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative non-governmental U.S. GAAP to be launched on July 1, 2009. The codification does not change current U.S. GAAP, but is intended to simplify user access to authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all accounting literature not included in the codification will be considered nonauthoritative. The codification is effective for the Company’s financial statements issued beginning in the quarter ending September 30, 2009. The Company does not expect the adoption of the codification to have an impact on its consolidated financial statements.

Note 3 - Acquisitions
 
On January 2, 2008, the Company entered into separate letters of intent to acquire Magic Arts and Entertainment, LLC (Magic) and NewSpace Entertainment, LLC (NewSpace). As part of the letters of intent, the managements of Magic and NewSpace agreed to manage the operations of their respective companies for the benefit of the Company from January 2, 2008 until the transactions could be finalized. The managements of Magic and NewSpace were required to consult and obtain the approval of the management of the Company prior to entering into any long term arrangements or transactions that were outside the normal course of business. Further, the Company assumed all responsibility for any losses or profits that might be incurred or earned during this period by both Magic and NewSpace. As such, the Company has included the results of operation of Magic and NewSpace in its consolidated operations as of January 2, 2008, the date the company acquired effective control. The acquisition of Magic was completed on February 29, 2008 and the acquisition of NewSpace was completed on March 12, 2008. 
 
Magic Arts and Entertainment:
 
Pursuant to the Merger Agreement and Plan of Merger, we paid to the two stockholders of Magic, Joseph Marsh and Lee Marshall, a total of $2.1 million in cash and issued to them a total of 476,190 restricted shares of our common stock with a market value of $2.3 million. Mr. Marsh and Mr. Marshall were the former owners of Exhibit Merchandising. Mr. Marsh, as a result of the two transactions and open market purchases owns approximately 14% of the Company and Mr. Marshall owns approximately 6% of the Company. Further, at February 28, 2009, we issued an additional 190,476 shares of our common stock with a fair market value of $256,000 to the former owners of Magic Arts and Entertainment as they achieved the pre-determined EBITDA threshold. We will be required to issue to the former Magic stockholders an additional 190,476 shares of our common stock if certain EBITDA milestones are achieved during the next twenty-four months. These milestones are based upon the results achieved by Tix Productions, Inc. (“TPI”), a wholly owned subsidiary of the Company that focuses on providing live entertainment.

 
10

 
 
The assets of Magic consist primarily of agreements, copyrights and licenses to theatres, productions, and touring acts. We carry on Magic’s business through TPI.
 
The acquisition of Magic has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the operations of the company have been consolidated commencing with the closing of the transaction. The $4.4 million purchase price was allocated based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm. As a result of the additional shares issued with a fair market value of $256,000, the adjusted purchase price of Magic is $4.7 million.
 
Allocation of the Purchase Price of Magic Arts & Entertainment:

Tangible assets, net of liabilities assumed:
 
$
143,000
 
Intangible assets:
       
Employment Agreement
   
1,775,000
 
Technology-based
   
5,000
 
Contract
   
476,000
 
Goodwill
   
2,273,000
 
Purchase price
 
$
4,672,000
 
 
In conjunction with the completion of the Merger, we entered into written employment agreements with Messrs. Marsh and Marshall, under which they serve as the Co-Chief Executive Officers of TPI. The term of each of the employment agreements commenced on February 29, 2008 and will expire on February 28, 2011, unless sooner terminated in accordance with the applicable provisions of the employment agreement. Under the employment agreements, Mr. Marsh is entitled to an annual salary of $100,000 and Mr. Marshall is entitled to an annual salary of $300,000 that will increase by $25,000 each year during the term of the agreement. Mr. Marshall also is eligible to receive annual bonuses based upon TPI exceeding performance milestones specified in his employment agreement.

In the event of the termination of employment of Mr. Marsh or Mr. Marshall for any reason other than termination by us for “cause” (as defined in the employment agreement) or termination by reason of his death or permanent disability, we have agreed to continue to pay Mr. Marsh or Mr. Marshall or their personal representatives, as the case may be, the annual salary under his employment agreement for six months following their departure.
 
Under their employment agreements, each of Messrs. Marsh and Marshall agrees not to compete with us during the period from the date on which their employment with the Company is terminated for any reason through the fifth anniversary of such date.
  
NewSpace Entertainment
 
Pursuant to the Merger, we paid to the three stockholders of NewSpace $1.4 million in cash and issued to them a total of 571,428 restricted shares of our common stock with a market value of $2.6 million.
 
The assets of NewSpace consist primarily of agreements, copyrights and licenses to theatres, productions, and touring acts. We carry on the business of NewSpace through TPI.  

The acquisition of NewSpace has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the operations of the company have been consolidated commencing with the closing of the transaction. The $4.0 million purchase price was allocated and based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm. This valuation is still subject to change and revision may occur in the assigned value. The Company does not believe any changes or revisions will be significant.
 
Allocation of the Purchase Price of NewSpace Entertainment:

Tangible assets, net of liabilities assumed:
 
$
293,000
 
Intangible assets:
       
Licensing Contracts
   
64,000
 
Employment Agreements
   
1,698,000
 
Technology-based
   
5,000
 
Goodwill
   
1,953,000
 
Purchase price
 
$
4,013,000
 
 
 
11

 

In conjunction with the completion of the Merger, we entered into written employment agreements with John Ballard, Steve Boulay and Bruce Granath, the three stockholders of NewSpace, pursuant to which they serve as President, Chief Operating Officer and Vice President - Marketing, respectively, at TPI. The term of each of the employment agreements commenced on March 11, 2008, and will expire on the third anniversary of such date, unless sooner terminated in accordance with applicable provisions of the employment agreements.
 
Mr. Ballard and Mr. Boulay are entitled under their respective employment agreements to an annual salary of $185,000. Mr. Granath, pursuant to his employment agreement, is entitled to an annual salary of $115,000. Messrs. Ballard, Boulay and Granath are each entitled to increases in their annual salaries of at least 3% per annum.
 
If Messrs. Ballard, Boulay and Granath are terminated “for cause” as defined in their employment agreements or the employment agreements expire upon their respective terms, each agrees not to compete with us during the period from the date of termination or expiration through the fifth anniversary of such date.
 
If the employment of Messrs. Ballard, Boulay or Granath is terminated “without cause” (as defined in their respective employment agreements), we have agreed to continue to pay Messrs. Ballard, Boulay, Granath, or their personal representatives, as the case may be, their annual salary under his employment agreement for six months.

Note 4- Intangible Assets

The following tables summarize the original cost, the related accumulated amortization, impairment adjustment, and the net carrying amounts for the Company’s intangible assets at June 30, 2009.

   
Estimated
Useful
 
Original
   
Accumulated
   
Impairment
   
Other
   
Net
Carrying
 
   
Lives
 
Cost
   
Amortization
   
Adjustment
   
Adjustment
   
Amount
 
Marketing Based
 
3-6 years
  $ 12,277,000     $ (3,168,000 )   $ (6,852,000 )   $ -     $ 2,257,000  
Contract commitments
 
3-7 years
    6,794,000       (2,734,000 )     (835,000 )     -       3,225,000  
Customer relationships
 
3 years
    612,000       (474,000 )     -       -       138,000  
Technology Based
 
3 years
    111,000       (82,000 )     -       -       29,000  
Intellectual property (e.g. domain names)
 
5 years
    130,000       (11,000 )     -       -       119,000  
Goodwill
 
indefinite
    31,084,000       -       (25,445,000 )     256,000       5,895,000  
Total
      $ 51,008,000     $ (6,469,000 )   $ (33,132,000 )   $ 256,000     $ 11,663,000  

Ticketing Services
                       
   
Assigned
   
Accumulated
         
Carrying
 
   
Value
   
Amortization
   
Adjustment
   
Amount
 
Marketing Based
  $ 75,000     $ (57,000 )   $ -     $ 18,000  
Contract commitments
    124,000       (46,000 )     -       78,000  
Customer relationships
    612,000       (474,000 )     -       138,000  
Technology Based
    100,000       (76,000 )     -       24,000  
Intellectual property (e.g. domain names)
    130,000       (11,000 )     -       119,000  
Total
  $ 1,041,000     $ (664,000 )   $ -     $ 377,000  

Merchandising
                       
   
Assigned
   
Accumulated
         
Carrying
 
   
Value
   
Amortization
   
Adjustment
   
Amount
 
Marketing Based
  $ 12,202,000     $ (3,111,000 )   $ (6,852,000 )   $ 2,239,000  
Contract commitments
    2,657,000       (1,421,000 )     (835,000 )     401,000  
Goodwill
    27,115,000               (25,445,000 )     1,670,000  
Total
  $ 41,974,000     $ (4,532,000 )   $ (33,132,000 )   $ 4,310,000  
 
Live Entertainment
                       
   
Assigned
   
Accumulated
         
Carrying
 
   
Value
   
Amortization
   
Adjustment
   
Amount
 
Contract commitments
    4,013,000       (1,267,000 )     -       2,746,000  
Technology Based
    11,000       (6,000 )     -       5,000  
Goodwill
    3,969,000               256,000       4,225,000  
Total
  $ 7,993,000     $ (1,273,000 )   $ 256,000     $ 6,976,000  
 
 
12

 
 
The 2009 adjustment to goodwill was the result of the issuance of 190,000 shares of common stock with a fair market value on the date of issuance of $256,000 to the former shareholders of Magic pursuant to an earn-out provision of the Magic Arts and Entertainment merger agreement.

Total amortization expense related to intangible assets for the three months ending June 30, 2009 and 2008 were $493,000 and $981,000, respectively. Total amortization expense related to intangible assets for the six months ending June 30, 2009 and 2008 were $983,000 and $1,987,000, respectively. The decline in amortization costs is primarily due to the $7.7 million impairment charge associated with EM which was recorded at December 31, 2008, and will result in an annual decrease of $2.0 million of amortization expense over the next four years.  Total estimated amortization expense with respect to intangible assets for the remainder of 2009 through 2013 is as follows:

Years Ending December 31,
     
2009
  $ (983,000 )
2010
    (1,596,000 )
2011
    (1,326,000 )
2012
    (1,326,000 )
2013
    (403,000 )
Beyond 2013
    (134,000 )
Total
  $ (5,768,000 )

Note 5- Obligations under Capital Leases

The Company has entered into various capital leases for equipment with monthly payments ranging from $216 to $1,767 per month, including interest, at interest rates ranging from 9.8% to 19.7% per annum. At June 30, 2009, monthly payments under these leases aggregated $5,600. The leases expire at various dates through 2013.

At June 30, 2009 and 2008, property and equipment for each period included assets under capital leases of $408,000, net of accumulated amortization of $297,000 and $257,000, respectively.
 
Minimum future payments under capital lease obligations for the remainder of 2009, and thereafter are as follows:
 
Years Ending December 31,
     
2009
    30,000  
2010
    67,000  
2011
    9,000  
2012
    8,000  
2013
    3,000  
Total payments
    117,000  
Less: amount representing interest
    (15,000 )
Present value of minimum lease payments
    102,000  
Less: current portion
    (63,000 )
Non-current portion
  $ 39,000  

Note 6- Related Party Transactions

During 2009 and 2008, Benjamin Frankel, a director of the Company, was a principal in Frankel, LoPresti & Co., an accountancy corporation that provides tax advisory and preparation services to the Company. For the three and six months ended June 30, 2009, we paid Mr. Frankel or his firm $12,000 and $20,000, respectively for tax preparation and advisory services. No expenses were incurred for the three and six months ended June 30, 2008.

 
13

 

Mr. Joseph Marsh, a greater than 10% shareholder of Tix, was a principal in Magic Arts and Entertainment - Florida, Inc., a company Tix acquired on January 2, 2008.  For more details regarding the purchase of Magic, see Note 3. - Acquisitions.

Note 7- Stockholders’ equity

During the six months ended June 30, 2009, the Company issued: 29,000 shares of common stock to consultants with a fair market value of $50,000 on the date of issuance, and 38,000 shares of common stock to officers and employees with a fair market value of $8,000 on the date of issuance. Additionally, the Company issued 107,000 shares of common stock, net of 43,000 shares withheld related to income taxes as a result of an employee option exercise. The company issued 190,000 shares of common stock with a fair market value on the date of issuance of $256,000 pursuant to an earn-out provision of the Magic Arts and Entertainment merger agreement.

In the third quarter of 2008, the Company’s board of directors authorized a share repurchase program.  As of June 30, 2009, the Company repurchased 1,000,000 shares for $2,532,000. The shares were repurchased at prices that range from $1.20 per share to $4.13 per share.

In the second quarter of 2009, the Company’s board of directors authorized an additional share repurchase program (“the 2009 Repurchase Program”) as the 1,000,000 shares authorized to be repurchased under the program authorized in the third quarter of 2008 had been purchased. Under the 2009 Repurchase Program, the Company had repurchased 5,000 shares for $9,600, as of June 30, 2009. Through July 20, 2009, the Company has repurchased 14,000 shares for $29,000. The shares were repurchased at prices that range from $1.91 per share to $2.18 per share.

Note 8- Stock-Based Compensation Plans

Summary of Stock Options:

The Company has various stock-based compensation plans. The intrinsic value of outstanding stock options at June 30, 2009 was $296,000, as compared to $927,000 at June 30, 2008. The intrinsic value of exercisable stock options at June 30, 2009 was $296,000, as compared to $683,000 at June 30, 2008. A summary of the combined stock options for the six months ended June 30, 2009 is as follows:

         
Weighted
 
   
Number
   
average
 
   
of
   
exercise
 
   
options
   
price
 
             
Balance outstanding, December 31, 2008
    1,263,000     $ 5.41  
                 
Options granted
    250,000       1.27  
Options exercised
    (150,000 )     0.15  
Options expired or forfeited
    (128,000 )     4.20  
                 
Balance outstanding, June 30, 2009
    1,235,000     $ 5.33  
                 
Balance exercisable, June 30, 2009
    585,000     $ 4.93  
 
 
14

 
 
Information relating to outstanding stock options at June 30, 2009, summarized by exercise price, is as follows:

   
Outstanding
   
Exercisable
 
               
Weighted
         
Weighted
 
         
Life
   
Average
         
Average
 
Exercise Price Per Share
 
Shares
   
(Years)
   
Exercise Price
   
Shares
   
Exercise Price
 
                               
$6.00 - $7.20
    815,000       7.31     $ 7.01       315,000     $ 7.02  
$4.00 - $5.99
    20,000       2.71     $ 4.30       20,000     $ 4.30  
$2.00 - $3.99
    150,000       3.78     $ 3.07       150,000     $ 3.07  
$0.22 - $1.99
    250,000       7.75     $ 1.27       100,000     $ 1.25  
                                         
      1,235,000       6.89     $ 5.33       585,000     $ 4.93  

Tix Corporation recorded compensation expense pursuant to FAS 123(R) for the six months ended June 30, 2009 and 2008 of $685,000 and $805,000, respectively. As of June 30, 2009, the Company has outstanding unvested options with future compensation costs of $1.7 million, which will be recorded as compensation expense as the options vest over their remaining average life of 6.89 years.

The assumptions used in calculating the fair value of the options granted during 2009, using the Black Scholes option-pricing model were as follows:

   
2009
 
Risk free rate of return
    1.36 %
Option lives in years
    3  
Annual volatility of stock price
    100.6 %
Dividend yield
    0 %

In conjunction with a consulting agreement in 2009, the Company issued 150,000 warrants, of which 75,000 vested immediately. The remaining 75,000 vest over six months, which is the term of the consulting agreement. As the consulting agreement can be terminated at any time and the consulting arrangement does not contain any performance measurements or sufficiently large disincentives for non-performance, the related consulting expense on these 75,000 warrants is recognized over the life of the contract. In the six months ended June 30, 2009, we recorded an expense of $90,000 related to this consulting agreement. In conjunction with a consulting agreement in 2008, the Company issued 150,000 warrants, of which 50,000 vested immediately. The remaining 100,000 warrants vested over six months, which is the term of the consulting agreement. As the consulting agreement could have been terminated at any time and the consulting arrangement does not contain any performance measurements or sufficiently large disincentives for non-performance, the related consulting expense on these 100,000 warrants was recognized over the life of the contract. In the six months ended June 30, 2009, the remaining 33,000 warrants vested, and we recorded an expense of $18,000.

A summary of warrant activity for the six months ended June 30, 2009 is as follows:

         
Weighted
 
   
Number
   
average
 
   
of
   
exercise
 
   
warrants
   
price
 
             
Balance outstanding, December 31, 2008
    2,672,007     $ 5.11  
                 
Warrants granted
    150,000       1.14  
Warrants exercised
    -       -  
Warrants expired
    -       -  
                 
Balance outstanding, June 30, 2009
    2,822,007     $ 4.90  

The intrinsic value of outstanding warrants at June 30, 2009 was $491,000, as compared to $846,000 at June 30, 2008. Information relating to outstanding warrants at June 30, 2009, summarized by exercise price, is as follows:

 
15

 

   
Outstanding
   
Exercisable
 
               
Weighted
         
Weighted
 
         
Life
   
Average
         
Average
 
Exercise Price Per Share
 
Shares
   
(Years)
   
Exercise Price
   
Shares
   
Exercise Price
 
                               
$2.00 - $5.50
    2,522,007       0.34     $ 5.38       2,522,007     $ 5.38  
$0.36 - $1.99
    300,000       2.62     $ 0.82       255,000     $ 0.76  
                                         
      2,822,007       0.58     $ 4.90       2,777,007     $ 4.96  
 
Note 9- Income Taxes

At June 30, 2009, the Company had Federal net operating loss carryforwards of approximately $27.1 million that begin expiring in 2009 in varying amounts through 2028. The Company also had California state net operating loss carryforwards of approximately $700,000. In October, 2008 California temporarily suspended use of net operating losses for 2008 and 2009, and the California state net operating losses expire beginning in 2015 in varying amounts through 2018.

SFAS No. 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Due to the restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s net operating loss carryforwards are limited to $6.7 million per year as a result of cumulative changes in stock ownership. As a result of the limitations related to Internal Revenue Code Section 382 and the Company’s lack of history of profits, as such, the Company recorded a 100% valuation allowance against its net deferred tax assets as of June 30, 2009 and 2008.

The provision for income taxes was $106,000 for the three and six months ended June 30, 2009 compared with a benefit of $82,000 and no provision for the three and six months ended June 30, 2008. The provision for income taxes for the three and six months ended June 30, 2009 and 2008 was determined using our effective rate estimated for the entire fiscal year.
  
In addition, during 2009, we utilized certain federal net operating loss (“NOL”) carryforwards. We have provided valuation allowances related to the benefits from income taxes resulting from the application of a statutory tax rate to our NOL’s generated in previous periods. The allowances were established and maintained as a result of our history of losses from operations.

Note 10- Earnings Per Share

The Company computes net income per common share in accordance with FASB Statement of Financial Accounting Standard 128, Earnings per Share (“Statement 128”). Under the provisions of Statement 128, basic net income per common share is computed by dividing the net income applicable to common shares by weighted average number of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of stock options, restricted stock and other potentially dilutive financial instruments only in the periods in which such effect is dilutive.

The following table sets forth the computation of basic and diluted income per common share:

   
Six Months Ended June 30,
 
   
2009
   
2008
 
             
Net income (loss)
  $ 954,000     $ (704,000 )
                 
Weighted average common shares- basic
    32,332,963       31,224,025  
                 
Dilutive effect of employee incentive plans
    139,055       -  
Dilutive effect of warrants issued to consultants
    120,107       -  
Weighted average shares- diluted
    32,592,125       31,224,025  
                 
Net income per common share:
               
Basic
  $ 0.03     $ (0.02 )
Diluted
  $ 0.03     $ (0.02 )
 
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive.
 
 
16

 
 
   
Three Months Ended June 30,
 
   
2009
   
2008
 
             
Net income (loss)
  $ 659,000     $ (1,166,000 )
                 
Weighted average common shares- basic
    32,361,325       31,805,228  
                 
Dilutive effect of employee incentive plans
    145,526       -  
Dilutive effect of warrants issued to consultants
    138,513       -  
Weighted average shares- diluted
    32,645,364       31,805,228  
                 
Net income per common share:
               
Basic
  $ 0.02     $ (0.04 )
Diluted
  $ 0.02     $ (0.04 )
                 
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive.
 

Note 11- Fair Value Measurements
 
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Financial assets recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.  SFAS No. 157 defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

·
Level 1 – quoted prices in active markets for identical investments

·
Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

·
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities.  The following table provides the fair value measurements of applicable Company financial assets that are measured at fair value on a recurring basis according to the fair value levels defined by SFAS No. 157 as of June 30, 2009 and December 31, 2008.
 
   
Financial Assets at Fair Value as of June 30, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
(in thousands)
 
Cash and cash equivalents
  $ 12,931     $     $     $ 12,931  
Short-term investments
      13                       13  
Long-term investments
                                  
Total cash and cash equivalents and investments
  $ 12,944     $     $     $ 12,944  

   
Financial Assets at Fair Value as of December 31, 2008
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
(in thousands)
 
Cash and cash equivalents
  $ 9,179     $     $     $ 9,179  
Short-term investments
      13                       13  
Long-term investments
                                  
Total cash and cash equivalents and investments
  $ 9,192     $     $     $ 9,192  
 
 
17

 

There were no unrealized gains or losses included in earnings resulting from long-term investments associated with Level 3 financial assets during the six month period ended June 30, 2009.
 
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis.  These assets include goodwill and intangible assets associated with the acquisition of John’s Tickets, EM, Magic and NewSpace.  For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.

Note 12- Segment Reporting

We operate in three reportable segments: ticketing services, event and branded merchandising, and live entertainment.

Ticketing Services
 
Our ticketing business is operated by our wholly owned subsidiary Tix4Tonight. Ticketing Services offers three distinct services: discount ticketing, membership group sales, and premium event ticketing.
 
Discount Ticketing – Tix4Tonight, Las Vegas
 
When selling discounted tickets, Tix4Tonight generally sells them from six leased locations in Las Vegas under short-term, exclusive and non-exclusive agreements with approximately 80 Las Vegas shows, out of a total of approx