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 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2


 
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 March 31, 2010

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)

12711 Ventura Blvd, Suite 340, Studio City, California 91604
(Address of principal executive offices)

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

12001 Ventura Place, Suite 340, Studio City, California 91604
(Former name or former address, 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 ¨

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 April 15, 2010: 31,123,357, exclusive of treasury shares.

 



 
 
This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 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 March 31, 2010 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 March 31, 2010, 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 March 31, 2010, 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 – March 31, 2010 (Unaudited) and December 31, 2009
 
4
 
       
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - Three months ended March 31, 2010 and 2009
 
5
 
       
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Three months ended March 31, 2010
 
6
 
       
Condensed Consolidated Statements of Cash Flows (Unaudited) – Three months ended March 31, 2010 and 2009
 
7
 
       
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
8
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
20
 
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
31
 
       
Item 4. Controls and Procedures
 
32
 
       
PART II. OTHER INFORMATION
     
       
Item 1. Legal Proceedings
 
32
 
       
Item 1A. Risk Factors
 
33
 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
33
 
       
Item 3. Defaults upon Senior Securities
 
33
 
       
Item 4. Submission of Matters to a Vote of Security Holders
 
33
 
       
Item 5. Other Information
 
33
 
       
Item 6. Exhibits
 
33
 
       
SIGNATURES
 
34
 
 
 
3

 
 
CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31,
   
December 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
             
Assets
 
Current assets:
           
Cash
  $ 10,634,000     $ 9,885,000  
Accounts receivable, including show revenues earned but not billed
    1,102,000       1,911,000  
Advances to vendors
    914,000       964,000  
Inventory, net
    1,717,000       2,172,000  
Prepaid expenses and other current assets
    1,220,000       1,350,000  
Total current assets
    15,587,000       16,282,000  
                 
Property and equipment, net
    1,341,000       1,308,000  
                 
Other assets:
               
Intangible assets:
               
Goodwill
    7,700,000       5,895,000  
Intangibles, net
    4,731,000       4,499,000  
Total intangible assets
    12,431,000       10,394,000  
Investments in and advances to nonconsolidated affiliates
    1,001,000       1,052,000  
Capitalized theatrical costs
    368,000       368,000  
Deposits and other assets
    169,000       158,000  
Total other assets
    13,969,000       11,972,000  
Total assets
  $ 30,897,000     $ 29,562,000  
                 
Liabilities and Stockholders' Equity
 
Current liabilities:
               
Accounts payable
  $ 6,315,000     $ 6,357,000  
Accrued expenses
    2,057,000       1,797,000  
Deferred revenue
    135,000       160,000  
Other current liabilities
    120,000       120,000  
Convertible note payable
    1,000,000       -  
Total current liabilities
    9,627,000       8,434,000  
                 
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; 31,123,357 shares net of 2,340,103 treasury shares, and 31,123,357 shares net of 2,340,103 treasury shares issued at March 31, 2010 and December 31, 2009 respectively
    2,678,000       2,678,000  
Additional paid-in capital
    89,990,000       89,955,000  
Cost of shares held in treasury
    (4,610,000 )     (4,610,000 )
Accumulated deficit
    (66,816,000 )     (66,902,000 )
Accumulated other comprehensive income
    28,000       7,000  
Total stockholders' equity
    21,270,000       21,128,000  
Total liabilities and stockholders' equity
  $ 30,897,000     $ 29,562,000  

See accompanying notes to the condensed consolidated financial statements.

 
4

 
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

   
Three Months Ended March 31,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
Revenues
  $ 16,750,000     $ 20,170,000  
Operating expenses:
               
Direct costs of revenues
    11,829,000       14,972,000  
Selling and marketing expenses
    400,000       606,000  
General and administrative expenses, including non-cash equity-based costs of $35,000 and $413,000 in 2010 and 2009, respectively (including $35,000 and $390,000 for officers, directors and employees in 2010 and 2009, respectively)
    3,835,000       3,710,000  
Depreciation and amortization
    621,000       621,000  
Total costs and expenses
    16,685,000       19,909,000  
Operating income
    65,000       261,000  
Other:
               
Other income
    16,000       25,000  
Interest income
    7,000       13,000  
Interest expense
    (2,000 )     (4,000 )
Other, net
    21,000       34,000  
Net income
    86,000       295,000  
Other comprehensive income
               
Foreign currency translation adjustments
    21,000       5,000  
Comprehensive income
  $ 107,000     $ 300,000  
Net income per common share -
               
Basic
  $ 0.00     $ 0.01  
Diluted
  $ 0.00     $ 0.01  
Weighted average common shares outstanding -
               
Basic
    31,123,357       32,304,286  
Diluted
    31,217,494       32,429,891  

See accompanying notes to the condensed consolidated financial statements.

 
5

 
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)

                                 
Accumulated
       
               
Additional
               
Other
   
Total
 
   
Common Stock
   
Paid In
   
Accumulated
   
Treasury
   
Comprehensive
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Stock
   
Income
   
Equity
 
                                           
Balance, December 31, 2009
    31,123,357     $ 2,678,000     $ 89,955,000     $ (66,902,000 )   $ (4,610,000 )   $ 7,000     $ 21,128,000  
                                                         
Fair value of options issued to employees and directors
                    35,000                               35,000  
                                                         
Foreign currency translation adjustment
                                            21,000       21,000  
                                                         
Net income
                            86,000                       86,000  
                                                         
Balance, March 31, 2010
    31,123,357     $ 2,678,000     $ 89,990,000     $ (66,816,000 )   $ (4,610,000 )   $ 28,000     $ 21,270,000  

See accompanying notes to the condensed consolidated financial statements.

 
6

 
TIX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended March 31,
 
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
Cash flows from operating activities:
           
Net income
  $ 86,000     $ 295,000  
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation
    137,000       131,000  
Amortization of intangible assets
    484,000       490,000  
Fair value of common stock issued for services to employees
    -       13,000  
Fair value of options issued to employees and directors
    35,000       382,000  
Fair value of warrants issued to consultants
    -       18,000  
Change in allowance of inventory
    10,000       (30,000 )
(Increase) decrease in:
               
Accounts receivable
    809,000       290,000  
Advances to vendors
    50,000       89,000  
Advances to nonconsolidated affiliates
    36,000       -  
Inventory
    445,000       590,000  
Prepaid expenses and other current assets
    130,000       233,000  
Capitalized theatrical costs, deposits and other assets
    (11,000 )     9,000  
Increase (decrease) in:
               
Accounts payable and accrued expenses
    218,000       (816,000 )
Deferred revenue
    (26,000 )     181,000  
Deferred rent
    13,000       (16,000 )
Net cash provided by operating activities
    2,416,000       1,859,000  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (170,000 )     (45,000 )
Purchase of All Access Entertainment
    (1,505,000 )     -  
Net cash used in investing activities
    (1,675,000 )     (45,000 )
                 
Cash flows from financing activities:
               
Cost of Treasury Stock
    -       (378,000 )
Payments on capital lease obligations
    (13,000 )     (12,000 )
Net cash used in financing activities
    (13,000 )     (390,000 )
                 
Effect of exchange rate changes on cash
    21,000       5,000  
                 
Change in Cash:
               
Net increase
    749,000       1,429,000  
Balance at beginning of period
    9,885,000       9,192,000  
Balance at end of period
  $ 10,634,000     $ 10,621,000  
                 
Supplemental disclosures of cash flow information:
               
                 
Cash paid for:
               
Income taxes
  $ -     $ -  
Interest
  $ 2,000     $ 4,000  
                 
Non-cash investing activities:
               
Issuance of secured convertible note payable related to the acquisition of All Access Entertainment
  $ 1,000,000     $ -  
Issuance of 190,476 earn-out shares of common stock in conjunction with the acquisition of Magic Arts & Entertainment - Florida, Inc. in 2009
  $ -     $ 256,000  

See accompanying notes to the condensed consolidated financial statements.

 
7

 
 
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. It operates three complementary business units: Ticketing Services provides discount, premium and membership group sales; Exhibit Merchandising provides exhibit and event merchandise sales and services; and Tix Productions Inc. 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 2009 Annual Report on Form 10-K and interim financial statements and information reported on Forms 8-K and 10-Q.

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.
 
Consolidation:
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
 
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.

Tix4Dinner offers reservations for discounted dinners at various restaurants on and surrounding the Las Vegas strip and downtown, with dining at specific times on the same day or in some cases as much as seven days after the day of the sale. Tix4Dinner recognizes as revenue the transaction fees earned from the purchaser of the dinner reservations at the time the reservations are made and a subsequent nominal fee from the restaurant at the time the reservation is used. At this time, the Company has immaterial amounts of accounts receivable and does not have any 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 from the restaurant.
 
Tix4AnyEvent (AnyEvent) recognizes as revenue the gross amount of ticket sales from the sale of its ticket inventory. 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.

 
8

 
 
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.
 
The Company generates revenue from 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.


 
·
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.
 
 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 based on the authoritative guidance provided by the Financial Accounting Standards Board. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board 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 the authoritative guidance issued by the Financial Accounting Standards Board. 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.

 
Authoritative guidance issued by the Financial Accounting Standards Board 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. Authoritative guidance from the Financial Accounting Standards Board 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.

 
9

 

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 the 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 March 31, 2010. As of March 31, 2010, we have $12.4 million of remaining goodwill and intangible assets related to our acquisitions of EM, Magic, NewSpace, and All Access. 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 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.

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.  Authoritative guidance provided by the FASB 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)
 
As of March 31, 2010 and December 31, 2009, respectively, the Company’s financial assets subject to measurement included only Level 1 items of cash and short term investments.  The fair value of these financial assets was equal to their recorded value. There were no unrealized gains or losses included in earnings resulting from long-term investments associated with Level 2 or 3 financial assets during the three month period ended March 31, 2010.

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 March 31, 2010, the Company’s aggregate cash in excess of the FDIC insured amount was $9.2 million. In addition, the Company had aggregate cash balances in Canada of $202,000, which is $104,000 in excess of this country’s equivalent of the US FDIC guarantee. 

 
10

 

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 months ending March 31, 2010. The related translation adjustments are recorded in a separate component of stockholders’ equity in accumulated other comprehensive income.  Foreign currency transaction gains and losses are included in the results of operations.

Advertising Costs:
 
Advertising costs are charged to operations as selling and marketing expenses at the time the costs are incurred. For the three months ended March 31, 2010 and 2009, advertising costs were $394,000 and $593,000, respectively.  

Recently Issued Accounting Guidance:

In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition.   We believe the adoption of this new guidance will not have a material impact on our financial statements.

In January 2010, the FASB issued guidance on improving disclosures about fair value measurements to add new disclosure requirements for significant transfers in and out of Level 1 and 2 measurements and to provide a gross presentation of the activities within the Level 3 rollforward.   The guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to present the Level 3 rollforward on a gross basis, which is effective for fiscal years beginning after December 15, 2010.  The adoption of this guidance was limited to the form and content of disclosures, and will not have a material impact on our consolidated results of operations and financial condition.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

Note 3 - Investments

The Company in 2008 acquired the rights from the estate of Dodie Smith to develop, promote and tour the production “101 Dalmatians the Musical,” for $400,000. These rights were estimated to have a seven year life, and as of March 31, 2010 had a remaining unamortized balance of $271,000.  Separately, the company invested $2.2 million, resulting in a 40% interest in the limited liability company that was formed to produce, promote and tour “101 Dalmatians the Musical.” Further, as part of an amendment to the original rights with the estate of Dodie Smith, future rights to the show “101 Dalmatians the Musical” would vest for a twenty-four year period once the show was performed sixteen times in New York. In addition, the Company advanced $820,000 to the limited liability company during the development period of the show, of which $730,000 remains outstanding at March 31, 2010. The advance earns interest at 15% per annum and is expected to be repaid from the projected future licensing revenues of the show over a four year or five year period.

The touring event associated with the affiliate ended in April 2010, which included a sixteen performance run in New York. During 2009, the Company’s share of losses from the tour including advertising costs that were expensed when incurred or first performed was $1.3 million. In addition, the Company had recorded a $1.3 million charge to write off its investment and the estimated expenses related to its proportionate share of losses that were expected to be incurred in 2010 to secure the future rights to the show.  As of March 31, 2010 and December 31, 2009, accrued expenses on the accompanying balance sheets includes an accrual of $474,177 and $474,177, respectively, for future losses and wind down costs.

 
11

 

The rights to the show have now been extended to 24 years as the Company met its commitment for the sixteen performance run in New York.  The remaining balance of the note receivable and the intangible asset totaling $1,001,000 related to the show are to be recovered from future show rights. The Company expects future recoveries from royalties will exceed the note and intangible values.

Note 4 - Acquisitions
 
All Access Entertainment, LLC:
 
On February 10, 2010, the Company entered into an Asset Purchase Agreement with All Access Entertainment, LLC (All Access) with an effective date of March 1, 2010.  Pursuant to the Asset Purchase Agreement, The Company paid the owner of All Access $1.5 million in cash and issued a six month secured convertible promissory note in the principal amount of $1.0 million at no interest due on August 10, 2010.  The secured convertible promissory note shall be convertible at the option of the owner or the Company into the aggregate number of shares of the Company’s common stock equal to the quotient determined by dividing $1,000,000 by the daily average closing sale price of the Company’s common stock as reported on the NASDAQ Capital Market for the thirty (30) day period prior to conversion but in no event less than $3.00 per share.
 
The Company additionally entered into a two-year Consulting Agreement with the former owner of All Access. The Consulting Agreement requires the former owner of All Access to maintain former business relationships of All Access and to pursue additional strategic alliances on behalf of the Company.  The Consulting Agreement provides an annual compensation of $200,000.

The assets of All Access Entertainment consist primarily of a small amount of property and equipment and operating lease agreements. The All Access business was immediately absorbed and integrated into our existing Las Vegas discount ticketing business.  The Company’s management estimates that there are identifiable intangible assets of approximately $700,000 with the remainder of the purchase price of $1.8 million recorded to Goodwill at March 31, 2010.  The Company plans to update its purchase price allocation upon completion of an independent valuation firm’s measurement and allocation of the purchase price based upon the fair value of the acquired assets.

No pro forma results of operations of All Access combined with the operations of the Company as of the beginning of the periods presented are being provided as the results were not significant.



Property and equipment:
 
March 31, 2010
   
December 31, 2009
 
Office equipment and furniture
  $ 2,360,000     $ 2,191,000  
Equipment under capital lease
    408,000       408,000  
Leasehold improvements
    395,000       394,000  
Property and equipment
    3,163,000       2,993,000  
Less accumulated depreciation
    (1,822,000 )     (1,685,000 )
Total property and equipment, net
  $ 1,341,000     $ 1,308,000  

Depreciation expense was $137,000 and $131,000 for the three months ended March 31, 2010 and 2009, respectively.


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 March 31, 2010 in total and by segment.

   
Estimated
 
Net Carrying
               
Net Carrying
 
   
Useful
 
Amount At
   
Addition/
   
Amortization
   
Amount At
 
   
Lives
 
12/31/2009
   
Adjustment
   
Expense
   
3/31/2010
 
Marketing Based
 
3-6 years
  $ 1,969,000     $ -     $ (142,000 )   $ 1,827,000  
Contract commitments
 
3-7 years
    2,375,000       700,000       (289,000 )     2,801,000  
Customer relationships
 
3 years
    38,000       -       (38,000 )     -  
Technology Based
 
3 years
    11,000       -       (8,000 )     3,000  
Intellectual property (e.g. domain names)
 
5 years
    106,000       -       (7,000 )     99,000  
Goodwill
 
indefinite
    5,895,000       1,806,000       -       7,701,000  
Total
      $ 10,394,000     $ 2,506,000     $ (484,000 )   $ 12,431,000  
 
 
12

 

Ticketing Services
   
Net Carrying
               
Net Carrying
 
   
Amount At
   
Addition/
   
Amortization
   
Amount At
 
   
12/31/2009
   
Adjustment
   
Expense
   
3/31/2010
 
Marketing based
  $ 5,000     $ -     $ (5,000 )   $ -  
Contract commitments
    75,000       700,000       (8,000 )     767,000  
Customer relationships
    38,000       -       (38,000 )     -  
Technology based
    7,000               (7,000 )     -  
Intellectual property (e.g. domain names)
    106,000       -       (7,000 )     99,000  
Goodwill
    -       1,806,000       -       1,806,000  
Total
  $ 231,000     $ 2,506,000     $ (65,000 )   $ 2,672,000  

Merchandising
   
Net Carrying
               
Net Carrying
 
   
Amount At
   
Addition/
   
Amortization
   
Amount At
 
   
12/31/2009
   
Adjustment
   
Expense
   
3/31/2010
 
Marketing based
  $ 1,964,000     $ -     $ (137,000 )   $ 1,827,000  
Contract commitments
    216,000       -       (93,000 )     123,000  
Goodwill
    1,670,000       -       -       1,670,000  
Total
  $ 3,850,000     $ -     $ (230,000 )   $ 3,620,000  

Live Entertainment
   
Net Carrying
               
Net Carrying
 
   
Amount At
   
Addition/
   
Amortization
   
Amount At
 
   
12/31/2009
   
Adjustment
   
Expense
   
3/31/2010
 
Contract commitments
  $ 2,099,000     $ -     $ (188,000 )   $ 1,911,000  
Technology based
    4,000       -       (1,000 )     3,000  
Goodwill
    4,225,000       -       -       4,225,000  
Total
  $ 6,313,000     $ -     $ (189,000 )   $ 6,139,000  

Total amortization expense related to intangible assets for the three months ended March 31, 2010 and 2009 was $484,000 and $490,000, respectively.


During 2010 and 2009, 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 months ended March 31, 2010 and 2009, we paid Mr. Frankel or his firm $29,000 and $8,000, respectively for tax preparation and advisory services.

Mr. Joseph Marsh, a greater than 10% shareholder of Tix Corporation, was a principal in Magic Arts and Entertainment - Florida, Inc., a company Tix acquired on January 2, 2008. 

 
13

 

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 March 31, 2010 was $0, as compared to $153,000 at March 31, 2009. The intrinsic value of exercisable stock options at March 31, 2010 was $0, as compared to $153,000 at March 31, 2009. A summary of the combined stock options for the three months ended March 31, 2010 is as follows:

         
Weighted
 
   
Number
   
average
 
   
of
   
exercise
 
   
options
   
price
 
             
Balance outstanding, December 31, 2009
    1,251,000     $ 5.24  
                 
Options granted
    -       -  
Options exercised
    -       -  
Options expired or forfeited
    (341,000 )     7.00  
                 
Balance outstanding, March 31, 2010
    910,000     $ 4.58  
                 
Balance exercisable, March 31, 2010
    589,000     $ 4.94  


   
Outstanding
   
Exercisable
 
               
Weighted
         
Weighted
 
         
Life
   
Average
         
Average
 
Exercise Price Per Share
 
Shares
   
(Years)
   
Exercise Price
   
Shares
   
Exercise Price
 
                               
$6.00 - $7.20
    465,000       5.91     $ 7.02       319,000     $ 7.03  
$4.00 - $5.99
    20,000       1.96       4.30       20,000       4.30  
$2.00 - $3.99
    150,000       3.03       3.07       150,000       3.07  
$0.22 - $1.99
    275,000       7.25       1.30       100,000       1.25  
                                         
      910,000       5.75     $ 4.58       589,000     $ 4.94  

Tix Corporation recorded compensation expense pursuant to authoritative guidance provided by the Financial Accounting Standards Board for the three months ended March 31, 2010 and 2009 of $35,000 and $382,000, respectively. As of March 31, 2010, the Company has outstanding unvested options with future compensation costs of $477,000, which will be recorded as compensation expense as the options vest over their remaining average life of 5.75 years.

A summary of warrant activity for the three months ended March 31, 2010 is as follows:

         
Weighted
 
   
Number
   
average
 
   
of
   
exercise
 
   
warrants
   
price
 
             
Balance outstanding, December 31, 2009
    950,000     $ 3.70  
                 
Warrants granted
    -       -  
Warrants exercised
    -       -  
Warrants expired
    -       -  
                 
Balance outstanding, March 31, 2010
    950,000     $ 3.70  

 
14

 
 
The intrinsic value of outstanding warrants at March 31, 2010 was $116,000, as compared to $102,000 at March 31, 2009. Information relating to outstanding warrants at March 31, 2010, 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
 
                               
$2.00 - $5.50
    650,000       0.40     $ 5.04       650,000     $ 5.04  
$0.36 - $1.99
    300,000       1.87       0.82       300,000       0.82  
                                         
      950,000       0.86     $ 3.70       950,000     $ 3.70  


 At March 31, 2010, the Company had Federal net operating loss carryforwards of approximately $19.9 million that begin expiring in 2009 in varying amounts through 2027. The Company also had California state net operating loss carryforwards of approximately $1.6 million. In September, 2008 California temporarily suspended use of net operating losses for 2008 and 2009, and the California state net operating losses expire beginning in 2012 in varying amounts through 2029.

Authoritative guidance issued by the Financial Accounting Standards Board 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 March 31, 2010 and December 31, 2009. 

There was no provision for income taxes for the three months ended March 31, 2010 and 2009, respectively.  The provision for income taxes for the three months ended March 31, 2010 and 2009 was determined using our effective rate estimated for the entire fiscal year.


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:

   
Three Months Ended March 31,
 
   
2010
   
2009
 
             
Net income
  $ 86,000     $ 295,000  
                 
Weighted average common shares- basic
    31,123,357       32,304,286  
                 
Dilutive effect of employee incentive plans
    13,211       88,185  
Dilutive effect of warrants issued
    80.926       37,420  
Weighted average shares- diluted
    31,217,494       32,429,891  
                 
Net income per common share:
               
Basic
  $ 0.00     $ 0.01  
Diluted
  $ 0.00     $ 0.01  
 
 
15

 

Potentially dilutive securities were excluded from the earnings per diluted share calculation for the three months ended March 31, 2010 because their effect is anti-dilutive. These potentially dilutive securities at March 31, 2010 included outstanding warrants and options to purchase 1.9 million shares of our common stock, of which 950,000 were warrants to purchase shares of our common stock and 910,000 were options to purchase shares of our common stock.


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 two distinct services: discount ticketing, and premium event ticketing.
 
Discount Ticketing – Tix4Tonight, Las Vegas
 
When selling discounted tickets, Tix4Tonight generally sells them from eleven locations in Las Vegas under short-term, exclusive and non-exclusive agreements with approximately 85 Las Vegas shows and attractions out of a total of approximately 110 shows and attractions running at any one time. Tix4Tonight typically does not know the exact shows it will be able to offer tickets for until the same day of the show. There are usually many more tickets available each day than are sold, although it is not uncommon for Tix4Tonight to sell out its supply of tickets for individual shows. The producers of the shows are paid on a weekly basis only for the tickets that Tix4Tonight actually sells to customers. Tix4Tonight has no financial risk with respect to unsold tickets and revenues are recorded at net of ticket cost, that is, commissions and fees on tickets sold.

Our opportunities to grow the Las Vegas operations are focused on growing our inventory by reaching agreements with additional shows, increasing the number of our storefront sales locations and working to further monetize the relationships we have with customers by offering additional complementary products and services. Toward these ends, Tix4Tonight also offers discounted dining reservation tickets to approximately 30 Las Vegas area restaurants. Further, in March 2010, Tix4Tonight acquired certain assets and assumed the responsibility of certain leases of All Access Entertainment, LLC (All Access). All Access was a competitor of Tix4Tonight in the Las Vegas last minute discount ticket market and operated five locations with the main location located in Circus-Circus. The acquisition of these assets and the assumption of the leases provide us with greater coverage of the Las Vegas area in which to sell our discount tickets.

Premium Ticketing – Tix4AnyEvent

Tix4Tonight operates a national event ticket broker called Tix4AnyEvent (AnyEvent), which focuses on premium tickets for sporting events, concert tours and theatres. Tix4AnyEvent operations are located in our leased offices of Tix Corporation in Las Vegas, Nevada.
 
Exhibit and Event Merchandising:

The Company provides exhibit and event merchandising through its wholly-owned subsidiary, Exhibit Merchandising, LLC (EM). EM provides retail specialty stores for touring museum exhibitions and touring theatrical productions. EM provides a complete turn-key retail store including professional management and both custom-branded products and commercially-available products for sale. EM operates the stores in space provided in conjunction with the exhibit. To date, revenues from the management of retail outlets associated with the sale of merchandise related to touring exhibits have been primarily derived from “Tutankhamun and The Golden Age of the Pharaohs.”
  
Management expects that EM’s growth will be from merchandising opportunities derived from shows produced or presented by our Live Entertainment segment, such as Jesus Christ Superstar and Mannheim Steamroller, or by adding additional exhibits and events that we currently do not represent.
 
Live Entertainment:
 
In January 2008, the Company acquired two live theatrical and concert production companies: Magic Arts & Entertainment, LLC (Magic) and NewSpace Entertainment, Inc. (NewSpace). Both Magic and NewSpace are independent presenters and producers of live theater and concerts with a history of working together. The Company merged the two entertainment companies into its wholly-owned subsidiary Tix Productions, Inc. We believe that by combining the operations of the two companies into a single entity, we are able to leverage our resources, gain operating efficiencies and more fully utilize the combined network of producers and promoters. NewSpace and Magic continue to do business under their former names as a reflection of the marketplace’s recognition of these entities.

 
16

 

As a live entertainment presenter, we book touring theatrical and concert presentations with a history of successful commercial appeal and participate in the development and roll out of new theatrical and concert presentations often originating on Broadway in New York or the West End in London. We use a wide variety of marketing channels to sell tickets to these programs including our substantial subscriber-based businesses in eleven US cities, our Salt Lake City based group sales team, and standard marketing tools including print, radio, television, outdoor and internet marketing tools. In addition, we invest in shows or productions in advance of their initial tour to obtain favorable touring and distribution rights.
 
Our Live Entertainment operation focuses on two major areas: production and presentation. As producers, we invest in the creation of original entertainment properties, which are then sold to third party presenters generating upfront guaranteed income, revenue sharing opportunities, and additional opportunities for sponsorship and other ancillary revenue streams. Examples of this are tours of Mannheim Steamroller Christmas, Jesus Christ Superstar and 101 Dalmatians.

As presenters, we generally contract for entertainment properties from producers to present in markets in the US and Canada. We have worked in most major North American cities and can negotiate terms that are unavailable to presenters in individual markets. In eleven markets, we have substantial subscriber-based operations operating as “Broadway in (city name)” series which greatly reduces the risk associated with individual presentations and provides additional opportunities to generate sponsorship and other ancillary revenue streams. These markets are Salt Lake City, Eugene, Kalamazoo, Akron, Albuquerque, Colorado Springs, Detroit, Fresno, Boise, Birmingham, and Milwaukee. In Canada, we have a presenting relationship that operates under the name Canada Theatricals Live which is now the second largest presenter of theater-based events in Canada.

Revenue and expenses earned and charged between segments are eliminated in consolidation. Corporate expenses, interest income, interest expense and income taxes are managed on a total company basis. Information related to these operating segments is as follows:

Consolidating Statement of Operations (unaudited)
Three months ended March 31,

   
Ticketing
   
Exhibit
   
Live
         
Consolidated
 
   
Services
   
Merchandising
   
Entertainment
   
Corporate
   
and Combined
 
                               
2010
                             
Revenue
  $ 4,743,000     $ 2,545,000     $ 9,462,000     $ -     $ 16,750,000  
Direct cost of revenues
    1,980,000       1,447,000       8,402,000       -       11,829,000  
Selling, general and administrative expenses
    1,360,000       637,000       1,052,000       1,186,000       4,235,000  
Depreciation and amortization
    123,000       292,000       199,000       7,000       621,000  
Operating income
  $ 1,280,000     $ 169,000     $ (191,000 )   $ (1,193,000 )   $ 65,000  
                                         
Current assets
  $ 4,110,000     $ 3,951,000     $ 2,892,000     $ 4,634,000     $ 15,587,000  
Fixed assets
    713,000       439,000       73,000       116,000       1,341,000  
Intangible assets and goodwill
    2,672,000       3,621,000       6,138,000       -       12,431,000  
Other non-current assets
    180,000       31,000       1,309,000       18,000       1,538,000  
Total assets
  $ 7,675,000     $ 8,042,000     $ 10,412,000     $ 4,768,000     $ 30,897,000  
                                         
2009
                                       
Revenue
  $ 4,155,000     $ 2,789,000     $ 13,226,000     $ -     $ 20,170,000  
Direct cost of revenues
    1,534,000       1,705,000       11,733,000       -       14,972,000  
Selling, general and administrative expenses
    871,000       625,000       1,148,000       1,672,000       4,316,000  
Depreciation and amortization
    126,000       296,000       197,000       2,000       621,000  
Operating income (loss)
  $ 1,624,000     $ 163,000     $ 148,000     $ (1,674,000 )   $ 261,000  
                                         
Current assets
  $ 2,571,000     $ 5,312,000     $ 1,728,000     $ 5,128,000     $ 14,739,000  
Fixed assets
    573,000       645,000       102,000       27,000       1,347,000  
Intangible assets and goodwill
    452,000       4,539,000       7,165,000       -       12,156,000  
Other non-current assets
    74,000       13,000       440,000       6,000       533,000  
Total assets
  $ 3,670,000     $ 10,509,000     $ 9,435,000     $ 5,161,000     $ 28,775,000  
 
 
17

 


As of March 31, 2010, the end of the period covered by this report, the Company was subject to various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Other than as discussed below, in the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on its financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. The Company intends to contest each lawsuit vigorously but should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected. Management continues to evaluate the lawsuits discussed below and based on the stage of these proceedings, management is unable to reasonably estimate the likelihood of any loss or the amount or range of any potential loss that could result from the litigation. Therefore, no accrual has been established for any potential loss in connection with these lawsuits.

Vegas.Com Trademark Litigation

On October 23, 2009, the Company and Tix4Tonight filed a complaint against Vegas.com ("Vegas.com") and Vegas Tix4Less (“VT4L”) in the United States District Court for the Central District of California for federal trademark infringement, federal trade dress infringement and unfair competition, and common law unfair competition. Specifically, the complaint alleges that Vegas.com and VT4L are intentionally confusing consumers by using the Company's and Tix4Tonight's trademarks and trade dress. The complaint seeks damages, an injunction, declaratory relief, and attorneys' fees and costs. On December 4, 2009, Vegas.com and VT4L filed a motion to dismiss and/or transfer the litigation to Nevada, arguing that the court lacked personal jurisdiction over the defendants and that venue was either improper or inconvenient. The Company and Tix4Tonight filed its opposition on January 29, 2010, and on March 1, 2010 Vegas.com and VT4L filed their reply.  To stop Vegas.com and VT4L's infringement during the pendency of the litigation, the Company and Tix4Tonight filed a motion for preliminary injunction on February 22, 2010. Vegas.com and VT4L responded on March 8, 2010, and the Company and Tix4Tonight filed a reply one week later.  The Court has not yet ruled on either motion and, instead, on March 24, 2010, granted both parties’ requests for jurisdictional discovery, which will be completed by May 25, 2010.  

Vegas.Com Antitrust Litigation

On December 14, 2009, Vegas.com and VT4L filed a complaint in the United States District Court for the District of Nevada alleging violations by the Company and its wholly owned subsidiary Tix4Tonight of 15 U.S.C. §1, 15 U.S.C. §2, 15 U.S.C. §14, and Nevada state law. The Complaint specifically alleges that the Company and Tix4Tonight entered into exclusive deals with venues and producers with the effect of unreasonably restricting trade and commerce, prevented actual and prospective competitors such as Vegas.com and VT4L from entering the market or obtaining a non-trivial share of the market, interfered with existing or prospective contractual arrangements between Vegas.com and VT4L and venues and producers, and asserted an invalid patent to prevent competition. In their demand, Vegas.com and VT4L seek compensatory, consequential, incidental, treble and punitive damages in an amount to be determined at trial, in addition to attorneys' fees and costs and injunctive relief. On December 23, 2009, Vegas.com and VT4L filed an Amended Complaint to add requests for declaratory judgment of non-infringement and invalidity related to the Company's ticket systems patent and also a claim for unfair trade practices under the Lanham Act related to the assertion of that patent. On February 3, 2010, Vegas.com and VT4L filed their Second Amended Complaint, to add allegations that the Company and Tix4tonight helped organize a group boycott among venues and producers against VT4L. The Company and Tix4Tonight's response to the Second Amended Complaint was filed on March 4, 2010.  On April 21, 2010, Vegas.com and VT4L filed an Opposition to the Company and Tix4Tonight's Motion to Dismiss the Second Amended Complaint.  The Company and Tix4Tonight's reply is due on May 10, 2010.

Lease Commitments:

The Company leases office space for its corporate headquarters in Studio City, California. Additionally, the Company’s wholly-owned subsidiaries, Tix4Tonight, LLC, Tix Productions, LLC and Exhibit Merchandising, lease space. Tix4Tonight leases its ticket facilities and its administrative offices in Las Vegas, Nevada, for various periods ranging from one year to five years. Tix Production, LLC leases office space in Salt Lake City, Utah and Aurora, Ohio. Exhibit Merchandising leases warehouse and office space in Streetsboro, Ohio.
 
Many of the Company’s operating leases contain predetermined fixed increases in the minimum rental rate during the initial lease term and/or rent holiday periods. For these leases, the Company recognizes the related rent expense on a straight-line basis beginning on the effective date of the lease.  The Company records the difference between the amounts charged to expense and the rent paid as deferred rent on the Company’s balance sheet.

The aggregate minimum future rental payments under non-cancelable operating leases for facilities in operation at March 31, 2010, excluding operating expenses, annual rent escalation provisions, and contingent rental payments based on achieving certain pre-determined sales levels, are as follows:

 
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Payments due by Fiscal Years Ending December 31,
 
   
Total
   
2010
   
2011
   
2012
   
2013
   
2014 and beyond
 
                                     
Debt obligations
  $ 1,000,000     $ 1,000,000     $ -     $ -     $ -     $ -  
                                                 
Capital lease obligations
    72,000       52,000       9,000       8,000       3,000       -  
                                                 
Operating lease obligations
    11,337,000       2,643,000       3,030,000       2,582,000       1,512,000       1,570,000  
                                                 
Total contractual cash obligations
  $ 12,409,000     $ 3,695,000     $ 3,039,000     $ 2,590,000     $ 1,515,000     $ 1,570,000  

On March 19, 2010, the Company entered into a sixty month lease under which we will lease our principal executive offices.  Pursuant to the lease, we relocated our offices to 12711 Ventura Boulevard, Suite 340, Studio City CA 91604, a 3,970 square foot space.  The lease commenced May 1, 2010 and our monthly rent under the lease is $12,250.  The rent is subject to increase to approximately $12,600, $13,000, $13,400 and $13,800 respectively, on the first, second, third and fourth anniversaries of the extended lease term.  We will be responsible for paying our allocable portion of operating expenses in addition to the monthly rent.

When we acquired All Access Entertainment, LLC (Note 4), we assumed certain operating leases for various locations.  The obligations related to these locations are included in the table above.

 
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“Tix” (which may be referred to as the “Company”, “we”, “us” or “our”) means Tix Corporation and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report.

Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the Securities and Exchange Commission, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, and the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “project,” “seek,” “predict” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth under Item 1A. — Risk Factors in both our 2009 Form 10-K and this quarterly report, as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We do not intend to update these forward-looking statements, except as required by applicable law.

Executive Overview

During the first quarter of 2010, we continued to execute our strategy to improve and build our operations comprised of Tix4Tonight, Exhibit Merchandising (EM) and Tix Productions, Inc. (TPI). The highlights for each of our segments for the three months ended March 31, 2010 were as follows:

Tix4Tonight

 
·
For the three months ended March 31, 2010, Tix4Tonight sold 351,000 tickets. These ticket sales represented an increase of 32,000 tickets over the prior year’s comparable three month period and reflected a 10% increase over the prior year’s ticket sales.

 
·
For the three months ended March 31, 2010, Tix4Tonight sold tickets with a value of $20.9 million. The value of the tickets sold represented an increase of $3.3 million over the prior year’s comparable three month period, and reflected a 19% increase over the prior year’s ticket sales.
 
 
·
For the three months ended March 31, 2010, Tix4Tonight’s Tix4Dinner business sold dinner reservations with a value of $325,000. These reservation sales represented an increase of $43,000 over the prior year’s comparable three month period, and reflected a 15% increase over prior year’s dinner reservations revenue.

 
·
Tix4Tonight acquired certain assets and assumed the responsibility of certain leases of All Access Entertainment, LLC (All Access). All Access was a competitor of Tix4Tonight in the Las Vegas last minute discount ticket market and operated five locations with the main location located in Circus-Circus. The acquisition of these assets and the assumption of the leases provide us with greater coverage of the Las Vegas area in which to sell our discount tickets.
 
Exhibit Merchandising

 
·
Was profitable for the three months ended March 31, 2010.

 
·
EM will be providing and operating the retail specialty stores for the next museum exhibition tour by Arts and Exhibitions International, LLC (AEI), a subsidiary of AEG, “Cleopatra: The Search for the Last Queen of Egypt”, when it makes its worldwide debut in Philadelphia at The Franklin Institute, and runs from June 5, 2010 to January 2, 2011, before moving on to four other cities that are currently scheduled.
 
 
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Live Entertainment

 
·
Total shows produced or presented declined to 206 during the three months ended March 31, 2010 as compared to 358 performances during the same period of the prior year.  This segment of our business often fluctuates quarter to quarter due to the number of shows available on the market and the timing of the actual shows.  The Company expects the number of performances to increase throughout the year.  This segment does seasonally decline significantly in the third quarter of the fiscal year with a substantial increase during the fourth quarter of the fiscal year.  While revenues were down to the decline in the volume of shows, this segment, excluding depreciation and amortization, did generate cash flow from operations.

 
·
Shows that are produced or presented by TPI such as David Copperfield, Rain, and Lord of the Dance continue to perform in line with expectations.
  
Critical Accounting Policies and Estimates:

The preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates its earlier estimates and judgments. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The following narrative describes the critical accounting policies that affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.

Revenue Recognition and Presentation:

The Company has several streams of income, each of which is required under 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.

Tix4Dinner offers reservations for discounted dinners at various restaurants on and surrounding the Las Vegas strip and downtown with dining at specific times on the same day as the sale or in some cases as much as seven days after the day of the sale. Tix4Dinner recognizes as revenue the transaction fees earned from the purchaser of the dinner reservations at the time that the reservations are made and a subsequent nominal fee from the restaurant at the time the reservation is used. At this time, the Company has immaterial amounts of accounts receivable and does not have any accounts payable associated with the Tix4Dinner operations because the Company collects the transaction fee at the time that the reservation is made and the dinner payment is collected directly by the restaurant.

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 that 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 individual customers, as payment is collected at the time of sale. However, sales transactions with other ticket brokers may be conducted on a credit basis, which would generate accounts receivable.

Exhibit Merchandising recognizes retail store sales at the time the customer takes possession of the merchandise. All sales are net of discounts and returns and exclude sales tax. 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 costs of revenues, pursuant to the authoritative guidance provided by the Financial Accounting Standards Board. The Company does not have any accounts receivable associated with this business because all transactions are done by cash or credit card.

 
21

 
  
Tix Productions, Inc. recognizes revenue from the presentation and production of an event after the performance occurs upon settlement of the event; however any profits related to these tours is recognized after minimum revenue thresholds, if any have been achieved. 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.

Stock-Based Compensation:

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the FASB. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the guidelines provided by the Financial Accounting Standards Board 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.

Impairment of Long-Lived Asset:

Our long-lived assets, such as property and equipment, are reviewed for impairment when events and circumstances indicate that depreciable or amortizable long lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current value.

We use various assumptions in determining the current fair value of these assets, including future expected cash flows and discount rates, as well as other fair value measures. Our impairment loss calculations require us to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results.

Intangible Assets and Goodwill:

The Company evaluates intangible assets and goodwill for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that 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.  There were no indications of impairment based on management’s assessment at March 31, 2010. As of March 31, 2010, we have $12.4 million of remaining goodwill and intangible assets related to our acquisitions of EM, Magic, NewSpace, and All Access. 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.

Recently Issued Accounting Guidance:

In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition.   We believe the adoption of this new guidance will not have a material impact on our financial statements.

 
22

 

In January 2010, the FASB issued guidance on improving disclosures about fair value measurements to add new disclosure requirements for significant transfers in and out of Level 1 and 2 measurements and to provide a gross presentation of the activities within the Level 3 rollforward.   The guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to present the Level 3 rollforward on a gross basis, which is effective for fiscal years beginning after December 15, 2010.  The adoption of this guidance was limited to the form and content of disclosures, and will not have a material impact on our consolidated results of operations and financial condition.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

Consolidated Results of Operations –
Three Months Ended March 31, 2010 compared to the Three Months Ended March 31, 2009:

Consolidated Results of Operations - Three Months ended March 31,

         
% change
 
   
Three Months Ended March 31,
   
2010v
 
   
2010
   
2009
   
2009
 
                     
Revenue
  $ 16,750,000     $ 20,170,000       -17 %
                         
Operating expenses:
                       
Direct operating expenses
    11,829,000       14,972,000       -21 %
Selling, general and administrative expenses
    3,050,000       2,644,000       15 %
Depreciation and Amortization
    621,000       621,000       -1 %
Corporate expenses
    1,186,000       1,672,000       -29 %
                         
Operating income
    65,000       261,000       -75 %
Operating margin
    0 %     1 %        
Interest expense
    (2,000 )     (4,000 )        
Interest income
    7,000       13,000          
Other income (expense) - net
    16,000       25,000          
                         
Net income
  $ 86,000     $ 295,000          

 
23

 
 
Three Months Ended March 31, 2010 and 2009:

Revenues

The Company earns fee revenues from the sales of discounted tickets from purchasers of the tickets and commissions from the entertainment supplier, as well as revenues from the sale of premium tickets to sporting and other entertainment events. Through our discounted ticket venues we also offer discount dinner reservations. From Exhibit Merchandising, LLC “EM”, we earn revenues from the management of retail outlets associated with the sale of merchandise related to touring exhibits, such as “Tutankhamun and The Golden Age of the Pharaohs.” Through our live entertainment segment, we earn revenues from the presentation and production of events, as well as sponsorship and ancillary revenues. Our revenues for the three months ended March 31, 2010 and 2009 were $16.8 million and $20.2 million, respectively. Our revenues decreased $3.4 million, or 17%, during the three months ended March 31, 2010 as compared to the same period of the prior year. The decrease in revenues was primarily the result of a $3.7 million decline in revenues from our Live Entertainment segment and a $244,000 decline in revenues from our Merchandising segment, which were offset in part by a $588,000 increase in Ticketing Services revenues.

More detailed explanations of the three months ended March 31, 2010 and 2009 changes are included in the applicable segment discussions following.

Direct Operating Expenses

Direct operating expenses include payroll and related costs, rents, cost of tickets and goods sold, artist fees, show related marketing costs and advertising expenses along with other related costs of promoting and producing live entertainment. Direct costs of revenues for the three months ended March 31, 2010 and 2009 were $11.8 million and $15.0 million, respectively. Our operating expenses decreased $3.2 million or 21% during the three months ended March 31, 2010 as compared to the same period of the prior year. The decrease in direct operating expenses is reflective of the 17% decline in revenues.

More detailed explanations of the three months ended March 31, 2010 and 2009 changes are included in the applicable segment discussions following.

Operating Segment Selling, General and Administrative Expenses

Operating segment selling, marketing and administrative expenses include advertising and promotional costs related to the Company’s business activities. Our operating segment selling, marketing and administrative expenses for the three months ended March 31, 2010 and 2009 were $3.0 million and $2.6 million, respectively. Our selling, general and administrative expenses increased $406,000 or 15% during the three months ended March 31, 2010 as compared to the same period of the prior year due to a $490,000 and $12,000 increase in selling and general and administrative expenses in our Ticketing Services and Exhibit Merchandising segments, respectively.  These increases were offset in part by a $96,000 decline in selling, general and administrative expenses at Live Entertainment segment.

More detailed explanations of the three months ended March 31, 2010 and 2009 changes are included in the applicable segment discussions following.

Corporate Expenses

Corporate expenses are expenses that relate to activities at or directed by our executive offices. Significant components of corporate expenses consist of corporate personnel and personnel-related costs, insurance, legal and accounting fees, consulting and advisory fees, and corporate occupancy costs. Corporate expenses for the three months ended March 31, 2010 and 2009 were $1.2 million and $1.7 million, respectively. Corporate expenses decreased $481,000 for the three months ended March 31, 2010, as compared to same period of the prior year. This decrease in corporate expenses is mainly the result of a decrease in stock based compensation expense including $257,000 related to the departure of an officer.

Depreciation and Amortization

Our depreciation and amortization was $621,000 for both the three months ended March 31, 2010 and 2009, respectively.
 
Other Income and (Expense)

Other Income and Expense was $16,000 for the three months ended March 31, 2010, and was the result of miscellaneous box office revenues, such as patron club income and season handling fees, earned by our Live Entertainment segment Tix Productions.

 
24

 

Interest Income

Interest income was immaterial for all periods presented. Fluctuations in interest income were due primarily to fluctuations in our cash balances.

Ticketing Services

Our Ticketing Services segment operating results were as follows:

Segment Reporting- Ticketing Services

         
% Change
 
   
Three Months Ended March 31,
   
2010 vs.
 
   
2010
   
2009
   
2009
 
                   
Revenue
  $ 4,743,000     $ 4,155,000       14 %
Operating Expenses:
                       
Direct operating expenses
    1,980,000       1,534,000       29 %
Selling, general and administrative expenses
    1,360,000       871,000       56 %
Depreciation and amortization
    123,000       126,000       -2 %
                         
Operating income
  $ 1,280,000     $ 1,624,000       -21 %