U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended September 30, 2000
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to _______________
Commission file number 000-21585
Magnum Sports & Entertainment, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-3393152
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1330 Avenue of the Americas, 39th Floor, New York, New York 10019
(Address of Principal Executive Offices)
(212) 246-7380
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Former Name: Worldwide Entertainment & Sports Corp.
Former Address: 29 Northfield Avenue, Ste. 200, West Orange, New Jersey
07052
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, $.01 par value - 5,193,784 as of November 3, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
PART I.
Item 1. Financial Statements
MAGNUM SPORTS & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Current assets
Cash $ 2,261,316
Certificates of deposit 159,000
Accounts receivable, less allowance for doubtful accounts of $268,734 381,771
Prepaid expenses and other current assets 1,251,259
Due from boxers and other related parties, net of allowances of $957,018 0
Investment in joint ventures 400,000
--------------
Total current assets 4,453,346
Prepaid consulting fee 669,143
Property and equipment - at cost, net of accumulated depreciation 68,085
Goodwill, net of accumulated amortization 230,381
Security deposit and other assets 53,073
--------------
Total assets $ 5,474,028
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 224,433
Loans payable 143,767
Income taxes payable 2,800
Net liabilities resulting from discontinued operations 144,774
---------------
Total current liabilities 515,774
---------------
Stockholders' equity
Common stock, $.01 par value; 60,000,000 shares authorized,
5,161,087 shares issued and outstanding 51,611
Additional paid-in capital 36,375,557
Accumulated deficit (31,456,564)
Demand note receivable on private issuance of common stock (12,350)
--------------
4,958,254
--------------
Total liabilities and stockholders' equity $ 5,474,028
==============
See notes to unaudited condensed consolidated financial statements.
-2-
MAGNUM SPORTS & ENTERTAINMENT, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
Restated Restated
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Purse income $3,078 $1,561 $48,862 $38,750
Contract and agency fees 378,505 442,891 526,660 477,891
Endorsements and marketing fees 53,018 111,300 211,043 273,632
Ticket revenues 0 70,623 3,465 88,496
Merchandise revenues 16,045 4,557 21,582 157,159
------------ ------------ ------------- -------------
450,646 630,932 811,612 1,035,928
------------ ------------ ------------- -------------
Cost of revenues 48,987 3,932 53,150 118,932
Training and related expenses 176,925 270,658 426,529 554,462
Promotional expenses 56,573 89,033 362,036 180,780
Selling, general and administrative 1,875,849 762,227 6,699,389 2,672,521
expenses
------------ ------------ ------------- -------------
2,158,334 1,125,850 7,541,104 3,526,695
------------ ------------ ------------- -------------
(1,707,688) (494,918) (6,729,492) (2,490,767)
Interest and dividend income 42,093 9,902 65,767 70,567
------------ ------------ ------------- -------------
Loss from continuing operations before
income taxes (1,665,595) (485,016) (6,663,725) (2,420,200)
Income taxes 1,780 5,520 9,735 5,760
------------ ------------ ------------- -------------
Loss from continuing operations (1,667,375) (490,536) (6,673,460) (2,425,960)
Discontinued Operations
Loss from operations of the
discontinued business 96,689 756,535 2,089,412 756,535
Loss on disposal of a business,
including provision of $115,000
for operating losses during the
phase-out period 1,819,160 1,819,160
------------ ------------ ------------- -------------
Net Loss $ (3,583,224) $ (1,247,071) $ (10,582,032) $ (3,182,495)
============ ============ ============= =============
Basic and diluted loss per share
Continuing operations $(.32) $(.19) $(1.48) $(1.04)
Loss from operations of the
discontinued business $(.02) $(.29) $(.46) $(.32)
Loss on the disposal of a
business during the phase-out
period $(.35) - $(.40) -
------------ ------------ ------------- -------------
Net loss $(.69) $(.48) $(.34) $(.36)
============ ============ ============= =============
Weighted Average Common Shares 5,161,087 2,618,053 4,517,277 2,348,657
See notes to unaudited condensed consolidated financial statements.
MAGNUM SPORTS & ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS)
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Cash Flow from Operating Activities $(11,459,870) $(3,927,142)
Cash Flows from Investing Activities 1,529,568 (1,754,660)
Cash Flows from Financing Activities 9,458,568 5,826,901
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (471,734) 145,099
Cash and Cash Equivalents at Beginning of Period 2,733,050 115,160
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,261,316 $ 260,259
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for
Income Taxes: $9,546 $5,760
Noncash financing activities
Issuance of common stock for consulting and other services 195,501 81,250
Stock-based compensation charged to expense 560,700 -
Undistributed stock in connection with acquisition 120,000 -
Issuance of common stock in connection with acquisition 37,846 -
Amounts payable in connection with acquisition 60,000 -
-4-
See notes to unaudited condensed consolidated financial statements.
MAGNUM SPORTS & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION:
1. Nature of Organization:
Magnum Sports & Entertainment, Inc., formerly known as Worldwide
Entertainment & Sports Corp. (the "Company") was incorporated in
Delaware on August 15, 1995, for the purpose of providing management,
agency, and marketing services to professional athletes, artists and
entertainers, principally to boxers, football players and motor sports
teams and drivers. The name change of the Company to Magnum Sports &
Entertainment, Inc. became effective on October 19, 2000.
2. Basis of Presentation:
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report on Form 10KSB for the year ended December 31, 1999.
The condensed consolidated financial statements included herein reflect,
in the opinion of management, all adjustments (consisting primarily only
of normal recurring adjustments) necessary to present fairly the results
for the interim periods. The results of operations for the nine months
ended September 30, 2000, are not necessarily indicative of results to
be expected for the entire year ending December 31, 2000.
NOTE B - GOING CONCERN
The Company's condensed consolidated financial statements have been
presented assuming that the Company will continue as a going concern.
Management's plans include obtaining continued financing by issuing
common stock while reducing expenses and either discontinuing, selling
or divesting unprofitable operations. Such plans also include analyzing
potential acquisition candidates that will help the Company become a
profitable global sports and entertainment company. In conjunction with
these plans, the Company has engaged consultants to provide financial
advisory, marketing, and merger and acquisition services. There is no
assurance that the Company will achieve or sustain profitable
operations. During the second quarter of 2000, the Company closed on two
private placements of its common stock in which it raised aggregate
proceeds of $5,500,000.
These conditions indicate that the Company may be unable to continue as
a going concern. Its ability to do so is dependent on its ability to
achieve profitable operations, and its ability to obtain any necessary
financing. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. The condensed consolidated financial statements include the accounts
of the Company and all of its wholly owned and majority owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
2. Purse revenue is recognized upon completion of a fight as a
percentage of the boxer's purse. Ticket and commission revenues are
recognized at the time of the fight. Contract and agency fee revenues
are recognized during the various athletic seasons. Merchandise revenue
is recognized upon the sale of memorabilia merchandise.
3. Basic net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
period, which have been adjusted for the effect of a five for one
reverse stock split that took place in October 2000. Diluted EPS has not
been presented because its effect would be anti-dilutive.
4. The Company files a consolidated federal income tax return and has
net operating loss carryforwards for Federal income tax purposes,
expiring in 2020, amounting to approximately $19,000,000. No deferred
tax asset is reflected in the accompanying condensed consolidated
balance sheet due to a related valuation allowance equal to the balance
of the deferred tax asset.
5. For purposes of the statement of cash flows, all highly liquid
investments with original maturities of three months or less are
considered to be cash equivalents. Cash balances are maintained in
several financial institutions insured by the Federal Deposit Insurance
Corporation up to $100,000 for each bank. At September 30, 2000, the
Company's uninsured cash balances amounted to approximately $2,320,000.
6. With the disposal of Sportcut.com, the Company has only one
reportable segment.
7. Certain reclassifications have been made to the prior period
financial statements to conform to the current period presentation.
NOTE D- DISCONTINUED OPERATION
In September 2000, the management decided to discontinue its internet
subsidiary, Sportcut.com. The Company expects the wind-down process to
be completed within six months from the measurement date, September 30,
2000. At September 30, 2000, the Company accrued approximately $115,000
of payroll expense and wrote off $1,704,000 of long-lived assets,
totaling $1,819,000 as part of the discontinued operations in conformity
with Accounting Principles Board Opinion No. 30. Operating results of
Sportcut.com for the period ended September 2000 are shown separately in
the accompanying statement of operations. The condensed consolidated
statement of operations for the nine month period ended September 30,
1999 has been restated and operating results of Sportcut.com are also
shown separately.
NOTE E - ISSUANCE OF COMMON STOCK
On October 18, 2000 the stockholders approved a five for one reverse
stock split of the Company's $0.01 par value common stock. As a result
of the split, the number of outstanding shares was reduced from
25,805,433 to 5,161,087 and additional paid-in capital was increased by
$206,443. All references in the accompanying financial statements to the
number of common shares and per-share amounts have been restated to
reflect the stock split.
The Company did not issue any common stock during the quarter ended
September 30, 2000.
NOTE F - STOCK OPTION GRANTS
On August 15, 2000, the Board of Directors authorized the issuance of
19,500 non-qualified options exercisable at $1.00 per share to Company
employees.
NOTE G - GOODWILL
Goodwill represents cost in excess of fair value of net assets acquired
from the purchase of the internet website transaction, (HPB.com) and is
being amortized over 10 years. The Company periodically re-evaluates its
recoverability. In management's opinion there has been no impairment of
goodwill at September 30, 2000.
NOTE H -RECENT PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101(SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. The Company is continuing to evaluate the
potential impact of SAB 101 on the Company's results of operations and
financial position. Based on the SEC's latest timeline for implementing
SAB 101, the Company may be required to comply with the guidelines in
the fourth quarter of 2000.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued in June 1998 and was subsequently amended by
SFAS no. 137 and SFAS no. 138, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 133 addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. Adoption of these
pronouncements is required for the period beginning on July 1, 2000.
The Company does not invest in derivative instruments and, accordingly,
does not expect these pronouncements to have a material impact on the
results of its operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
General
Magnum Sports & Entertainment, Inc., formerly known as Worldwide
Entertainment & Sports Corp., is a management and agency company providing
services to professional athletes and entertainers, principally at the present
time through its NFL agency business, and its Motorsports Division. The Company
also has expanded its business in 2000 to the Internet through the acquisition
of Houseofboxing.com ("Houseofboxing.com"), a popular boxing content website in
February 2000.
In June 2000, the Company announced that it appointed Robert
Gutkowski, former President and Chief Executive Officer of both Madison Square
Garden and The Marquee Group, as President and CEO of the Company and had
elevated Charles A. Koppelman, former Chairman and CEO of EMI Records
Group-North America, to Chairman of the Board of Directors. Mr. Gutkowski has
extensive executive experience in the sports and entertainment business. In 1991
he was named President of Madison Square Garden. In that position, he was
responsible for the operations of the New York Knickerbockers, the New York
Rangers, which won the 1994 Stanley Cup Championship, and MSG Communications,
which included the MSG Network. While President of the MSG Network, Gutkowski
negotiated the landmark twelve-year $486 million deal to telecast New York
Yankees baseball and the network grew to become the nation's largest and most
profitable regional sports network. In 1994 he founded and later took public,
The Marquee Group, a worldwide sports and entertainment firm that managed,
produced and marketed sports and entertainment events and provided
representation for athletes, entertainers and broadcasters. At Marquee,
Gutkowski executed an aggressive growth strategy through the acquisition of such
companies as Athletes and Artists, Sports Marketing and Television
International, QBQ Entertainment, Tollin-Robbins Entertainment, Park Associates,
Alphabet City Records, Cambridge Golf and ProServ. He successfully sold The
Marquee Group in 1999 to SFX Entertainment for more than $100 million.
Charles Koppelman is the prominent music and entertainment
entrepeneur who, over a 25-period beginning in 1965, built and acquired music
properties that were sold for over $400 million in 1989. From 1989 to 1992,
Koppelman was Chairman and CEO of EMI Music Publishing and SBK Records. From
1993 to 1997 Koppelman was Chairman and CEO of EMI Record Group-North America
and successfully oversaw all North American activities of EMI's many record
labels. He is currently Chairman and CEO of CAK Entertainment, Chairman of
Medalist Entertainment, an affiliate of Alliance Entertainment, and is acting
Chairman of Steve Madden Ltd.
Messrs. Gutkowski and Koppelman have initially effected basic changes
to produce a new look, new name and new logo for the Company, and to develop a
global corporate strategy. The Company's new management recognizes that the
Company's historical operations have been poor and is intent on implementing new
strategic initiatives consistent with their track records of building successful
sports and entertainment companies to turnaround the Company's financial
performance. As a preliminary step, at the Company's annual meeting held on
October 18, 2000, the Company's shareholders approved the changing of the name
of the Company to Magnum Sports & Entertainment, Inc. The Company has also made
progress at identifying the industry sectors, the companies and individuals who
it wants to be involved with in creating the new Magnum. The Company intends to
grow through the acquisition of companies with revenues and earnings and through
the addition of key executives who have succeeded in their respective fields. It
is especially interested in acquiring companies that have strong brand names
that the Company can extend all along the sports and entertainment spectrum. As
an important element in this strategy, the Company is in dialogue with a number
of investment banks who it hopes will work closely with the Company's senior
management to raise the necessary capital to implement Magnum's business
strategy. The Company believes that the building of a strong sports and
entertainment company will enhance the value of Magnum's common stock for the
benefit of its shareholders and make Magnum better able to execute its
acquisition strategy. There can be no assurance, however, that the Company will
be able to consummate any potential acquisitions or investments.
In September 2000, the Company added two new Board members, Arthur
Barron and Chester Simmons, who are both highly regarded sports and
entertainment executives with decades of experience and success. Mr. Barron is
the former head of Paramount Communication's Entertainment Group, which included
Paramount Pictures, Madison Square Garden and Simon & Schuster, and also served
as the former chairman of Time Warner International. Mr. Simmons is one of the
pioneers in US sports programming at ABC, serving as the first president of both
NBC Sports and later ESPN and as the first commissioner of the United States
Football League.
Against this backdrop of the Company's overall strategy, the Company
effected a reverse five for one stock split of its common stock, effective
October 19, 2000 (the "Reverse Split"), after the approval of such Reverse
Split by the Company's stockholders at its annual meeting. The primary reason
for the Reverse Split is the Company's maintenance of its NASDAQ Small Cap
Market listing. NASDAQ requires that a company maintain a minimum bid price of
$1.00 per share to maintain its listing on NASDAQ. The Company's common stock
was trading below such minimum bid price. The closing price of the Company's
common stock has been above the $1.00 minimum bid price on every trading day
since the Reverse Split to the date of this filing. The Company's continued
listing on the NASDAQ Small Cap Market is very valuable in helping management
put forth a viable acquisition strategy for potential sellers and investment
banks.
During the third quarter, the Company made a $200,000 investment in a
privately-held company (the "privately-held company") that is developing an
innovative, celebrity-based marketing and sponsorship concept. The concept will
use the Internet for the delivery of a customized video electronic greetings
from celebrities in the worlds of television, film, sports, music and fashion
to consumers. The concept is expected to become functional during the first
quarter of 2001. In exchange for the investment, the Company received 246,600
shares in the privately held company's Series B convertible preferred stock,
which are convertible to 2% of the current outstanding common stock of the
privately-held company. In addition, the Company entered into a consulting
agreement, pursuant to which the Company agreed to use its reasonable efforts
for a two-year period to assist the privately-held company in procuring the
participation of celebrities in the concept. In exchange for such consulting
services, the Company was granted an option to acquire an additional 606,596
shares of common stock, equating to 5% of the current outstanding common stock
of the privately-held company, on a fully diluted basis, subject to certain
vesting requirements. The privately-held company also agreed to place Charles
Koppelman and Bob Gutkowski on its Board of Advisors, for which Messrs.
Koppelman and Gutkowski each received options to purchase 60,656 shares of
common stock, equating to 0.5% each of the current common stock of the
privately-held company, on a fully diluted basis, subject to certain vesting
requirements.
In addition, the Company also invested the sum of $125,000 in Interview
Productions, LLC ("Interview Productions"), a limited liability company formed
to finance, produce and distribute an independent motion picture for release
in theatrical and all other worldwide markets and media. Interview Productions
has raised a total of $750,000, including the $125,000 invested by the
Company for the promotion and marketing budget of the motion picture. Interview
Productions owns an original screenplay entitled "Interview With the Assassin"
that will be produced into a motion picture by producers David Levien and Brian
Koppelman. David Levien and Brian Koppelman have track records of success in
the motion picture business, having written the screenplay for the well-
received movie "Rounders" starring Matt Damon and Edward Norton and released
by Miramax Films in 1998. "Rounders" debuted as the number one box office
movie during the second weekend of September 1998. Messrs. Levien and
Koppelman have also co-directed, co-written and co-produced "Knockaround Guys"
starring Vin Dieselo, Seth Green, Barry Pepper, Andrew Davili, Dennis Hopper and
John Malkovich, which is scheduled to be released by New Line Cinema in
January 2001. Brian Koppelman is the son of Charles Koppelman, the Chairman
of the Board of Directors of the Company. These two investments by the Company
represent strategic attempts to capitalize on promising entertainment
opportunities and, if successful, may result in substantial economic benefit
to the Company, although there is no assurance that these investments will be
successful.
The Company's new management also is carefully reviewing all existing
operations of the Company and its subsidiaries to determine the most effective
strategy as promptly as reasonably possible to achieve profitability for such
operations, including cost-cutting measures, revenue enhancement measures and,
if appropriate, the sale, discontinuance or other disposition of any of such
existing operations. In September 2000, as part of the cost-cutting and revenue
enhancement measures, management decided to discontinue and abandon its
internet subsidiary, Sportcut.com due to the lack of prospects for future
profits in the current state of the Internet marketplace. The Company expects
the wind-down process to be completed within six months from the measurement
date. At September 30, 2000, the Company accrued approximately $115,000 of
payroll expense and wrote off $1,704,000 of long-lived assets, totaling
$1,819,000 as part of the discontinued operations in conformity with Accounting
Principles Board Opinion No. 30. In addition, in October 2000, the Company
terminated its Joint Venture Agreement with Munisteri Sports & Entertainment,
Inc.("MSE"). Pursuant to this joint venture agreement, the Company received a
fifty percent interest in management fees from boxing management contracts with
seven professional heavyweight boxers. As part of the termination of this joint
venture agreement, the Company relieved itself of making monthly support
payments of $7,000 per month for at least fourteen months and the obligation to
issue 88,333 shares of common stock in February 2001. In exchange therefor, the
Company relinquished its interest in such seven boxing management contracts and
agreed to issue MSE an option to acquire 4,000 shares of common stock of the
Company at an exercise price of $2.00 per share, exercisable for a five term.
Also, as a cost-savings measure, the Company has reached an agreement with its
landlord to terminate its lease on its office located at 276 Fifth Avenue,
Suite 1105, New York, N.Y. and to relocate several of its employees a smaller,
substantially less expensive office in New Jersey.
In February 2000, the Company, through its wholly owned subsidiary,
Worldwide Houseofboxing.com, Inc., acquired HOB.com, an Internet boxing website
located at www.Houseofboxing.com (the "HOB Website"), for cash and stock
totaling approximately $258,000, payable over two years. HOB.com is listed in
Yahoo.com's directory as one of the most popular boxing websites.
In connection with the acquisition of HOB.com, the principals of HOB.com,
Gary Randall and Douglass Fischer, executed five year employment agreements
with HOB.com
pursuant to which they will continue to be responsible for the overall
operations of the HOB Website. The HOB Website is one of the most comprehensive
sources for boxing information on the Internet. HOB.com provides boxing fans
with fight news, streaming video and audio profiles of prominent fighters and
other personalities involved in boxing and pre-and post-fight interviews with
the top fighters and personalities in the sport and business of boxing. HOB.com
also produces high quality boxing documentaries on-line such as the documentary
of "Sugar" Shane Mosley entitled "Facing Destiny" that it produced in
connection with Mosley's successful world championship bout against Oscar De La
Hoya in June 2000. In March 2000, the Company announced that HOB.com had
executed a five year employment agreement with Mr. Michael Katz, the long-time
prominent boxing sports writer for The New York Daily News, to write boxing
content exclusively for HOB on a full-time basis. Mr. Katz has won numerous
writing awards including the Nat Fleischer Award for "excellence in boxing
journalism", the sports equivalent of a Pulitzer Prize.
HOB.com has also entered into contracts with the Microsoft Corporation and
AvantGo, Inc. to substantially increase its audience at no cost to HOB.com.
Under the terms of HOB.com's contract with the Microsoft Corporation entered
into in August 2000, HOB.com has been featured on Microsoft's Windows Media.com
Broadband Guide. Windows Media.com is the fastest growing audio and video guide
on the web with millions of unique users every month, according to statistics
released by Microsoft from audience measurement service Nielsen/NetRatings.
HOB.com's contract with AvantGo entered into in October 2000 makes the HOB
Website available on the AvantGo mobile Internet service that allows mobile
device users free access to information wirelessly, including handheld devices
and Internet-enabled phones. AvantGo has more than 1,000,000 registered users
for its service, according to AvantGo. The Company is actively exploring
appropriate means to interest its registered user base at Sportcut.com in the
high quality content regarding the sport of boxing provided by HOB.com In
conjunction with these efforts to build the site traffic of the HOB Website,
HOB.com also effected a major redesign of the HOB Website during the third
quarter to enhance both the appearance of and the ease of use of the HOB
Website for its visitors.
HOB.com is also presently planning a concentrated drive to procure
sponsors for the HOB Website to generate revenues. HOB.com plans on utilizing
the Company's Chief Executive Officer, Robert Gutkowski who has extensive
experience in sports marketing to direct this sponsorship procurement program.
In addition, Mr. Gutkowski expects to utilize his extensive prior experience as
President of Madison Square Garden Network in negotiating cable broadcast
transactions to assist HOB.com in developing an Internet broadcast strategy. In
that regard, HOB.com entered into a promotional arrangement with the Showtime
Network in connection with the Mike Tyson-Andrew Golota boxing match held on
October 21, 2000, pursuant to which HOB.com provided extensive audio and video
content regarding Mike Tyson and Andrew Golota and banner advertising for
Showtime's website on the HOB Website in exchange for cash consideration and
the use of audio and video content produced by Showtime on the HOB Website. In
addition, HOB.com also promoted the Roy Jones-Eric Harding boxing match held on
September 9, 2000 on the HOB Website. In conjunction with the Mike Tyson-Andrew
Golota bout and the Roy Jones, Jr.-Eric Harding bout, HOB.com provided its
users who are cable television and Direct Broadcast satellite subscribers with
the ability to order such pay-per-view bouts on-line on the HOB Website.
HOB.com utilized the on-line ordering system of TelVue Corporation (OTC
Bulletin Board: TEVE) to make this service available to its visitors.
The Company's sports agency business is presently focused on two major
sports: the NFL, and motorsports. In 1997, the Company established Worldwide
Football Management, Inc. ("WWFM"), as a separate entity to continue its
agency, marketing and management services to professional football players.
WWFM presently represents 37 professional football players, including, among
others, Antonio Freeman of the Green Bay Packers, Tyrone Wheatley of the
Oakland Raiders, O.J. McDuffie of the Miami Dolphins and Rickey Dudley of the
Oakland Raiders. WWFM recently had its finest draft results in its history
during the NFL 2000 draft completed on April 16, 2000 with eight of its players
selected by NFL teams. Four of WWFM's players were selected in the second round
of the draft and were among the top 47 players taken in the draft: cornerback
Mark Roman, LSU, 2nd round, Cincinnati Bengals (34th player selected); wide
receiver Todd Pinkston, S. Miss., 2nd round Philadelphia Eagles (36th player
selected); defensive back Rogers Beckett, Marshall University, 2nd round San
Diego Chargers (43rd player selected); and wide receiver, Jerry Porter,
W.Virginia, 2nd round Oakland Raiders (47th player selected).
In the months of July and August 2000, WWFM had the finest period in
its history, procuring football contracts totaling over $51 million for
eight players--veteran, Lance Johnstone, defensive end, Oakland Raiders (up to
$36 million over 7 yrs.; $6.9 million dollar first year payments); and NFL
rookies Todd Pinkston, wide receiver, Philadelphia Eagles ($3.955 million over 5
yrs.; $1.3 million signing bonus); Jerry Porter, wide receiver, Oakland Raiders
($4.3435 million over 6 yrs.; $1.75 million signing bonus); Rogers Beckett,
safety, San Diego Chargers ($2.79 million over 4 yrs.; $1.14 million signing
bonus); Darrell Jackson, wide receiver, Seattle Seahawks ($1.25 million over 3
yrs.); Gary Berry, safety, Green Bay Packers ($1.07 million over 3 yrs.);
Michael Wiley, running back, Dallas Cowboys ($934,000 over 3 yrs.), and Eugene
McCaslin, linebacker, Green Bay Packers
($847,000 over 3 yrs.). WWFM's agency fee is 3% of these contract amounts
(except for Rogers Beckett where the agency fee is 1.5%), payable after receipt
of moneys by the players and assuming fulfillment of the contracts by these
players.
In 1998, the Company established a Motorsports Division to generate
corporate sponsorships for race teams competing in different racing circuits,
to procure corporate endorsements for race teams and drivers and to develop
licensing opportunities to sell merchandise bearing the name and mark of
certain racing teams and drivers. In March 2000, the Motorsports Division
announced that it had procured seven licensing contracts on behalf of Crews,
Inc., a worldwide leader in eye and face protection products based in Memphis,
Tennessee. The licensing contracts are with prominent NASCAR race car teams,
drivers and sponsors, including Dale Jarrett, the 1999 Winston Cup champion and
the Winner of the 2000 Daytona 500; 1999 NASCAR rookie of the year, Tony
Stewart; prominent Winston Cup drivers Bobby Labonte; Rusty Wallace; Terry
Labonte, Ricky Rudd and Busch Grand National Series driver Casey Atwood. These
licensing contracts relate to Crews, Inc.'s licensing the marks for the
drivers' names, likeness, likeness of car, name of sponsor, team names and
logos for the use on Crews' eye and face safety glasses. The Company has also
procured licensing contracts with Southeastern Conference universities such as
The University of Florida, The University of Georgia, The University of
Kentucky, and The University of Tennessee to likewise license their names and
logos for Crews' eye and face protection products. Production and sale of these
items on a mass scale by Crews commenced in October 2000. The Company is
entitled to receive 20% of all royalties paid to the licensors under these
licensing contracts. The Company is also pursuing several other sponsorship
opportunities for race car teams and drivers, although there can be no
assurance that the Motorsports Division will be successful in procuring such
sponsorship opportunities. The Motorsports Division also successfully
negotiated driver contracts for two emerging race car drivers in 2000 in
connection with the negotiation of their driver contracts--Kevin Grubb's
contract as a driver for Brewco Motorsports in the Busch Grand National Series
and Scott Riggs' contract as a driver for Ultra Motorsports in the Craftsman
Truck Series.
As previously noted, the Company has reduced its involvement in the boxing
management business through the consensual termination of a joint venture
agreement with Munisteri Entertainment & Sports, Inc. and is evaluating its
options with respect to its remaining boxing management business. The Company's
Boxing Division presently represents four professional boxers. The Company is a
party to exclusive management contracts with two heavyweight boxers -- Shannon
Briggs, and Danell Nicholson pursuant to which the Company retains a
percentage, ranging from 23 1/3% to 27-1/2%, of the boxers' purses from all
professional boxing contests and exhibitions during the term of the contracts
and has interests in two additional boxers through a joint venture agreement
with Bulldog Boxing Management, LLC. Mr. Nicholson is presently the #4 ranked
heavyweight in the world by the International Boxing Federation and is
presently scheduled to box Hasim Rathman in January 2001 in a mandatory
elimination bout, the winner of which will be accorded the status as the top
ranked contender for the International Boxing Federation heavyweight title.
Establishing and maintaining a presence in each of the foregoing areas of
sport-specific concentration requires significant expenditures. Each such
sports-specific division must develop a roster of clients, establish
relationships within their prospective sports and develop support services to
provide to their athletes. Only a portion of such expenses incurred by the
Company will result in the engagement by a client of the Company's services,
and it is often uncertain the extent to which, even if retained, a target
client will generate significant revenues to the Company. For example, the
Company incurs significant training expenses for the boxers under the Company's
management. Not all of such expenses are directly reimbursed pursuant to bout
agreements for such boxers. The Company must continuously incur such expenses
in contemplation of future revenues, the receipt of which is uncertain. For a
more complete description of the Company's business, see Form 10-KSB.
Nine Months Ended September 30, 2000, Compared with Nine Months Ended September
30, 1999
Net revenues from continuing operations for the nine months ended September
30, 2000 were $811,612 as compared to $1,035,928 for the nine months ended
September 30, 1999. Purse income increased to $48,862 for the 2000 period, as
compared to $38,750 for the 1999 period. In addition, during the nine months
ended September 30, 2000, the Company recognized merchandise revenues from the
sale of memorabilia amounting to $21,582 compared to memorabilia sales of
$157,159 during the 1999 period. This decrease was principally the result of the
Company's having terminated its relationship in 1999 with the executive
principally responsible for memorabilia sales. In nine months ended September
30, 2000, the Company recognized $526,660 of contract and agency fees, as
compared to $477,891 in contract agency fees reflected during the comparable
1999 period. In addition, during the 2000 period, marketing fee income was
$371,426, as compared to $211,043 for the 1999 period.
Total expenses from continuing operations for the nine months ended
September 30, 2000 increased to $7,550,839, as compared to $3,532,455 for the
1999 period. Boxing, training and related expenses amounted to $426,529 for the
nine months ended September 30, 2000 compared to $554,462 for the 1999 period.
The principal reason for the decrease was fewer number of bouts in the 2000
period, offset by costs incurred with new joint venture arrangements commenced
in 1999. Promotion and selling, general and administrative and promotional
expenses increased to $7,061,425 for the 2000 nine month period as compared to
$2,853,301 for the corresponding 1999 nine month period. Such increases were
attributable to the increase in salaries, professional and compensation fees,
promotional expenses, and acquisition of and operational costs for HOB.com
during the 2000 period. Sportcut.com has been discontinued by the Company and
therefore will not result in any additional material expenses other than the
charge taken for such discontinuance. Other increased expenses were for items
such as promotions, rent, telephone, insurance, consultants, and travel
expenses. Also, there was a non-cash expense of $2,081,223 for stock
compensation costs during the nine month period ended September 30, 2000,
including warrants issued in the Company's private placement of stock which
closed in June 2000 and for services rendered and to be rendered to the Company
and its subsidiaries.
For the nine months ended September 30, 2000, the Company recorded a
loss on disposal of its Internet subsidiary, Sportcut.com, of approximately
$1,819,000. For the nine and three months ended September 30, 2000, the Company
incurred losses from operations of this discontinued business of approximately
$2,089,000 and $97,000. For the nine and three months ended September 30, 1999,
the Company restated its result of operations to reflect losses from
discontinued operations of approximately $757,000 for comparative purposes.
As a result of the foregoing, net loss for the nine months ended
September 30, 2000 increased to $10,582,032 as compared to $3,182,495 for the
comparable September 30, 1999 period.
Liquidity and Capital Resources
The Company's principal source of operating capital has been provided
by public and private sales of the Company's equity securities, as supplemented
by revenues from operations. At September 30, 2000, the Company had working
capital of $3,937,572 which amount was primarily the remaining net proceeds from
the Company's private placement of its common stock which was completed in June
2000.
The Company's material commitments for capital expenditure are
management salaries, anticipated training expenses and recruitment expenses. The
Company's Internet subsidiary, HOB.com will continue to need substantial capital
funding in excess of approximately $600,000 during the next twelve months.
Management salaries are approximately $1,885,000 per annum, which could increase
if the Company develops a need for additional executive management. Recruitment
and promotional expenses are estimated at approximately $1,000,000, subject to
variations depending upon player availability and recruiting success. The
foregoing represents the expected significant uses of working capital during the
next twelve months. The Company believes that its current cash and cash
equivalents will be sufficient to fund its operations over the next 8 months or
longer. However there can be no assurance that the Company will have sufficient
revenues after such time to fund its operating requirements. Accordingly, the
Company may be required to seek additional financing through bank borrowings,
private or public debt or equity financing or otherwise. The Company concluded a
private placement of its securities in June 2000 in which it raised aggregate
proceeds of approximately $5,500,000. There can be no assurance that any
additional financing will be available to the Company on favorable terms, if at
all.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on October 18,
2000. The holders of 25,805,433 shares of Common Stock were entitled to vote at
the meeting. All proposals were approved by the vote required for the respective
proposal. The results of the voting were as follows:
1. The following persons were elected as directors of the Company, by the
following votes:
FOR WITHHELD
--- --------
Robert Gutkowski 17,625,105 47,867
Charles A. Koppelman 17,625,105 47,867
Herbert F. Kozlov 17,625,105 47,867
Harvey Silverman 17,625,105 47,867
John D'Angelo 17,625,105 47,867
Arthur Barron 17,625,105 47,867
Chester Simmons 17,625,105 47,867
2. The proposal to amend the Company's 1999 Stock Option Plan to increase the
number of shares reserved under the Plan from 2,000,000 to 10,000,000 shares was
ratified by the following vote:
FOR: 10,369,001
AGAINST: 334,431
ABSTAIN: 89,928
3. The proposal to amend the Company's Certificate of Incorporation to change
the name of the Company to "Magnum Sports & Entertainment, Inc." was ratified by
the following vote:
FOR: 17,608,899
AGAINST: 47,583
ABSTAIN: 16,500
4. The proposal to amend the Company's Certificate of Incorporation to provide
for a 5 to 1 reverse capitalization of the Company's outstanding common stock,
$.01 par value, was ratified by the following vote:
FOR: 17,326,405
AGAINST: 302,707
ABSTAIN: 48,860
5. The proposal to ratify the appointment of Friedman Alpren & Green LLP as the
Company's independent auditors for the fiscal year ending December 31, 2000 was
approved by the following vote:
FOR: 17,487,059
AGAINST: 135,633
ABSTAIN: 50,280
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Magnum Sports & Entertainment, Inc.
(Registrant)
Date: November 14, 2000 /s/ Robert Gutkowski
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Robert Gutkowski, President
Date: November 14, 2000 /s/ Ray Schaetzle
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Ray Schaetzle, Chief Financial Officer