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 March 31, 2001
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)
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 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 - 7,517,506 as of May 1, 2001
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
MARCH 31, 2001
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 188,373
Certificates of deposit 137,741
Accounts receivable, less allowance for doubtful accounts of $177,963 295,428
Prepaid expenses and other current assets 849,295
--------------
1,470,837
Total current assets
Property and equipment - at cost, net of accumulated depreciation 54,221
Goodwill, at cost, net of accumulated amortization 136,555
Prepaid expenses and other assets 310,651
Investments 325,000
Escrow deposit 630,000
--------------
$ 2,927,264
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable 72,000
Accounts payable and accrued expenses $ 331,494
Income taxes payable 400
Security deposit payable 16,200
--------------
Total current liabilities 420,094
--------------
Stockholders' equity
Common stock, $.01 par value; 60,000,000 shares authorized,
6,342,506 shares issued and outstanding 63,425
Additional paid-in capital 37,995,849
Accumulated deficit (35,539,754)
Demand note receivable on private issuance of common stock (12,350)
--------------
2,507,170
--------------
Total liabilities and stockholders' equity $ 2,927,264
==============
See notes to unaudited condensed consolidated financial statements.
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MAGNUM SPORTS & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
--------------------------
Restated
2001 2000
----------- -----------
Purse income $ 0 $ 17,000
Contract and agency fees 121,139
39,734
Endorsements and marketing fees 2,515 56,000
Ticket revenues 0 3,465
Merchandise revenues 0 673
----------- -----------
123,654 116,872
----------- -----------
Cost of revenues 0 1,302
Training and related expenses 3,490 111,262
Promotional expenses 77,661 234,341
Selling, general and administrative expenses 1,963,468 1,854,527
----------- -----------
2,044,619 2,201,432
----------- -----------
Loss from operations (1,920,965) (2,084,560)
Other income 11,328 13,784
----------- -----------
Loss from continuing operations
before income taxes (1,909,637) (2,070,776)
Income taxes 2,581 89
----------- -----------
Loss from continuing operations (1,912,218) (2,070,865)
Discontinued operations:
Loss from operations of the discontinued business (2,906) (1,236,146)
Loss on the disposal of a business during the
phase-out period 0 (1,438,336)
----------- -----------
Net loss $(1,915,124) $(4,745,347)
=========== ===========
Basic and diluted net loss per share
Continuing operations $ (0.34) $ (0.56)
Loss from operations of the discontinued business (0.00) (0.33)
Loss on the disposal of a business during the
phase-out period (0.00) (0.39)
----------- -----------
Net loss $ (0.34) $ (1.28)
=========== ===========
Weighted average common shares outstanding 5,585,126 3,707,363
=========== ===========
See notes to unaudited condensed consolidated financial statements.
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MAGNUM SPORTS & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
--------------------------------
2001 2000
------------ ------------
Cash flows from operating activities $ (1,520,907) $ (2,504,298)
Cash flows from investing activities 24,030 (309,166)
Cash flows from financing activities 1,469,135 471,974
------------ ------------
Net decrease in cash (27,742) (2,341,490)
Cash and cash equivalents at beginning of period 216,115 2,733,050
------------ ------------
Cash and cash equivalents at end of period $ 188,373 $ 391,560
============ ============
Supplemental cash flow disclosures
Income taxes paid $ 40,707 $ 3,780
Noncash financing activities
Issuance of common stock for consulting and other services 0 195,501
Issuance of common stock in connection with acquisition 0 120,000
Amounts payable in connection with acquisition 0 60,000
Stock-based compensation charged to expense 219,814 560,700
See notes to unaudited condensed consolidated financial statements.
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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 to provide management, agency and marketing
and agency services to professional athletes and entertainers,
principally boxers. On October 18, 2000, the Company changed its name to
Magnum Sports & Entertainment, Inc.
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, 2000.
The condensed consolidated financial statements included herein reflect,
in the opinion of management, all adjustments (consisting primarily of
normal recurring adjustments) necessary to present fairly the results
for the interim periods. The results of operations for the three months
ended March 31, 2001, are not necessarily indicative of results to be
expected for the entire year ending December 31, 2001.
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 multi-dimensional entertainment company. There is no
assurance that the Company will achieve or sustain profitable
operations.
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.
During the three months ended March 31, 2001, the Company raised gross
proceeds of $1,295,000 through a private placement of units with each
unit comprised of one share of the Company's common stock and one
warrant to acquire one share of common stock. After deduction of
offering expenses, including commissions, the sale of units generated
net proceeds of approximately $1,265,000. The Company sold an aggregate
of 1,148,753 shares of common stock and an aggregate of 1,148,753
warrants at purchase prices ranging from $1.07 to $1.19 per unit in this
private placement. The exercise prices of the warrants to acquire common
stock range from $1.07 to $1.19 per share and are exercisable for a five
year term.
In addition, during April and May, 2001, the Company raised proceeds of
$1,550,000 through another private placement of units with each unit
comprised of one share of the Company's common stock and two warrants
each to acquire one share of common stock. After deduction of offering
expenses,
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including commissions, the sale of units generated net proceeds of
approximately $1,535,000. The Company sold an aggregate of 1,531,604
shares of common stock and an aggregate of 3,063,208 warrants at prices
of $1.00 and $1.06 per unit in this private placement. These warrants to
acquire common stock are exercisable at $0.75 per share and are
exercisable for a five year term.
Wind-Down of Subsidiaries
The Board of Directors has decided that the Company will focus its
future business on talent management, marketing and content. Due to the
change in focus the following subsidiaries: Worldwide Team Sports, Inc.,
Worldwide Basketball Management, Inc. and Worldwide Sports Promotions,
Inc., are in a wind-down process and had no new activities during the
first quarter of 2001.
The operating losses incurred by these subsidiaries for the three months
ended March 31, 2001 totaled approximately $30,000. The Company is
actively seeking a buyer for the HOB Website.
Proposed Acquisition
On December 11, 2000, the Company and Ford Models, Inc. ("Ford") entered
into a letter of intent setting forth the intentions of the parties with
respect to a proposed acquisition by the Company of all the issued and
outstanding capital stock of Ford. The Company deposited $630,000 with
an escrow agent to secure its obligations under the terms of the letter
of intent. There is another deposit of $630,000 that is to be made in
connection with this acquisition. The Company is actively pursuing the
conclusion of its due diligence and is arranging financing, although the
Company cannot provide any assurances that it will be able to secure the
necessary financing to acquire Ford on acceptable terms or at all. In
addition, there can be no assurance that the Company will enter into a
definitive agreement to acquire Ford or consummate such acquisition.
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. Ticket and commission revenues are recognized at the time of the
fight. Contract and agency fee revenues are recognized ratably over 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
year. Diluted EPS has not been presented because the effect of potential
common stock 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, which
will expire through 2020, amounting to approximately $18,100,000. 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.
6. Certain reclassifications have been made to the prior period
financial statements to conform to the current period presentation.
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NOTE D - DISCONTINUED OPERATION
In September 2000, 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. Operating results of Sportcut.com for the period ended March 31,
2001 are shown separately in the accompanying statement of operations.
The condensed consolidated statement of operations for the three month
period ended March 31, 2000 has been restated and operating results of
Sportcut.com are also shown separately.
NOTE E - STOCK OPTION GRANTS
During the three months ended March 31, 2001, the Company did not grant
any stock options.
NOTE F - GOODWILL
Goodwill represents cost in excess of fair value of net assets acquired
from the purchase of the internet website transaction, 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 March 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is intended to update the information contained in the
Company's annual report on Form 10-KSB for the fiscal year ended March 31, 2001
and presumes that readers have access to, and will have read, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in such Form 10-KSB.
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act. Words such as "will" and "should"
and similar expressions reflecting something other than historical fact are
intended to identify such statements. These forward-looking statements involve a
number of risks and uncertainties, including, but not limited to: the success
and achievement of the athletes managed by the Company; demand for their
services; the ability of the Company to attract additional clients; the effect
of the Company's accounting policies; the ability of Magnum Productions to be
engaged to produce any television projects and other risk factors detailed in
the Company's filings with the Securities and Exchange Commission. The Company's
ability to consummate additional acquisitions also is dependent upon the
Company's ability to secure additional financing. The consummation of the
acquisition of Ford Models, Inc. is subject to the ability of the Company to
negotiate and enter into a definitive acquisition agreement to acquire Ford
Models, Inc., the ability of the Company to procure the necessary financing to
complete the transaction, the possibility of requiring stockholder approval and
obtaining other regulatory approvals and consent.
Overview
Magnum Sports & Entertainment, Inc. (the "Company" or "Magnum") is a
Nasdaq Small Cap-listed company headed by Chief Executive Officer Robert M.
Gutkowski and Charles A. Koppelman, Chairman of the Board, who are two
successful executives who have established track records of success in building
entertainment companies as more fully described below. The Company's Board of
Directors appointed them to their respective positions on June 15, 2000. Their
goal for the Company is to grow its revenues through carefully executed
acquisitions and the hiring of experienced individuals in the fields of fashion,
music, sports and film/television. The Company seeks to become a
multi-dimensional entertainment business that includes providing career,
marketing and licensing opportunities to its expanding roster of talent in the
rapidly converging worlds of sports, music, fashion and entertainment. The
Company's new management team explored a range of acquisition candidates as a
means to commence implementation of this strategy, culminating in December 2000,
when the Company signed a letter of intent to acquire Ford
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Models, Inc.("Ford"), the world's most prestigious fashion modeling agency as
more fully described below.
In June 2000, the Company announced that it appointed Robert M.
Gutkowski, former President and Chief Executive Officer of both Madison Square
Garden and The Marquee Group Inc., 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 Company's 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 (winners of 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 while growing the network into the nation's
largest and most profitable regional sports network. In 1994 he founded and
later took public, The Marquee Group Inc., 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
companies, including 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 Inc. in 1999 to SFX Entertainment, Inc., a New York Stock Exchange
listed company, for more than $100 million.
Charles Koppelman is a prominent music and entertainment entrepreneur
who, over a 25-year 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 and was instrumental in the careers of Frank Sinatra, Barbra Streisand,
Garth Brooks, Tracy Chapman and others. He is currently Chairman and CEO of CAK
Entertainment, Chairman of Medalist Entertainment, an affiliate of Alliance
Entertainment, and is Executive Chairman of the Office of the Chairman of Steve
Madden Ltd.
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.
Proposed Business Strategy
The Company's strategy for enhancing long-term shareholder value is
based on four entertainment pillars: fashion, music, sports and film/television.
The Company will seek to build entertainment in all these sectors, enhance
client careers and produce and co-own content created by its clients. The
Company has made progress at identifying the industry sectors as well as the
companies and individuals who it wants to be involved with in creating the new
Magnum Sports & Entertainment, Inc. The Company intends to grow through the
acquisition of companies 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. The Company will be subject to numerous
risks, expenses, problems and difficulties typically encountered in the
implementation of a new business plan. There can be no assurance that the
Company will be able to successfully implement its strategy in light of these
uncertainties.
The Ford Models, Inc. Letter of Intent
As an important first step in the Company's acquisition strategy, the
Company announced on December 12, 2000, that it had signed a letter of intent
with Ford Models, Inc., the world's most prestigious modeling agency("Ford"), to
acquire 100% of Ford (the "Ford Letter of Intent"). Ford has been instrumental
in the careers of Kim Basinger, Christie Brinkley, Sharon Stone, Lauren Hutton,
Elle MacPherson, Christie Turlington, Cheryl Tiegs, Rene Russo, Vendela, Ali
McGraw, Veronica Webb and Stephanie Seymour over an illustrious fifty-five year
history. The Ford Letter of Intent provides, among other things, that Ford
agreed that during a 180 day period from December 11, 2000, including
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any mutually agreed extensions of this 180 day period, none of Ford or the
principal stockholders of Ford shall solicit, or encourage the solicitation of,
or enter into, negotiations of any type directly or indirectly, or enter into a
letter of intent or purchase agreement, merger agreement or other similar
agreement with any person, firm or corporation other than the Company with
respect to a merger, consolidation, business combination, sale of all or
substantially all of the capital stock or assets of Ford or its subsidiaries.
The Ford Letter of Intent also provides, among other things, that the purchase
price for the acquisition of Ford is $22,000,000 in cash (the "Ford
Acquisition"). Upon execution of the Ford Letter of Intent the Company deposited
into escrow the sum of $630,000 as a deposit to be used towards the purchase
price as more fully described in the Ford Letter of Intent. The acquisition of
Ford is subject to a number of conditions, including entering into a definitive
agreement with respect to the acquisition and obtaining sufficient financing to
finance the acquisition. The Company has retained the investment banking firm of
Dominick & Dominick LLC to act as its investment banker to raise the necessary
proceeds to finance the Ford Acquisition. There can be no assurance given that
the Company can enter into a definitive acquisition agreement and or that it can
raise the capital necessary to consummate the Ford Acquisition or that the
Company can consummate the acquisition of Ford pursuant to the terms of the Ford
Letter of Intent.
In the event that the Company is successful in acquiring Ford, the
Company intends to maintain Ford's existing management staff, including Katie
Ford, its Chief Executive Officer, who will continue as Chief Executive Officer
of Ford as well as join the Board of Directors of the Company. The Company
believes that the Ford brand name is very valuable and the Company plans to
expand the Ford brand name across all facets of the entertainment, fashion,
music, sports and film/television industries. The Company believes that Ford
will be an integral part in the Company's implementing its strategy to create a
multi-dimensional talent management, marketing and content company that provides
its clients with wide ranging opportunities across all facets of the
entertainment business. Ford presently maintains offices in eleven cities around
the world, including New York, Los Angeles, Miami, Toronto, Paris, Sao Paolo,
Rio de Janeiro, and Buenos Aires and the Company believes that these offices
provide it with a global platform to implement this business strategy. As it
exists today, Ford is a company that specializes in modeling but already has an
active sports and music division representing on a non-exclusive basis such
celebrities as Kobe Bryant, Britney Spears, Enrique Iglesias, the Dixie Chicks,
Jessica Simpson, Christine Aguilera, Sisqo, and Tyrese. Under the guidance of
Messrs. Gutkowski and Koppelman, the Company believes that it will be able to
expand Ford's presence in the worlds of sports, music and entertainment. Magnum
anticipates assisting Ford in facilitating career opportunities for its models
in film, television and music, as well as endorsement, sponsorship, and
licensing opportunities with corporations on a global scale.
Ford's historic model roster provides an example of the Company's
"crossover" strategy. Rene Russo, Lauren Hutton, Kim Basinger, Sharon Stone and
Candice Bergen are among the prominent Ford models who went on to have
successful careers in film and television, but none of them were represented by
Ford in Hollywood because Ford did not have management capabilities that
extended beyond modeling. Under the Magnum umbrella, the Company believes that
Ford will be able to service its talent across the entertainment spectrum and
retain commission income and participate in ownership of content, such as
television programs developed and produced by its talent.
Magnum believes that the Ford brand can be developed into exciting and
profitable television programming on a worldwide basis. Twenty years ago, Ford
launched the "Supermodel of the World(TM)" contest, which has become one of the
largest and most prestigious model search in the world. Over the course of a
year, young women from around the world vie for modeling contracts totaling
$500,000 and the opportunity to become one of the world's most recognizable new
faces in modeling. The contest is held in over forty countries culminating in an
international finals held most recently in Puerto Rico. The event draws top
models, celebrities and recording artists and has been seen on cable television
as a half-hour program. Magnum believes that the Ford "Supermodel of the
World(TM)" is a valuable property which has not been materially commercially
exploited to date. The search leading up to the Ford Supermodels finals has been
developed as a successful multi-episode "behind-the-scenes" reality-based
television program that achieved high ratings in the local Australian market.
The Company believes that both the international finals and the Supermodels
search have the potential to be successful broadcast properties that can draw
significant multi-year corporate sponsorship on both a national and
international level, although there cannot be any assurances that such
multi-year corporate sponsorships can be procured.
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Magnum Productions
As part of its new strategic initiative, the Company is at the initial
stage of establishing a new division, Magnum Productions. The Company
anticipates that Magnum Productions will focus on the development, production,
licensing and ultimately, distribution of high quality television programming
designed for basic cable, pay cable, network, and syndicated television
distribution in the international marketplace. The Company, through Magnum
Productions, intends to ultimately utilize the talent that is managed by the
Company, such as the Ford model roster (after the acquisition of Ford), to
create and package programming assets.
Magnum's philosophy will be the development of programming for specific
distributor needs. Magnum intends to avoid the development of speculative
programming and will seek to minimize its financial exposure on projects. While
Magnum intends to build and/or acquire a library of programming assets, which
will become increasingly valuable as digital broadcast technologies continue to
emerge, it will seek to minimize financial exposure. Magnum intends to maximize
its use of creative funding sources, including pre-sale agreements with domestic
and foreign distributors of basic cable, pay cable, network and syndication
programs, Canadian tax credit programs and co-production treaties. By
pre-negotiating the sale of programming to end-user distribution companies
around the world and using the Canadian system for financing, Magnum intends to
obtain financing commitments for the lion's share of its programming budgets,
prior to the commencement of production.
Magnum intends to focus on opportunities to create television series
that can reach the milestone of 65 episodes, which make shows eligible for daily
strip syndication. Magnum intends to initially focus on family-oriented, sports
and urban television and low-budget theatrical or direct-to-video projects. By
leveraging the strengths of its other divisions, Magnum will seek to develop
sports, music and fashion oriented programming. Through its sponsorship
division, Magnum intends to seek corporate partners in program development. In
addition, Magnum will seek to control the ancillary revenue streams that its
programming assets will generate, including music soundtracks, video games and
licensing opportunities. Magnum will also be in position to earn packaging fees
(i.e. commissions) by placing talent that it represents, such as Ford models
(after the Ford acquisition), into programming that Magnum hopes to produce.
Magnum has hired Michael Yudin as the President of Magnum Productions,
reporting to Robert Gutkowski, Magnum's Chief Executive Officer. Mr. Yudin has
two decades of experience in the development, marketing, financing and
production of successful television programming. Mr. Yudin joins Magnum from
Telescene Film Group Inc., a major independent film and television programming
company headquartered in Montreal. At Telescene, Mr. Yudin was President of
Telescene Entertainment where he was instrumental in the development and
production of television programming with a value in excess of $100 million.
Among the successful television series overseen by Mr. Yudin are Sir Arthur
Conan Doyle's The Lost World, (22 episodes completed and syndicated in the US by
New Line Television, with 22 more under production), Student Bodies (65
episodes, distributed in the US by Twentieth Century Fox Television), Big Wolf
on Campus (36 episodes, with 29 additional ordered, seen in the US on Fox Family
Channel) and Live Through This, the first one-hour dramatic series ever produced
for MTV. Mr. Yudin's career also spans ten years as a programming executive at
Paramount Television Group, Viacom Inc., Reeves Communications, Inc. and Chelsea
Communications, Inc. and ten years in the marketing and media divisions of major
advertising agencies.
Mr. Yudin brings with him extensive knowledge of complex production
financing structures incorporating multiple licenses, co-production partners,
government benefits, investor equity partners and production debt facilities. In
order to reduce Magnum's financial exposure on programming expenditures, Mr.
Yudin will closely monitor foreign tax and film incentive programs and review
the ability to produce Magnum production division's programming through foreign
co-production treaties and inter-provincial co-production treaties on a
case-by-case basis. It is contemplated that Mr. Yudin's initial activities on
behalf of Magnum Productions division will be to attempt to procure one or more
production assignments as a "producer for hire" on programming that is being
produced on behalf of network or cable broadcast companies, thereby enabling
Magnum to earn up-front producer fees without having to make capital investment
in such programming. There cannot be any assurance that Magnum will be able to
successfully operate Magnum Productions, including but not limited to being able
to develop any programming of any kind or being able to locate any financial
partners to bear some or all of the financial risk from any kind of programming
that Magnum seeks to develop or that Magnum will be hired as a producer for hire
by any third party.
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Potential Future Acquisitions
As the modeling agency business is highly fragmented, the Company may
acquire one or more other modeling agencies that would be complementary to the
Ford name both in the U.S. and overseas markets. The Company may acquire one or
more companies that provide talent management services in the worlds of film,
television, music and sports that will enable the Company to offer its expanding
talent roster a wide range of career opportunities under one integrated
corporate umbrella. In addition, the Company may acquire one or more companies
or hire certain individuals with expertise in the worlds of corporate
sponsorship and product licensing, which will enable the Company to link the
creative and corporate communities together to create valuable commercial
opportunities. Although the Company regularly evaluates potential acquisitions,
to date the Company has not entered into any definitive agreement with respect
to any such acquisitions. There can be no assurance that the Company will be
able to make any of these kinds of acquisitions or hire such individuals.
Discontinuance/Termination of Several Poorly Performing Businesses Inherited By
New Management
The Company's management has begun the process of transforming the
Company into a multi-dimensional entertainment company that it believes will be
able to leverage its clientele across all facets of the rapidly converging
entertainment business. The Company's new management 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. The Company adopted a new name and logo, which were
introduced in October 2000. The Company's new management inherited a number of
businesses that had poor historical performance and uncertain economic
prospects. As part of the transformation, the Company's boxing management
business was terminated in the fourth quarter of 2000. In connection therewith,
the Company consensually terminated its boxing management agreement with Shannon
Briggs, a heavyweight boxer and two joint venture relationships with Munisteri
Sports & Entertainment, Inc. and Bulldog Boxing Management LLC, respectively.
For the year ended December 31, 2000, the Company recognized revenues of
approximately $17,000 attributable to the Company's share of its boxers purses,
and from its joint venture agreements and ticket sales while in December 31,
1999, the Company recognized revenues of approximately $64,000 attributable to
the Company's share from these activities. Also, the operations of an Internet
subsidiary, Sportcut.com, Inc. were discontinued during the third quarter of
2000. In addition, the Company terminated the employment agreements of its two
executives who were operating the Company's motorsports division in February
2001. The Company's motorsports division had been engaged in the business of
representing professional race car drivers, seeking to procure sponsorships for
race car teams on the NASCAR racing circuit and procuring licensing
opportunities for NASCAR race car teams and drivers. As part of its termination
of the employment agreements of its executives of its motorsports division, the
Company will be entitled to receive certain percentages of revenues generated
prospectively from clients of the motorsports division without incurring any
additional expenses in the operation of the motorsports division. The Company
cannot, however, provide any estimate of such prospective revenues. The Company
also sold all remaining items of sports memorabilia during 2000 that remained in
inventory from its memorabilia division that it had discontinued in 1999.
The Company's Current Operations
The Company's remaining current businesses are an agency that provides
agency services to professional football players, principally in the form of
contract negotiation with National Football League ("NFL") teams and an Internet
boxing content website, www.Houseofboxing.com (the "HOB Website") that it
operates through its wholly-owned subsidiary Magnum Houseofboxing.com,
Inc.("HOB.com"). Each of these businesses were in operation at the time that
Messrs. Gutkowski and Koppelman assumed their positions as Chief Executive
Officer and Chairman of the Board, respectively, in June 2000. The Company
presently employs two agents who are licensed as contract advisors with the NFL
Players' Association to operate its football agency business. Agency fees for
negotiation of professional football contracts are regulated by the NFL
Collective Bargaining Agreement and typically range from 2-3% of the player's
contract, payable after receipt by the player of his moneys from the NFL
team(which includes the player's base salary, signing bonus and any performance
bonus actually received by the player, during the length of the contract which
the Agent negotiated for his client with the
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team. That revenue stream continues for so long as the player is paid pursuant
to such contract, even if the client changes Agents during that span.). The
Company's football agency presently represents 42 professional football players,
including, among others, Tyrone Wheatley of the Oakland Raiders, Darren Sharper,
safety of the Green Bay Packers who was named to the 2000 NFL All-Pro Team,
Antonio Freeman, wide receiver of the Green Bay Packers, and O.J. McDuffie, wide
receiver of the Miami Dolphins.
In addition, the Company's football agency enjoyed its finest results
in its history in connection with the April 2001 NFL draft in which two of the
Company's clients were selected in the first round: Gerard Warren, defensive
lineman from the University of Florida who was the 3rd player selected in the
draft by the Cleveland Browns and Rod Gardner, wide receiver, Clemson University
who was the 15th player selected in the draft by the Washington Redskins as well
as four other players who were selected in later rounds of the NFL
draft--Delawrence Grant, defensive end from the University of Oregon and Corey
Bird, safety from Virginia Tech who were both selected in the 3rd round of the
NFL draft and Quentin McCord, wide receiver from the University of Kentucky and
Anthony Denman, linebacker from Notre Dame University who were both selected in
the 7th round of the NFL draft. The Company is presently evaluating its NFL
agency and determining whether such operation should be continued, sold or
otherwise disposed of.
With respect to the HOB Website, management has determined that it does
not fit with the Company's new business strategy. The HOB Website is a sports
content website that focuses on the sport of boxing, producing high quality
editorial content and audio and video content regarding top flight boxers and
boxing personalities. It has been called "boxing's premier website" by Sports
Illustrated. The HOB Website, however, faces intense competition from numerous
Internet sports and entertainment companies, many of which are better
capitalized than the HOB Website and/or have relationships or are owned by major
media companies such as CBS Sportsline, ESPN and CNN/SI. It addition, it has
been extremely difficult for the HOB Website to generate any material revenues
from advertising and/or sponsorships. Accordingly, the Company is actively
seeking to find a buyer for the HOB Website, although there can be no assurance
that it will be able to locate a buyer for the HOB Website. If the Company is
unable to locate a buyer for the HOB Website, it will either discontinue the
operations of the HOB Website or materially reduce the staff operating the HOB
Website in order to reduce the operating expenses incurred in connection with
the HOB Website. The Company has already reduced the staff operating the HOB
Website by five employees.
Three Months Ended March 31, 2001 Compared with Three Months Ended March 31,
2000
Net revenues for the three months ended March 31, 2001 were $123,654,
as compared to a restated total of $116,872 for the three months ended March 31,
2000. During the three months ended March 31, 2001 there was no purse income,
ticket revenues or merchandise revenues as compared to $17,000, $3,465 and $673,
respectively for the 2000 period. This was the result of the Company eliminating
its activities in these areas. During the quarter ended March 31, 2001 the
Company generated $121,139 of contract and agency fees, as compared to $39,734
of contract agency fees reflected during the comparable 2000 period. This
increase was primarily generated by one of the Company's professional football
clients, Darren Sharper executing a new professional football contract with a
substantial signing bonus. This event entitled the Company to revenue in excess
of $100,000. In addition, during the 2001 period, endorsement and marketing fee
income was $2,515, as compared to $56,000 for the 2000 period, as a result of
the Company's reduced activities in these areas.
Total expenses for the three months ended March 31, 2001 decreased to
$2,044,619, as compared to $2,201,432 for the 2000 period. Boxing, training and
related expenses amounted to $3,490 for the three months ended March 31, 2001
compared to $111,262 for the 2000 period. The principal reason for this decrease
is the Company's elimination of boxing management. Promotion and selling,
general and administrative expenses decreased to $2,041,129 for the 2001
three-month period as compared to $2,088,868 for the corresponding 2000
three-month period. Such decreases were attributable to the promotions,
salaries, telephone, office and depreciation offset by an increase in insurance
and travel and entertainment.
As a result of the foregoing, net continuing operations loss for the
three months ended March 31, 2001 decreased to $1,912,218 as compared to
$2,070,865 for the comparable March 31, 2000 period.
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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 March 31, 2001, the Company had working capital
of $1,050,743 which amount was primarily the remaining net proceeds from the
Company's private placements of its common stock, which was completed in March
2001.
The Company's material commitments for expenditures are the purchase
price of Ford Models, Inc. along with related professional fees, employment
agreements with various executives, and office space obligations. Management
salaries are approximately $ 1,275,000 per annum, which could increase if the
Company develops a need for additional executive management. The foregoing
represents the expected significant uses of working capital during the next
twelve months (excluding working capital requirements of Ford if such
acquisition is consummated.) The Company is presently executing another private
placement of its securities having raised net proceeds of $1,535,000 to date in
addition to the private placement units which was completed in March 2001. The
Company believes its current cash and cash equivalents along with the private
placement funding consummated to date will fund the Company's working capital
through July of 2001. However, there can be no assurance that the Company will
have sufficient revenues after such time to fund its operating requirements
including the implementation of its new business strategy. Accordingly, the
Company may be required to seek additional financing through bank borrowings,
private or public debt, equity financing or otherwise. There can be no assurance
that any such financing will be available to the Company on acceptable terms or
at all. The Company's inability to obtain necessary additional financing would
have an adverse effect on the Company's operations. In addition, the failure to
obtain additional financing raises substantial doubt about the Company's ability
to continue as a going concern, and in such event the Company will most likely
have to curtail or suspend operations.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the three months ended March 31, 2001, the Company raised gross
proceeds of $1,295,000 through a private placement of units with each unit
comprised of one share of the Company's common stock and one warrant to acquire
one share of common stock. After deduction of offering expenses, including
commissions, the sale of units generated net proceeds of approximately
$1,265,000. The Company sold 1,148,753 shares of common stock and 1,148,753
warrants at purchase prices ranging from $1.07 to $1.19 per unit in this private
placement. The exercise prices of the warrants to acquire common stock range
from $1.07 to $1.19 per share and are exercisable for a five year term. The
Company has agreed to register the shares under
In addition, during April and May, 2001, the Company raised proceeds of
$1,550,000 through another private placement of units with each unit comprised
of one share of the Company's common stock and two warrants each to acquire one
share of common stock. After deduction of offering expenses, including
commissions, the sale of units generated net proceeds of approximately
$1,535,000. The Company sold 1,531,604 shares of common stock and 3,063,208
warrants at prices of $1.00 and $1.06 per unit in this private placement. These
warrants to acquire common stock are exercisable at $0.75 per share and are
exercisable for a five year term.
The units sold in both of these above-referenced private placements
were sold to accredited investors and such offerings were made in accordance
with the exemptions from registration provided for under Section 4(2) of the
Securities Act of 1933, as amended(the "Act") and Rule 506 of Regulation D
promulgated under the Act.
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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: May 11, 2001 /s/Robert Gutkowski
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Robert Gutkowski, President
Date: May 11, 2001 /s/Ray Schaetzle
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Ray Schaetzle, Chief Financial Officer
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