UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to ________
Commission File Number 2-96624-D
MAGICWORKS ENTERTAINMENT INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0425513
- ---------------------------- ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
930 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139
- ----------------------------------------- ---------
(Address of principal executive offices) (zip code)
(305) 532-1566
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No ___
Common stock, par value $.001 per share: 24,394,300
outstanding as of March 31, 1997
MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996 4
Condensed Consolidated Statements of Income - Three Months Ended
March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following condensed consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and therefore,
omit or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1997.
3
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,859,950 $ 6,367,179
Accounts receivable, net 2,041,655 1,921,356
Inventories 228,950 268,959
Preproduction costs, net 91,558 610,697
Due from affiliates, net - 3,213
Advances and temporary deposits 2,315,164 525,975
Other current assets 1,886,772 731,604
------------------ -----------------
Total current assets 10,424,049 10,428,983
PROPERTY AND EQUIPMENT, net 1,938,800 2,076,310
INVESTMENTS IN PARTNERSHIPS 1,905,103 918,564
DEFERRED COSTS, net 1,091,479 1,105,114
INTANGIBLE ASSETS, net 294,008 325,745
------------------ -----------------
$ 15,653,439 $ 14,854,716
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 257,831 $ 302,956
Accounts payable 1,441,344 1,467,843
Accrued liabilities 663,659 1,043,553
Advance ticket sales 596,143 844,373
Deferred income taxes 137,131 137,131
Show deposits 1,406,500 -
Due to affiliates, net 9,189 -
------------------ -----------------
Total current liabilities 4,511,797 3,795,856
------------------ -----------------
DEFERRED INCOME TAXES 239,980 274,263
LONG-TERM DEBT, net of current
maturities 6,003,048 6,177,492
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; authorized
50,000,000 shares, issued and outstanding
24,394,300 shares 24,394 24,394
Additional paid-in capital 4,094,545 4,151,026
Retained earnings 779,675 431,685
------------------ -----------------
Total stockholders' equity 4,898,614 4,607,105
------------------ -----------------
$ 15,653,439 $ 14,854,716
=================== =================
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Income
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1997 1996
-------------- ---------------
(UNAUDITED)
-------------------------------------------------
REVENUES:
Production $ 5,564,904 $ 8,206,708
Promotion 6,201,084 4,852,366
Merchandising 1,084,841 647,494
Other 1,204,429 409,605
------------- -------------
Total revenues 14,055,258 14,116,173
------------- -------------
OPERATING EXPENSES:
Production 5,069,002 8,079,276
Promotion 5,154,178 3,032,923
Salaries, wages and benefits 921,141 599,623
Cost of goods sold 856,380 427,963
General and administrative 1,192,856 772,101
------------- -------------
Total operating expenses 13,193,557 12,911,886
------------- -------------
INCOME FROM OPERATIONS 861,701 1,204,287
------------- --------------
OTHER INCOME (EXPENSE):
Interest income 69,122 58,234
Interest expense (158,093) (140,730)
Income from investments in
partnerships 255,346 33,432
------------- --------------
Income before minority interests
and provision for income taxes 1,028,076 1,155,223
MINORITY INTERESTS (170,528) (346,838)
------------- --------------
Income before provision for
income taxes 857,548 808,385
PROVISION FOR INCOME TAXES (334,444) -
------------- --------------
Net income before pro forma
income taxes for periods
prior to July 29, 1996 523,104 808,385
PRO FORMA INCOME TAXES - (315,269)
------------- --------------
Pro forma net income $ 523,104 $ 493,116
============= ==============
PRO FORMA NET INCOME
PER COMMON SHARE $ .02 $ .02
============= ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 26,269,460 21,831,180
============== ==============
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1997 1996
-------------- ---------------
(UNAUDITED)
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 523,104 $ 493,116
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 706,421 920,360
Proforma income taxes - 315,269
Deferred income tax provision (34,283) -
Loss on sale of property and equipment 673 -
Minority interests 170,528 346,838
Changes in operating assets and liabilities:
Accounts receivable (120,299) 212,679
Inventories 40,009 (30,271)
Preproduction costs (33,544) -
Advances and temporary deposits (1,789,189) (141,000)
Other current assets (1,185,911) (364,188)
Deferred costs (27,875) (12,221)
Accounts payable (26,499) (273,574)
Accrued liabilities (379,894) 83,199
Show deposits 1,406,500 -
Advance ticket sales (248,230) (71,639)
----------- -------------
Net cash provided (used) by operating activities (998,489) 1,478,568
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,630) (60,551)
Proceed from sale of assets 143,500 -
Investments in partnerships (1,013,308) (95,688)
Payments from affiliates 12,402 106,916
Intangible assets 2,245 (25,627)
------------ -------------
Net cash used in investing activities (917,791) (74,950)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt - 477,604
Repayment of debt (219,569) (599,451)
Distributions to minority interests in excess of
contributions by minority interests (139,785) (860,721)
Stock registration costs (56,481) -
Distributions (175,114) (418,051)
------------ -------------
Net cash used in financing activities (590,949) (1,400,619)
------------ --------------
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Continued
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1997 1996
------------- ----------------
(UNAUDITED)
------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (2,507,229) $ 2,999
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,367,179 5,097,588
---------------- ------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 3,859,950 $ 5,100,587
================== ==================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 28,449 $ 43,516
================== ==================
Income taxes $ 96,706 $ -
================== ==================
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
Magicworks Entertainment Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(1) SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in Note 1 of the Notes to Condensed Consolidated
Financial Statements included in the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
(2) ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
March 31, December 31,
1997 1996
------------------ ------------------
Accrued royalties $ 120,597 $ 574,103
Accrued interest 129,644 -
Payroll-related accruals 203,105 190,495
Income taxes 173,805 -
Other 36,508 278,955
------------------ ------------------
Total accrued liabilities $ 663,659 $ 1,043,553
================== ==================
(3) COMMITMENTS AND CONTINGENCIES:
LITIGATION
In October 1994, a former independent contractor filed a complaint against a
partnership of the Company in the Common Pleas Court of Philadelphia County
seeking consequential damages of $5,000,000 arising from the termination of an
employment contract. The Company believes that the claim is without merit, and
that the matter will be resolved without a material adverse effect to the
Company's financial position.
In January 1997, the Company filed suit against the City of North Miami Beach
("the City") for failure to perform under an operating management agreement. The
City filed a counter claim alleging the Company had breached the management
agreement. The Company intends to vigorously defend its position in the counter
suit and believes that the matter will be resolved without a material adverse
effect to the Company's financial position.
In March 1997, KAS Enterprises, Incorporated ("KAS"), which represents a
performer, filed suit against the Company for breach of contract and declaratory
relief seeking damages in excess of $850,000. On March 14, 1997, the Company
filed a counter suit for breach of contract, fraud in the inducement and
rescission. The Company intends to vigorously defend its position and believes
that the matter will be resolved without a material adverse effect to the
Company's financial position.
8
Magicworks Entertainment Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(4) STOCK OPTIONS:
At the discretion of the Board of Directors, the Company may grant options to
purchase the Company's stock to employees, directors, consultants, and other
unrelated parties. During the three months ended March 31, 1997, the Company did
not grant any options.
(5) EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 which supersedes the previous
standard, Accounting Principles Board Opinion ("APB") No. 15, modifies the
methodology for calculating earnings per share, and is effective for annual
periods ending after December 15, 1997; early adoption is not permitted. Upon
adoption, the Company will be required to restate previously reported earnings
per share data to conform with the requirements of SFAS No. 128 in its annual
financial statements for the year ending December 31, 1997. Had the provisions
of SFAS No. 128 been applicable to the accompanying condensed consolidated
financial statements, basic and diluted earnings per share, as calculated in
accordance with the provisions of SFAS No. 128 would not have been materially
different than the historical earnings per share amounts reported herein.
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS MARCH 31, 1996
Revenues decreased by $0.1 million to $14.0 million in the three months
ended March 31, 1997, from $14.1 million in the three months ended March 31,
1996, primarily because of a significant decrease in production revenue, offset
by an increase in promotion, merchandising and other revenue.
Production revenues declined by $2.6 million, or 32.2%, to $5.6 million
during the three months ended March 31, 1997 from $8.2 million in the
corresponding period of 1996, largely as a result of the reduction in production
revenues from "Jesus Christ Superstar" and "Hello Dolly!" which ended their runs
in January and February of 1997, respectively.
Promotion revenues increased by $1.3 million or 27.8%, to $6.2 million
during the three months ended March 31, 1997 from $4.9 million in the
corresponding period of 1996. The increase was due to the commencement of
concert promotional activity offset partially by a decrease in promotion
revenues from "Jesus Christ Superstar," which ended its four and half year run
in January 1997 and "Les Miserables" in 1997 versus 1996.
Merchandising revenues increased by $0.4 million, or 67.5%, to $1.1
million in the three months ended March 31, 1997 from $0.7 million in the
corresponding period of 1996. The Company's merchandising revenue is largely
dependent on the number of performance weeks of a production for which the
Company has acquired merchandising rights. The Company maintains such rights for
all of its productions and negotiates for merchandising rights to other touring
shows. The increase in 1997 is due largely to the Company handling 30 more
performance weeks in the first quarter of 1997 compared to the corresponding
period in 1996.
Other revenues increased by $0.8 million, or 194.1%, to $1.2 million in
the three months ended March 31, 1997 from $0.4 million in the corresponding
period of 1996 largely as a result of the Company's concert division receiving
$0.9 million in sponsorship income from the Skoal "R.O.A.R." tour in 1997 offset
partially as a result of the Company's inability to continue to consolidate
gross revenues from the Booking Agency, in which the Company formerly owned a
100% interest. As of January 1, 1997, the Booking Agency's operations ceased to
be consolidated with the Company's other operations due to a decrease in the
Company's ownership interest in the Booking Agency to 33.3%.
Operating expenses increased by $0.3 million, or 2.2%, to $13.2 million
for the three months ended March 31, 1997 from $12.9 million in the
corresponding period of 1996, primarily because of increases in promotion,
salaries, wages and benefits, cost of goods sold and general and administrative
expenses discussed below partially offset by decreased production expenses.
10
Production expenses decreased by $3.0 million, or 37.3%, to $5.1 million
in the three months ended March 31, 1997, from $8.1 million in the corresponding
period in 1996, primarily because of the cessation of certain productions as
discussed above. As a percentage of production revenues, production expenses
decreased to 91.1% for the three months ended March 31, 1997 from 98.5% in the
corresponding period in 1996.
Promotion expenses increased $2.1 million, or 69.9%, to $5.1 million in
the three months ended March 31, 1997 from $3.0 million in the corresponding
period in 1996, primarily as a result of the reasons discussed above with
respect to promotion revenues. As a percentage of promotion revenues, promotion
expenses increased to 83.1% for three month period ended March 31, 1997 from
62.5% in the corresponding period in 1996, largely as a result of promoter
losses from "A Chorus Line," "Les Miserables" and " Gospel at Colonus" in 1997
which were not offset by the additional promotion revenue discussed above.
Salaries, wages and benefits increased by $0.3 million, or 53.6%, to $0.9
million in the three month period ended March 31, 1997 from $0.6 million during
the corresponding period in 1996, primarily as a result of the hiring of four
additional employees in the merchandising division, and 15 additional employees
in the concerts division, offset in part by the non-consolidation of salaries
from the newly merged booking operations. As a percentage of total revenues,
salaries, wages and benefits increased to 6.6% for the three months period ended
March 31, 1997 from 4.3% in the corresponding period in 1996.
Cost of goods sold relates to expenses involved in the generation of
merchandising revenue, including costs of merchandise, producer, venue and
vendor commissions, and shipping and other similar costs. As a percentage of
merchandising revenue, the costs of goods sold increased to 78.9% in the three
months ended March 31, 1997 from 66.1% in the corresponding period in 1996,
primarily because of the amount of merchandise write downs due to overstocked
merchandise on shows that ended their runs in the first quarter of 1997.
General and administrative expenses increased by $0.4 million, or 54.5%,
to $1.2 million in the three months ended March 31, 1997 from $0.8 million in
the corresponding period of 1996. The primary reason for the increase was the
commencement of the concerts division which incurred only $0.2 million of
expenses during 1997. Also included are expenses associated with being a public
company that were not present in the first quarter of 1996. As a percentage of
total revenues, general and administrative expenses increased to 8.5% in the
three month period ended March 31, 1997 from 5.5% in the corresponding period of
1996.
Interest income remained relatively constant at $0.1 million in the three
month periods ended March 31, 1997 and 1996.
Interest expense remained relatively constant at $0.2 million in the three
month periods ended March 31, 1997 and 1996.
Income from investments in partnerships increased by $0.2 million, to
$255,346 in the three months ended March 31, 1997 from $33,432 in the
corresponding period of 1996, largely as a result of revenue earned from the
commencement of the theatrical production of "A Chorus Line" in which the
Company owns a 12.5% interest and the 33.3% interest owned by the Company in the
Booking Agency as discussed above.
11
Minority interests decreased by $0.2 million to $(0.2) million in the
three months period ended March 31, 1997, from $(0.4) million in the
corresponding prior period due primarily to the closing of the production of "
Jesus Christ Superstar" and "Hello Dolly" as discussed above.
Income before provision for income taxes and proforma taxes increased by
$0.1 million to $0.9 million in the three months ended March 31, 1997 from $0.8
million in the corresponding period of 1996.
As a result of the foregoing, the Company posted net income of $0.5
million in the three month periods ended March 31, 1997 and 1996.
LIQUIDITY AND SOURCES OF CAPITAL
At March 31, 1997, the Company had working capital of $5.9 million compared to
$6.6 million at December 31, 1996. Since inception, the Company has financed its
operations primarily through borrowings and cash flow from operations. During
the third quarter of 1996, the Company received net proceeds of $9.2 million
from a private placement.
The Company has a line of credit and other short term borrowings which are
payable on demand (the "Credit line"). The Credit line provides for short-term
borrowings of up to $1.2 million with interest at prime plus 3/4%. The Credit
line is collateralized by substantially all of the Company's assets and is
guaranteed by certain executive officers of the Company. At March 31, 1997, the
full amount of the Credit line was available for borrowing. The Company's
remaining indebtedness consists of $1.1 million, collateralized by buses used in
the Company's business, and $5.2 million of convertible notes sold in a private
placement.
The Company's principal anticipated capital expenditures over the next
several years will relate to acquisitions, if suitable opportunities arise, and
the production of additional theatrical productions.
Net cash provided (used) by operating activities decreased during the
three months ended March 31, 1997 to $(1.0) million as compared to an increase
of $1.5 million in the corresponding period of 1996. The decrease in net cash
provided by operating activities in 1997 related to an increase in advances and
deposits and prepaid show expenses related to concert tours and theatrical shows
to commence in the second quarter of 1997. The net cash provided by operating
activities in 1996 related primarily to the decrease in accounts receivable,
prepaid show expenses and the increase in accounts payable.
Net cash used by investing activities totaled $0.9 million during the
three months ended March 31, 1997 as compared to $0.1 million in the
corresponding period of 1996. The increased cash used in investing activities
for 1997 related primarily to the Company's investment in theatrical
productions. The increase in cash used in investing activities for 1996 related
primarily to the purchase of property and equipment offset by payments to
affiliates.
12
Net cash used in financing activities totaled $0.6 million during the
three months ended March 31, 1997 as compared to $1.4 million in the
corresponding period of 1996. The increase in cash used in financing activities
for 1997 related primarily to the repayment of bus loans, final S-Corp
distribution payments made to original shareholders of Space Agency, Inc. and
distributions made to minority partners of the theatrical shows of "Deathtrap"
and "Hello Dolly." The increase in cash used in financing activities for 1996
related primarily to distributions made to minority partners of "Jesus Christ
Superstar"and the equity touring show of "Ain't Misbehavin."
The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which
represent the Company's expectations or beliefs concerning future events, future
liquidity and capital resource needs. These forward looking statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements.
13
Part II. OTHER INFORMATION
Item 1. Legal proceedings
Refer to Note 3 of the Notes to the Condensed Consolidated
Financial Statements.
Item 2. Changes in securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.0 Statement Regarding Computation of Earnings Per
Share
Exhibit 27.0 Financial Data Schedule
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Acto of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGICWORKS ENTERTAINMENT INCORPORATED
Date: BY /S/ BRAD KRASSNER
------------------------------------------------
Brad Krassner, Co-Chairman of the Board of
Directors and Chief Executive Officer
Date: BY /S/ STEVEN CHABY
------------------------------------------------
Steven Chaby, Chief Financial Officer
and Treasurer
15
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11.0 Statement Regarding Computation of Earnings Per Share
27.0 Financial Data Schedule