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 JUNE 30, 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 August 13, 1997
MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 4
Condensed Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows - Three Months
and Six Months Ended June 30, 1997 and 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities 17
ITEM 3. Defaults upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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 six months ended June 30, 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
JUNE 30, DECEMBER 31,
1997 1996
------------------ ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,648,661 $ 6,367,179
Accounts receivable, net 2,277,001 1,921,356
Inventories 226,210 268,959
Preproduction costs, net 1,173,833 610,697
Due from affiliates, net - 3,213
Advances and temporary deposits 3,074,539 525,975
Other current assets 457,940 731,604
------------- --------------
Total current assets 10,858,184 10,428,983
PROPERTY AND EQUIPMENT, net 1,891,078 2,076,310
INVESTMENTS IN PARTNERSHIPS 3,636,892 918,564
DEFERRED COSTS, net 1,057,980 1,105,114
INTANGIBLE ASSETS, net 265,670 325,745
------------- -------------
$ 17,709,804 $ 14,854,716
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 251,698 $ 302,956
Accounts payable 2,639,009 1,467,843
Accrued liabilities 713,739 1,043,553
Short term debt 375,000 -
Advance ticket sales 2,056,400 844,373
Deferred income taxes - 137,131
Show deposits 250,000 -
-------------- --------------
Total current liabilities 6,285,846 3,795,856
-------------- --------------
DEFERRED INCOME TAXES 205,697 274,263
-------------- --------------
LONG-TERM DEBT, net of current
maturities 5,937,995 6,177,492
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 6)
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 4,059,878 4,151,026
Retained earnings 1,195,994 431,685
-------------- --------------
Total stockholders' equity 5,280,266 4,607,105
-------------- --------------
$ 17,709,804 $ 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 OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
(unaudited) (unaudited)
--------------------------- ------------------------
REVENUES:
Production $ 9,145,881 $ 8,576,178 $ 14,710,785 $ 16,782,886
Promotion 8,217,992 16,229,279 14,419,076 21,081,645
Merchandising 1,430,486 486,719 2,515,327 1,134,213
Other 1,788,256 353,782 2,992,685 763,387
---------- ---------- ---------- ----------
Total revenues 20,582,615 25,645,958 34,637,873 39,762,131
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Production 8.011,804 7,292,369 13,080,806 15,371,645
Promotion 7,482,719 14,292,124 12,636,897 17,325,047
Salaries, wages and benefits 1,585,106 865,597 2,506,247 1,465,220
Cost of goods sold 877,604 448,954 1,733,984 876,917
General and administrative 2,543,551 732,369 3,736,407 1,504,470
---------- ---------- ---------- ----------
Total operating expenses 20,500,784 23,631,413 33,694,341 36,543,299
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 81,831 2,014,545 943,532 3,218,832
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 29,849 46,076 98,971 104,310
Interest expense (153,939) (63,723) (312,032) (204,453)
Income from investments in
partnerships 474,035 (6,267) 729,381 27,165
---------- ---------- ---------- ----------
Income before minority interests
and provision for income taxes 431,776 1,990,631 1,459,852 3,145,854
MINORITY INTERESTS 250,716 (141,710) 80,188 (488,548)
---------- ---------- ---------- ----------
Income before provision for
income taxes 682,492 1,848,921 1,540,040 2,657,306
PROVISION FOR INCOME TAXES (266,172) - (600,616) -
---------- ---------- ---------- ----------
Income before pro forma
income taxes for periods
prior to July 29, 1996 416,320 1,848,921 939,424 2,657,306
PRO FORMA INCOME TAXES - (721,079) - (1,036,349)
---------- ---------- ---------- ----------
Pro forma net income $ 416,320 $ 1,127,842 $ 939,424 $ 1,620,957
---------- ---------- ---------- ----------
PRO FORMA NET INCOME
PER COMMON SHARE $ .02 $ .05 $ .04 $ .07
========== ============ ========== ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 24,456,107 21,831,180 24,461,140 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
SIX MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
------ ------
(UNAUDITED)
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 939,424 $ 1,620,957
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 907,988 1,472,690
Proforma income taxes - 1,036,349
Deferred income tax provision (205,697) -
Gain on sale of property and equipment (24,685) -
Minority interests (80,188) 488,548
Changes in operating assets and liabilities:
Accounts receivable (355,645) (974,209)
Inventories 42,749 1,433
Preproduction costs (1,207,377) (162,419)
Advances and temporary deposits (2,548,564) (788,432)
Other current assets 231,130 488,312
Deferred costs (35,886) (219,698)
Accounts payable 1,171,166 370,035
Accrued liabilities (329,814) (470,133)
Show deposits 250,000 -
Advance ticket sales 1,212,027 (1,471,640)
------------- -------------
Net cash provided (used) by operating
activities (33,372) 1,391,793
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,630) (93,020)
Proceed from sale of assets 143,500 -
Investments in partnerships (2,735,325) (453,820)
Payments from affiliates 3,213 455,688
Intangible assets 25,392 (71,829)
------------- -------------
Net cash used in investing activities (2,625,850) (162,981)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 375,000 879,905
Repayment of debt (290,755) (326,989)
Distributions to minority interests in excess
of contributions by minority interests 122,722 (1,358,034)
Stock registration costs (91,148) -
Distributions (175,115) (610,003)
------------- -------------
Net cash used in financing activities (59,296) (1,415,121)
------------- -------------
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
SIX MONTHS ENDED JUNE 30,
------------------------------
1997 1996
--------- ---------
(UNAUDITED)
------------------------------
Net decrease in cash and cash equivalents $ (2,718,518) $ (186,309)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,367,179 5,097,588
------------- -------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 3,648,661 $ 4,911,279
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 312,032 $ 114,385
============== ============
Income taxes $ 997,105 $ -
============== ===========
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
(UNAUDITED)
(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 Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(2) ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
June 30, December 31,
1997 1996
----------- -------------
Accrued royalties $ - $ 574,103
Settlement agreement 375,000 -
Accounting expenses 41,750 -
Payroll-related accruals 114,533 190,495
Show expenses 152,456 -
Transportation 30,000 -
Other - 278,955
----------- ------------
Total accrued liabilities $ 713,739 $ 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.
The Company filed a complaint against a former financial advisor for rescission,
fraud and breach of fiduciary duty in connection with a consulting agreement.
The individual filed a counter claim and seeks damages relating to his
involvement in the private placement of the Company. See Note 6.
8
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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. In 1997, the Company granted options to purchase an aggregate
of the following options:
OPTIONS EXERCISE PRICE
------- --------------
Balance, December 31, 1996 216,500 $2.50 - $3.50
Grants 234,000 $2.62 - $3.56
Exercises - -
Cancellations - -
------------- -------------
Balance, June 30, 1997 450,500 $2.62 - $3.56
============= =============
The Company applies APB 25 and its related interpretations in accounting for
options granted to employees. Accordingly, no compensation cost has been
recognized related to such grants. Had compensation cost for the Company's stock
options been based on fair value at the grant dates for awards granted,
consistent with the provisions of SFAS 123, the Company's 1997 pro forma net
income and pro forma income per share would have been reduced to the amounts
indicated below:
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------ ----------------
Pro forma net income As reported $416,320 $939,424
======== ========
Pro forma for the impact of SFAS 123 $338,812 $884,407
======== ========
Pro forma income per share As reported $ .02 $ .04
======== ========
Pro forma for the impact of SFAS 123 $ .02 $ .04
======== ========
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: expected
volatility of 25%, risk-free interest rate of 6.5%, expected dividends of $0 and
expected terms of 3 years.
9
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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.
(6) SUBSEQUENT EVENTS:
On July 21, 1997, the Company settled a lawsuit with KAS Enterprises,
Incorporated, which represents Former Olympic Gymnast Kerri Strug. Both actions
filed in this case, the one by KAS in the United States Federal District court
for the District of Arizona and the one by the Company in the United States
Federal District Court for the Southern District of Florida, will be dismissed
with prejudice pending the complete execution by the parties of all of the
requisite settlement documents. The terms of the lawsuit remain confidential
pursuant to an agreement between the parties. The Company believes that it
obtained a favorable settlement of the matter which will not have a material
adverse effect to the Company's financial position. All amounts under the
settlement have been accrued.
On March 25, 1997, the Company entered into a settlement agreement with a former
financial advisor concluding and dismissing all claims. See Note 3. Pursuant to
the settlement agreement, the Company agreed to issue to the financial advisor
500,000 shares of the Company's Common Stock valued at the market price as of
the date of the settlement agreement in exchange for the advisor's note payable.
The note will be secured by the shares of stock acquired. The settlement
agreement has been executed by the parties and is subject to the preparation and
execution of definitive documents embodying the terms of the settlement. The
Company expects the matter to be resolved in the near future with no material
adverse effect to the Company's financial position.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1996
Revenues decreased by $5.1 million to $20.6 million in the three months
ended June 30, 1997, from $25.7 million in the three months ended June 30, 1996,
primarily as a result of a significant decrease in promotion revenue, offset by
increases in production, merchandising and other revenue as discussed below.
Production revenues increased by $0.6 million, or 6.6%, to $9.2 million
during the three months ended June 30, 1997 from $8.6 million in the
corresponding period of 1996, largely as a result of the Company's 1997
production of David Copperfield in South America offset in part by a reduction
in production revenues from "Jesus Christ Superstar"and "Hello Dolly!" which
ended their runs in January and February of 1997, respectively.
Promotion revenues decreased by $8.0 million or 49.4%, to $8.2 million
during the three months ended June 30, 1997 from $16.2 million in the
corresponding period of 1996. The decrease was due to the promotion of Phantom
of the Opera during the second quarter of 1996 which did not run in 1997, offset
in part by the commencement in September 1996 of concert promotion activity.
Merchandising revenues increased by $0.9 million to $1.4 million in the
three months ended June 30, 1997 from $0.5 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 merchandising of "Annie" on Broadway, as
well as, the Company's handling of, in the aggregate, 43 more performance weeks
in the second quarter of 1997 compared to the corresponding period in 1996.
Other revenues increased by $1.4 million to $1.8 million in the three
months ended June 30, 1997 from $0.4 million in the corresponding period of 1996
largely as a result of the Company's concert division's receipt of $1.1 million
in sponsorship income from the Skoal "R.O.A.R." tour in 1997 and increased
transportation revenues, offset partially by the Company's inability to continue
to consolidate gross revenues from the Booking Agency, in which the Company had
formerly owned a 100% interest. As of January 1, 1997, the Booking Agency's
operations ceased to be consolidated with the Company's operations due to a
decrease in the Company's ownership interest in the Booking Agency to 33.3%.
Operating expenses decreased by $3.1 million, or 13.2%, to $20.5 million
in the three months ended June 30, 1997 from $23.6 million in the corresponding
period of 1996, primarily as result of decreases in promotion expenses offset by
increases in production expenses, salaries, wages and benefits, cost of goods
sold and general and administrative expenses as discussed below.
11
Production expenses increased by $0.7 million, or 9.9%, to $8.0 million in
the three months ended June 30, 1997 from $7.3 million in the corresponding
period in 1996, primarily because of the Company's production in 1997 of David
Copperfield in South America offset by the cessation of certain productions
during the first quarter of 1997 as discussed above. As a percentage of
production revenues, production expenses increased to 87.6% for the three months
ended June 30, 1997 from 85.0% in the corresponding period in 1996.
Promotion expenses decreased $6.8 million, or 47.6%, to $7.5 million in
the three months ended June 30, 1997 from $14.3 million in the corresponding
period in 1996, primarily as a result of the changes in promotion revenues
discussed above. As a percentage of promotion revenues, promotion expenses
increased to 91.1% for three month period ended June 30, 1997 from 88.1% in the
corresponding period in 1996.
Salaries, wages and benefits increased by $0.7 million, or 83.1%, to $1.6
million in the three month period ended June 30, 1997 from $0.9 million during
the corresponding period in 1996, primarily as a result of the hiring of four
additional employees in the merchandising division, and 17 additional employees
in the concerts division, three additional employees at corporate headquarters
and the commencement of a sports management division employing two employees,
offset in part by the non-consolidation of salaries from the newly merged
booking operations. The Company expanded the executive talent base to expand the
Company's existing operations as well as creating new divisions discussed below.
As a percentage of total revenues, salaries, wages and benefits increased to
7.7% for the three months period ended June 30, 1997 from 3.4% 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 decreased to 61.4% in the three
months ended June 30, 1997 from 92.2% in the corresponding period in 1996,
primarily as a result of the amount of merchandise write downs in 1996 due to
overstocked merchandise on shows that ended their runs in the second quarter of
1996.
General and administrative expenses increased by $1.8 million to $2.5
million in the three months ended June 30, 1997 from $0.7 million in the
corresponding period of 1996. The primary reason for the increase was the
commencement of the Concerts, Sports, Sponsorship, Talent Management and
International divisions in the third quarter of 1996, second quarter of 1997,
the first quarter of 1997, second quarter of 1997 and the first quarter of 1997,
respectively, as well as a one time write down of bad receivables and
investments of $1.2 million and settlement of litigation. Management reviewed
the collectibility of its receivables and certain investments and decided to
write off the receivables over ninety days old and investments which had been
deemed uncollectible. The Company is investing considerable time and dollars
reinforcing the Company's established operations as well as creating the new
divisions discussed above. Also included are expenses associated with being a
public company that were not present in the second quarter of 1996. As a
percentage of total revenues, general and administrative expenses increased to
12.4% in the three month period ended June 30, 1997 from 2.9% in the
corresponding period of 1996.
Interest income decreased to $29,849 in the three month periods ended June
30, 1997 from $46,076 in the corresponding period of 1996 due to a decrease in
cash balances.
12
Interest expense increased by $90,216 to $153,939 in the three months
ended June 30, 1997 from $63,723 in the corresponding period of 1996. The
primary reason for the increase was attributable to the issuance of $5.2 million
in debt during the third quarter of 1996 which was still outstanding at June 30,
1997, offset by a decrease in outstanding balances under the Company's lines of
credit.
Income from investments in partnerships increased by $0.5 million, to $0.5
million in the three months ended June 30, 1997 from a loss of ($6,267) in the
corresponding period of 1996, largely as a result of net profit earned from the
productions of "A Chorus Line" and "Singin' in the Rain" in which the Company
owns 12.5% and 50% interests, respectively, and the decrease from a 100%
interest to a 33.3% interest owned by the Company in the Booking Agency as
discussed above.
Minority interests decreased by $0.4 million to $0.3 million in the three
months period ended June 30, 1997, from ($0.1) million in the corresponding
period of 1996 due primarily to the closing of the productions of "Jesus Christ
Superstar" and "Hello Dolly!," as discussed above, as well as the Company's 50%
minority interest in the $0.8 million in losses accrued in the Concerts division
during the three month periods ended June 30, 1997.
As a result of the foregoing, income before provision for income taxes and
proforma taxes decreased by $1.2 million to $0.7 million in the three months
ended June 30, 1997 from $1.9 million in the corresponding period of 1996 and
the Company posted net income of $0.4 million in the three months ended June 30,
1997 and $1.1 million in the corresponding period of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1996
Revenues decreased by $5.1 million to $34.7 million in the six months
ended June 30, 1997, from $39.8 million in the corresponding period of 1996,
primarily as a result of a significant decrease in production and promotion
revenue, offset by an increase in merchandising and other revenue as discussed
below.
Production revenues decreased by $2.1 million, or 12.4%, to $14.7 million
during the six months ended June 30, 1997 from $16.8 million in the
corresponding period of 1996, largely as a result of a reduction in production
revenues from "Jesus Christ Superstar" and "Hello Dolly!" which ended their runs
in January and February of 1997, respectively, partially offset by the Company's
1997 production of David Copperfield in South America.
Promotion revenues decreased by $6.7 million or 31.6%, to $14.4 million
during the six months ended June 30, 1997 from $21.1 million in the
corresponding period of 1996. The decrease was due to the nonrecurring promotion
of the Phantom of the Opera during the second quarter of 1996 offset in part by
the commencement by the Company of concert promotion activity.
Merchandising revenues increased by $1.4 million to $2.5 million in the
six months ended June 30, 1997 from $1.1 million in the corresponding period of
1996. The increase in 1997 is due largely to the merchandising of "Annie" on
Broadway, as well as the Company's handling of, in the aggregate, 73 more
performance weeks in the six month period ended June 30, 1997 compared to the
corresponding period in 1996.
13
Other revenues increased by $2.2 million to $3.0 million in the six months
ended June 30, 1997 from $0.8 million in the corresponding period of 1996
largely as a result of the Company's concert division receiving $1.7 million in
sponsorship income from the Skoal "R.O.A.R." tour in 1997 and the Company's
transportation division earning additional revenue resulting from the Company's
expansion into the Concert business, 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.
Operating expenses decreased by $2.8 million, or 7.8%, to $33.7 million
for the six months ended June 30, 1997 from $36.5 million in the corresponding
period of 1996, primarily because of decreases in promotion, and production
expenses partially offset by increased salaries, wages and benefits, costs of
goods sold and general and other operating expenses as discussed below.
Production expenses decreased by $2.3 million, or 14.9%, to $13.1 million
in the six months ended June 30, 1997, from $15.4 million in the corresponding
period in 1996, primarily because of the cessation in 1997 of certain
productions as discussed above. As a percentage of production revenues,
production expenses decreased to 88.9% for the six months ended June 30, 1997
from 91.6% in the corresponding period in 1996.
Promotion expenses decreased $4.7 million, or 27.1%, to $12.6 million in
the six months ended June 30, 1997 from $17.3 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 87.6% for six month period ended June 30, 1997 from 82.2%
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 $1.0 million, or 71.1%, to $2.5
million in the six month period ended June 30, 1997 from $1.5 million during the
corresponding period in 1996, primarily as a result of the hiring of four
additional employees in the merchandising division, and 17 additional employees
in the concerts division, three additional employees at corporate headquarters
and the commencement of a sports management division employing two employees,
offset in part by the non-consolidation of salaries from the newly merged
booking operations. The Company expanded the executive talent base to expand the
Company's existing operations as well as creating new divisions discussed below.
As a percentage of total revenues, salaries, wages and benefits increased to
7.2% for the six months period ended June 30, 1997 from 3.4% in the
corresponding period in 1996.
As a percentage of merchandising revenue, the costs of goods sold
decreased to 68.9% in the six months ended June 30, 1997 from 77.3% in the
corresponding period in 1996, primarily because of the amount of merchandise
write downs in 1996 due to overstocked merchandise on shows that ended their
runs in the second quarter of 1996.
14
General and administrative expenses increased by $2.2 million to $3.7
million in the six months ended June 30, 1997 from $1.5 million in the
corresponding period of 1996. The primary reason for the increase was the
commencement of the Concerts, Sports, Talent Management and International
divisions in the third quarter of 1996, second quarter of 1997, second quarter
of 1997 and the first quarter of 1997, respectively, and a one time write down
of bad receivables, investments and settlement agreement of $1.2 million.
Management reviewed the collectibility of its receivables and certain
investments and decided to write off receivables over ninety days old and
investments which have been deemed uncollectible. The Company is investing
considerable time and dollars reinforcing the Company's established operations
as well as creating the new divisions discussed above. Also included are
expenses associated with being a public company that were not present in the
second quarter of 1996. As a percentage of total revenues, general and
administrative expenses increased to 10.8% in the six month period ended June
30, 1997 from 3.8% in the corresponding period of 1996.
Interest income remained relatively constant at $0.1 million in the six
month periods ended June 30, 1997 and 1996.
Interest expense increased by $107,579 to $312,032 in the six months ended
June 30, 1997 from $204,453 in the corresponding period of 1996. The primary
reason for the increase was attributable to the issuance of $5.2 million in debt
during the third quarter of 1996 which was still outstanding at June 30, 1997,
offset by a decrease in outstanding balances under the Company's lines of
credit.
Income from investments in partnerships increased by $0.7 million, to $0.7
million in the six months ended June 30, 1997 from $27,165 in the corresponding
period of 1996, largely as a result of revenue earned from the commencement of
the productions of "A Chorus Line" and "Singin' in the Rain" in which the
Company owns 12.5% and 50% interests, respectively, and the 33.3% interest owned
by the Company in the Booking Agency as discussed above.
Minority interests decreased by $0.6 million to $80,188 in the six months
period ended June 30, 1997 from ($0.5) million in the corresponding prior period
1996 due primarily to the closing of the productions of " Jesus Christ
Superstar" and "Hello Dolly!, and the Concerts divisions discussed above.
As a result of the foregoing, income before provision for income taxes and
proforma taxes decreased by $1.2 million to $1.5 million in the six months ended
June 30, 1997 from $2.7 million in the corresponding period of 1996 and the
Company posted net income of $0.9 million in the six months ended June 30, 1997
and $1.6 million in the corresponding period of 1996.
LIQUIDITY AND SOURCES OF CAPITAL
At June 30, 1997, the Company had working capital of $4.6 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.
15
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 $5.0 million with interest at the variable daily rate based
on libor. The Credit line is collateralized by substantially all of the
Company's assets. At June 30, 1997, $375,000 was outstanding under the Credit
line with $750,000 outstanding as a letter of credit. The Company's remaining
indebtedness consists of $1.0 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 used by operating activities was $33,372 during the six months
ended June 30, 1997 compared to a net cash provision of $1.4 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 from the
commencement of the concerts and international divisions offset by the increase
in accounts payable and advanced ticket sales for shows that will commence the
third quarter of 1997. The net cash provided by operating activities in 1996
related primarily to the decrease in accounts payable and net receipts
collected.
Net cash used by investing activities totaled $2.6 million during the six
months ended June 30, 1997 as compared to $0.2 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,investments into intangible assets and theatrical
productions offset by payments to affiliates.
Net cash used in financing activities totaled $0.1 million during the six
months ended June 30, 1997 as compared to $1.4 million in the corresponding
period of 1996. The cash used in financing activities for 1997 related primarily
to the repayment of bus loans, final S-Corp distribution payments made to former
shareholders of Space Agency, Inc. and distributions made to minority partners
of the shows "Deathtrap" and "Hello Dolly!" The 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" as
well as S-Corp distributions made to former shareholders of the Company's
predecessors in interest.
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.
16
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
The Company's annual meeting of stockholders was held on June 19,
1997. At the meeting each of the current members of the Board of
Directors, Brad Krassner, Joe Marsh, Lee Marshall, John W.
Ballard, H. Yale Gutnick and Ronald J. Korn, were reelected for
additional one-year terms. There were 17,445,027 votes cast in
favor of the reelection of the directors and zero votes cast in
opposition to the reelection of the directors.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.11 Credit Agreement, dated as of May 29, 1997 by and among
the Company, Touring Artists Group, Inc. (Florida),
Touring Artists Group, Inc. (Ohio), Magicspace
Corporation, Diamond Bullet Merchandising, Inc., Magic
Promotion, Inc., Magicworks Entertainment
International, Inc., Performing Arts Management of
North Miami, Inc., Magic Concert Promotions, Inc.,
Magicworks Sports Management, Inc. And Nations Bank,
N.A. (South)
Exhibit 11.0 Statement Regarding Computation of Earnings Per Share
Exhibit 27.0 Financial Data Schedule
17
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
18
EXHIBIT INDEX
Exhibit Page
- ------- -----
Exhibit 10.11 Credit Agreement, dated as of May 29, 1997 by and among
the Company, Touring Artists Group, Inc. (Florida),
Touring Artists Group, Inc. (Ohio), Magicspace
Corporation, Diamond Bullet Merchandising, Inc., Magic
Promotion, Inc., Magicworks Entertainment
International, Inc., Performing Arts Management of
North Miami, Inc., Magic Concert Promotions, Inc.,
Magicworks Sports Management, Inc. And Nations Bank,
N.A. (South)
Exhibit 11.0 Statement Regarding Computation of Earnings Per Share
Exhibit 27.0 Financial Data Schedule